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73 Cards in this Set
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Macroeconomics
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MACROECONOMICS STUDIES THE PERFORMANCE OF NATIONAL ECONOMIES AN THE POLICIES THAT GOVERNMENTS USE TO TRY TO IMPROVE THAT PERFORMANCE
INFLATION, UNEMPLOYMENT, GROWTH MACROECONOMICS CONSIDERS MONETARY POLICY, DEFICITS, TAX POLICY |
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Microeconmics
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MICROECONOMICS
STUDIES CHOICE AND ITS IMPLICATIONS FOR PRICE AND QUANTITY IN INDIVIDUAL MARKETS MICROECONOMICS CONSIDERS TOPICS SUCH AS COSTS OF PRODUCTION DEMAND FOR A PRODUCT EXCHANGE RATES |
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Marginal Benefit
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MARGINAL BENEFIT OF AN ACTIVITY IS THE INCREASE IN TOTAL BENEFIT THAT RESULTS FROM CARRYING OUT ONE ADDITIONAL UNIT OF THE ACTIVITY
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Marginal Cost
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MARGINAL COST OF AN ACTIVITY IS THE INCREASE IN TOTAL COST THAT RESULT FROM CARRYING OUT ONE ADDITIONAL UNIT OF ACTIVITY
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Normative Economic Principle
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NORMATIVE ECONOMIC STATEMENTS SAY HOW PEOPLE SHOULD BEHAVE
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Opportunity Cost
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OPPORTUNITY COST
THE OPPORTUNITY COST OF AN ACITVITY IS THE VALUE OF WHAT MUST BE FORGONE TO UNDERTAKE THE ACTIVITY |
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POSITIVE ECONOMIC PRINCIPLE
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POSITIVE ECONOMIC STATEMENTS PREDICT HOW PEOPLE WILL BEHAVE
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Rational Person
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RATIONAL PERSON
SOMEONE WITH WELL-DEFINED GOALS WHO TRIES TO FULFILL THOSE GOALS AS BEST AS HE/SHE CAN |
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Sunk Cost
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A COST THAT IS BEYOND RECOVERY AT THE MOMENT A DECISION MUST BE MADE
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THE SCARCITY PRINCIPLE- NO-FREE LUNCH PRINCIPLE
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HAVING MORE OF ONE GOOD THING USUALLY MEANS HAVING LESS OF ANOTHER
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ABSOLUTE ADVANTAGE
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ONE PERSON HAS AN ABSOLUTE ADVANTAGE OVER ANOTHER IF HE/ SHE TAKES FEWER HOURS TO PERFORM A TASKS THAN THE OTHER PERSON
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COMPARATIVE ADVANTAGE
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ONE PERSONS HAS A COMPARATIVE ADVANTAGE OVER ANOTHER IF HIS/ HER OPPORTUNITY COST OF PERFORMING A TASK IS LOWER THAN THE OTHER PERSON’S OPPORTUNITY COST
INEFFICIENT POINT ANY COMBINATION OF GOODS FOR WHICH CURRENTLY AVAILABLE RESOURCES ENABLE AN INCREASE IN THE PRODUCTION OF ONE GOOD WITHOUT A REDUCTION IN THE PRODUCTION OF THE OTHER |
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ATTAINABLE POINT
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ATTAINABLE POINT
ANY COMBINATION OF GOODS THAT CAN BE PRODUCED USING CURRENTLY AVAILABLE RESOURCES |
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EFFICIENT POINT
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ANY COMBINATION OF GOODS FOR WHICH CURRENTLY AVAILABLE RESOURCED DO NOT ALLOW AN INCREASE IN THE PRODUCTION OF ONE GOOD WITHOUT A REDUCTION IN THE PRODUCTION OF THE OTHER
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INEFFICIENT POINT
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ANY COMBINATION OF GOODS FOR WHICH CURRENTLY AVAILABLE RESOURCES ENABLE AN INCREASE IN THE PRODUCTION OF ONE GOOD WITHOUT A REDUCTION IN THE PRODUCTION OF THE OTHER
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OUTSOURCING
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A TERM INCREASINGLY USED TO CONNOTE HAVING SERVICES PERFORMED BY LOW-WAGE WORKERS OVERSEAS
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PRODUCTION POSSIBILITIES CURVE
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A GRAPH THAT DESCRIBES THE MAXIMUM AMOUNT OF ONE GOOD THAT CAN BE PRODUCED FOR EVERY POSSIBLE LEVEL OF PRODUCTION OF THE OTHER GOOD
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UNATTAINABLE POINT
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ANY COMBINATION OF GOODS THAT CANNOT BE PRODUCED USING CURRENTLY AVAILABLE RESOURCES
