Exam 1 Flashcards
What is Econ?
The social science that desks with how individuals, house holds, firms and countries make choices under scarcity.
What is scarcity?
People have unlimited wants and limited resources.
Scarcity is why we make choices.
What is micro Econ?
The small picture
What is macro Econ?
Big picture, unemployment inflation, GDP
What’s a positive?
Something that’s stated as a fact and can be proven
What are the factors of production?
Labor, capital, land and entrepreneurship
Labor earns?
A wage
Land earns?
Rent
Entrepreneurship earns?
Profit
Capital earns?
Interest
What’s a trade-off?
Making a decision to do one thing rather than another
What does PPF stand for?
Production possibility frontier curve
What does it mean when a point is attainable on the PPF?
That it is on the frontier
What does it mean when a point is ineffective?
When it’s inside the frontier
Marginal benefit =
Marginal cost
What’s the best point on a PPF?
An allocative efficiency
What’s comparative advantage?
Person with the lowest opportunity cost
What’s opportunity cost?
What you must give up to get something else or the next best alternative.
What’s absolute advantage?
A person or country has an absolute advantage when it can produce more of a good or service.
What’s comparative advantage?
A person or country has a comparative advantage in producing a good or service when they have the lower opportunity cost.
Opportunity cost equation?
Loss
———
Gain
What’s the Law of demand?
There is a negative or inverse relationship between price and quantity demanded.
The demand curve is downward slopping
What’s the market demand?
Is the total amount of goods and services that all consumers are willing and able to purchase at a specific price in the marketplace.
When the demand decreases, what’s happens to price and quantity?
They both decrease
What happens to price and quantity when demand increases ?
They both increase
What are Shift factors for the demand curve?
- A change in income
- A change in taste or preferences
- A change in price of a related good
- A change in population
- A change in the expectations
What factors shift the supply curve?
- Change in the price of inputs
- A change In the price of goods related in production
- A change in technology
- A change in the state of nature
- A change in the number of supplies
- A change in expectations
What are complement goods?
Are goods you can consume together
Example: a patty and a burger bun
A sausage and a sausage bun
What are substitute goods?
Goods you can substitute for or consume in place of a good you normally consume.
Example: chicken over beef
What’s a normal good?
A good you consume more due to an increase in your income
What’s an inferior good?
A good you consume less of when your income increases
What’s the law of supply?
There is a positive relationship between price and quantity supplied.
The supply curve is upward slopping.
What happens to price and quantity when the supply curve moves?
Price and supply are opposites, if one increases the other one decreases.
Supply and quantity are equal. Wherever supply moves quantity moves.
What is equilibrium?
When Quantity is supply and quantity of demand are the same, when the graphs meet.
Qs=Qd
What’s a price ceiling?
When the government believes the price of a good is too high the set a price ceiling.
It Is a legally binding below equilibrium.
Price ceiling = shortage
What is a price floor?
When the government believes that the price of a good is too low it sets a price floor.
A price floor is a legally binding above equilibrium.
Price floors = surplus
What’s the GDP equation?
GDP= C + I + G + ( X-M)
Income approach sums income
What are limitations of GDP?
Black market
Leisure time
Household production
What happens to net exports and GDP when imports increase?
Both net exports and GDP both decrease.
What is real GDP valued at?
Valued at based year prices
What is nominal GDP valued at?
Valued at current year prices
How do you calculate real GDP?
Base year price X current year quantity
How do you calculate nominal GDP?
( price X quantity) for all goods and add them up.
How do you calculate gross investment?
You add net and depreciation
What are the faces of the business cycle?
Expansion - when it’s increasing
Peak - at its highest point
Recession - when it’s decreasing
Trough - at its lowest point
What is the labor force? Who is it made up of?
All employed + the unemployed
What is frictional unemployment?
People who left their job, quit or were fired and are looking for another job in their field.
What is structural unemployment?
A person who lost their job because they were replaced with some type of technology.
What is cyclical unemployment?
A person who lost their job because of lay-offs or the company going out of business.
How do you calculate the unemployment rate ?
The number of unemployment
————————————— X 100
The labor force
How do you calculate the labor force participation rate?
Labor force
————————————— X 100
The working age population
How do you calculate the employment to population ratio?
Number of employed
——————————— X 100
Working age population
What’s the definition of inflation?
An increase in the general price level
How do you calculate the CPI?
Price of the MB ( current year)
————————————— X100
Price of the MB ( base year)
MB stands for market basket
How do you calculate the inflation rate?
CPI this year - CPI last year
———————————— X 100
CPI last year
