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84 Cards in this Set
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- Back
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Demand Curve |
shows the inverse relationship between the price and the quantity of a product or service that a group of consumers are willing and able to buy at a particular time |
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The term "Demand" |
Refers to the demand curve that can be plotted on a graph with quantity demanded on the x axis and the price on the y axis |
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Economics
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the study of how we allocate scarce resources to satisfy unlimited wants |
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Microeconomics |
the study of the decisions of, and interactions among, various individual economic agents |
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The demand curve shifted upward |
changes in the demand curve where quantity demanded becomes larger for each and every price |
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The demand curve shifted downward |
changes in the demand curve where quantity demanded becomes smaller for each and every price |
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Reasons for the demand curve to shift upward or for demand to increase (Direct Relationship) |
price of a substitute good, expectations of price changes, change in income (for normal goods), and there are new consumers
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Reasons for the demand curve to shift downward or for demand to decrease (inverse relationship) |
The price of a complement good decreases, the income for inferior goods increases, and there are consumer boycotts |
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Elasticity |
measures the sensitivity of something to changes in something else |
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Price Elasticity of Demand (Ed) |
Measures how responsive the quantity demanded for a good or service is to a change in price |
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Price Elasticity of Demand Equation |
Percentage change in Quantity Demanded divided by the percentage of change in Price |
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Demand is Elastic
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If the Ed is greater than 1, and total revenue will decline if the price is increased
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Demand is Inelastic |
If the Ed is less than 1, and total revenue will increase if the price is increased |
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Demand is Unit Elastic |
If Ed is equal to 1 and total revenue is not sensitive to price changes |
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Arc Method of Elasticity of Demand |
(Change in quantity demanded/Average quantity demanded)/(Change in price/Average price) |
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Income Elasticity of Demand |
Measures the effect of changes in consumer income on changes in the quantity demanded of a product |
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Income of Elasticity of Demand Equation |
Percentage change in quantity demanded/Percentage change in income |
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Normal good |
a positive income elasticity meaning that as consumers income increases, the quantity demanded for the normal good also increases |
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Inferior Good |
A negative number meaning as income increases, the quantity demanded for the inferior good decreases |
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Cross Elasticity of Demand |
measures the change in the quantity demanded of a good to a change in the price of another good; used to determine if two different goods are substitutes or complements |
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Cross Elasticity of Demand Equation |
Percentage of change in the quantity demanded for product X / Percentage of change in the price of Product Y |
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Supply Curve |
shows the direct relationship between the price of a product or service and the quantity that a group of producers and/or sellers are willing to supply at a particular time |
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Price Elasticity of Supply |
measure of how sensitive quantity supplied of a good or service is to a change in price or cost |
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Price Elasticity of Supply Equation |
Percentage of change in quantity supplied/ percentage of change in price |
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Opportunity Cost |
the benefit given up from not using the resource for another purpose |
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Market Equilibrium |
Quantity Demanded=Quantity Supplied
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Price Ceiling
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The maximum legal price at which a product or service can be sold |
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Price Floor
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the minimum legal price at which a product or service can be sold
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Fixed Costs
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Costs that wont change even when there is a change in the level of production
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Variable Costs
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Costs that rise as production rises
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Marginal propensity to Consumer (MPC)
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Change in Consumption/Change in disposable income
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Marginal Propensity to Save (MPS)
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change in savings/change in disposable income
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Total Costs
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the sum of fixed and variable costs
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Average total costs
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total costs/number of units produced
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Marginal costs
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the increase in cost that results from producing one extra unit
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marginal revenue
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the change in total revenue associated with the sale of one more unit of output
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Marginal Revenue Product
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the increase in total revenue received by the addition of one additional unit of an input or resource
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Returns to scale
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the increases in units produced (outputs) that result from increases in production costs (input)
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Returns to Scale Formula
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Percentage increase in output/percentage increase in input
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Perfect Competition
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Large # of sellers Products are identical (homogeneous) No Advertising Firms may enter/exit the market easily Demand curve is perfectly elastic |
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Pure Monopoly
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Only one producer No close substitutes Blocked entry Demand curve is downward sloping (almost vertical) |
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Monopolistic Competition
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Large # of sellers Firms sell different (heterogeneous) products Lots of advertising Easy to enter/exit market Demand curve is slightly downward sloping |
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Oligopoly
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Small # of large sellers Barriers to entry Non-price competition exists Rival actions are observed Demand curve is kinked |
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Mission Statement
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First step in formal strategic planning
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Cost Leadership Strategies
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Concentrate on cutting costs of producing, selling, and distributing a firm's range of products
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Capitalism