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BUYERS RESERVATION PRICE
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THE LARGEST DOLLAR AMOUNT THE BUYER WOULD BE WILLING TO PAY FOR A GOOD
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ECONOMIC EFFICIENCY
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CONDITION THAT OCCURS WHEN ALL THE GOODS AND SERVICES ARE PRODUCED AND CONSUMED AT THEIR RESPECTIVE SOCIALLY OPTIMAL LEVELS
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NORMAL GOOD
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ONE WHOSE DEMAND CURVE SHIFTS RIGHTWARD WHEN THE INCOMES OF BUYERS INCREASE; LEFTWARD WHEN THE INCOMES OF BUYERS DECREASE
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BUYER’S SURPLUS
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THE DIFFERENCE B/W THE BUYER’S RESERVATION PRICE AND THE PRICE HER/ SHE ACTUALLY PAYS
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EQUILIBRIUM PRICE/ EQUILIBRIUM QUANTITY
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THE VALUES OF PRICE AND QUANTITY FOR WHICH QUANTITY SUPPLIED AND QUANTITY DEMANDED ARE EQUAL-INTERSECT
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CHANGE IN THE QUANTITY DEMANDED
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A MOVEMENT ALONG THE DEMAND CURVE THAT OCCURS IN RESPONSE TO A CHANGE IN PRICE
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CHANGE IN SUPPLY
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A SHIFT OF THE ENTIRE SUPPLY CURVE: SUPPLY INCREASES WHEN THE SELLERS ARE WILLING TO OFFER MORE FOR SALE AT EACH POSSIBLE PRICE; SUPPLY DECREASES WHEN SELLERS ARE WILLING TO OFFER LESS FOR SALE @ EACH POSSIBLE PRICE
MOVES TO THE LEFT |
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COMPLEMENTS
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TWO GOODS ARE COMPLEMENTS IN CONSUMPTIONS IF AN INCREASE IN THE PRICE OF ONE CAUSES A LEFTWARD SHIFT IN THE DEMAND CURVE FOR THE OTHER ( OR IF A DECREASE CAUSES A RIGHTWARD SHIFT)
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if a fall in the price of one good makes people more willing to buy the other good
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PRODUCTION POSSIBILITIES CURVE
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A GRAPH THAT DESCRIBES THE MAXIMUM AMOUNT OF ONE GOOD THAT CAN BE PRODUCED FOR EVERY POSSIBLE LEVEL OF PRODUCTION OF THE OTHER GOOD
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ECONOMIC EFFICIENCY
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CONDITION THAT OCCURS WHEN ALL THE GOODS AND SERVICES ARE PRODUCED AND CONSUMED AT THEIR RESPECTIVE SOCIALLY OPTIMAL LEVELS
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NORMAL GOOD
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ONE WHOSE DEMAND CURVE SHIFTS RIGHTWARD WHEN THE INCOMES OF BUYERS INCREASE; LEFTWARD WHEN THE INCOMES OF BUYERS DECREASE
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EXCESS SUPPLY
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THE DIFFERENCE B/W THE QUANTITY SUPPLIED AND THE QUANTITY DEMANDED WHEN THE PRICE OF A GOOD EXCEEDS THE EQUILIBRIUM PRICE; SELLERS ARE DISSATISFIED WHEN THERE IS AN EXCESS SUPPLY
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INCOME EFFECT
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THE CHANGE IN QUANTITY DEMANDED OF A GOOD THAT RESULTS BECAUSE A CHANGE IN THE PRICE OF A GOOD CHANGE THE BUYER’S PURCHASING POWER
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INFERIOR GOOD
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ONE WHOSE DEMAND CURVE SHIFTS LEFTWARD WHEN THE INCOMES OF BUYERS INCREASE; RIGHTWARD WHEN THE INCOMES OF BUYERS DECREASE
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SELLERS RESERVATION PRICE
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THE SMALLEST DOLLAR AMOUNT FOR WHICH A SELLER WOULD BE WILLING TO SELL AN ADDITIONAL UNIT, GENERALLY EQUAL TO MARGINAL COST
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SOCIALLY OPTIMAL QUANTITY
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THE QUANTITY OF A GOOD THAT RESULT IN THE MAXIMUM POSSIBLE ECONOMIC SURPLUS FROM PRODUCING AND CONSUMING THE GOOD
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SUBSTITUTES
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TWO GOODS ARE SUBSTITUTES IN CONSUMPTION IF AN INCREASE IN THE PRICE OF ONE CAUSES A RIGHTWARD SHIFT IN THE DEMAND CURVE FOR THE OTHER (OR IF DECREASE CAUSES A LEFTWARD SHIFT)
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SUBSTITUTION EFFECT
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THE CHANGE IN THE QUANTITY DEMANDED OF A GOOD THAT RESULTS BECAUSE BUYERS SWITCH TO OR FROM SUBSTITUTES WHEN THE PRICE OF THE GOOD CHANGES
