Mankiw Midterm 1 Flashcards
1
Q
scarcity
A
the limited nature of society’s resources
2
Q
economics
A
the study of how society manages its scarce resources
3
Q
efficiency
A
the property of society getting the most it can from its scarce resources
4
Q
equality
A
the property of distributing economic prosperity uniformly among the members of society
5
Q
opportunity cost
A
whatever must be given up to obtain some item
6
Q
rational people
A
people who systematically and purposefully do the best they can to achieve their objectives
7
Q
marginal change
A
an incremental adjustment to a plan of action
8
Q
incentive
A
something that induces a person to act
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
10
Q
property rights
A
the ability of an individual to own and exercise control over scarce resources
11
Q
market failure
A
a situation in which a market left on its own does not allocate resources efficiently
12
Q
externality
A
the impact of one person’s actions on the well-being of a bystander
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
14
Q
productivity
A
the quantity of goods and services produced from each unit of labor input
15
Q
inflation
A
an increase in the overall level of prices in the economy
16
Q
business cycle
A
fluctuations in economic activity, such as employment and production
17
Q
circular-flow diagram
A
a visual model of the economy that shows how dollars flow through markets among households and firms
18
Q
factors of productions
A
inputs, including labor, land, and capital, that firms produce goods and services
19
Q
markets for goods and services
A
market where households are buyers of goods and services, and firms are sellers
20
Q
markets for the factors of production
A
market where households are sellers of inputs firms use, and firms are buyers
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
22
Q
microeconomics
A
the study of how households and firms make decisions and how they interact in markets
23
Q
macroeconomics
A
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
24
Q
positive economics
A
claims that describe the world as it is
25
normative economics
claims that attempt to prescribe how the world should be
26
market
a group of buyers and sellers of a particular good or service
27
competitive market
a market in which there are many buyers and many sellers so each has a negligible impact on the market price
28
perfectly competitive market
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
29
price taker
buyers and sellers who must accept and cannot individually influence the market price
30
monopoly
a market in which one seller sets the price
31
quantity demanded
the amount of a good that buyers are willing and able to purchase
32
law of demand
the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises
33
demand schedule
a table that shows the relationship between the price of a good and the quantity demanded
34
demand curve
a graph of the relationship between the price of a good (vertical axis) and the quantity demanded (horizontal axis)
35
market demand
the sum of all individual demands for a particular good or service
36
increase in demand
a change that increases the quantity demanded at every price, shifting the demand curve to the right
37
decrease in demand
a change that decreases the quantity demanded at every price, shifting the demand curve to the left
38
normal good
a good for which, other things being equal, an increase in income leads to an increase in demand
39
inferior good
a good for which, other things being equal, an increase in income leads to a decrease in demand (ex. bus rides)
40
subsitutes
two goods for which an increase in the price of one leads to an increase in the demand for the other
41
complements
two goods for which an increase in the price of one leads to a decrease in the demand for the other
42
quantity supplied
the amount of a good that sellers are willing and able to sell
43
law of supply
the claim that, other things being equal, the quantity supplied of a good rises when the price of the good rises
44
supply schedule
a table that shows the relationship between the price of a good and the quantity supplied
45
supply curve
a graph of the relationship between the price of a good and the quantity supplied
46
increase in supply
a change that raises the quantity supplied at every price, shifting the supply curve to the right
47
decrease in supply
a change that reduces the quantity supplied at every price, shifting the supply curve to the left
48
equilibrium
a situation in which the market price has reached the level at which the quantity supplied equals the quantity demanded
49
equilibrium price
the price that balances the quantity supplied and the quantity demanded
50
equilibrium quantity
the quantity supplied and the quantity demanded at the equilibrium price
51
surplus
a situation in which the quantity supplied is greater than the quantity demanded
52
shortage
a situation in which the quantity demanded is greater than the quantity supplied
53
law of supply and demand
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded of that good into balance
54
elasticity
a measure of the responsiveness of the quantity demanded or quantity supplied to a change in one of its determinants
55
price elasticity of demand
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
56
midpoint method
method of calculating elasticities that divides the change in quantity by the average of the initial and final levels
57
elastic
a good whose price elasticity is greater than one
58
inelastic
a good whose price elasticity is less than one
59
unit elasticity
a good whose percentage change in quantity equals its percentage change in price
60
total revenue
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)
61
income elasticity of demand
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
62
cross-price elasticity of demand
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
63
price elasticity of supply
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
64
perfectly inelastic
a situation in which the supply curve is vertical
65
perfectly elastic
a situation in which the supply curve is horizontal
66
total revenue
the amount a firm receives for the sale of its output
67
total cost
the market value of the inputs a firm uses in production
68
profit
total revenue minus total cost
69
explicit costs
input costs that require an outlay of money by the firm
70
implicit costs
input costs that do not require an outlay of money by the firm
71
economic profit
total revenue minus total cost, including both explicit and implicit costs
72
accounting profit
total revenue minus total explicit cost
73
production function
the relationship between the quantity of inputs used to make a good and the quantity of output of that good
74
marginal product
the increase in output that arises from an additional unit of input
75
diminishing marginal product
the property whereby the marginal product of an input declines as the quantity of the input increases
76
total-cost curve
the graph with quantity produced on the horizontal axis and total cost on the vertical axis
77
fixed costs
costs that do not vary with the quantity of output produced
78
variable costs
costs that vary with the quantity of output produced
79
average total cost
the cost of a typical unit of output if total cost is divided evenly by the quantity of output
80
average fixed cost
fixed cost divided by the quantity of output
81
average variable cost
variable cost divided by the quantity of output
82
marginal cost
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
efficient scale
the quantity of output that minimizes average total cost
84
economies of scale
the property whereby long-run average total cost falls as the quantity of output increases
85
diseconomies of scale