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(Free enterprise) a system where private parties own most of the mans of production and make most economic decisions |
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Communism
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a system where the government entities own most of the means of production and make most economic decisions
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Mixed Economies
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the "in between" systems where both private parties and governments own substantial fractions of the means of production and make substantial fractions of economic decisions
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Gross Domestic Product
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The total dollar of all the "final" goods and services produced within one country's border
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Real GDP
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the total dollar value of all the final goods and services produced expressed using a price level that is constant over time
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NAIRU
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acronym for non-accelerating inflation rate of unemployment, and refers to a level of unemployment below which inflation rises
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Natural or Non Accelerating Inflation rate of unemployment
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inflation will tend to rise if the unemployment rate falls below the natural rate
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Gross National Product
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the total dollar value of all goods and services produced by a country's residents regardless of whether they were produced in within or outside the country's borders
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Inflation
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the percentage rate of increase in the price level of goods and services
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Rising inflation means
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individuals can purchase less either if they are on fixed incomes or with their past savings
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Hyperinflation
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similar to inflation except that the value of the currency is decreased at a much faster rate, so prices increase much more rapidly
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Deflation
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Describes a general decline in the price level or a negative inflation rate
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Solution for Deflation
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Increase money supply
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Consumer Price Index (CPI)
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compares the price of a fixed basket of good and services that a typical urban consumer might purchase in a earlier base period and the price of the same basket of goods and services at later times
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Producer Price Index
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compares the price of a fixed basket of goods, inputs, and materials purchased by producers at the wholesale level, instead of focusing on the price paid at the retail level by consumers
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GDP Deflator
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the most comprehensive measure of price levels, including prices paid by all parties included in GDP instead of only consumers
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Three Common Measures of Price Inflation
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Consumer Price Index Producer Price Index GDP Deflator |
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Deficit
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the amount by which the government expenditures exceed federal tax revenues
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Deficit Spending
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involves increasing spending levels without increasing tax revenues by the equivalent amount
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Economic Theories
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Classical Economic Theory Keynesian Theory Monetarist Theroy Supply Side Theory New Keynesian Theory Austrian Theory |
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Austrian Theory |
provides insights as to how monetary policy may lead to dislocations in the allocation of resources, play a role in the formation of bubbles, and contribute to boom-bust cycles
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New Keynesian Theory
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Combines some elements of Keynesian and monetarist theories; argues that policymakers should use both fiscal and monetary policy to manage macroeconomic conditions
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Supply Side Theory
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(Reduce Taxes) argues that government policy should focus less on managing short term fluctuations in the aggregate demand curve, and more on removing impediments to economic production
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Monetarist Theory
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argues to minimize fluctuations in both unemployment and inflation rates, central banks should target rates of growth in money
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Keynesian Theory
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Argues that prices and wages in the economy do not adjust quickly enough on its own
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Classical Economic Theory
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No government intervention
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Absolute Advantage
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a country being able to produce a good at a lower cost than another country
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Comparative Advantage
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a country being able to produce a good at a lower relative cost than another country
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Tariffs
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Taxes on imported goods
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World Trade Organization (WTO)
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an international organization that provides a forum to continue to negotiate greater liberalization of international trade policies, provides a forum to resolve international trade disputes, and seeks to help prevent trade wars and the growth of other trade barriers
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North American Free Trade Agreement (NAFTA)
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The US, Mexico, and Canada impose Far lower trade restrictions on one another than on other countries
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G-20
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the main forum that the governments of the leading countries of the world use to discuss global economic and financial stability
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European Union (EU)
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includes 28 European countries that provide free circulation of goods, services, firms, capital, residents, and labor
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Embargoes
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total bans on importing either a number of goods or nearly all goods from a country (i.e. Cuban cigars)
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Forward Rate
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the exchange rate at which a financial party will exchange two currencies at a specific future date
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Inflation affecting foreign exchange rates
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currencies from countries with high inflation rates tend to depreciate relative to others
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Interest Rates affecting foreign exchange rates
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Currencies from countries with higher interest rates appreciate relative to others
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Spot Rate
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the exchange rate at which a financial party will exchange two currencies at this time
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