Econ 204 Test 1

Front 1

Adam Smith

Back 1

"laissez-faire" Believed in nonintervention by the government in the market mechanism (NO INTERVENTION)

Front 2

Laissez fair

Back 2

Adam Smith. "Leave it along" Market mechanism needs no govt intervention

Front 3

John Maynard Keynes

Back 3

Market is inheritabley unstable. Govt should be used as a prssure guage to keep an eye on the market

Front 4

Scarcity

Back 4

Society's desires exceed the want-satisfying capability of the resources available to satisfy those desires.

Front 5

Market Failure

Back 5

Imperfection in the market mechanism that prevents optimal outcomes. Implies that the force of supply and demand havent led us to the best point on the PPC. Not an Optimal mix of output

Front 6

Causes of Market Failure

Back 6

Public goods, Externalities, Market Power, inequity

Front 7

Public goods

Back 7

"free rider dilemma". UNDERPRODUCTION of Pub goods. OVER PRODUCTION of private.

Front 8

Externalities

Back 8

Costs or benefits of market activities to "spill over" onto 3rd parties. Whenever externalities are present, market prices arent a v alid measure of a goods value to society. Market will under produce goods that yield external benefits. Overproduce those that generate external costs.

Front 9

Social demand

Back 9

market demand (+/-) externalities

Front 10

Market Power

Back 10

restricted supply. Monopoly most extreme. Antitrust policy is from govt intervention to alter market structure or prevent abuse of market power

Front 11

Inequity

Back 11

For whom, taxes and transfers redustributing income. Merit goods

Front 12

Merit goods

Back 12

good or service society dee3ms everyone is entitled to some minimum quantity of

Front 13

GOVERNMENT FAIURE

Back 13

Invervention that fails to improve economic outcomes.

Front 14

2 questions of government waste

Back 14

efficiency- are we getting as much servics as wer could from the resources we allocate to govt?

op cost- are we giving up too many private sector goods in order to get those services?

Front 15

Role of Government

Back 15

providing legal framework, protecting the environment, Protecting consumers, Protecting labor

Front 16

US economy made up of

Back 16

business firms, govt agencies, consumers, international buyers and sellers

Front 17

Factor Market

Back 17

any place where factors of production (land labor capital) are bought and sold. professor

Front 18

Product market

Back 18

any place where finished goods and services (products) are bought and sold

Front 19

Demand

Back 19

the ability and willingness to buy specific quantities of agood at alternative prices in a given tp. Quantity of a good demanded in a given tp increase as price falls

Front 20

Determinants of market demand

Back 20

Tastes(desires), income, other goods (availablitly and prices), expectations (for income, prices, and tastes), number of buyers

Front 21

substitute good

Back 21

price of good x rises, the demand for good y increases

Front 22

Complementary goods

Back 22

goods frequently consumed in combo. When price of x goes up, demand for y goes down

Front 23

shift in demand curve

Back 23

when the determinants of demand chagne the ability or willingness to buy. CHanges in demand

Front 24

Changes in demand

Back 24

SHIFT in demand curve

Front 25

Movement on demand curve

Back 25

anything price related. Change in quantity demanded

Front 26

Change in quantity demanded

Back 26

movement along the curve

Front 27

Determinants of market supply

Back 27

Techonlogy, factor cost, other goods, taxes and subsidies, expectation, number of sellers

Front 28

law of supply

Back 28

the larger quantites will be offered for sale at higher prices. the quantity of a good supplied in a given tp increases as the price increases.

Front 29

Change in quantity supplied

Back 29

movement along a given supply curve

Front 30

Change in supply

Back 30

shift of the supply curve

Front 31

Equilibrium

Back 31

price at which Qs=Qd

Front 32

Surplus

Back 32

amount by which the quantity supplied exceeds the quantity demanded at a given price. Excess supply. Price floor, Lower limit set for the price of a good

Front 33

Shortage

Back 33

The amount by which the quantity demanded exceeds the quantity supplied at a given price. Excess demand. PRice ceiling

Front 34

SOURCES OF MARKET FAILURE

Back 34

pub goods, externalities, market power, inequity

Front 35

PUBLIC GOODS

Back 35

non excludable and non rival. Free rider dilemma. UNDER PRODCUED BY MARKET

Front 36

EXTERNALITIES

Back 36

overproduce goods that generage external costsw, aunder produce goods that generate external benefites

Front 37

MARKET POWER

Back 37

monopoly, suboptimal outcome

Front 38

INEQUITY

Back 38

INCOMe distribution

Front 39

MACRO FAILURES

Back 39

unemployment and inflation

Front 40

Goals of macro intervention

Back 40

full employment, price stablitly, growth

Front 41

justification for govt intervention

Back 41

Market and Macro failure

Front 42

GDP

Back 42

gross domestic product. Total market value of all FINAL goods and services produced within a nations borders at a given tp.

Front 43

GDP per capita

Back 43

Total GDP divided by pop. average gdp.

Front 44

does not take into acount

Back 44

Unreported incomes "off the books" intermediate goods. Nonmarket activities

Front 45

nominal GDP

Back 45

Vaue of final output produced in a given tp, measured in the prices of that period (current prices)

Front 46

Real GDP

Back 46

Value of final output produced in a given tp, adjusted for changing prices.

Front 47

Base year

Back 47

year used for comapative anaysis, the basis for indexing price changes

Front 48

Real GDP =

Back 48

nominal GDP in year t/ price index

Front 49

Inflation

Back 49

an increase in the average level of prices of goods and services

Front 50

GDP

Back 50

C+I+G+(X-M)
orrr
C+I+G+ NX

Front 51

Nex exports

Back 51

exports-imports

Front 52

Circular flow

Back 52

the flow of income that starts with GDP ultimately return to the market in the form of new consumption, investment, goverment purchase

Front 53

Labor force

Back 53

All persons 16+ who are either working for pay or actively seeking paid employment

Front 54

Labor force =

Back 54

# employed + # unemployed

Front 55

Labor Force participation rate =

Back 55

(labor force/ pop 16+)*100

Front 56

Unemployment rate=

Back 56

(number unemplyed/ labor force)* 100

Front 57

Unemployment

Back 57

inability for labor froce participants to find jobs. Willing and able to work

Front 58

TYPEs of unemploymen

Back 58

seasonal, frictional, structural, cyclical.

Front 59

Seasonal

Back 59

Unemployment due to seasonal changes in employment or labor supply

Front 60

Frictional

Back 60

Brief periods of unemployment experienced by people moving between jobs or in the labor market

3 attributes:
-adefquate demand for frictionally unemloyed
-Frictionally unemplotyed have th skills required to get the job
-duration of unemployment relitively short

Front 61

Structural

Back 61

Mismatch between skills or location of job seekers and the requirement or location of abailable jobs. Mismatched skills

Front 62

Cyclical

Back 62

unemployment attributable to lack of job vacancies, that is, to an inadequate level of aggregate demand. This may happen in an economic downturn. The economy must grow atleast as fast as the labor force to avoid cyclical unemployment

Front 63

Natural rate of unemployment

Back 63

Long term rate of unemployment determined by structural forces in the labor and product markets. Includes frictional and structural unemployment

Front 64

Full employment

Back 64

Lowest rate of unemployment compatible with price stablilty. between 4 and 6 percent unemployment. Goal to avoid cyclical and structural unemployment.

Front 65

rising prices signal

Back 65

that employmet is nearing capacity