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TOTAL SURPLUS
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THE DIFFERENCE B/W THE BUYER’S RESERVATION PRICE AND THE SELLER’S RESERVATION PRICE
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THE EFFICIENCY PRINCIPLE
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EFFICIENCY IS AN IMPORTANT SOCIAL GOAL BECAUSE WHEN THE ECONOMIC PIE GROWS LARGER, EVERYONE CAN HAVE A LARGER SLICE
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THE EQUILIBRIUM PRINCIPLE “NO-CASH-ON-THE-TABLE”
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A MARKET IN EQUILIBRIUM LEAVES NO UNEXPLOITED OPPORTUNITIES FOR INDIVIDUAL BUT MAY NOT EXPLOIT ALL GAINS ACHIEVABLE THROUGH COLLECTIVE ACTION
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CONSUMPTION EXPENDITURE
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SPENDING BY HOUSEHOLDS ON GOODS AND SERVICES SUCH AS FOODS, CLOTHING, AND ENTERTAINMENT
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FINAL GOOD OR SERVICES
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GOODS OF SERVICES CONSUMED BY THE ULTIMATE USER: BECAUSE THEY ARE THE END PRODUCTS OF THE PRODUCTION PROCESS, THEY ARE COUNTED AS PART OF GDP
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GOVERNMENT PURCHASES
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GOVERNMENT PURCHASES
PURCHASES BY FEDERAL. STATE & LOCAL GOVTS. OF FINAL GOODS AND SERVICES : GOVT. PURCHASE DO NOT INCLUDE TRANSFER PAYMENTS, WHICH ARE PAYMENTS MADE BY THE GOVT.IN RETURN FOR WHICH NO CURRENT GOODS OR SERVICES ARE RECEIVED NOR DO THEY INCLUDE INTEREST PAID ON THE GOVT. DEBT |
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GROSS DOMESTIC PRODUCT(GDP)
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THE MARKET VALUE OF THE FINAL GOODS AND SERVICES PRODUCED IN A COUNTRY DURING A GIVEN PERIOD
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INTERMEDIATE GOODS OR SERVICES
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GOODS OR SERVICES USED UP IN THE PRODUCTION OF FINAL GOODS AND SERVICES AND THEREOFORE NOT COUNTED AS PART OF GDP
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INVESTMENT
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SPENDING BY FIRMS ON FINAL GOODS AND SERVICES PRIMARILY CAPITAL GOODS
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NOMINAL GDP
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MEASURES THE CURRENT DOLLAR VALUE OF PRODUCTION: A MEASURE OF GDP IN WHICH THE QUANTITIES ARE VALUED AT CURRENT-YEAR-PRICES
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REAL GDP
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MEASURES THE ACTUAL PHYSICAL VOLUME OF PRODUCTION: A MEASURE OF GDP IN WHICH THE QUANTITIES PRODUCED ARE VALUED AT THE PRICES IN A BASE YEAR RATHER THAN AT CURRENT PRICES
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VALUE ADDED
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FOR ANY FIRM, THE MARKET VALUE OF ITS PRODUCT OF SERVICE MINUS THE COST OF INPUTS PURCHASE FROM OTHER FIRMS
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COMPARATIVE ADVANTAGE PRINCIPLE
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EVERYONE DOES BEST WHEN EACH PERSON (OR EACH COUNTRY) CONCENTRATES ON THE ACTIVITIES FOR WHICH HIS/HER OPPORTUNITY COST IS LOWEST
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INCREASING OPPORTUNITY COST
“THE LOW HANGING-FRUIT PRINCIPLE” |
IN EXPANDING THE PRODUCTION OF ANY GOOD, FIRST EMPLOY OF THOSE RESOURCES WITH THE LOWEST OPPORTUNITY COST, AND ONLY AFTERWARD TURN TO RESOURCES WITH HIGHER OPPORTUNITY COST
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THE COST BENEFIT PRINCIPLE
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AN INDIVIDUAL (OR FIRM OR SOCIETY) SHOULD TAKE AN ACTION IF, AND ONLY IF , THE EXTRA BENEFITS FROM TAKING THE ACTION ARE AT LEAST AS GREAT AS THE EXTRA COSTS
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INCENTIVE PRINCIPLE
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A PERSON ( OR FIRM OR A SOCIETY) IS MORE LIKELY TO TAKE AN ACTION IF THE BENEFIT RISES AND LESS LIKELY TO TAKE IT IF THE COST RISES
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Cyclical unemployment
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The extra unemployment that occurs during periods of recession
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Diminishing returns to labor
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If the amount of capital and other inputs in use is held constant, then the greater the quantity of labor already employed, the less each additional worker adds to production