the property whereby long-run average total cost rises as the quantity of output increases
86
constant returns to scale
the property whereby long-run average total cost stays the same as the quantity of output changes
87
average revenue
total revenue divided by the quantity sold
88
marginal revenue
the change in total revenue from an additional unit sold
89
shutdown
a short-run decision not to produce anything during a specific period due to current market conditions
90
exit
a long-run decision to leave the market
91
sunk cost
a cost that has already been committed and cannot be recovered
92
gross domestic product (GDP)
the market value of all final goods and services produced within a country in a given period
93
intermediate good
a good that is produced in the production of a different good
94
consumption
spending by households on goods and services, with the exception of purchases of new housing
95
investment
spending on business capital, residential capital, and inventories
96
government purchases
spending on goods and services by local, state, and federal governments
97
business capital
business structures, equipment, and intellectual property products
98
transfer payments
payments not made in exchange for a currently produced good or service; do not count towards GDP
99
net exports
spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports)
100
nominal GDP
the production of goods and services valued at current prices
101
real GDP
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
GDP deflator
a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100
103
inflation rate
the percentage change in some measure of price level from one period to the next
104
recession
a period of time where GDP declines
105
physical capital
the stock of equipment and structures that are used to produce goods and services
106
human capital
the knowledge and skills that workers acquire through education, training, and experience
107
natural resources
the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits
108
technological knowledge
society's best understanding of the best ways to produce goods and services
109
constant returns to scale
property of production functions where increasing each input factor by some k increases production by k as well
110
diminishing returns
the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases
111
catch-up effect
the property whereby countries that start of poor tend to grow more rapidly than countries that start off rich
112
foreign direct investment
a capital investment that is owned and operated by a foreign entity
113
foreign portfolio investment
an investment financed with foreign money but operated by domestic residents
114
brain drain
the emigration of highly educated workers to rich countries
115
inward-oriented policies
policies that aim to increase productivity and living standards by avoiding interaction with the rest of the world
116
outward-oriented policies
policies that integrate a country into the world economy
117
public good
a good that once created, can be used freely by society
118
barter
the exchange of one good or services for another
119
double coincidence of wants
the unlikely occurrence that two people each have a good or service that the other wants
120
money
the set of assets in an economy that people regularly use to buy goods and services
121
medium of exchange
an item that buyers give to sellers when they want to purchase goods and services
122
unit of account
the yardstick people use to post prices and record debts
123
store of value
an item that people can use to transfer purchasing power from the present to the future
124
liquidity
the ease with which an asset can be converted into the economy's medium of exchange
125
wealth
the total of all stores of value
126
commodity money
money that takes the form of a commodity with intrinsic value
127
fiat money
money without intrinsic value that is used as money by government decree
128
money stock
the quantity of money circulating in the economy
129
currency
the paper bills and coins in the hands of the public
130
demand deposits
balances in bank accounts that depositors can access on demand by writing a check
131
Federal Reserve
the central bank of the United States
132
central bank
an institution designed to oversee the banking system and regulate the quantity of money in the economy
133
money supply
the quantity of money available in the economy
134
monetary policy
the setting of the money supply by policymakers in the central bank
135
lender of last resort
a lender to those who cannot borrow anywhere else; the role the Fed serves
136
open-market operation
the purchase and sale of securities in the open market by a central bank
137
reserves
deposits that banks have received but have not loaned out
138
100-percent-reserve banking
a system in which all deposits are held as reserves
139
balance sheet
a statement with a banks assets and liabilities
140
fractional-reserve banking
a banking system in which banks hold only a fraction of deposits as reserves
141
reserve ratio
the fraction of deposits that banks hold as reserves
142
reserve requirement
the minimum amount of reserves that banks must hold, as set by the central bank
143
money multiplier
the amount of money that results from each dollar of reserves; the reciprocal of the reserve ratio
144
bank capital
the resources a bank's owners have put into the institution
145
leverage
the use of borrowed money to supplement existing funds for investment purposes
146
leverage ratio
the ratio of assets to bank capital
147
capital requirement
a government regulation specifying a minimum amount of bank capital
148
credit crunch
a shortage of capital that induces banks to reduce lending
149
discount rate
the interest rate on the loans that the Fed makes to banks
150
reserve requirements
regulations on the minimum amount of reserves that banks must hold against deposits
151
interest on reserves
the interest rate paid to banks on the reserves held in deposit at the Fed
152
federal funds rate
the interest rate at which banks make overnight loans to one another
153
quantity theory of money
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
nominal variables
variables measured in monetary units
155
real variables
variables measured in physical units
156
classical dichotomy
the theoretical separation of nominal variables and real variables
157
relative price
the price of one good in terms of another
158
monetary neutrality
the proposition that changes in the money supply do not affect real variables
159
velocity of money
the rate at which money changes hand
160
quantity equation
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
inflation tax
the revenue the government raises by creating money
162
real interest rate
corrects the nominal interest rate for effect of inflation
163
Fisher effect
the one-for-one adjustment of the nominal interest rate to the inflation rate
164
shoeleather cost
the resources wasted when inflation encourage people to reduce their money holdings
165
menu costs
the costs of changing prices
166
capital gains
the profits made by selling an asset for more than its purchase price
167
logic of markets
channel resources to the most competitive and profitable economic activities
168
logic of governments
exercise authority on behalf of the interest of the public
169
resilient supply chain
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
Stolper-Samuelson trade model
model that says components of production (workers, machinery) are freely mobile across industries
171
Ricardo-Viner trade model
model that says components of production are not mobile across industries; industries that benefit from comparative advantage will support free trade
172
New trade theory
states that industries participate in both exports and imports via intra-industry trade
173
