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Macroeconomics (ECON 2105) > Test #1 : Ch. 1-4 > Flashcards

Test #1 : Ch. 1-4 Flashcards

1
Q

Economics

A

The discipline that studies how efficient decisions are made.

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2
Q

Efficient Decision

A

Involve choosing the most valuable alternative.

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3
Q

Theory of Revealed Preference

A

A person’s choices reveal his/her values. Value depends on the situation and value is different for different people.

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4
Q

Characteristics of Value

A
  1. Value depends on the situation, 2. Value is different for different people, and 3. Subsequent units of the same good have less value.
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5
Q

Optimal Arrangement Principle

A

The idea that we first choose the best, then the second best, and so on.

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6
Q

Value to the Individual

A

The most that individual is willing to sacrifice to obtain that something.

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7
Q

Cost

A

The value of the best alternative which is sacrificed when a decision is made.

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8
Q

No Free Lunch Principle

A

States that any decision involves cost. Any decision has at least two alternatives- choosing an alternative means that now must sacrifice at least one other alternative.

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9
Q

Macroeconomics

A

The Study of entire economies, using concepts like total output, the unemployment rate, the national debt, total investment.

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10
Q

Scarcity

A

Having many more wants than our resources can satisfy.

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11
Q

Marginal Value

A

The value of the individual units of something.

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12
Q

Marginal Analysis

A

When we consume each unit for which the marginal value is at least as great as the marginal cost.

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13
Q

Marginal Cost

A

The change in total cost that comes from making or producing one additional item.

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14
Q

Law of Diminishing Returns

A

As we add workers to a production facility, eventually they become less productive because there is no way for everyone to take part in the production process

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15
Q

Demand

A

The relationship between the possible prices of something and the quantities people are willing to buy, other things equal.

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16
Q

Supply

A

The relationship between the possible prices of something and the quantities that people or firms are willing and able to sell, other things equal.

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17
Q

Equilibrium Price

A

Consumers can buy all they want and, at the same time, firms can sell all they want.

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18
Q

Social Gain

A

The combined consumer gain and producer gain or marginal value-marginal cost

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19
Q

Marginal Social Gain

A

The social gain from an individual unit.

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20
Q

Consumer Gain

A

=Total Value - Total Amount Paid

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21
Q

Producer’s Gain

A

=Total Amount Paid - Total Cost

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22
Q

The Economic Problem

A

Allocating scarce resources to their best uses.

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23
Q

Changes in Supply

A

Shifts in the supply curve- producers wish to produce more or less, even if the price does not change. They are caused by changes in the producer’s costs.

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24
Q

Changes in Demand

A

Shifts in the Demand Curve- consumers wish to buy more or less, even if the price does not change. They are caused by changes in things that influence the consumer’s willingness to purchase the product which has nothing to do with the product price.

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25
Q

Function of Free Market Prices

A
  1. Ration goods to consumers who most want them, 2. Give incentives to producers to satisfy consumers, 3. Give incentives to conserve scarce resources, and 4. Transmit information throughout the economy.
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26
Q

The Calculation Problem

A

In order to make the most efficient decision, the decision maker must know the information better than the people who actually do the jobs- impossible to know every aspect.

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27
Q

Spontaneous Order

A

That people organize themselves and interact efficiently, if given the freedom to do so.

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28
Q

Natural Experiment

A

Markets vs. State control (North Korea and South Korea/ East Germany and West Germany).

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29
Q

Public Choice School

A

Explores how self-interested government employees make decisions.

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30
Q

Rational Ignorance

A

We perceive that learning about a piece of information on a certain subject is not as valuable as our time; refusing to expend resources to gather information that will almost certainly NOT lead to a change in the quality of life.

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31
Q

Fallacy of Division

A

Thinking that what is true for a group must be true for all individuals of that group.

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32
Q

Individual Choice

A

Where individuals decide for themselves.

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33
Q

Authoritarian Choice

A

Involves a single individual or governing body making decisions for the populace.

34
Q

Democratic Choice

A

An authoritarian choice made by individuals voting on decisions for the populace.

35
Q

Interest Groups

A

Sugar farmers, ethanol, Chevrolet Volt; the presence of interest groups means that individuals are forced to spend their resources on goods they do not want.

36
Q

Regulation

A

Control over the import, export, or production of a certain good or service; cause costs to rise, which means less is produced; may be counterproductive unless the regulator is knowledgeable about the industry it is regulating.

37
Q

Cost of Regulation

A
  1. Direct costs of regulation, 2. indirect costs of regulation.
38
Q

Direct Cost of Regulation

A
  1. Government administrative costs- sacrificed in order to pay government employees to monitor the regulatory programs and enforce the statutes, 2. Compliance Cost- how much must be sacrificed by the regulated entity to follow the law, which includes reporting costs, planning and administrative costs, and consulting costs.
39
Q

Indirect Cost of Regulation

A

Results from changes in behavior of firms and individuals due to the regulation: value of output that is not produced due to the regulation and wasteful activities that the regulation encourages (hiring lobbyists, expensive tax shelters).

