Vocab and Key Terms Flashcards
GDP (Gross Domestic Product)
measure of how much is produced in a particular country in a year
GDP Per Capita
A measure of the “average income” or “living standard” of the average person in a country
Purchasing Power Parity (PPP)
How much it costs to purchase a good in a country compared to another country in a specific year (Ex. how much for bread in the United States vs Canada in 2011)
Decile
A way of splitting data, taking all total values and dividing them by lowest to highest in sets of 10’s
Technology
A process of inputs (human work or otherwise) and materials used to produce an output
Technological Progress
A change in a technology that reduces the time, energy, materials, manpower, or land needed to produce a certain amount of output
Factors of Production
Include any factor going into the production of an output (ie. land, labor, machinery, ect.)
Average Product
Total amount of output divided by the Total amount of input
Production Function
Similar in form to an “if-then” statement (X amount of farmers to Y amount of grain produced); it is a graphical depiction of the relationship between quantities of inputs to production process in relation to the amount of output produced (ex. number of farmers vs grain output) Y=f(x)
Subsistence Level
Where income is just enough to live
Equilibrium
A point in a problem where the outcome will not change unless acted upon by an external force (pop increase from high living standards → standard of living declining to equilibrium)
Capitalism
An economic system where the primary focus of the firm is selling a good, and making as much profit as possible
Economic Systems
A way of organizing an economy based on different institutions (ex. Capitalism, Socialism, Corporatism etc.)
Institutions
Laws and informal regulation of how people interact with each other and with the biosphere; also known as “rules of the game”
Private Property
Something that the owner of said property has a right to exclude, benefit from the use of, and exchange with other people
Markets
A way of connecting people who may mutually benefit by exchanging goods and services through a process of buying and selling
Gains From Exchange
Benefits a person gains from a transaction versus how they would be without the exchange
Firm
Economic organization in which a private entity hires and fires employees and directs labor to produce certain goods and/or services
Capital Goods
The firm’s buildings, equipment, and other durable inputs
Labor Market
Where employers look to hire workers by enticing them with a wage
Causal (statements)
a relationship between two variables is causal if we can establish that a change in one variable produces a change in the other
Natural Experiment
An empirical study that exploits a difference in the conditions affecting two populations (or two economies), that has occurred for external reasons: for example, differences in laws, policies, or weather
Developmental State
Where the government plays a major role in economic growth and development
Average Real Wage
Money wage, adjusted for changes in prices
Economies of Scale
When production exhibits increasing returns to scale, increasing all of the inputs to a production process by the same proportion increases the output by a higher proportion
Absolute Advantage
in the production of a particular good if, given a set of available inputs, they can produce more of a particular good than another person or country (ex. Carla produces more apples and wheat than Dan)
Comparative Advantage
in the production of a particular good if the cost to them of producing it, relative to the cost of another good, is lower than for another person or a country (Dan has a comparative advantage in producing wheat, even though he produces less overall)
Division of labor
Specialization of producers in the production process
Production Function
a relationship that tells us how much output a technology will produce, given the amounts of inputs used
Fixed-Proportions Technology
A technology that requires inputs in fixed proportions to each other. To increase the amount of output, all inputs must be increased by the same percentage so that they remain in the same fixed proportions
Constant Returns to Scale
if you double the inputs, the amount of output doubles; similarly a 50% increase in inputs increases output by 50%
Average Product
The average product of an input is the total amount of output divided by the total amount of input (ex. average product of a worker is the total output divided by the number of workers
Isocost Lines
A line that represents all combinations of inputs that cost a given total amount (ex. one worker and four coal cost the same as two workers and three coal, so they would be on the same line) ((always parallel to each other))
Entrepreneur
The person who invents or first adopts an organizational method, new technology, or other benefit for their business
Creative Destruction
A name for when businesses which fail to adapt new technologies or organizational methods are swept away by newer, more modern firms
Equilibrium
A point in a problem where the outcome will not change unless acted upon by an external force (pop increase from high living standards → standard of living declining to equilibrium)
Endogenous
a variable is endogenous if its value is determined by the workings of the model (rather than being set by the modeler)
Exogenous
a variable is exogenous if its value is determined by the modeler, rather than the model it is a part of
Ceteris Paribus
used to explain the cause-and-effect relationship between two variables, and it means that something will occur as a result of something else most of the time, if nothing else changes.
Game Theory
situations in which each actor knows that the benefits they receive depend on the actions taken by all
Strategic Interactions
A social interaction in which the participants are aware of the ways in which their actions affect others, and vice versa
Strategy
An action (or action plan) that a person may choose, while being aware that the outcomes for themselves and others depend on their own strategy and the strategies chosen by others
Best Response
In game theory, a player’s best response is the strategy that will bring about the player’s most-preferred outcome, given the strategies adopted by the other players.
Nash Equilibrium
A Nash equilibrium is a set of strategies, one for each player in a game, such that each player’s strategy is a best response to the strategies chosen by everyone else
Dominant Strategy
A strategy is dominant if it yields the highest pay-off for the player, no matter what strategies the other players choose
Dominant Strategy Equilibrium
A dominant strategy equilibrium is a Nash equilibrium in which the strategies of all players are dominant strategies
