Macroeconomics Test #1

Front 1

Scarcity

Back 1

not enough to go around- everyone faces this. Unlimited wants. we cannot ever be completely satisfied

Front 2

how do we decide who gets what

Back 2

1) raise the price
2)communism
3)lottery system
4) monarchy

Front 3

consequences of everyone facing scarcity

Back 3

sacrifice one thing for another. we have to make choices the fact that we have choice means we make sacrifice.

Front 4

notion of sacrifice

Back 4

oportunity cost

Front 5

oportunity cost

Back 5

the amount of one thing we sacrifice in order to produce a unit for another. when you choose to grow corn you cannot grow potatos

Front 6

Difference between scarcity and poverty

Back 6

not everyone faces poverty where everyone faces scarcity

Front 7

poverty

Back 7

living below basic level of need. constately giving up things to get another. no given need

Front 8

resources/factors of production

Back 8

-natural resources: land
-labor: physical and mentel
-capitol: Manufactured aides used in production. ex. machines to farm.
-entreprenuerial skills: have an idea and market it. they work for themselves. he is an innovater and a risk bearer and makes strategic buisness decisions

Front 9

How we are paid for each

Back 9

land-rent
labor-wages
capitol-interest
entrepeurs-profit

Front 10

Interest

Back 10

we borrow to pay and when we pay it back we pay interest

Front 11

wants

Back 11

unlimited: they can be fulfilled in a short period of time but generally we cannot satisfy them

Front 12

do our wants change?

Back 12

yes as we grow older we want cars instead of toys

Front 13

does our change diminish or greaten

Back 13

no. we dont want big screen tvs any less or more than we wanted baby food when we were little

Front 14

The production possibilities curve

Back 14

the maximum output of two products: based on the assumptions of full employment and productive effiency, fixed resources, fixed technology and that the economy is only producing two goods1

Front 15

full employment

Back 15

the economy is useing all of its available resources

Front 16

productive efficency

Back 16

production at the lowest cost

Front 17

fixed resources

Back 17

availible supplies needed for production are fixed in quanitity and quaility. they can however be reallocated for different uses

Front 18

fixed resources

Back 18

the assumption that change of the state of technology does nto change during analysis

Front 19

the law of increasing opportunity costs

Back 19

the more you produce the more you must give up. At first the resources are easy to convert but then they become increasingly hard to convert. the more that is produce the greater the oportunity cost.

Front 20

what must the economy do in order to operate on the opportunities curve

Back 20

it must ultize full employment and productive effiency.

Front 21

Curve is the same as

Back 21

Frontier

Front 22

Utility

Back 22

various goods and services that provide pleasure or satisfaction

Front 23

necessities

Back 23

food, shelter, clothing

Front 24

luxuries

Back 24

perfumes, yachts, race cars

Front 25

The objective of all economic activity

Back 25

fulfill wants

Front 26

Economics

Back 26

the social science that examines efficiency.. the best use of scarce resources

Front 27

Full production

Back 27

all emplyed resources must be used so that they provide the maximum possible satisfaction of our economic wants. full production implies two kinds of efficiency: productive and allocative

Front 28

productive efficiency

Back 28

the production of any particular mix of goods and services in the least costly way.

Front 29

allocative efficiency

Back 29

the least-cost production of that particular mix of goods and services most wanted by society. It requires that an economy produce the right mix of goods and services with each item being produced at the lowest-possible unit cost.

Front 30

Underemployed

Back 30

not realizing full production

Front 31

production possibilities table

Back 31

lists the different combinations of two products that can be produced with a specific set of resources (and with full employment and productive efficiency)

Front 32

Generalization

Back 32

at any point in time, an econoimy achieving full employment and productive efficiency must sacrifice some of one good to obtain more of another good. Scarce resources prohibit such an economy from having more of both goods.

Front 33

Inside of the production possibilities curve

Back 33

inefficiency and there fore is not desirable.

Front 34

outside of the production possibilities curve

Back 34

this is unattainable with the current supplies of recources and technology because it represents a greater output than the out put at any point on the curve.

Front 35

economic growth

Back 35

the ability to produce a larger total output. This growth is the result of (1) increases in supplies of recourses (2) improvements in recource quality (3) technological advances

Front 36

Goods for the future

Back 36

they increase the quanitity and quality of property resources, enlarge the stock of technoligical information and improve the quality of human resources ex. capitol goods, research and education, and preventive medicine

Front 37

Production possibilities analysis

Back 37

implies that an individual nation is limited ot the combinations of poutput indicated by the production possibilities curve

Front 38

international specialization

Back 38

directing domestic resources to output that a nation is highly efficent at production.