40
Q

Regulatory Capture

A

Occurs when regulators find it more advantageous to work to benefit some firms in their industries rather than to perform their oversight duties. Diminishes the markets advantages.

41
Q

Market Advantages

A
  1. Markets utilize the ingenuity of millions of minds, 2. There are millions of small market experiments, each with low risk, 3. In markets, there is competition to serve others,
  2. In markets, there are incentives to use resources efficiently..
42
Q

Rent-Seeking

A

Involves individuals expending resources to prosper, not by creating value, but by using the legal and regulatory systems; unearned profits.

43
Q

Bootleggers and Baptists Problem

A

The bootleggers can only make living if alcohol is illegal, since efficient legal production would put them out of business. So they depend on the Baptists, who also wish alcohol to be illegal, but for non-materialistic reasons; any special interest that wants to acquire taxpayer dollars or wants regulators to squash an opponent could profit from finding a group that supports their aims, but for a high minded reason.

44
Q

Status Quo Minus Fallacy

A

It proposes that we consider the status quo, eliminate one element of it, and conjecture that this removed element will have only a direct effect which will never be compensated for. (Ten million kids eat breakfast at McDonalds every day. Therefore, if there were no McDonald’s, ten million kids would go hungry.)

45
Q

The Law of Unintended Consequences

A

The warning that intervening in a complex system may create unanticipated and often undesirable outcomes.

46
Q

Value is created….

A

in only two way- through production and through trade.

47
Q

Production Process

A

Turns inputs into consumable outputs.

48
Q

Consumable Outputs

A

Goods and services

49
Q

Resources/Inputs

A
  1. Natural Resources/Land (cost=rent)
  2. Labor (cost=wage)
  3. Capital (cost=interest)
  4. Entrepreneurship (cost=profit)
50
Q

Middlemen

A

Have an effect on value because everyone is a middleman.

51
Q

Technology

A

The way that inputs are combined to produce output.

52
Q

Make Work Fallacy

A

The idea that jobs are valuable, whether or not the labor’s production adds value.

53
Q

Production Possibilites Frontier

A

A simplified way of understanding the production tradeoffs that are made in an economy:

  1. assumes only two goods are produced over the same time period
  2. assumes some fixed amount of resources are used
  3. assumes technology is used
    * shows possibilities, not preferences*
54
Q

Law of Increasing Opportunity Cost

A

As more of one good is produced, the opportunity cost of producing a unit of that good rises, in terms of the other good which must be sacrificed.

55
Q

Income and Wealth Depend On…

A
  1. quantity of resources
  2. quality of resources
  3. freedom to use those resources
56
Q

Human Capital

A

upgraded by an individual by education and training

57
Q

Invisible Hand

A

a metaphor coined by Adam Smith to describe the self-regulating behavior of the marketplace. Individuals can make profit, and maximize it without the need for government intervention.

58
Q

Trade

A

Occurs when goods and services or resources are exchanged, sometimes using money.

59
Q

Barter

A

Trade without money

60
Q

3 Motivations to Trade

A
  1. People differ in taste
  2. People differ in abilities
  3. highly populated markets= better use of resources because of specialization
61
Q

Specialization

A

an individual or group is trained in a certain area of production.

62
Q

Comparative advantage

A

The producer has a lower opportunity cost of producing the good in terms of other goods sacrificed.

63
Q

Internal Trade

A

An individual puts their labor into one good, taking it away from another good that that individual has produced.

64
Q

External Trade

A

An individual first produces the good, then trades it for a good that someone else has produced.

65
Q

Transaction Cost

A

Due to the sacrifice that must be made to search out, negotiate, and complete an exchange.

66
Q

Mercantilism

A

Aimed at keeping as much money in the country as possible- not letting it escape. Importing is bad, exporting is good.

67
Q

Balance of Trade

A

Mercantilists are obsessed with this; the dollar value of exported goods and services minus the dollar value of imported goods and services. Wealthy nations = high positive balance

68
Q

Trade surplus

A

Positive balance of trade

69
Q

Trade deficit

A

Negative balance of trade

70
Q

The Current Account

A

The monetary value of the flow of goods and services

71
Q

The Balance of Payments

A

The sum of the current account and the capital account

72
Q

The Capital Account

A

Stocks and bonds of US companies and/or governments

73
Q

Exchange Rate

A

The price of one country’s currency in terms of another county’s currency.

74
Q

The Dollar Appreciated

A

Gained in value

75
Q

Protectionists

A

Modern day mercantilists

76
Q

Tariffs

A

Taxes on imports

77
Q

Quotas

A

Restrictions on the quantity of imports that citizens can purchase

78
Q

Subsidies

A

Paying domestic firms to produce

79
Q

Export subsidies

A

Paying domestic firms for each unit they export

80
Q

Domestic content restrictions

A

Laws that say a product made in the country must be primarily made using resources from the country

81
Q

Anti-Competitive Manufacturing Specifications

A

Requiring that a particular imported product be manufactured with inputs that are difficult to acquire except in the importing country

Macroeconomics (ECON 2105) (2 decks)

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