Macro And Micro Econ Test 1

Front 1

oppurtunity cost

Back 1

the real cost of something is what you give up to get it

Front 2

people make decisions on the margin...

Back 2

costs and benefits change depending on how much you already have

Front 3

self interest

Back 3

people usually make decisions based on this; usually leads to the best social outcome

Front 4

positive economics

Back 4

"what is"

Front 5

normative economics

Back 5

"what should be"

Front 6

economic method

Back 6

1. observation
2. model-building
3. testing the model

Front 7

fallacy of composition

Back 7

just b/c something works for one person does not mean that it will work for everybody

Front 8

post-hoc fallacy

Back 8

assuming that one event caused another just because it follows that event

Front 9

efficiency

Back 9

situation where no one can be made better or worse off

Front 10

rules of trade and markets

Back 10

1. trade makes everyone better off
2. markets move towards equilibrium
3. markets lead to efficiency
4. we can use govt. to correct markets when they fail

Front 11

factors of production

Back 11

* labor
* capital: machines, tools, factories, etc.
* natural resources
* entreprenuership

Front 12

production possibilities frontier

Back 12

illustrates scarcity, opp. costs , efficiency

all points of PPFs are efficient

cost on PPF: what you give up to get something else

Front 13

oppurtunity cose formal

Back 13

what you give up/ what you get

Front 14

cause of changes on PPF

Back 14

changes in factors of production

technology

knowledge

Front 15

absolute advantage

Back 15

able to produce more

Front 16

comparative advantage

Back 16

able to produce the good for cheaper

this is when you should trade a good

Front 17

firms

Back 17

hire FOB, organize and produce goods and services

Front 18

markets

Back 18

arrangement that allows buyers and sellers to do business

Front 19

property rights

Back 19

legal framework that defines ownership

Front 20

price index

Back 20

average of prices

Front 21

relative price

Back 21

monetary price of one good/monetary price of another

Front 22

competitive markets

Back 22

many buyers and sellers, no individual buyer or seller affects the price, relative price and monetary price

Front 23

demand

Back 23

people want it, can afford it, plan on buying it; price is the most important variable

Front 24

law of demand

Back 24

the higher the price, the less that will be demanded - holding all other factors constant

Front 25

substitution effect

Back 25

as prices get higher, people begin to look for substitutes

Front 26

income effect

Back 26

as the price rises, it makes everyone comparatively poorer

Front 27

demand curve

Back 27

shows willingness to pay for units of a good

* the more that you have of something, the less that you will be willing to pay for it

Front 28

compliments

Back 28

goods that are consumed with another good

Front 29

substitutes

Back 29

goods that are consumed instead of another good; changes in prices of these goods can cause demand to shift

Front 30

normal goods

Back 30

when income increases, demand increases

Front 31

inferior goods

Back 31

when income goes up, consumption goes down; ex.: you are only buying it b/c you cannot afford anything better

Front 32

supply

Back 32

firm must have the resources, mus be able to profit, plan on selling and producing

Front 33

qty. supplied

Back 33

amt. that firms plan on producing and selling; usually tied in a time-frame

Front 34

law of supply

Back 34

if you hold everything constant and are looking only at price and qty. supplied, the higher the price, the higher the qty. supplied

Front 35

increasing marginal cost

Back 35

the more you produce, the more expensive that it becomes; drives the law of supply

Front 36

causes of market failure

Back 36

1. market power
2. externalities: social cost/benefit is different from the private cost/ benefit
3. public goods: goods produced by one person/organization that can be enjoyed by all
4. taxes
5. price controls/qty. control
6. price ceiling/price floor

Front 37

price ceiling

Back 37

mex. price in market that cannot be succeeded (ex: rent);

problems: illegal activity, quality is too low; inefficient allocation to consumers

effort towards fairness

Front 38

price floors

Back 38

min. in market that price cannot fall below

causes surpluses!!
quality is too high

Front 39

quotas

Back 39

cause higher prices, which in turn causes surpluses

Front 40

elasticity

Back 40

responsiveness

Front 41

what effects elasticity

Back 41

having close subsitutes
whether or not it is a neccessity
time frame
fraction of income

Front 42

total revenue

Back 42

all of the money collected from the sale of goods and services

price * qty.

if P is inelastic, then P is high, and TR is high

if P is elastic, P is high, TR is low

Front 43

elasticity =

Back 43

% change in Q/ % change in P

Front 44

cross price elasticity

Back 44

if CPE > 0, subsititues

if CPE < 0, compliments

Front 45

income elasticity of demand

Back 45

% change in Q/ % change in income

IE > 0 = normal good, b/c if income rises, consumption increases

IE < 0 =inferior good, b/c if income rises, consumption goes down

Front 46

elasticity of supply

Back 46

% change in Qs/ % change in P

high levels = very responsive
low levels = fairly unresponsive

>1 = elastic
<1 = inelastic

Front 47

what effects of elasticity of supply

Back 47

availability of inputs, substitutability of inputs; the more that is available, the more elastic; the longer the time frame the more elastic supply is

Front 48

perfectly inelastic

Back 48

e=0; vertical

Front 49

perfectly elastic

Back 49

e=infinity; horizontal

can occur with competition

Front 50

taxes and elasticity

Back 50

elasticities tell us who will pay for the majority of the tax

E of S > E of D: buyer will pay for most of the tax

Front 51

consumer surplus

Back 51

difference b/t willingness to pay and price

1/2 base * height

the lower the price, the higher the consumer surplus

Front 52

producer surplus

Back 52

difference b/t price and marginal cost;

.5 base * height

the higher the price, the higher the PS

Front 53

total surplus

Back 53

PS + CS

equilibrium yields the highest total surplus

Front 54

surplus loss

Back 54

dead weight loss; loss of efficiency

Front 55

utilitarism

Back 55

transferring the wealth until everyone is equal

wrecks incentive, destroys market economy

modified - trying to keep things as close to equal as possible

Front 56

marginal utility

Back 56

amt. of utility for one additional unit of a good, usually positive, but decreases as economy increases

Front 57

economic scarcity

Back 57

forces people to make choices

Front 58

microeconomics

Back 58

focuses on decisions of individuals

Front 59

macroeconomics

Back 59

aggregate behavior of the economy

Front 60

long-run growth

Back 60

aimed at increasing productive resources

Front 61

net taxes

Back 61

taxes-transfers

Front 62

net exports

Back 62

exports - imports

Front 63

GDP

Back 63

market value of all of the final goods and services produced w/in a country depending on a given time period

Front 64

market value

Back 64

assigns price to output final goods (goods that are sold to the final user) produced w/in a certain country

Front 65

calculation GDP

Back 65

1. surveying firms and determining values of output (be careful to avoid double counting)
2. value added approach

Front 66

what GDP shows

Back 66

the size the economy

as time goes on the price level changes

Front 67

Real GDP

Back 67

measure of a production that is adjusted for price

qty * price + ""

inflation not included

Front 68

missing from GDP

Back 68

household production
health/ life expectancy
underground activity
leisure time
quality of environment
political stability

Front 69

GDP formula

Back 69

consumption + investments + govt. spending + exports - imports