Front 39

Economic system

Back 39

societies attempt to deal with scarsity

Front 40

4 questions need to be answer in an economic system

Back 40

1) what will be produced 2) how will you produce it. 3) who gets it? 4) how will we accomadate change

Front 41

Command exconomy

Back 41

(former soviet union, china, NK. Cuba)
-gov owns resources
-gov decides what will be produced. Central planning company decides what and how to produce
-gove decides how it gets produced (also central planning company)
-CPC decides who gets it
problem: change didnt govern over well -hard to accomadate change

Front 42

Traditional economy

Back 42

(feudalism)
-cast system
-resources are communally owned or by a feudal lord
-produced based on what you do on things in the past -never got out of box
-Agrarian- based on agriculture
-you did things the way you always did them.

Front 43

Market system

Back 43

-individuals own resources
-react to the economic market (market dictates what to produce... if you dont keep up you lose- market is brutle)
-Freedom of enterprise- anybody can start any buiness and get out of it- easy entrace and exit
-self inter motivates US (individuals).. work for what we want
-competition
-prices dictate who gets what and how much
-"dollar votes": buyers determine which products succeed and which fail
-extensive use of capital goods (can make production process less expensive)
-specialization
-use of money (hasnt always been around)
-limited government

Front 44

Monopolies

Back 44

are allowed if they setup legally

Front 45

limited government

Back 45

gov doesnt own means of production

Front 46

Market

Back 46

an institution or mechanism that brings together buyers ("demanders") and sellers ("supplies") of particular goods, services or resources. All situations that link potential buyers with potential sellers are markets. Some are local and other are national or internations.

Front 47

In a simple economy

Back 47

there are two operators . the firm(buisness) and the households.

Front 48

Circular Flow Model

Back 48

sugguest a complex interrelated web of decision makig and economic activity involving buinesses and households. Buisnesses buy resoures which the households sell in exchange for costs. Households buy products in exchange for money (income for firms)

Front 49

Resource market

Back 49

the place where resources or services of resource suppliers and bought and hold. households sell resources and buinesses buy them. the buinesses pay bosts which translates inco wages, rent, interest, and profit income to the households (land labor capitol)

Front 50

Product market

Back 50

the place where goods and services produced by buinesses are bought and sold. In this market. the buinesses combine the resources they have obtained to produce and sell goods and services. households use the income they recieved from the sale of recoureces to buy goods and services.

Front 51

non simpole market

Back 51

we have taxes (leckage in market). also government spending needs to be considered. however it does balence out because it interacts with both products and buinesses and households. also need to consider imports and exports

Front 52

why do nations need trade?

Back 52

-resources are unevenly distributed
-its more efficient (cheeper) to get resources from other places than it is to try to get them at home (also eaiser)
-for political reasons-its easier to project power if we ahve a sound trade with them

Front 53

who bennifits from trade?

Back 53

-both sides by difintion must bennifit from trade
-no such thing as a bad trade in economics
-democrats dont go to war with eachother
-socially=allies
-intellectually-culltural and technoligical bennifits

Front 54

how do nations vary in their production techniques?

Back 54

Us- capitol intensive production.. factories
however not everyone has advanced technology
-labor intensive production...cheaper because factory workers are expensive in US (minimun wage)
-land intensive production: agriculture economies (midwest us, Brazil)

Front 55

Which is the wrong ease

Back 55

neither. its just that resources are distributed unevenly.

Front 56

Comparitive advantage

Back 56

total output will be greatest when each good is produced by the nation that has the lowest domestic opportunity cost for that good

Front 57

2 types of comparative advantage problems

Back 57

output problem and input problem

Front 58

output problem

Back 58

gives us the amount of stuff produced in a given period of time or amount of space (certain output for given imput) ex. tons per acre, bustles per hr. gallons permin (see workbook)... O=output=other over firt to find the least opportunity cost

Front 59

imput problem

Back 59

it takes a certain amount of input to make a given product. ex. how many acres to get a ton

Front 60

demand

Back 60

a schedule or graph which shows how much of a product consumers are willing and able to buy at various prices.

