Econ 202 Exam #1

Front 1

Market

Back 1

a group of buyers and sellers of a particular good or service.

Front 2

Competitive Market

Back 2

a market in which there are many buyers and many sellers so that each has a negligible impact on the market price.

Front 3

Perfectly Competitive markets require 2 characteristics

Back 3

1. the goods offered for sale are all exactly the same
2. the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price.

Front 4

Quantity Demanded

Back 4

The amount of a good that buyers are willing and able to purchase.

Front 5

Law of Demand

Back 5

The claim that, other things equal, the quantity demanded of a good falls when the price rises.

Front 6

Demand Schedule

Back 6

A table that shows the relationship between the price of a good and the quantity demanded.

Front 7

Demand Curve

Back 7

A graph of the relationship between the price of a good and the quantity demanded.

Front 8

Market Demand

Back 8

The sum of all individual demands for a particular good or service.

Front 9

What shifts the demand curve?

Back 9

Any change that increases or decreases the quantity demanded at each price shifts the demand curve to the right or left. (Income, price of related goods, tastes, expectations, number of buyers)

Front 10

Normal good

Back 10

A good for which, other things equal, an increase in income leads to an increase in demand.

Front 11

Inferior good

Back 11

A good for which, other things equal, and increase in income leads to a decrease in demand.

Front 12

Substitutes

Back 12

2 goods for which the increase in the price of one leads to an increase in the demand for the other.

Front 13

Compliments

Back 13

2 goods for which the increase in the price of one leads to a decrease in the price for the other.

Front 14

What represents a movement along the demand curve?

Back 14

Price

Front 15

Quantity Supplied

Back 15

The amount of a good that sellers are willing and able to sell.

Front 16

Law of supply

Back 16

the claim that, other things equal, the quantity supplied of a good rises when the price of a good rises.

Front 17

Supply Schedule

Back 17

Table that shows the relationship between the price of a good and the quantity supplied.

Front 18

Supply Curve

Back 18

A graph of the relationship between the price of a good and the quantity supplied.

Front 19

Market Supply

Back 19

Sum of supplies of all sellers.

Front 20

What is a shift in the supply curve?

Back 20

Any change that raises or reduces the quantity supplied at every price, shift the supply curve. (Input prices, technology, expectations, number of sellers)

Front 21

Equilibrium

Back 21

A situation in which the market price has reached the level at which quantity supplied equals quantity demanded.

Front 22

Equilibrium Price

Back 22

The price that balances quantity supplied and quantity demanded.

Front 23

Equilibrium Quantity

Back 23

The quantity supplied and quantity demanded at the equilibrium price.

Front 24

Surplus

Back 24

A situation in which quantity supplied is greater than quantity demanded.

Front 25

Shortage

Back 25

A situation in which quantity demanded is greater than quantity supplied

Front 26

Law of supply and demand

Back 26

the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance.

Front 27

3 Steps to analyzing the change in equilibrium

Back 27

1. Shift in supply curve, demand curve, or both?
2. Shift of curve to the right or to the left?
3. Effect of shift on equilibrium price and quantity.

Front 28

What is the difference between supply/demand and quantity supplied/quantity demanded?

Back 28

Supply refers to the position of the supply curve/demand curve, whereas quantity supplied/quantity demanded refers to the amount suppliers wish to sell or buyers wish to buy.

Front 29

microeconomics

Back 29

the study of how households and firms make decisions and how they interact in the markets.

Front 30

macroeconomics

Back 30

the study of economy wide phenomena, including inflation, unemployment, and economic growth.

Front 31

gross domestic product (GDP)

Back 31

single measure of economy's well-being. the market value of all final goods and services produced within a country in a given period of time.

Front 32

For an economy as a whole...

Back 32

...income must equal expenditure.

Front 33

Components of GDP

Back 33

Y = C + I + G + NX

Front 34

consumption

Back 34

spending by households on goods and services, with the exception of purchase of new housing. (70%)

Front 35

investment

Back 35

spending on capital equipment, inventories and structures, including household purchases and new housing.

Front 36

government purchases

Back 36

spending on goods and services by local, state, and federal governments.

Front 37

net exports

Back 37

spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports).

