Econ Final

Front 1

productive assets are bought and sold in ______

Back 1

resource markets

Front 2

two classes of productive resources

Back 2

- non human resources: physical capital, land, and natural resources
- human resources: composed of skills, knowledge, and experience of workers

Front 3

_____ refers to activities that increase the human capital and productivity of individuals

Back 3

investment in human capital

Front 4

differences between human resources and non-human resources

Back 4

1) human capital is embodied in theindividual
2) human resources can't be bought or sold, only their labor services can be sold

Front 5

the quanity demanded of a resource is negatively related to its price for two reasons:

Back 5

1) substitution in production
2) substitution in consumption

Front 6

substitution in production

Back 6

if one resource input become more expensive, producers will shift to lower-cost substitution inputs. The better the substitute inputs, the more elastic the demand for the resource

Front 7

substitution in consumption

Back 7

a higher resourve price will raise the product price and consumers will substitute toward other goods. The more elastic the product's demand, the more elastic is the demand for the resource

Front 8

factors that shift resource demanded

Back 8

1) a change in the product demand will cause the D for the resources used to produce the product to change in the same direction
2) a change in the productivity of a resource, productive rises, so does D
3) a change in the price of related inputs

Front 9

profit-maximizing firms will hire additional units of a resource up to the point where the ____ of the resources equals its ____

Back 9

marginal revenue
price

Front 10

MRP =

Back 10

MP x MR

Front 11

MP of skilled labor/
price of skilled labor =

Back 11

MP of unskilled labor/
price of unskilled labor =

MP of machine/
price of machine

Front 12

resource mobility

Back 12

how easily the resource can be transferred from one use to another

Front 13

if resources are highly mobile then the supply curve will be ______

Back 13

elastic
(will be more elastic in the long run than in the short run)

Front 14

higher resource prices will attract. . .

Back 14

new human capital investments and, with time, the resource's supple curve will become more elastic, moderating the resource price and increasing its quanity supplied

Front 15

jobs with undesirable working conditions will command higher wages this is. . .

Back 15

compensating wage differentials

Front 16

examples of what labor immobility can result from

Back 16

specialized labor, institutional barriers, minimum wage, occupational lecensing, labor unions

Front 17

workers in the U.S. earn high wages because of their output per hour is high as a result of:

Back 17

greaters worker knowledge and skills (human capital) and the use of modern machinery (physical capital)

Front 18

types of capital

Back 18

physical and human

Front 19

investment

Back 19

purchase or development of a capital resource
- the use of unconsumed income to produce a capital resource

Front 20

saving

Back 20

income not spent on current consumption
income - consumption

Front 21

you can produce more consumption goods in the future by:

Back 21

using scarce resources to produce more physical and human capital and then use this capital to produce more consumption goods in the future

Front 22

consumption in the future is valued ___ than consumption now because people have ___

Back 22

less
positive rate of time preference

Front 23

positive rate of time preference

Back 23

they prefer to consume foods and services sooner rather than later

Front 24

interest rate

Back 24

the price of earlier availability of goods and services

Front 25

premium

Back 25

what borrowers must pay the lenders in order to aquire purchasing power now rather than later

Front 26

interest rates are determined by . . .

Back 26

the supply and demand for loanable funds

Front 27

the demand for loanable funds comes from. . .

Back 27

1) productivity of capital resources (investment D)
2) positive rate of time preference (consumers' desire for earlier availability

Front 28

interest rewards lenders who. . .

Back 28

curtail current consumption(supply loanable funds)so that others can but now rather than later

Front 29

the market interest rate brings the quantity of funds demanded by borrowers into . . .

Back 29

balance with the quantity supplied by lenders

Front 30

as interest rate rises, current goods become more expensive in comparison with future goods. Therefore. . .

Back 30

borrowers will demand fewer loanable funds

Front 31

higher interest rates stimulate lenders to. . .

Back 31

supply additional funds to the market

Front 32

during inflation, the nominal interest rate, or money interst rate, is. . .

Back 32

misleading indicator of the true cost of borrowing

Front 33

money interest rate will include

Back 33

inflationary premium reflecting the expected rate of inflation

Front 34

real rate of interest is

Back 34

money interest rate munus the inflationary premium
-the real interest rate is far better measure of the true cost of borrowing

Front 35

r =

i =

Back 35

i - %change in CPI

r + %change in CPI

Front 36

list interest rates that exist in the loanable funds market

Back 36

mortgage rate, credit card rate, short-term title loan rate

Front 37

money interest rate reflects three components

Back 37

1) risk premium
2) inflationary premium
3) pure rate of interest

Front 38

risk premium

Back 38

reflects probability of default, large when the probability of borrower default is substantial

Front 39

inflationary premium

Back 39

reflects expectations that loan will be paid back with dollars of less purchasing power, large when decision makers expect a high rate of inflation during the period in which the loan is outstanding

Front 40

pure rate of interest

Back 40

price of earlier availability

Front 41

present value or PV of a single payment to be received in one year from now =

Back 41

receipts 1 year from now/
interest rate + 1

Front 42

PV of a single payment to be received n years from now =

Back 42

receipts n years from now/
(interest rate + 1)^n

Front 43

PV of a stream of payments (each of nominal magnitude R) to be received each year for n years =

Back 43

R1/ + R2/ + . . . Rn/
(1+i)(1+i)^2 (1+i)^n

Front 44

the current value of an asset is determined by

Back 44

the present value of its expected future net earnings

Front 45

an increase(decline) in the expected future earnings derived from an asset will

Back 45

increase(reduce) the market value of that asset

Front 46

profit reflects

Back 46

1) uncertainty
2) entrepreneurship - the ability to recognize and undertake profitable projects that have gone unnoticed by others

Front 47

employee compensation and self-employment income primarily represent

Back 47

returns to human capital
- these 2 components have comprised approximately 80% if total national income in the U.S. for serveral decades

Front 48

to grow and prosper, a nation must have a

Back 48

mechanism that attracts savings and channels it into investment projects that create wealth

Front 49

most international trade is not between the governments of different nations but rather between

Back 49

the people and firms located in different countries

Front 50

international trade leads to

Back 50

mutual gain - because it allows eah country to specialize more fully in the production of those things that it does best according to the law of comp. advantage

Front 51

_____ and _____ expand consumption possibilities

Back 51

specialization and trade

Front 52

international trade also leads to gains from

Back 52

1) economies of scale - inter.trade allows both domestic producers and consumers to gain from reductions in per-unit costs that often accompany large-scale production
2) more competitive markets -inter.tade promotes competition which allows consumers to purchase a wider variety of goods

Front 53

international trade and specialization result in _______

Back 53

lower prices for imported products and higher prices for the items they export and for domestic consumers to buy imported items at lower prices

Front 54

trade is a "positive sum" game because

Back 54

it expands income and improves living standards

Front 55

tariff

Back 55

an excise tax on a foreign good

Front 56

quota

Back 56

a limit put on imports

Front 57

proponents of trade restricitons

Back 57

1)national defense
2) dumping- the sale of goods at a price below the cost of production
3) infant industry

Front 58

firms with large inventories may find it in their interest to

Back 58

offer goods at pices below their cost of production
- domestic firms may engage in this practice
- lower prices benefit domestic consumers

Front 59

trade restrictions provide highly visible, concentrated benefits for

Back 59

a small group of people, while imposing widely dispersed costs that are often difficult to identify on the general citizenry

Front 60

trade fallacy 1

Back 60

trade restrictions that limit imports save jobs for Americans. . .FALSE

Front 61

trade fallacy 2

Back 61

free trade with low-wage countries will reduce the wages of Americans. . . FALSE