Front 61

Law of Demand

Back 61

there is an inverse relatioship between prices and quanity demand

Front 62

why would demand change

Back 62

-# of buyers in the market
-price decrease: consumers can afford it..income effect
-substitution effect: people give up more expensive for less expensive
-diminishing marginal ultilty: the first consumed has greater satisfaction then later: will only buy more if price goes down

Front 63

What causes demand to move along the curve

Back 63

change in price

Front 64

what causes the curve to shift?

Back 64

-tastes: fashion change
-income change
-# of buyers change
-prices of related products: substitutes and complements;when the demand for complementory good good falls then the product demand will fall
-expectations: 1)future increase in price means they want more now 2)decrease means more later

Front 65

complements

Back 65

things that go together ex. cars and gas, hotdogs and hotdog buns

Front 66

Supply

Back 66

(suppliers are caring about sellers)
-the amount of good a company is willing or able to supply

Front 67

law of supply

Back 67

as prices go up the quantity of services and goods supplied goes up. Prices and Quantity are directly related.

Front 68

what causes change in supply?

Back 68

1) taxes and subsides
2)technology- we can do more with less
3)number of sellers
4)prices of related products: the one with the highest price will cause switch which will lower supply of the oringinal
4)resource prices: if resource prices now supply will shift to the left
6)expectations: they want to make the most they can. will get out of a market if it is expected to decrease in money

Front 69

taxes

Back 69

gov puts cost on production in addition to gen cost

Front 70

subsidies

Back 70

payment from gov that helps offset the cost of productions

Front 71

equalibrium

Back 71

supply and demand meet. everytime there is a trade there is an equailbrium

Front 72

price cieling

Back 72

maximum legal price a seller may charge

Front 73

price floor

Back 73

minimum price fixed by the government (constant state of surplus) and market cannot get back to equailibrium

Front 74

See workbook

Back 74

see workbook

Front 75

THings to rememeber about comparitive advantage

Back 75

-always compare data in collum (up and down)
-always pick lowest fraction
-no need to do it if there is an absolute advantage

Front 76

inferior goods

Back 76

goods whose demand varies inversely with money income

Front 77

superior goods or normal goods

Back 77

products whose demand baries directly with money income

Front 78

marginal cost

Back 78

the added cost of producing one more unit of output

Front 79

shortage

Back 79

excecss demand

Front 80

surplus

Back 80

excess supply

Front 81

rationing function of prices

Back 81

the ability of competitive forces of supply and demand to establish a price at which selling and buying decisions are consistent

Front 82

complex cases of changees in equalibrium

Back 82

when both supply and demand change

Front 83

Rent controls

Back 83

goal is to protect low-income families from escalting rents caused by percieved housing shortages and to make housing more affordableto the poor. prob is it makes it less attractive for renters to put houses on the rentle market

Front 84

how to cope with surplus

Back 84

-gov can restrict supply or increase demand.
-or they can purchase the surplus output (subsidizeing farmers) and store or otherwise dispose of it

Front 85

GDP

Back 85

a total market value of all goods and services produced in a given year

Front 86

revenue tariff

Back 86

applied to a product that is not being produced domestically

Front 87

protective tarrif

Back 87

designed to shield domestic producers from foreign competition. although protective tariffs are usually not high enough to stop the importation of foreign goods, they put foreign producers at a competitive disadvantage in selling in domestic markets

Front 88

import quota

Back 88

specifices the maximum amount of a commodity that may be imported in any period.

Front 89

nontariff barrrier (NTB)

Back 89

a licensing requirement that specifires unreasonable standards pertaining to product quality and safety or unnecessary bureaucratic red tape that is used to restrict imports

Front 90

voluntary export restriction (VER)

Back 90

trade barrier by which foregn firms "voluntaritly" limit the amount of their exports to a particular country. they avoid more stringent trade barriers

Front 91

impact of tariffs

Back 91

-domestic prices go up
-domestic quality goes down
-increased production because with the higer income they can afford it
-decline in imports

Front 92

Military argument for protective tarrifs

Back 92

it states that protective tarrifs are needed to preserve industries that produce national defense materials. also, that political/military objectives take precedence over economic goals. This is open to abuse becuase any industry can claim they aide national security and thus deserves protection from imports

Front 93

Increased Domestic employment agreement

Back 93

arguing for a tariff to save US jobs. if imports are reduced then more money will be spent on domestic output making employment rise. Problems: imports might get rid of some jobs but create others. also if all nations cut back on imports than the countries would not make any money on exports. there is also the possibility that the countries affected by the tarrifs will retaliate causing a trade-barrier war. in the long run, an excess of exports caused by the tarriff would make it impossible to raise employment

