Macroeconomics Exam 1

Front 1

macroeconomics

Back 1

The part of economics concerned with the economy as a whole; with such major aggregates as the household, business, and government sectors; and with measures of the total economy.

Front 2

microeconomics

Back 2

The part of the economics concerned with decision making by individual units such as a household, a firm, or an industry and with individual markets, specific goods and services, and product and resource prices.

Front 3

positive economics

Back 3

The analysis of facts or data to establish scientific generalizations about economic behavior.

Front 4

normative economics

Back 4

The part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics.

Front 5

economizing problem

Back 5

The choices necessitated because society's economic wants for goods and services are unlimited bu the resources available to satisfy these wants are limited (scarce).

Front 6

economic perspective

Back 6

A viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions.

Front 7

factors of production

Back 7

Economic resources: land, capital, labor, and entrepreneurial ability

Front 8

economic growth

Back 8

(1) An outward shit in the production possibilities curve that results from an increase in resource supplies or quality or an improvement in technology; (2) an increase of real output (gross domestic product) or real output per capita

Front 9

law of increasing opportunity costs

Back 9

The principle that as the production of a good increases, the opportunity cost of producing an additional unit rises.

Front 10

command system

Back 10

A method of organizing an economy in which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities.

Front 11

normal profit

Back 11

The payment made by a firm to obtain and retain entrepreneurial ability; the minimum income entrepreneurial ability must receive to induce it to perform entrepreneurial functions for a firm.

Front 12

economic profit

Back 12

The total revenue of a firm less its economic costs (which include both exsplicit costs and implicit costs); also called "pure profit" and "above-normal profit."

Front 13

equilibrium price

Back 13

The price in a competitive market at which the quantity demanded and the quantity supplied are equal, there is neither a shortage nor a surplus, and there is no tendency for price to rise or fall.

Front 14

equilibrium quantity

Back 14

(1) The quantity demanded and supplied at the equilibrium price in a competitive market; (2) the profit-maximizing output of a firm.

Front 15

substitute goods

Back 15

Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.

Front 16

substitute resources

Back 16

Productive inputs that can be used instead of other inputs in the production process; resources for which an increase in the price of one leads to an increase for the other.

Front 17

complementary goods

Back 17

Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely).

Front 18

complementary resources

Back 18

Productive inputs that are used jointly with other inputs in the production process; resources for wich a decrease in the price of one leads to an increase in the demand for the other.

Front 19

inferior good

Back 19

A good or service whose consumption declines as income rises, prices held constant.

Front 20

normal good

Back 20

A good or service whose consumption increases when income increases and falls when income decreases, price remaining constant.

Front 21

shortage

Back 21

The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below-equilibrium) price.

Front 22

surplus

Back 22

The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above-equilibrium) price.

Front 23

rationing function of prices

Back 23

The ability of market forces in competitive markets to equalize quantity demanded and quantity supplied to eliminate shortages and surpluses via changes in prices.

Front 24

guiding function of prices

Back 24

The ability of price changes to bring about changes in the quantities of products and resources demanded and supplied.

Front 25

price ceiling

Back 25

A legally established maximum price for a good or service.

Front 26

price floor

Back 26

A legally determined minimum price above the equilibrium price.

Front 27

law of demand

Back 27

The principle that, other things equal, an increase in a product's price will reduce the quantity of it demanded, and conversely for a decrease in price.

Front 28

law of supply

Back 28

The principle that, other things equal, an increase in the price of a product will increase the quantity of it supplied, and conversely for a price decrease.

Front 29

household sector

Back 29

An economic unit (of one or more persons) that provides the economy with resources and uses the income received to purchase goods and services that satisfy economic wants.

Front 30

business sector

Back 30

The second major part of the private sector; a plant, a firm, or an industry.

Front 31

public sector

Back 31

The part of the economy that contains all government entities; government.

Front 32

externality cost

Back 32

A cost imposed without compensation on third parties by the production or consumption of sellers or buyers. Example: A manufacturer dumps toxic chemicals into a river, killing the fish sought by sports fishers.

Front 33

externality benefit

Back 33

A benefit obtained without compensation by third parties from the production or consumption of sellers or buyers. Example: A beekeeper benefits when a neighboring farmer plants clover.

Front 34

exclusion principle

Front 35

public good

Back 35

A good or service that is characterized by nonrivalry and nonexcludability; a good or service with these characteristics provided by the government.

Front 36

private good

Back 36

A good or service that is individually consumed and that can be profitably provided by privately owned firms because they can exclude nonpayers from receiving the benefits.

Front 37

quasi-public good

Back 37

A good or service to which excludability could apply but that has such a large positive externality that government sponsors its production to prevent an underallocation of resources.

Front 38

free-rider problem

Back 38

The inability of potential providers of an economically desirable good or service to obtain payment from those who benefit, because of nonexcludability.

Front 39

foreign exchange market

Back 39

A market in which the money (currency) of one nation can be used to purchase (can be exchanged for) the money of another nation; currency market.

Front 40

Doha Round

Back 40

The latests, uncompleted (as of 2008) sequence of trade negotiations by members of the World Trade Organization; named after Doha, Qatar, where the set of negotiations began.