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48 Cards in this Set

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Substitiution Effect
refers to the fact that as a price of a good falls, consumers will use it to replace similar goods.
Infererior Goods
bread, potatoes. The demand for such goods actually goes up as consumer income goes down. Consumers buy inferior goods when they are short of money.
Income Effect
refers to the fact that as the price of a good falls, consumers can purchase more with a given level of income.
Market Equilibrium
the pirce at which all goods offered for sale will be sold.
Average fixed cost
Fixed cost per unit of production. Total FC/units produced
Average Variable Cost
Total variable costs divided by the number of units produced.
Marginal Cost
the added cost of producing one extra unit.
Average Total Cost
Total Costs/Units produced.
Normal Profit
the amount of profit necessary to compensate the owners for their capital and managerial skills.
Economic Profit
the amount of profit in excess of normal profit.
Marginal Revenue
the additional revenue received from the sale of one additonal unit of product. Should only be produced and sold as long as the MC of producing the good is less than or equal to the marginal revenue.
Marginal Product
the additional output obtained from employing one additonal unit of resource.
Marginal Revenue Product
the change in total revenue from employing one additonal unit of a resource.
Marginal Revenue Per unit
Marginal Revenue Product/increase in products produced by employing one additional unit of resource.
Macroeconomics
focuses on measures of economic output, employment, inflation, and trade surpluses or deficits. 3 segments include consumers, businesses , govt.
Nominal Gross Domestic Product
price of all goods and services produced by a domestic economy for a year at current market prices.
Real GDP
price of all goods and services produced by the economy at price level adjusted prices. PRice level adj. eliminates the effect of inflation on the measure.
Potential GDP
max amount of production that could take place in an economy without putting pressure on the general levels of prices.
GDP gap
difference between potential GDP and real GDP. When it is positive, there is unemployment. When it is negative, the economy is running smoothly and price levels should rise.
Net Domestic Product
GDP minus depreciation
Gross National Product
the price of all goods and services produced by labor and property supplied by the nation's residents.
Multiplier
refers to the fact that an increase in spending by consumers, businesses, or the govt has a multiplied effect on equilibrium GDP.
Recession
a period of negative GDP growth. Usually two consecutive quarters.
Frictional Unemployment
occurs because individuals are forced or voluntarily change jobs.
Structural Unemployment
occurs due to changes in demand for products or services, or if technology causes not as many individuals to be needed. Reduced by retraining programs.
Cyclical Unemployment
is caused by the condition in which real GDP is less than potential GDP.
Inflation
is the rate of increase in the price level of goods and services.
Deflation
is a term used to describe a decrease in the price levels.
Consumer Price Index
measures the price urban consumers paid for a fixed basket of goods in relation to the price of the same good purchased in some base period.
Causes of Inflation
1)Demand Pull
2) Cost-Push
Demand Pull
occurs when real GDP exceeds potential GDP.
Cost Push
occurs when there is an increase in the cost of producing goods and services.
Real Interest Rate
Interest rate in terms of goods. Adjusted for inflation
Real Interest Rate
Interest rate in terms of goods. Adjusted for inflation
Nominal Interest Rate
interest rate in terms of the nation's currency.
Monetary Policy
1) Reserve Requirements
2)Open Market Operations
3)Discount Rate
4)Economic Analysis
Reserve Requirement
a bank must hold a percentage of checking deposits in reserve.
Open Market Operations
when a central bank purchases or sells govt securities. Purchasing results in expanding the money supply, sellling it is decreasing it.
Discount Rate
when a bank has a reserve deficiency it may borrow funds from a central bank. The bank sets a discount rate that can influence the interest rates in the economy.
Economic Analysis
Speeches may influence the economy.
Fiscal Expansion
an increase in deficit due to an increase in govt spending or a decrease in taxes.
Fiscal Contraction
increased taxes to reduce a deficit.
Absolute Advantage
(low cost labor)in the production of a particular good, there is an incentive for that country to produce more than its citizens need to export the good to a country with a higher production costs.
Comparative Advantage
means that a country has no alternate uses of its resources that would involve a higher return.
Business Risks
are conditions that threaten management's ability to execute strategies and achieve the firm's objectives.
Perfect Competition
it's pure if it's composed of a large number of sellers that can enter or leave the market easily.
Monopolistic Competition
many firms selling a differentiated product or service. May be real or created by advertising.
Oligopoly
a few large sellers of a product. Categorized by significant barriers to entry.