Final

Question 1

Abstinence Theory of Profit

Answer 1

Nassau William Senior
States that money used for lending purposes is the money not used for consumption. Basically, earning interest by abstaining from spending makes the funds possible and available for borrowers. Explains the interest return to capitalists.

Question 2

American institutionalism

Answer 2

Thorstein Veblen (tugwell,Clark, Mitchell)
20s and 30s
Part of a broader process of cultural development
Useful for developing countries
Laid foundation for institutional economics
Critiqued traditional static economic theory.

Question 3

Cardinal Utility

Answer 3

Utility is measurable by cardinal or qualitative numbers.
Not possible so less realistic
Neo classical economists (Alfred Marshall)
Assumptions 1) utility is quantifiable, the consumer is rational, utility is additive, and marginal utility of money remains the same.

Question 4

Ceteris Paribus

Answer 4

All other things equal
Used for analyzing a particular aspect of the economy.
Impossible to theorize about effects of one factor without this.
Example
Petrus Olivi 1295

Question 5

Conspicuous Consumption

Answer 5

Thorstein Veblen 1899
Expenditure or consumption of luxuries on lavish items in an attempt to enhance one’s prestige
Examples

Question 6

Consumer surplus

Answer 6

Measurement of consumer benefits
Price is less the what they’re willing to pay
Developed 1844 to measure public goods
(Based on theory of marginal utility)
Disney example

Question 7

Dialectic Materialism

Answer 7

Came to mean Marxist philosophy in 1930s
Asserts the primacy of matter over consciousness. Material conditions of existence over intellectual life.
Belief that events result from social conflict and are a series of contradictions and their solutions.(MATERIAL NEEDS) Marx- matter over reason
1: law of unity and conflict of opposites
2. Law of transition of quantity into quality
3. The law of negation

Question 8

Equimarginal principle

Answer 8

Consumers will choose a combination of goods to maximize their total utility. MU of A/ price of A= MU of B/ price of B
Example 2 and 4
1.consumer income is fixed
2.prices are fixed
3. Preferences are fixed
4. Consumers can perform utility calculations

Question 9

Gossen’s First Law

Answer 9

Law of diminishing marginal utility
Car example
German economist

Question 10

Hegelian Dialectics

Answer 10

Georg Wilhelmina Hegel
German
Thesis+ antithesis= synthesis
Always in motion to find truth

Question 11

Historical Materialism

Answer 11

Engels and Marx
Tangible world influences intangible
Opposite of idealism
The history of all hitherto existing society is the history of class struggle
Feudal underestimated merchants

Question 12

Keynesian Cross

Question 13

Liquidity Trap

Answer 13

Money market- but interest or hold on to cash by looking at interest. Money supply set by central bank. Interest rates fall so low that people want to hold onto cash (think it’ll rise soon)Liquidity trap removes monetary policy . 2008 banks didn loan out money because of low risk options. Keynes

Question 14

Marginal Propensity to Consume

Answer 14

Additional income that is spent
School example
Spending multiplier= 1/mps
Multiplied by spending in nation

Question 15

Money illusion

Answer 15

Keynes and Fischer 1928
Look at money in nominal dollars vs purchasing power
Don’t take inflation into account
Lack of financial education and price stickiness as triggers
Example

Question 16

Multiplier Effect

Answer 16

The greater than proportional increase in national income resulting from an increase in aggregate demand. Decrease in interest rate, businesses borrow more, employing more, household have more income, spend more- based on MPC
Key tenant of Keynesian theory

Question 17

Natura non facit saltum

Answer 17

Nature does not make jumps solutions of the governing equations are continuous and does not preclude their being differentiable
Alfred Marshall 1890 book Principle of Economics

Question 18

New Deals Programs

Answer 18

Programs during the Great Depression by FDR 1930 to restore prosperity. At Ad Admin- farm prog raise process by curtailing production Civ Works Admin- temporary job relief CCC employed young men in rural areas. 3 rs.

Question 19

Organic Composition of Capital

Answer 19

Karl Marx
Alternative to neo classical concepts of factors of production
Ratio of the value of the materials and fixed cost embodied in production of a commodity to the value of the labor power used in making it

Question 20

Partial Equilibrium Analysis

Answer 20

Takes into consideration only effects of a given policy action in the market and the direct effect.
Examines effects of policy only for one good at a time
Alfred Marshall

Question 21

Pecuniary Emulation

Answer 21

Thorstein Veblen
Theory of the leisure class
Exceed someone else’s socio economic status
Aquire wealth to gain status
Individuals buy cultural products conspicuously to imitate higher classes

Question 22

Predatory instincts (Veblen)

Answer 22

Thorstein Veblen

Goal of making oneself better or of higher status to surpass a wealthy persons socio economic status

Question 23

Producer Surplus

Answer 23

The producer selling at a higher price than what they would accept
Area above supple curve and below equilibrium
Example

Question 24

Quasi rent

Answer 24

Alfred Marshall
Temporary economic rent like returns to a supplier or owner and used for a short period of time. Short run purpose used for one purpose. Short run equipment earnings and can provide surplus earnings for temporary period

Question 25

Rate of Surplus Value

Question 26

Reserve Army of Unemployed

Answer 26

Engel came up but Marx theorized
Unemployed and underemployed in capitalist society looking for work
Capitalism tactic to raise productivity

Question 27

Returns to Scale

Question 28

Sabotage Veblen

Answer 28

Businessman’s techniques for profit generation. Co scoops withdrawal of efficiency . Wealthy spent their money to prove claims to succes. Gov was controlled and manipulated by the “captains of industry” and private property rights were used to justify
Waste of resources

Question 29

Tatonnement Process

Answer 29

Leon Walras
Trial and error process where equilibrium prices and stability are reached in competitive markets.
Prices go up in response to excess demand and down in response to excess supply

Question 30

Timelessness of Equilibrium

Answer 30

Joan Robinson
Critic of equilibrium analysis
Against Walrasian economics necessarily misdirected analysis in macroeconomics, capital theory, distribution theory, and value theory

Question 31

Transformation Problem

Answer 31

Marx
Occurs in marketplace
Problem of finding a general role by which to transform the values of commodities on their socially necessary labor content into the competitive prices o the market

Question 32

Utopian socialists

Answer 32

First current of modern socialism and socialist thought as Charles Fourier and Robert Owen.
1800s
Based on belief that social ownership of the means of production can be achieved by voluntary and peaceful surrender of their holdings. Allow owners and workers to live and work communally

Question 33

Walrasian Crier

Answer 33

Leon Walrus simultaneous auction where each agent calculates its demand for the good at every possible price and submits this to an auctioneer. The price is then set so that the total demand across all agents equals the total amount of good. Therefor matches supply and demand perfectly.

Question 34

Nash Equilibrium

Answer 34

John Nash
Concept within game theory where the optimal outcome of the game is where there is no incentive to deviate from the initial strategy. Both players make the optimal move but now consider the moves of their opponent. Prisoners dilemma. 1994 awarded