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124 Cards in this Set

  • Front
  • Back
wants are greater than resources
There Ain't No Such Thing As A Free Lunch
opportunity cost
real costs measurable in terms of value forgone when a choice is made (the value of what you gave up)
production possiblities
many different combinations of goods or services that can be produced with the same resources
"guns vs. butter"
representation of an economic choice--in wartime, making weapons means that consumer goods are not made
factors of production
types of resources: land, labor, capital, and entrepreneurial
land resources
natural resourses (trees, minerals, ect)
labor resources
human capital, skills and knowledge of people
capital resources
"real capital" or "capital goods"--goods produced to later be used to make final goods and services for consumption
entrepreneurial resources
decision-making that brings together the other resources
sellers' efforts to attract buyers, results when markets are free of entrance and exit barriers, results in lower prices and/or better quality
complementary goods
two goods that depend on one another (french fries and ketchup)
ceterius paribus
"all other things being equal"
difference between the costs of two alternatives or the difference between the two benefits
positive economics
economic analysis based upon what is
normative economics
economic analysis based on what should be
study of individual parts of economy, the actions of individuals and firms
study of economy as whole, focuses on aggregate behaviors of producers and comsumers
market systems
(free enterprise, capitalism, private enterpries, or free market)
economic systems in which the rights of individuals and private ownership are most highly valued
planned/command system
a group makes economic decisions as a whole, or government makes decisions in the name of society (command if by absolute ruler)
traditional system
not dominant today, relies on reciprocity and other traditional values
economic practices of Europe in the 16-18th centuries, central planning, strong government control, and a heavy reliance on exports to build wealth in gold and silver reserves
systems in which a group voluntarily shares their resources for the good of all
political/economic movement associated with the writings of Karl Mark. NOT SAME AS SOCIALISM, necessarily
government does not interfere with private choices
any situation in which resources, goods, or services are exchanged
common language that makes comparison of two or more abstract values easier, signals for producers and consumers
law of supply
quantity supplied is directly related to the price (price increases, supply increases)
law of demand
quantity demanded is inversely related to the price (as price increases, demand decreases)
marginal utility
additional utility of consumption of an additional unit of a good or service (at some point, will go to 0 because you can only use so much of anything)
equilibrium price
price at which supply equals demand, aka "market-clearing price"
inelastic demand
a change in price results in little or no change in the quantity demanded (insulin, salt)
relationship of the change in price to the change in demand
price elasticity of demand
percentage of change in quantity demanded over percentage change in price
cross-price elasticity
relationship between demand for one product and the price of another, helps determine complimentary and substitute goods
variable cost
cost that changes with level of production
marginal revenue
increase in total revenue from sale of next unit
marginal cost
cost of next unit of production
point of diminishing reterns
adding more production factors results in a smaller and smaller output
perfect competition market
market with many buyers and sellers, unrestrained entry and exit, identical goods or services, and equal access to market info for all competitors (no advantages)
non-competitve market in which production/price is controlled by a single producer
gvt. grant of the exclusive right to make, use, and/or sell something for a specific time period
legal right of the creator to exclusive control of an original literary or artistic product
regulated monopolies
monopolies with strict price controls and universal service requirements
monopolistic competetive market
significant number of sellers with different products and few barriers to entry
market controlled by a few firms, barriers to entry, products identical or slightly different
price ceiling
maximum legal price--increases demand and reduces supply
situation when demand exceeds supply at the market price
price floor
minimum legal price, decreases demand, increases supply (to help producers)
suply exceeds demand
explicit costs
actual expenditures for resources used for production
implicit costs
opportunity costs of time and capital resources foregone
total product
number of units produced
average product
number of units of output per unit of input
marginal product
additional output from the addition of a unit of input
diminishing marginal product
marginal output will increase more slowly or even decrease
measure of output per unit of input, measure of efficiency
labor productivity
measure of labor resource efficiency
overall levels
circular flow model
represents constant flow of resources from their owners to the producers and the flow of goods and services from producers to consumers
consumer sovereignty
consumers are driving force in the market
Say's Law
supply creates its own demand, demand must equal production value
aggregate demand
total demand in an economy
aggregate supply
