Final Flashcards
Definition of economics
Economics study of how market agents (firms,individuals,countries) interact thus how society choses to allocate its scarce resources to the production of goods and services in order satisfy unlimited wants
Definition of Opportunity costs
Opportunity cost of some decision is the value of then next best alternative that you have to give up because of that decision. Opportunity cost is the cost of your next best option
three factors of production/scarce resources
land, labor, & capital
Ceteris Parabius
All else held constant, or, all else held equal
assumptions of PPC
Fixed Resources, Fully employed Resources, Technology is fixed
If assumptions hold of PPC
then, the curve represents the optimal production of the economy. Anything above is unattainable while any point below represents economy working at suboptimal conditions.
gain in resources/loss in resourcs
Curve shifts out/curve shifts in
Not fully employed
A point below the curve. not working at optimal conditions
Loss in tech/ gain in tech
curve shifts in/curve shifts out
Definition of market
A place where buys and sellers get together to determine the price and quantity of goods and services exchanged
Shortage
not enough product to meet demand
Surplus
Supply more product than demand
normal good
things like steak: if your income rises you will demand more of it
interior good
things like baloney: if your income rises, you will demand less of the good
Contemplementary good
“steak sauce”, if the price of one good rises, the demand for complement falls, so if the price of steak rises, the demand for steak sauce drops
Change in quantity demanded is
change along the curve
change in demand
shift of actual curve in or out
Non price factors of Demand
Number of buyers, income, tastes and preferences, price of related goods(Compliment-substitute), Expectations of future price changes
Law of Demand
The inverse relationship between the price of a good and the quantity of goods demanded. This is at a point in time.
why is Demand cruved down
Common sense(the more people that want something the more the price is driven down/Diminishing Marginal Utility/
Law of supply
positive relationship between quantity supplied and price
Non price factors of Supply
Number of sellers/taxes and subsides/ expectations/resource prices/ technology
Substitute good Definition
a good that competes with another good for consumer dollars.
Price floor
Legal minimum seller can be paid for product(minimum wage)
Price Ceiling
Max price for a good
Price Elasticity of demand
The responsiveness (or sensitivity) of consumers to a price change; a measurement of how much quantity changes as a result of change in price.
GDP definition
It is the market value of all final goods and services produced in a nation during a period of time usually a year
Types of Unemployment
Structural, Cyclical, Frictional
Structural unemployment
Employees getting replaced because of skills
Frictional Unemployment
Time inbetween jobs, searching for work
Cyclical Unemployment
Unemployment due to a recession
Producers surplus
the difference between the actual price a producer receives and the minimum acceptable price that consumers would have to pay the producer to make a particular unit of output available
Business cycle indicators
Lagging/Concurrent/Leading
What is lagging Indicator and some examples
Occurs after GDP changes - unemployment
What is concurrent indicator and some examples
Changes as GDP changes - Nonfarm payroll and Industrial production
What is Leading Indicator and some examples
Changes before GDP changes - Money supply, Stock Prices, Interest Rate
what part of the Business cycle are you in If nonfarm payrolls and unemployment are both increasing
Recovery - unemployment is a lagging indicator and nonfarm payroll is concurrent
What part of the Business cycle are you in if Nonfarm payroll and industrial production is decreasing
Recession - Both are concurrent indicators
Nominal Income
The actual number of dollars received over a period of time (salary)
Real Income
The actual number of dollars received adjusted for changes in the CPI
Inflation is
Increase in the general price level of goods and services in an economy
CPI
Measures changes in average price of Consumer Goods
PPI
Measures changes in prices for businesses/manufacturers
Disinflation
inflation but at a slower rate
Deinflation
the decreases of general price level of goods and services in an economy
Runaway inflation can cause
Inflation psychosis, Harm lending contracts, wage price spiral, people go from investment to speculation
Measures of Inflation
CPI,PPI, (x-m)
Demand Pull inflation
Rise in the general price level resulting from an excess of total spending(demand)
Cost pull inflation
an increase in the general price level resulting from an increase in the cost of production
Nominal interest rate =
= real interest rate + inflation
Barter definition
the exchange of a good or service for another good or service
Functions of money
Medium of exchange (no bartering), Unit of account, store of value
Properties of money
Divisible, Scarcity, and uniform (my dollar is the same as your dollar)
Two types of money
Commodity money (gold standard/sterling), Fiat money(nothing backing it up)
Money supply
M1,M2,M3
m1
Cash on hand and checking accounts
m2
m1 + CD’s
m3
m2 + really big deposits >100k
What Federal Reserve does?
Controls money supply, clears checks, regulates banks,Maintains currency, protect consumer, maintian federal government checking accounts and gold
