First Quiz - Chp 1,10,11,15 Flashcards
Chp.1: Scarcity
The limited nature of society’s resources; society has limited resources and therefore cannot produce all the goods and services people wish to have; allocating scarce resources; resources are scarce
Chp. 1: What is economics the study of?
How society manages its scarce resources
Chp. 1: What is efficiency?
Society is getting the maximum benefits from its scarce resources
Chp. 1: Who is in the best position to allocation the economy’s scarce resources?
Government officials
Chp 1: What are property rights?
The ability of an individual to own and exercise control over scarce resources
Chp 1: What is one of the decisions that a household faces?
Allocating scarce resources
Chp 1: Choice
There are always choices being made; and this is where opportunity cost comes in. No such thing as a free lunch
Chp 1: Opportunity Cost
The opportunity cost of something is what you give up to get it
Chp 1: Where to rational people think?
Rational people think at the margin; marginal change/ marginal cost, is the small incremental adjustment to an existing plan of action.
Chp 1: Externalities
People respond to incentives; this can affect the marginal cost and marginal benefit of something, and can influence a persons choice; impact of one person’s actions on the well being of a bystander; pollution
Chp 10: GDP (Gross Domestic Product)
Measures the total income of everyone in the economy; measures the total expenditure on the economy’s output of goods and services
Chp 10: In GDP, what must income equal to?
Expenditure; it is also equal to the total wages, rent, and profit paid by firms in the market for the factors of production
Chp 10: Gross Domestic Product Continued
-Market value of all final goods and services
- Produced within a country
-In a given period of time
- All items produced in the economy (AND SOLD LEGALLY)
-Produced and consumed at home
-includes tangible + intangible services
- goods + services currently produced
Chp 10: The equation: Y = C + I + G + NX
Y= GDP
C= Consumption
I = investment
G= government purchases
NX= net exports
Chp 10: C = Consumption
Spending by households goods and services
* durable + nondurable
*services: intangible, spending on ed.
Exception: PURCHASES OF NEW HOUSING
Chp 10: I = Investment
Purchase of (capital) goods that will be used to produce other goods and services in the future
i.e business (business structures, equipment, intellectual property), Residential (landlord’s apartment building; a homeowner’s personal residence), inventory accumulation
Chp. 10: G = Government Purchases
Gov. consumption expenditure and gross investment. Spending on goods and services. By local, state, and federal governments. DOES NOT INCLUDE TRANSFER PAYMENTS (food stamps, etc.)
Chp. 10: NX = Net Exports
Exports: spending on domestically produced goods by foreigners
Imports: Spending on foreign goods by domestic residents
Chp 10: Circular flow model
Households buy goods and services from firms, and firms use their revenue from sales to pay wages to workers, rent to landowners, and profit to firm owners.
Circular flow model
Households buy goods and services from firms, and firms use their revenue from sales to pay wages to workers, rent to landowners, and profit to firm owners.
Chp 10: Nominal GDP
production of goods and services valued at current prices
Chp 10: Real GDP
production of goods and services valued at constant prices, designated one year as base year and is not affected by changes in price
Chp 10: What is the case for nominal GDP for the base year?
Nominal GDP will be equal to real GDP in the base year
Chp 10: Factors of production
labor, land, and capital (buildings and machines); households own all of the factors of production
Chp 10: Problems with GDP
- GDP does not directly measure those things that make life worthwhile, but it does measure our ability to obtain many of the inputs for a worthwhile life.
- omits leisure
- excludes the value of things that take place outside the market
- examples: childcare at home by parents is not included in GDP, a meal prepared by a chef for her family
does not include the quality of environment - says nothing about the distribution of income
Chp 11: CPI (Consumer Price Index)
A measure of the overall cost of the goods and services bought by a typical consumer; it is a price index that measure the price level and thus determines the size of the inflation correction.
Chp 11: Calculating the CPI
- Fixing the basket
- Find the prices
- Compute basket’s cost
- Choose a base year and compute the index
CPI = ((price of basket of goods and services in current year)/(price of basket in base year)) x 100
- Compute the inflation rate
inflation rate in year 2 = ((CPI in year 2 - CPI in year 1)/ (CPI in year 1)) x 100
Chp 11: Inflation/ inflation rate
Economy’s overall price level is rising; percentage change in some measure of the price level from one period to the next
Chp 11: GDP Deflator
Measures the current level of prices relative to the level of prices in the base year. Can be used to take inflation out of nominal GDP; ratio of nominal GDP/ Real GDP
Chp 11: How do you bring old dollars into today’s money?
amount in today’s dollars = amount in year T dollars x (price level today/ price level in year T)
Chp. 11: Problems with Inflation?
Chp 15: Labor Force
Employed (paid employees, self-employed, and unpaid workers in a family business) + Unemployed (people not working who have looked for work during pervious 4 weeks
Chp 15: Adult population
Employed + Unemployed + everyone else
Chp 15: Who is not in the labor force?
Anyone who is not employed (not categorized as employed or unemployed) and hasn’t been looking
Who is not in the labor force?
Anyone who is not employed (not categorized as employed or unemployed) and hasn’t been looking
Chp 15: Unemployment Rate (“U-rate”):
% of the labor force that is unemployed
U-rate = 100 x (# of unemployed/labor force)
Chp 15: Labor Force Participation Rate (LFPR):
% of the adult population that is in the labor force
LFPR = 100 x (LF/Adult Pop)
Chp 15: What is the U-rate not a perfect indicator of? Why?
-joblessness; it excludes discouraged workers
-it does not distinguish between full-time and part-time work, or people working part time because full-time jobs not available.
-some people misreport their work status in the BLS survey
Chp 15: Structural Unemployment
- Occurs when there are fewer jobs than workers
- Usually longer-term
Cap 15: Frictional Unemployment
- occurs when workers spend time searching for the jobs that best suit their skills and tastes
- short-term for most workers
Chp 15: Cyclical unemployment
The deviation of unemployment from its natural rate; associated with business cycles
Chp 15: Natural rate of unemployment
the normal rate of unemployment around which the cyclical unemployment rate fluctuates
Chp 15: Sectoral shifts
Changes in the composition of demand across industries or regions of the country
Chp 15: Unemployment Insurance
- A govt. program that partially protects worker’s incomes when they become unemployed
- People respond to incentives
Chp 15: Business Cycles
Expansion, peak, recession, depression, trough <– all parts of a business cycle
