Vocab and Key Terms

Question 1

GDP (Gross Domestic Product)

Answer 1

measure of how much is produced in a particular country in a year

Question 2

GDP Per Capita

Answer 2

A measure of the “average income” or “living standard” of the average person in a country

Question 3

Purchasing Power Parity (PPP)

Answer 3

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)

Question 4

Decile

Answer 4

A way of splitting data, taking all total values and dividing them by lowest to highest in sets of 10’s

Question 5

Technology

Answer 5

A process of inputs (human work or otherwise) and materials used to produce an output

Question 6

Technological Progress

Answer 6

A change in a technology that reduces the time, energy, materials, manpower, or land needed to produce a certain amount of output

Question 7

Factors of Production

Answer 7

Include any factor going into the production of an output (ie. land, labor, machinery, ect.)

Question 8

Average Product

Answer 8

Total amount of output divided by the Total amount of input

Question 9

Production Function

Answer 9

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)

Question 10

Subsistence Level

Answer 10

Where income is just enough to live

Question 11

Equilibrium

Answer 11

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)

Question 12

Capitalism

Answer 12

An economic system where the primary focus of the firm is selling a good, and making as much profit as possible

Question 13

Economic Systems

Answer 13

A way of organizing an economy based on different institutions (ex. Capitalism, Socialism, Corporatism etc.)

Question 14

Institutions

Answer 14

Laws and informal regulation of how people interact with each other and with the biosphere; also known as “rules of the game”

Question 15

Private Property

Answer 15

Something that the owner of said property has a right to exclude, benefit from the use of, and exchange with other people

Question 16

Markets

Answer 16

A way of connecting people who may mutually benefit by exchanging goods and services through a process of buying and selling

Question 17

Gains From Exchange

Answer 17

Benefits a person gains from a transaction versus how they would be without the exchange

Question 18

Firm

Answer 18

Economic organization in which a private entity hires and fires employees and directs labor to produce certain goods and/or services

Question 19

Capital Goods

Answer 19

The firm’s buildings, equipment, and other durable inputs

Question 20

Labor Market

Answer 20

Where employers look to hire workers by enticing them with a wage

Question 21

Causal (statements)

Answer 21

a relationship between two variables is causal if we can establish that a change in one variable produces a change in the other

Question 22

Natural Experiment

Answer 22

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

Question 23

Developmental State

Answer 23

Where the government plays a major role in economic growth and development

Question 24

Average Real Wage

Answer 24

Money wage, adjusted for changes in prices

Question 25

Economies of Scale

Answer 25

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

Question 25

Absolute Advantage

Answer 25

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)

Question 26

Comparative Advantage

Answer 26

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)

Question 27

Division of labor

Answer 27

Specialization of producers in the production process

Question 28

Production Function

Answer 28

a relationship that tells us how much output a technology will produce, given the amounts of inputs used

Question 29

Fixed-Proportions Technology

Answer 29

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

Question 30

Constant Returns to Scale

Answer 30

if you double the inputs, the amount of output doubles; similarly a 50% increase in inputs increases output by 50%

Question 31

Average Product

Answer 31

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

Question 32

Isocost Lines

Answer 32

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))

Question 33

Entrepreneur

Answer 33

The person who invents or first adopts an organizational method, new technology, or other benefit for their business

Question 34

Creative Destruction

Answer 34

A name for when businesses which fail to adapt new technologies or organizational methods are swept away by newer, more modern firms

Question 35

Equilibrium

Answer 35

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)

Question 36

Endogenous

Answer 36

a variable is endogenous if its value is determined by the workings of the model (rather than being set by the modeler)

Question 37

Exogenous

Answer 37

a variable is exogenous if its value is determined by the modeler, rather than the model it is a part of

Question 38

Ceteris Paribus

Answer 38

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.

Question 39

Game Theory

Answer 39

situations in which each actor knows that the benefits they receive depend on the actions taken by all

Question 40

Strategic Interactions

Answer 40

A social interaction in which the participants are aware of the ways in which their actions affect others, and vice versa

Question 41

Strategy

Answer 41

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

Question 42

Best Response

Answer 42

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.

Question 43

Nash Equilibrium

Answer 43

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

Question 44

Dominant Strategy

Answer 44

A strategy is dominant if it yields the highest pay-off for the player, no matter what strategies the other players choose

Question 45

Dominant Strategy Equilibrium

Answer 45

A dominant strategy equilibrium is a Nash equilibrium in which the strategies of all players are dominant strategies