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BEC - Final Exam > Economics (Ninja notes) > Flashcards

Economics (Ninja notes) Flashcards

1
Q

Supply: when the price of an item increases, what happens to the supply?

A

Supply increases, there is a Direct relationship between supply and price

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2
Q

Supply: what happens if a Supply chain changes because of something other than price?

A

The whole supply curve shifts

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3
Q

We at happens when the Supply curve shifts right?

A

Positive Shift
• Supply increases at Each price point
• Higher Equilibrium GDP
• Number of Sellers increase
- Ex: more companies selling “Smartphones
- market becomes flooded
• Government market interference via subsidy
- Grants or tax credits for ‘“wind” farms
• Technology Improvements
- Fast internet makes ecommerce efficient

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4
Q

We at happens when the Supply curve shifts Left ?

A 
Negative Supply Curve Shift
• Supply decreases at each price point
• Lower Equilibrium GDP
• Cost of producing item increases
- Ex: price of gold increases 
- less sold watches are made
• Wars or Crisis
- country that makes rice gets attacked 
- less rice on the market
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5
Q

Demand: we at happens when the price of an item Increases?

A

Demand for it decreases ( Inverse relationship between Price/Demand

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6
Q

Demand changes due to something other than price ?

A

Positive Demand Curve shift

• Demand increases at each price point

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7
Q

What are some examples of what would cause a POSITIVE shift?

A

• Price of Substitute goes up
- Price of Beef goes up then MORE demand for chicken

• Future price expected to increase
- War in MiddleEast Breaks out, people start lining up at Gas Stations

• Market Expands
- people set new free health care plans, Demand at clinics go up

• Expansion - more spending increases Equilibrium GDP

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8
Q

What happens when there is a Negative Demand curve Shift?

A

• Demand decreases at Each price point
• Price of Compliment goods go up
- Ex: ketchup goes up so less beef is purchased

• Boycott

  • Company commits a social blunder
  • Consumers boycott

• Consumer income rises

  • Demand for inferior goods drops as people have more money to spend
  • once people get better jobs they start Eating out at nicer places

• Consumer tastes change
- Fat, Sick, Nearly dead documentary comes out and people start shopping at Whole Foods

• Contraction - less spending decreases equilibrium GDP

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9
Q

Define & Formula: Marginal Propensity to Consume

A

• How much you Spend when income increases

% Change in Spending / % Change in income

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10
Q

Define & Formula: Marginal Propensity to Save

A

• How much you Save when income increases

% Change in Savings / Change in Income

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11
Q

MPC + MPS = 100%

How do you calculate “Multiplier Effect?”

A

[1 / (1 - MPC)] x Change in Spending

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12
Q

What would cause Demand Curve increases? (Shifts Right) as

A
  • Spending by Consumers increases

* Spending by Government increases

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13
Q

Statement: increase in DEMAND ends a up being Larger than the amount of income Spent in the Economy due to the Multiplier effect.

A

One Consumer Spends money
1st step increases income of the business

then biz spends money w/ supplier So their income increases

then the vendor’s Employees’ income increases

Increases in Tax Revenue for Gov.

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14
Q

Formula: Price Elasticity of Demand

A

% Change Quantity Demanded / % Change Price

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15
Q

ELASTIC DEMAND: what happens with each?

  • price and revenue
  • substitutes
  • considered elastic?
  • Ex: Solve: if Demand drops 10% and Price goes up 8%
A
  • Price Up then Revenue Down
  • Price Down then Revenue Up
  • MANY substitutes (luxury items)
  • considered elastic if > 1

10% / 8% = 1.25 then it’s Elastic

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16
Q

INELASTIC DEMAND: what happens with each?

  • price and revenue
  • remember?
  • substitutes
  • considered inelastic?
  • Ex:Solve: Demand drops 5% and Price goes up 10%
A
  • Price Up then Revenue Up
  • Price Down then Revenue Down
  • Remember that “Income = Inelastic”
  • FEW substitutes (gasoline)
  • Considered Inelastic if < 1

5% / 10% = .5 Inelastic

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17
Q

Unitary Demand (explain)

A

Total REVENUE will remain the SAME if the price is INCREASED

Considered Unitary if = 1

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18
Q

Income Elasticity of Demand

A

% of Change Qty. Demand / % of Change Income

  • Normal Goods > 1 (demand increases more than income)
  • Inferior Goods < 1 (demand increases less than income)
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19
Q

Inflation (what is the result of?)

A
  • interest rates increase
  • Reduces the demand for loans
  • Reduces the demand for houses, autos, Etc.
  • Value of bonds and fixed income securities decrease
  • Inferior goods demand increases
  • Foreign goods are more affordable than domestic
  • Demand for domestic goods decrease
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20
Q

Demand - Pull Inflation ?

A

• Overall spending increase

  • Demand increases (shifts right)
  • Market equilibrium price increases
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21
Q

Cost - Push Inflation

A
  • Overall production costs increase
  • Supply decreases (shift left)
  • Market equilibrium price increases
  • Demand - Pull and Cost - Push Inflation BOTH result in market equilibrium price to increase
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22
Q

Formula: Equilibrium Price

A

Qty. Supplied = Qty. Demanded

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23
Q

Formula: Optimal Production

A

Marginal Revenue = Marginal Cost

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24
Q

Price Floor (what does it cause?)

A

Causes a Surplus if above equilibrium price

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25
Q

what is GDP ?

