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84110 Foundations of Political Economy > Mankiw Midterm 1 > Flashcards

Mankiw Midterm 1 Flashcards

1
Q

scarcity

A

the limited nature of society’s resources

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2
Q

economics

A

the study of how society manages its scarce resources

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3
Q

efficiency

A

the property of society getting the most it can from its scarce resources

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4
Q

equality

A

the property of distributing economic prosperity uniformly among the members of society

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5
Q

opportunity cost

A

whatever must be given up to obtain some item

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6
Q

rational people

A

people who systematically and purposefully do the best they can to achieve their objectives

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7
Q

marginal change

A

an incremental adjustment to a plan of action

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8
Q

incentive

A

something that induces a person to act

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9
Q

market economy

A

an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

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10
Q

property rights

A

the ability of an individual to own and exercise control over scarce resources

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11
Q

market failure

A

a situation in which a market left on its own does not allocate resources efficiently

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12
Q

externality

A

the impact of one person’s actions on the well-being of a bystander

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13
Q

market power

A

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices

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14
Q

productivity

A

the quantity of goods and services produced from each unit of labor input

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15
Q

inflation

A

an increase in the overall level of prices in the economy

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16
Q

business cycle

A

fluctuations in economic activity, such as employment and production

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17
Q

circular-flow diagram

A

a visual model of the economy that shows how dollars flow through markets among households and firms

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18
Q

factors of productions

A

inputs, including labor, land, and capital, that firms produce goods and services

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19
Q

markets for goods and services

A

market where households are buyers of goods and services, and firms are sellers

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20
Q

markets for the factors of production

A

market where households are sellers of inputs firms use, and firms are buyers

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21
Q

production possibilities frontier

A

a graph that shows the combinations of output that the economy can possibly produce with the available factors of production and production technology

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22
Q

microeconomics

A

the study of how households and firms make decisions and how they interact in markets

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23
Q

macroeconomics

A

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

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24
Q

positive economics

A

claims that describe the world as it is

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25
Q

normative economics

A

claims that attempt to prescribe how the world should be

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26
Q

market

A

a group of buyers and sellers of a particular good or service

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27
Q

competitive market

A

a market in which there are many buyers and many sellers so each has a negligible impact on the market price

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28
Q

perfectly competitive market

A

a market in which goods offered for sale are all exactly the same and buyers and sellers are so numerous that no single buyer or seller has any influence over the market

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29
Q

price taker

A

buyers and sellers who must accept and cannot individually influence the market price

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30
Q

monopoly

A

a market in which one seller sets the price

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31
Q

quantity demanded

A

the amount of a good that buyers are willing and able to purchase

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32
Q

law of demand

A

the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises

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33
Q

demand schedule

A

a table that shows the relationship between the price of a good and the quantity demanded

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34
Q

demand curve

A

a graph of the relationship between the price of a good (vertical axis) and the quantity demanded (horizontal axis)

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35
Q

market demand

A

the sum of all individual demands for a particular good or service

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36
Q

increase in demand

A

a change that increases the quantity demanded at every price, shifting the demand curve to the right

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37
Q

decrease in demand

A

a change that decreases the quantity demanded at every price, shifting the demand curve to the left

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38
Q

normal good

A

a good for which, other things being equal, an increase in income leads to an increase in demand

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39
Q

inferior good

A

a good for which, other things being equal, an increase in income leads to a decrease in demand (ex. bus rides)

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40
Q

subsitutes

A

two goods for which an increase in the price of one leads to an increase in the demand for the other

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41
Q

complements

A

two goods for which an increase in the price of one leads to a decrease in the demand for the other

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42
Q

quantity supplied

A

the amount of a good that sellers are willing and able to sell

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43
Q

law of supply

A

the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises

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44
Q

supply schedule

A

a table that shows the relationship between the price of a good and the quantity supplied

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45
Q

supply curve

A

a graph of the relationship between the price of a good and the quantity supplied

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46
Q

increase in supply

A

a change that raises the quantity supplied at every price, shifting the supply curve to the right

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47
Q

decrease in supply

A

a change that reduces the quantity supplied at every price, shifting the supply curve to the left

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48
Q

equilibrium

A

a situation in which the market price has reached the level at which the quantity supplied equals the quantity demanded

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49
Q

equilibrium price

A

the price that balances the quantity supplied and the quantity demanded

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50
Q

equilibrium quantity

A

the quantity supplied and the quantity demanded at the equilibrium price

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51
Q

surplus

A

a situation in which the quantity supplied is greater than the quantity demanded

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52
Q

shortage

A

a situation in which the quantity demanded is greater than the quantity supplied

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53
Q

law of supply and demand

A

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded of that good into balance

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54
Q

elasticity

A

a measure of the responsiveness of the quantity demanded or quantity supplied to a change in one of its determinants

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55
Q

price elasticity of demand

A

a measure of how much the quantity demanded of a good responds to a change in its price, calculated as the percentage change in quantity demanded divided by the percentage change in price