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Discouraged workers
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People who say they would like to have a job but have not made an effort to find one in the past four weeks
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Duration ( of an unemployment spell)
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The length of an unemployment spell
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Frictional unemployment
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The short-term unemployment associated with the process of matching workers with jobs
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Labor force
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The total number of employed and unemployed people in the economy
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Participation rate
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The % of working-age population in the labor force ( that is the % that is either employed or looking for work)
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Skill-biased technological change
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Technological change that affects the marginal products of higher-skilled workers differently from those of lower-skilled workers
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Structural unemployment
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Structural unemployment
The long-term and chronic unemployment that exists even when the economy is producing at a normal rate |
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Unemployment spell
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A period during which an individual is continuously unemployed
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Worker mobility
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The movement of workers between jobs, firms & industries
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CONSUMER PRICE INDEX (CPI)
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THE CPI MEASURES THE COST IN THAT PERIOD OF A STANDARD BASKET OF GOODS AND SERVICES RELATIVE TO THE COST OF THE SAME BASKET OF GOODS AND SERVICES IN A FIXED YEAR-BASE YEAR
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FISHER EFFECT
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THE TENDENCY FOR NOMINAL INTEREST RATES TO BE HIGH WHEN INFLATION IS HIGH AND LOW WHEN INFLATION IS LOW
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INDEXING
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THE PRACTICE OF INCREASING A NOMINAL QUANTITY EACH PERIOD BY AN AMOUNT EQUAL TO THE PERCENTAGE INCREASE IN A SPECIFIED PRICE INDEX. INDEXING PREVENTS THE PURCHASING POWER OF THE NOMINAL QUANTITY FROM BEING ERODED BY INFLATION
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INFLATION-PROTECTED BONDS
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BONDS WHOSE HOLDERS RECEIVE A NOMINAL INTEREST RATE EACH YEAR EQUAL TO THE FIXED REAL RATE
PLUS THE ACTUAL RATE OF INFLATION DURING THAT YEAR |
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NOMINAL QUANTITY
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A QUANTITY THAT IS MEASURED IN TERMS OF ITS CURRENT DOLLAR VALUE
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REAL INTEREST RATE
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THE ANNUAL PERCENTAGE INCREASES IN THE PURCHASING POWER OF A FINANCIAL ASSEST; THE REAL INTEREST RATE ON ANY ASSEST EQUALS THE NOMINAL INTEREST RATE ON THAT ASSEST MINUS THE INFLATION RATE
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RATE OF INFLATION
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THE ANNUAL PERCENTAGE RATE OF CHANGE IN THE PRICE LEVEL, AS MEASURED-CPI
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PRICE LEVEL
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A MEASURE OF THE OVERALL LEVEL OF PRICES AT A PARTICULAR POINT IN TIME MEASURED BY A PRICE INDEX SUCH AS THE CPI
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Inflation Rate
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THE ANNUAL PERCENTAGE INCREASES IN THE PURCHASING POWER OF A FINANCIAL ASSEST; THE REAL INTEREST RATE ON ANY ASSEST EQUALS THE NOMINAL INTEREST RATE ON THAT ASSEST MINUS THE INFLATION RATE
real interest rate (r) = nominal rate (i) - inflation rate (pi) |
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REAL WAGE
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THE WAGE PAID TO WORKERS MEASURED IN TERMS OF PURCHASING POWER; THE REAL WAGE FOR ANY GIVEN PERIOD CALCULATED BY = THE NOMINAL (DOLLAR) WAGE / THE CPI FOR THAT PERIOD
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