Economic Concepts

Front 1

Substitiution Effect

Back 1

refers to the fact that as a price of a good falls, consumers will use it to replace similar goods.

Front 2

Infererior Goods

Back 2

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.

Front 3

Income Effect

Back 3

refers to the fact that as the price of a good falls, consumers can purchase more with a given level of income.

Front 4

Market Equilibrium

Back 4

the pirce at which all goods offered for sale will be sold.

Front 5

Average fixed cost

Back 5

Fixed cost per unit of production. Total FC/units produced

Front 6

Average Variable Cost

Back 6

Total variable costs divided by the number of units produced.

Front 7

Marginal Cost

Back 7

the added cost of producing one extra unit.

Front 8

Average Total Cost

Back 8

Total Costs/Units produced.

Front 9

Normal Profit

Back 9

the amount of profit necessary to compensate the owners for their capital and managerial skills.

Front 10

Economic Profit

Back 10

the amount of profit in excess of normal profit.

Front 11

Marginal Revenue

Back 11

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.

Front 12

Marginal Product

Back 12

the additional output obtained from employing one additonal unit of resource.

Front 13

Marginal Revenue Product

Back 13

the change in total revenue from employing one additonal unit of a resource.

Front 14

Marginal Revenue Per unit

Back 14

Marginal Revenue Product/increase in products produced by employing one additional unit of resource.

Front 15

Macroeconomics

Back 15

focuses on measures of economic output, employment, inflation, and trade surpluses or deficits. 3 segments include consumers, businesses , govt.

Front 16

Nominal Gross Domestic Product

Back 16

price of all goods and services produced by a domestic economy for a year at current market prices.

Front 17

Real GDP

Back 17

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.

Front 18

Potential GDP

Back 18

max amount of production that could take place in an economy without putting pressure on the general levels of prices.

Front 19

GDP gap

Back 19

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.

Front 20

Net Domestic Product

Back 20

GDP minus depreciation

Front 21

Gross National Product

Back 21

the price of all goods and services produced by labor and property supplied by the nation's residents.

Front 22

Multiplier

Back 22

refers to the fact that an increase in spending by consumers, businesses, or the govt has a multiplied effect on equilibrium GDP.

Front 23

Recession

Back 23

a period of negative GDP growth. Usually two consecutive quarters.

Front 24

Frictional Unemployment

Back 24

occurs because individuals are forced or voluntarily change jobs.

Front 25

Structural Unemployment

Back 25

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.

Front 26

Cyclical Unemployment

Back 26

is caused by the condition in which real GDP is less than potential GDP.

Front 27

Inflation

Back 27

is the rate of increase in the price level of goods and services.

Front 28

Deflation

Back 28

is a term used to describe a decrease in the price levels.

Front 29

Consumer Price Index

Back 29

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.

Front 30

Causes of Inflation

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1)Demand Pull
2) Cost-Push

Front 31

Demand Pull

Back 31

occurs when real GDP exceeds potential GDP.

Front 32

Cost Push

Back 32

occurs when there is an increase in the cost of producing goods and services.

Front 33

Real Interest Rate

Back 33

Interest rate in terms of goods. Adjusted for inflation

Front 34

Real Interest Rate

Back 34

Interest rate in terms of goods. Adjusted for inflation

Front 35

Nominal Interest Rate

Back 35

interest rate in terms of the nation's currency.

Front 36

Monetary Policy

Back 36

1) Reserve Requirements
2)Open Market Operations
3)Discount Rate
4)Economic Analysis

Front 37

Reserve Requirement

Back 37

a bank must hold a percentage of checking deposits in reserve.

Front 38

Open Market Operations

Back 38

when a central bank purchases or sells govt securities. Purchasing results in expanding the money supply, sellling it is decreasing it.

Front 39

Discount Rate

Back 39

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.

Front 40

Economic Analysis

Back 40

Speeches may influence the economy.

Front 41

Fiscal Expansion

Back 41

an increase in deficit due to an increase in govt spending or a decrease in taxes.

Front 42

Fiscal Contraction

Back 42

increased taxes to reduce a deficit.

Front 43

Absolute Advantage

Back 43

(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.

Front 44

Comparative Advantage

Back 44

means that a country has no alternate uses of its resources that would involve a higher return.

Front 45

Business Risks

Back 45

are conditions that threaten management's ability to execute strategies and achieve the firm's objectives.

Front 46

Perfect Competition

Back 46

it's pure if it's composed of a large number of sellers that can enter or leave the market easily.

Front 47

Monopolistic Competition

Back 47

many firms selling a differentiated product or service. May be real or created by advertising.

Front 48

Oligopoly

Back 48

a few large sellers of a product. Categorized by significant barriers to entry.