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56
Q

midpoint method

A

method of calculating elasticities that divides the change in quantity by the average of the initial and final levels

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57
Q

elastic

A

a good whose price elasticity is greater than one

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58
Q

inelastic

A

a good whose price elasticity is less than one

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59
Q

unit elasticity

A

a good whose percentage change in quantity equals its percentage change in price

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60
Q

total revenue

A

the amount paid by buyers and received by the sellers of a good, calculated as the price of the good (P) times the quantity sold (Q)

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61
Q

income elasticity of demand

A

a measure of how much the quantity demanded of a good responds to a change in consumers’ income, calculated as the percentage change in quantity demanded divided by the percentage change in income

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62
Q

cross-price elasticity of demand

A

a measure of how much the quantity demanded of one good responds to a change in the price of another good, calculated as the percentage change in the quantity demanded of the first good divided by the percentage change in the price of the second good

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63
Q

price elasticity of supply

A

a measure of how much the quantity supplied of a good responds to a change in its price, calculated as the percentage change in quantity supplied divided by the percentage change in price

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64
Q

perfectly inelastic

A

a situation in which the supply curve is vertical

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65
Q

perfectly elastic

A

a situation in which the supply curve is horizontal

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66
Q

total revenue

A

the amount a firm receives for the sale of its output

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67
Q

total cost

A

the market value of the inputs a firm uses in production

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68
Q

profit

A

total revenue minus total cost

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69
Q

explicit costs

A

input costs that require an outlay of money by the firm

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70
Q

implicit costs

A

input costs that do not require an outlay of money by the firm

71
Q

economic profit

A

total revenue minus total cost, including both explicit and implicit costs

72
Q

accounting profit

A

total revenue minus total explicit cost

73
Q

production function

A

the relationship between the quantity of inputs used to make a good and the quantity of output of that good

74
Q

marginal product

A

the increase in output that arises from an additional unit of input

75
Q

diminishing marginal product

A

the property whereby the marginal product of an input declines as the quantity of the input increases

76
Q

total-cost curve

A

the graph with quantity produced on the horizontal axis and total cost on the vertical axis

77
Q

fixed costs

A

costs that do not vary with the quantity of output produced

78
Q

variable costs

A

costs that vary with the quantity of output produced

79
Q

average total cost

A

the cost of a typical unit of output if total cost is divided evenly by the quantity of output

80
Q

average fixed cost

A

fixed cost divided by the quantity of output

81
Q

average variable cost

A

variable cost divided by the quantity of output

82
Q

marginal cost

A

the increase in total cost that arises from an extra unit of production, i.e., change in total cost divided by change in quantity

83
Q

efficient scale

A

the quantity of output that minimizes average total cost

84
Q

economies of scale

A

the property whereby long-run average total cost falls as the quantity of output increases

85
Q

diseconomies of scale

A

the property whereby long-run average total cost rises as the quantity of output increases

86
Q

constant returns to scale

A

the property whereby long-run average total cost stays the same as the quantity of output changes

87
Q

average revenue

A

total revenue divided by the quantity sold

88
Q

marginal revenue

A

the change in total revenue from an additional unit sold

89
Q

shutdown

A

a short-run decision not to produce anything during a specific period due to current market conditions

90
Q

exit

A

a long-run decision to leave the market

91
Q

sunk cost

A

a cost that has already been committed and cannot be recovered

92
Q

gross domestic product (GDP)

A

the market value of all final goods and services produced within a country in a given period

93
Q

intermediate good

A

a good that is produced in the production of a different good

94
Q

consumption

A

spending by households on goods and services, with the exception of purchases of new housing

95
Q

investment

A

spending on business capital, residential capital, and inventories

96
Q

government purchases

A

spending on goods and services by local, state, and federal governments

97
Q

business capital

A

business structures, equipment, and intellectual property products

98
Q

transfer payments

A

payments not made in exchange for a currently produced good or service; do not count towards GDP

99
Q

net exports

A

spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)

100
Q

nominal GDP

A

the production of goods and services valued at current prices

101
Q

real GDP

A

the production of goods and services valued at constant prices; shows the change in the economy’s overall production of goods and services over time

102
Q

GDP deflator

A

a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100

103
Q

inflation rate

A

the percentage change in some measure of price level from one period to the next

104
Q

recession

A

a period of time where GDP declines

105
Q

physical capital

A

the stock of equipment and structures that are used to produce goods and services

106
Q

human capital

A

the knowledge and skills that workers acquire through education, training, and experience

107
Q

natural resources

A

the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits

108
Q

technological knowledge

A

society’s best understanding of the best ways to produce goods and services

109
Q

constant returns to scale

A

property of production functions where increasing each input factor by some k increases production by k as well

110
Q

diminishing returns

A

the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases

111
Q

catch-up effect

A

the property whereby countries that start of poor tend to grow more rapidly than countries that start off rich