A

annual value of all goods and services produced DOMESTICALLY at current prices by:

  • consumers
  • businesses
  • the Government
  • foreign companies w/ domestic interests
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26
Q

What’s Included / Not Included in GDP?

A

Included - for is company has a U.S. factory

Not Included - US Company has a foreign factory

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27
Q

GDP: Income Approach Includes?

A
  • sole proprietor & Corp. income
  • passive income
  • taxes
  • employee salaries
  • foreign income adjustments
  • depreciation
28
Q

GDP: Expenditure Approach Includes?

A
  • Individual Consumption
  • Private Investment
  • Government Purchases
  • Net Exports
29
Q

Nominal GDP?

A

measures goods / services in current prices

30
Q

GDP Deflator?

A

used to convert GDP to Real GDP

31
Q

Real GDP ?

A

nominal GDP / GDP Deflator x 100

32
Q

Gross National Product?

A

Like GDP, Swaps foreign production
• U.S. Firms overseas are included
• Foreign firms domestically Not included

33
Q

Consumer Price Index

Formula and Explanation

A

[(CPI Current - CPI Last) / CPI Last] x 100

Price of goods relative to an Earlier period of time, which is the Benchmark Year 1=1.0

34
Q

Formula: Disposable Income

A

Personal Income - Personal Taxes

35
Q

Formula: Return to Scale

A

% Increase in Output / % Increase in Input
• > 1 Increasing returns to Scale
• < 1 Decreasing returns to scale

36
Q

Recession

A

GDP Growth negative 2 consecutive quarters

37
Q

Depression

A
  • prolonged severe Recession w/ high unemployment rates

* No requisite period of time for the economy to officially be in a depression (no defined time)

38
Q

What are the Steps in the ECONOMIC Cycle?

A
  1. Peak
  2. Recession
  3. Trough (bottom of U)
  4. Recovery
  5. Expansion
39
Q

Leading Indicators (Economic Cycle)

A

Occur BEFORE a recession or recovery

Ex: Stock market or new housing

40
Q

Lessing Indicators (Economic Cycle)

A

Occur AFTER a recession or recovery

Ex: Prime Interest Rates, Unemployment

41
Q

Coincident Indicators (Economic Cycle)

A

Occur DURING a recession or recovery

Ex: Manufacturing

42
Q

Unemployment (what’s included in Calculation ?)

A

Only people looking for Jobs

43
Q

Cyclical Unemployment

A
  • GDP doesn’t grow last enough to Employ all people who are looking for work
  • People were unemployed in 2010 because there aren’t enough jobs available due to the economy
44
Q

Frictional Unemployment

A
  • People are changing jobs or entering the workforce (NORMAL aspect of Full Employment)
  • Ex: Recent College Graduate is looking for a Job
45
Q

Structural Unemployment

A
  • A worker’s job skills Do NOT match those necessary to get a job (they need Education/ Training)
  • A construction worker wants to work in a office, so they quit their job and get Computer Training
46
Q

What is Unemployment’s relationship to Inflation ?

A

High Unemployment = Low Inflation (vice verse)

47
Q

What is the “Discount Rate?”

A

Rato bank pays to borrow from the Fed

48
Q

What is the “Prime Rate?”

A

Rate Bank charges their Best Customers On Short-Term borrowings

49
Q

What is the “Real Interest Rate?”

A

Inflation-adjusted interest rate

50
Q

What is the “Nominal Rate?”

A

Rate that uses current prices

51
Q

What is the “Risk-free Rate?”

A
  • Rate for a loan w/ 100% certainty of payback (usually results in a low or rate)
  • Ex: U.S. Treasuries
52
Q

Money Supply - M1

A

Currency, Coins, and Deposits

53
Q

Money Supply - M2

A

Highly liquid assets

54
Q

Gov. and Economy - Deficit Spending

A
  • Increased spending levels w/o increased tat revenue
  • Lower taxes w/o decrease in Spending
  • Gable that the Multiplier Effect will takeover and boost economy
55
Q

Gov. and Economy - Government Securities

A

Money Supply can be controlled by the Fed’s buying I selling of government securities

Ex: Gov. BUYS securities, want to Grow economy, this ADDs money (gives banks more to loan = consumers more to spend)

Gov. SELLs securities, takes money out of the economy (slows down inflation)

56
Q

Gov. and Economy - Discount Rate

A

Fed controls “Economy-wide” interest rates by adjusting the discount rate charged to banks

57
Q

International Trade:

A

Tax on imported goods

58
Q

International Trade: Quota

A

Limit on number of imported goods

59
Q

International Trade: Good for Domestic Producers

A
  • Demand Curve shifts RIGHT
  • Fewer substitutes
  • Charge higher prices
60
Q

International Trade: Bad for Foreign Producers

A
  • Demand curve Shifts LEFT
  • Fewer buyers
  • Charge lower prices
61
Q

International Trade: Good for Foreign Consumers

A
  • Supply curve shifts RIGHT

* Goods purchased at Lower prices

62
Q

International Trade: Bad for Domestic Consumers

A
  • Supply curve Shifts LEFT

* Fewer goods bought due to higher prices

63
Q

What are the two types of Accounting Costs?

A
  • Explicit (actual) cost of operating a business

- Implicit costs are opportunity costs

64
Q

What is the formula for Accounting Profit ?

A

Revenue - Accounting Cost

65
Q

What is the formula for Economic Cost ?

A

Explicit + Implicit Costs

66
Q

what is Economic Profit ?

A

Revenue - Economic Cost

BEC - Final Exam (12 decks)

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