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ECON I > Midter, 2023-2 > Flashcards

Midter, 2023-2 Flashcards

1
Q

GDP

A

It’s a measure of a country’s economic productivity.
It measures the monetary value of final goods and services produced in a country over a given period of time (quarterly, yearly etc.).

Per cc is GDP / population

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2
Q

Esterlin Paradox

A

Demonstrates that life satisfaction does rise with average income both among and within nations but it is only up to a point. Beyond that point the marginal gain in happiness doesn’t increase.

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3
Q

Approaches to measure GDP

A
  • Output Method: Total value of what’s produced
  • Income method: Sum of gross profits of companies, the self employed, and employees’ wages
  • Expenditure Method: Total spending on goods and services

Remember that all method must add to the same value.

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4
Q

Capitalism

A

Capitalism⁠is aneconomic system⁠characterized by a particular combination of:
1. Private Property
2. Markets
3. Firms

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5
Q

How does capitalism lead to growth in living standards?

A
  • Technology: It is a process that takes a set of inputs and creates an output. Example: cake
  • Specialization: Focusing on a limited range of activities
    • Learnind by doing
    • Difference in ability
    • Economies of scale
    • Task juggling
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6
Q

Absolute Advantage

A

When a producer can provide a good or service in greater quantity for the same cost, or the same quantity at a lower cost, than its competitors.

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7
Q

Comparative Advantage

A

A producer’s ability to produce a particular good or service at a lower opportunity cost than its trading partners.

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8
Q

Correlation

A

Measures the strength and
direction of the relationship between X and Y .

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9
Q

Causation

A

Indicates that a change in X directly results in a change in Y .

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10
Q

Law of demand

A

The tendency for quantity demanded to be higher when the price is lower.

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11
Q

Giffen Goods

A

Essential goods with upward sloping demand because, with higher prices, one cannot afford better alternatives
ex: rice in China

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12
Q

Veblen goods

A

Goods with upward sloping
demand due to increased perceived exclusivity at higher prices.
Ex: Rolls Royce

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13
Q

Law of supply

A

Tendency for the quantity produced to increase, when prices increase

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14
Q

Price-taking

A

Sellers and buyers accept the market price as given

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15
Q

Perfect Competition

A

All firms in an industry sell an identical good (product homogeneity)
There are many buyers and sellers, each of whom is small relative to the size of the market (atomistic agents)

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16
Q

Market

A

A setting bringing together potential buyers and sellers

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17
Q

Market equilibrium

A

When the market clears. All unites produced are bought.

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18
Q

Price elasticity of demand

A

A measure of how responsive buyers are to price changes. It measures the percent change in quantity demanded that follows from a percent price change

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19
Q

Cross-price elasticity of demand

A

A measure of how responsive the demand of one good is to price changes of another good. It measures the percent change in quantity demanded that follows from a percent change in the price of another good

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20
Q

Substitute goods

A

Goods that can replace each other in consumption.
Ex: Pepsi- Coca Cola

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21
Q

Complement goods

A

Goods that are consumed together.
Ex: Printers and ink cartridges

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22
Q

Income elasticity of demand

A

A measure of how responsive the demand for a good is to changes in income. It measures the percent change in quantity demanded that follows from a percent change in income.

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23
Q

Normal goods

A

Goods for which higher income leads to a higher demand.

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24
Q

Inferior goods

A

goods for which higher income leads to a lower demand

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25
Q

Price elasticity of supply

A

A measure of how responsive sellers are to price changes. It measures the percent change in quantity supplied that follows from a percent price change

26
Q

Tax on buyers

A

Tax shifts demand curve LEFT

27
Q

Price ceiling

A

A maximum price that sellers can charge.
There’s a shortage of what is produced and what is demanded.
It’s below the equilibrium

28
Q

Prices floors

A

If price floors bind (i.e. are above the equilibrium price), they raise prices but cause surplus

29
Q

Mandate

A

A requirement to buy or sell a minimum amount of a good

30
Q

Quota

A

Limit on the maximum quantity of a good that can be sold.

31
Q

Progressive tax

A

A tax where those with more income tend to pay a higher share of their income in taxes

32
Q

Regressive tax

A

A tax where those with less income tend to pay a higher share of their income on the tax

33
Q

Tax expenditures

A

Special deductions, exemptions, or credits that lower your tax obligations, to encourage you to engage in certain kinds of activities

34
Q

Fiscal policy

A

is the government’s use of spending and tax policies to influence the economy

35
Q

Expansionary fiscal policy

A

Increases government spending & decreases taxes

36
Q

Contractionary fiscal policy

A

Decreases government spending & increases taxes

37
Q

Discretionary fiscal policy

A

Deliberate changes in government spending or taxes to boost or slow the economy on a temporary basis

38
Q

Automatic stabilizers

A

Spending or tax programs that automatically adjust as the economy expands or contracts, without any need for deliberate action.

39
Q

Gross government debt

A

The total accumulated amount of money the government owes

40
Q

Net government debt

A

The debt that the government owes to external parties (domestic and foreign)

41
Q

Seller’s market power

A

The extent to which a seller can charge a higher price without losing many sales to competing businesses

42
Q

Externality

A

A side effect of an activity that affects bystanders whose interests aren’t taken into account

Negative: marginal social costs exceed marginal private costs –> Overproduction

Positive
marginal social benefits exceed marginal private benefits –> underproduction

43
Q

Private information (negative externality)

A

Either the seller or the buyer have relevant information they would not want to disclose

44
Q

Adverse selection (negative externality)

A

The tendency for the mix of goods to be skewed toward more low quality goods when one side of the market can’t observe quality

45
Q

Incomplete contracts (negative externality)

A

Situations where some product conditions are too intricate or costly to specify

46
Q

Irrationality (negative externality)

A

When people make decisions that don’t seem in their best interest

47
Q

Time-inconsistent preferences (negative externality)

A

When individuals value decisions differently over time, leading to potential regret about past choices

48
Q

Deadweight loss (DWL)

A

The difference between the actual level of economic surplus and the largest possible economic surplus (at the efficient quantity)

49
Q

Marginal social cost (MSC)

A

The extra cost paid by the seller and bystanders from one extra unit

50
Q

Marginal social benefit (MSB)

A

The extra benefit enjoyed by the buyer and bystanders from one extra unit

51
Q

Solution to externalities

A
  1. Corrective taxes and subsidies: designed to induce people to take account of the externalities they cause.
  2. Cap-and-trade:
    A quantity regulation implemented by allocating a fixed number of permits, which can then be traded
52
Q

Static games

A

Are always played simoulstaneosly

53
Q

Dynamic games

A

Players move repeatedly or sequentially

54
Q

Nash equilibrium

A

An equilibrium in which the choice that each player makes is a best response to the choices other players are making.

55
Q

Tragedy of the commons

A

Tendency for common resourcesto be overutilized

56
Q

Coordination game

A

Games with multiple equilibria

57
Q

Finitely repeated game

A

When you face the same strategic interaction a fixed
number of times

58
Q

Indefinitely repeated game

A

When you face the same strategic interaction an unknown number of time

59
Q

Folk theorem

A

sometimes, in indefinitely repeated games, very punitive strategies can allow players to enact collusion and maximize their pie

60
Q

Strictly dominant strategy

A

Best strategy a player can choose. It wins all the time

61
Q

Strictly dominated

A

Whatever the other player chooses, that stratregy always yields the worst outcome.

62
Q

Median Voter Theorem

A

when citizens’ preferences are single-peaked, the preference of the median voter wins any alternative in majority voting elections

ECON I (2 decks)

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