Front 94

the diversification for stability argument

Back 94

used by highly specialized economies who are dependent on the international market for income. tariff and quota protection are argued as a necessity to enable industrial diversification. this way, these countries wont be so dependent on exports. the problem is the economic cost of diversification may be great

Front 95

Infant industry argument

Back 95

states that protectice tariffs are needed to allow the establishment of domestic industries. the expception is that the companties will never be able to make adjustments needed for larger scale/great efficiency production. the problems with this arguement is that it is difficult to deem which industries are infants capable of reaching economic growth, thus desriving protection. once the infants reach maturity it is also to monitor it. (thus continuing with protective tarrifs) last, most conomists feel there are other ways of subsidzing than the use of tariffs.

Front 96

protection against dumping argument

Back 96

is that tarrifs are needed to protect domestic firms from dumping foreign products. many vcountrying prohibit dumping. although dumping does occur, the us gains from lower priced products. if antidumping laws are abused. tey might incrase the price of imports and retrict competition. anything cheaper can be called dumping (prob)

Front 97

cheap foreign labor arguemtn

Back 97

says that domestic firms and workers should be protected from competition of countries where wages are low. it is argued that if protection isnt provied, cheap imports will hurt the us markets, wages of workers and the price of goods. however, not everyone would gain from this plan, any gains are based on comparative advantage

Front 98

Protective tarrif

Back 98

protect domestic producers from forign competition

Front 99

artificial barriers

Back 99

(tariffs and import quotas) are used to regulate improts

Front 100

protective tariffs reduce both the imports and the exports of the nation that levies tariffs

Back 100

this is because if the countries who are making/exporting the goods to (for example) the us cannot get paid for their goods, they are less likely to be able to afoord us exports. also jobs are lost when limiting imports and some countries could rebel

Front 101

the extensive application of protective tariffs destroys the ability of the international market system to allocate resources effiently

Back 101

this is because protection raises prices. also the allocation of resources is ineiffient because there is more resources going to the product that has a tarrif on it and less to another product which would make more money. allocation of resources is to use resources in the way that would produce the most bennifits (income)

Front 102

unemployment in some industries can often be reduced through tariff protection, but by the same token infficiency typically increases

Back 102

this is because when imports raise the price then there is a greater demand for US goods; thus demanding for more laborers. This shift in domestic employment ususally means less workers in export industries and more in domestic industries. this shift implies a less efficient use of resources in export companies or ineffient in the domestic country because resources are inifinially allocated.

Front 103

foreign firms that dumps their products onto the us market are in effect providing bargains to the countries citizens.

Back 103

they may do this to drive away doesmtic competitors, thus obtaining a monopoly./ although it could potentially damage inner economy it rarely happens thus not justifing a permanent tariff. alsoUS consumers gain in the short run

Front 104

In the view of the rapitidy with which technology advance is dispersed around the world, free trade will inevidtablly yeild balence-of -payements problems for industrially advanced nations.

Back 104

what this means is that if countries make products that have the lowest opportunity cost (allocative efficiency says that productsshould be made at the loest marginal cost with the highest marginal production) and then buy from the countries products wthat for the "home" country has a high opportunity cost then not only will the home economy bennifit (wont have to lose money on producing the product themselves) but it will keep the money in the international flowing. this increases competioin and deters monopolies. it could also deter poissible tariff wars. forces us to reconstruct our economy

Front 105

free trade can imporve compositiion and efficiency of domestic output.

Back 105

competition from differnt car factories forced detroit to make a compact car, and foreign imports on bottled water forced american firms to offter that product. because there is a comptition from forign merchanges/companies, domestic contries are forced to improve the quailty of their product and to create something new. it forces the doesmtic country to fully employ its resources

Front 106

in the long run. foreign trade is neutral with respect to the total enpolyment.

Back 106

if each country is able to produce, epxort and ear the money from those exports than int he end all countries will bennifit because if coutnry A is doing it then so is country B,C, and D. as the recipient of these exports, countries get goods at a lower cost then what it would be to make it themselbes and it forces companies to stay honest about their production (low prices and high quailty). might lose job in some countries but gain more in another. standard of living coes up (capitalists argue this)

Front 107

see homework # 3

Back 107

see homework # 3