total supply in an economy
leading economic indicators
orders, stock prices, ect: numbers that indicate the direction the economy will take in the future
current economic indicators
employment, income, output, sales: indicate current economic activity
lagging economic indicators
length of unemployment, consumer debt: indicate past levels of economic activity
Index of Leading Economic Indicators
weighted index of 12 crucial measurements that generally indicate the direction of the economy
Humphrey-Hawkins Act
1978 Full Employment and Balanced Growth Act: Congress and executive must design and implement public policies that pursue the goals of growth of output, full employment, and price stability
Employment Act of 1946
gvt must endeavor to promote maximum employment, production, and purchasing power
interest rates
tool used to stimulate or slow growth, job creation, and moderate price increases, cost of using money
gross domestic product
total value of all final goods and services produced within a period of time in a nation. GDP=Consumption+Investment+Gvt Purchases+(or -) Net Exports
Gross National Product
involves value of production of nation's permanent residents regardless of where they work
external and unintended benefits or costs of an economic activity
nominal GDP
GDP expressed in terms of current dollar value
per capita gross domestic product
GDP divided by the population
Real GDP growth rate
measure of growth after adjusting for inflation
consumer price index
measurement of the change in the cost of a fixed basket of products and services
producer price index
measures wholesale price levels
GDP price deflator
measures changes in price level relative to the growth of GDB yearly
cost-push inflation
caused by a rise in the costs of factors of production
demand-pull inflation
casued by consumer demand bidding up the prices of goods and services
labor force
number of people 16 and older employed plus the number of people seeking employment
unemployment rate
number of unemployed divided by the labor force (supposed to be under 4%)
GDP does not grow or declines over two consecutive quarters
severe and long-term recession with significant unemployment
sustained period of growth
business cycle
model of the predictable increases and decreases in economic activity and output
theory of rational expectations
people's expectation about future economic states will guide their behavior so that that state happens (self-fulfilling prophecy )
Index of Consumer Confidence
tracks optimisim and pessimism of consumers, fairly new
tool ("grease") that facilitates trade. Medium of exchnge, unit of account (measure of value), mechanism to store value
demand deposits
checking account transactions
interest rate
cost of using money or credit
Gresham's Law
"good" money (people want to keep) is replaced in the market by "bad" money--explains hoarding
monetary policy
actions that influence the money supply and interest rates
Federal Reserve System
established 1913, Board of Governors and 12 FR banks, implements monetary policy
quantity theory of money
equation of exchange: money*velocity=price*quantity
open market operations
buying and selling of government securitites
Federal Open Market Committee
determines targets for key interest rates, esp the Fed Funds Rate (rate at which banks borrow overnight from other banks)
discount rate
rate at which FR Banks loan funds to member banks in the event that they require more reserves
money multiplier
reciprocal of the reserve requirement, determines total increase or decrease in the money supply
wealth effect
when people feel wealthier they increase demand for goods and services, and prices increase
real interest rate
rate charged over and above the anticipated rate of inflation
prime rate
interest rate banks charge best customers for short-term loans
fiscal policy
use of gvt spending and taxation to influence the level of economic activity
national/public debt
net of gvt deficits and surpluses over the years
expansionary policies
spending and taxation policies meant to stimulate economic growth
contractionary policies
used to reduce economic activity
Keynsian theory
government spending could be used to
"replace" public spending during a recession to stimulate the economy
Smoot-Hawley Act
brought about high tarriffs, in the 30s
Phillips curve
theoretical trade-off between inflation and unemployment: proved wrong by 70s and 90s
combination of high unemployment and high inflation (in the early 80s)
developed countries
US, ect, have large industrial production base, lots of technology, and skilled workforce, GDP over 10,000
Developing countries
Algeria, Mexico: more dependent on agriculture than developed, lack widespread technology, GDP 3,000-10,000
Less-developed countries
Afghanistan, have enough natural and human resouces but depend on external capital for development, GDP less than 3000, usually politcal or cultural barriers
comparative advantage
choice to produce one or more goods for which opportunity cost is low (specialization)
exchange rate
price of one nation's currency in terms of another's currency
tax on imports
limit on the quantity or value of good that can be imported or exported
General Agreement on Tariffs and Trade
ongoing discussion in rounds to reduce tariffs and promote free trade
World Trade Organization
created in 1995, 140 members, created to enforce rules of tarde
North American Free Trade Agreement
effective Jan 1 1994, pact that aims to establish free trade zone containing US, Mexico, and Canada
European Union
free trade organization in Europe, common currency the euro