Exam 1 Study Guide Flashcards
What is market power?
The ability of a firm to influence the price of a good or service in the market.
What are the features of a perfectly competitive market?
Many buyers and sellers, homogeneous products, free entry and exit, and perfect information.
What is the Law of Demand?
Higher price leads to lower quantity demanded; lower price leads to higher quantity demanded.
What causes a change in quantity demanded?
Movement along the demand curve due to a change in the price of the good.
What is a change in demand?
A shift of the entire demand curve caused by changes in non-price factors.
What are demand shifters?
- Income
- Prices of related goods
- Tastes/preferences
- Expectations
- Number of buyers
- Excise taxes
How does an increase in income affect the demand for normal goods?
Demand for normal goods increases.
How does the price of substitutes affect demand?
As the price of one good increases, the demand for its substitute increases.
What is the Law of Supply?
Higher price leads to higher quantity supplied; lower price leads to lower quantity supplied.
What causes a change in quantity supplied?
Movement along the supply curve due to a change in the price of the good.
What is a change in supply?
A shift of the entire supply curve caused by non-price factors.
What are supply shifters?
- Cost of inputs
- Number of firms in the industry
- Technology
- Expectations about future prices
- Taxes and subsidies
What is the equilibrium price?
The price at which quantity supplied equals quantity demanded.
What is a surplus?
When quantity supplied exceeds quantity demanded at a given price.
What is GDP?
The market value of all final goods and services produced within a country in a given period.
What does GDP stand for?
Gross Domestic Product.
What is the formula for Real GDP?
Real GDP = (Nominal GDP/Price Level) * 100.
What is the GDP deflator?
A measure of the price level calculated as (Nominal GDP/Real GDP) * 100.
What is the inflation rate formula?
Inflation rate = [(GDP deflator in year 2 - GDP deflator in year 1)/ GDP deflator in year 1]*100.
What is the Expenditure Approach to GDP?
GDP = Consumption expenditure + Investment expenditure + Government Purchases + Net Exports.
What are labor market indicators?
- Unemployed
- Labor Force
- Unemployment Rate
- Labor Force Participation Rate
- Employment-population Ratio
What defines a person as unemployed?
Individuals without a job, available for work, and actively seeking employment in the past 4 weeks.
What is structural unemployment?
Unemployment caused by changes in the industrial makeup of the economy.
What is frictional unemployment?
Unemployment caused by time delays in matching available jobs and workers.
What is natural unemployment?
The sum of frictional and structural unemployment.
What are leading indicators?
Indicators that help predict what’s coming and usually change before the economy.
What are discouraged workers?
People who want a job but give up looking and are not counted in the labor force.
What is the unemployment rate formula?
(Number of unemployed/labor force) * 100.
True or False: The unemployment rate can continue to increase even after a recession ends.
True.