112
Q

foreign direct investment

A

a capital investment that is owned and operated by a foreign entity

113
Q

foreign portfolio investment

A

an investment financed with foreign money but operated by domestic residents

114
Q

brain drain

A

the emigration of highly educated workers to rich countries

115
Q

inward-oriented policies

A

policies that aim to increase productivity and living standards by avoiding interaction with the rest of the world

116
Q

outward-oriented policies

A

policies that integrate a country into the world economy

117
Q

public good

A

a good that once created, can be used freely by society

118
Q

barter

A

the exchange of one good or services for another

119
Q

double coincidence of wants

A

the unlikely occurrence that two people each have a good or service that the other wants

120
Q

money

A

the set of assets in an economy that people regularly use to buy goods and services

121
Q

medium of exchange

A

an item that buyers give to sellers when they want to purchase goods and services

122
Q

unit of account

A

the yardstick people use to post prices and record debts

123
Q

store of value

A

an item that people can use to transfer purchasing power from the present to the future

124
Q

liquidity

A

the ease with which an asset can be converted into the economy’s medium of exchange

125
Q

wealth

A

the total of all stores of value

126
Q

commodity money

A

money that takes the form of a commodity with intrinsic value

127
Q

fiat money

A

money without intrinsic value that is used as money by government decree

128
Q

money stock

A

the quantity of money circulating in the economy

129
Q

currency

A

the paper bills and coins in the hands of the public

130
Q

demand deposits

A

balances in bank accounts that depositors can access on demand by writing a check

131
Q

Federal Reserve

A

the central bank of the United States

132
Q

central bank

A

an institution designed to oversee the banking system and regulate the quantity of money in the economy

133
Q

money supply

A

the quantity of money available in the economy

134
Q

monetary policy

A

the setting of the money supply by policymakers in the central bank

135
Q

lender of last resort

A

a lender to those who cannot borrow anywhere else; the role the Fed serves

136
Q

open-market operation

A

the purchase and sale of securities in the open market by a central bank

137
Q

reserves

A

deposits that banks have received but have not loaned out

138
Q

100-percent-reserve banking

A

a system in which all deposits are held as reserves

139
Q

balance sheet

A

a statement with a banks assets and liabilities

140
Q

fractional-reserve banking

A

a banking system in which banks hold only a fraction of deposits as reserves

141
Q

reserve ratio

A

the fraction of deposits that banks hold as reserves

142
Q

reserve requirement

A

the minimum amount of reserves that banks must hold, as set by the central bank

143
Q

money multiplier

A

the amount of money that results from each dollar of reserves; the reciprocal of the reserve ratio

144
Q

bank capital

A

the resources a bank’s owners have put into the institution

145
Q

leverage

A

the use of borrowed money to supplement existing funds for investment purposes

146
Q

leverage ratio

A

the ratio of assets to bank capital

147
Q

capital requirement

A

a government regulation specifying a minimum amount of bank capital

148
Q

credit crunch

A

a shortage of capital that induces banks to reduce lending

149
Q

discount rate

A

the interest rate on the loans that the Fed makes to banks

150
Q

reserve requirements

A

regulations on the minimum amount of reserves that banks must hold against deposits

151
Q

interest on reserves

A

the interest rate paid to banks on the reserves held in deposit at the Fed

152
Q

federal funds rate

A

the interest rate at which banks make overnight loans to one another

153
Q

quantity theory of money

A

a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate

154
Q

nominal variables

A

variables measured in monetary units

155
Q

real variables

A

variables measured in physical units

156
Q

classical dichotomy

A

the theoretical separation of nominal variables and real variables

157
Q

relative price

A

the price of one good in terms of another

158
Q

monetary neutrality

A

the proposition that changes in the money supply do not affect real variables

159
Q

velocity of money

A

the rate at which money changes hand

160
Q

quantity equation

A

the equation M (quantity of money) x V (velocity of money) = P x Y (dollar value of economy’s output of goods and services)

161
Q

inflation tax

A

the revenue the government raises by creating money

162
Q

real interest rate

A

corrects the nominal interest rate for effect of inflation

163
Q

Fisher effect

A

the one-for-one adjustment of the nominal interest rate to the inflation rate

164
Q

shoeleather cost

A

the resources wasted when inflation encourage people to reduce their money holdings

165
Q

menu costs

A

the costs of changing prices

166
Q

capital gains

A

the profits made by selling an asset for more than its purchase price

167
Q

logic of markets

A

channel resources to the most competitive and profitable economic activities

168
Q

logic of governments

A

exercise authority on behalf of the interest of the public

169
Q

resilient supply chain

A

buyer-supplier relationships are 1) prepared and can adapt very quickly to unexpected events, 2) production disruptions are minimized (output losses are minimized), and 3) supply chain relationships recover very quickly

170
Q

Stolper-Samuelson trade model

A

model that says components of production (workers, machinery) are freely mobile across industries

171
Q

Ricardo-Viner trade model

A

model that says components of production are not mobile across industries; industries that benefit from comparative advantage will support free trade

172
Q

New trade theory

A

states that industries participate in both exports and imports via intra-industry trade

173
Q
A

84110 Foundations of Political Economy (3 decks)

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