Front 38

nominal GDP

Back 38

the production of goods and services valued at current prices.

Front 39

real GDP

Back 39

the production of goods and services valued at constant prices. (multiply using base year prices)

Front 40

GDP deflator

Back 40

nominal GDP
____________ X 100

real GDP

Front 41

consumer price index (CPI)

Back 41

the measure of the overall cost of the goods and services bought by a typical consumer.

price of basket of goods/services
_______________________ X 100

price of basket in base year

Front 42

5 steps that BLS follows

Back 42

1. fix the basket
2. find the prices
3. compute the basket's cost
4. chose a base year and compute index
5. compute inflation rate

Front 43

inflation rate

Back 43

percentage change in the price from the preceding period

CPI yr2 - CPI yr1
________________ X 100

CPI yr1

Front 44

producer price index

Back 44

the measure of the cost of a basket of goods and services bought by firms

Front 45

amount in today's dollars

Back 45

amount in year T dollars X
price level in today's dollars
__________

price level in year T dollars

Front 46

indexation

Back 46

the automatic correction of a dollar amount for the effects of inflation by law or contract

Front 47

nominal interest rate

Back 47

the interest rate as usually reported without a correction for the effects of inflation

Front 48

real interest rate

Back 48

the interest rate corrected for the effects of inflation

nominal interest rate - inflation rate

Front 49

problems with consumer price index

Back 49

1. substitution bias
2. introduction of new goods
3. unmeasured quality change

Front 50

GDP deflator vs. CPI

Back 50

1. GDP deflator reflects the prices of all goods and services produced domestically, while the CPI reflects the price of all goods and services bought by consumers.
2. CPI compares the price of a fixed basket of goods and services to the price of the basket in the base year, while the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.

Front 51

real GDP

Back 51

the production of goods and services valued at constant prices. (use base year prices)

Front 52

GDP Deflator (only the prices of good and services)

Back 52

Nominal GDP
___________ X 100

Real GDP

Front 53

productivity

Back 53

the quantity of goods and services produced from each unit of labor input. (real GDP/L)

Front 54

physical capital

Back 54

the stock of equipment and structures that are used to produce goods and services.

Front 55

human capital

Back 55

the knowledge and skills that workers acquire through education, training, and experience.

Front 56

natural resources

Back 56

the inputs into the production of goods and services that are provided by nature such as land, rivers, and mineral deposits.

Front 57

technological knowledge

Back 57

society's understanding of the best ways to produce goods and services.

Front 58

diminishing returns

Back 58

the property whereby the benefit of an extra unit of an input declines as the quantity of the input increases.

Front 59

catch-up effect

Back 59

the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich.

Front 60

what factors determine productivity?

Back 60

1. physical capital
2. human capital
3. natural resources
4. technological knowledge

Front 61

3 ways government policies can increase an economy's growth rate.

Back 61

savings and investment, investment abroad, education, good health, property rights and stability, free trade...

Front 62

standards of living depend on...

Back 62

productivity

Front 63

the trade off between unemployment and inflation is a...

Back 63

short-run trade off

Front 64

Why does the Demand curve slope downward?

Back 64

because the opportunity cost of consuming a good increases with its price, and some people are willing to pay more for a good than others. (increase P = decrease Qd)

Front 65

What was the approximate GDP in 2007?

Back 65

$14 trillion

Front 66

When is GDP greater than 100?

Back 66

If and only if prices are above the base year prices.

Front 67

2 Formulas using CPI to adjust income for inflation:

Back 67

income baseyr $ =
nom. income x 100 ___________

CPI
income yrX $ = nom.income X

CPIyrX
______

CPI

Front 68

What is the key to economic growth?

Back 68

capital and technology

Front 69

The effectiveness of additional capital (k) in increasing productivity does what as the amount of K increases?

Back 69

declines (catch-up effect)

Front 70

net capital flows have unexpectadly moved from ______ to ______ countries over the past 20 yrs.

Back 70

poorer to richer

Front 71

investment from abroad includes two specific things:
and is...

Back 71

1. foreign direct investment (FDI)
2. foreign portfolio investment

...the source of investment that globalization advocates seek to encourage.