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51 Cards in this Set
- Front
- Back
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Developed Country
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A nation that has a relatively high per capita GDP (60% of US GDP)
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Less Developed Country (LDC)
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A nation that has a relatively low per capita GDP, 77% of the world's population lived in LDCs
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GDP
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The monetary value of all the finished goods and services produced within a country's borders in a specific time period, (C+I+G+X)
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4 Common Hardships of LDCs
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High infant mortality rates, Inadequate diets, Unsafe drinking water and inadequate sanitation, Inadequate medical services
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The Rule of 70
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A rule of thumb for calculating the approximate time required for any variable to double at a given growth rate
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Time to Double
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70 divided by growth rate
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The Importance of Economic Growth Rates
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A small difference in economic growth rates can make a large difference in standard of living over a long period of time and most economist believe that economic freedom is important for growth
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Economic freedom
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Measured by such factors as property rights, relative size of government, level of taxation, degree of government regulation, international trade policy, etc.
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Obstacles to Economic Development
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Rapid population growth - The problem is not overpopulation or density but having more people that you can support. A high dependency ratio (children and elderly that cannot work), Low savings rate,
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Low savings
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Low standard of living makes it difficult to save (delay consumption). Saving is necessary if investments in physical capital and human capital are to be madeCultural norms that hinder economic development (traditionalism and fatalism), Counterproductive governmental policies
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Counterproductive governmental policies
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Weak private property rights, Restriction on competitive markets, Restriction on international trade, Excessive inflation, A large government Poor provision of public services
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"The Power of Productivity"
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Book that looks at the "Why some countries get rich and other don't"
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Conclusions from "The Power of Productivity"
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1. A country's standard of living depends almost exclusively on the productivity of labor, 2. A poorly educated labor force and a low level of saving are not huge barriers to increasing the productivity of labor (Worker can attain high productivity through on-the-job training and a country with high productivity will attract financing from foreign countries), 3. A larger government is a hindrance to productivity growth, especially for low-income countries, 4. Free and competitive product markets are vitally important for achieving high productivity, 5. A focus on consumer interests
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Trade Deficit
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Occurs when a nations imports exceed its exports
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Law of Comparative Advantage
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Trade between nations is beneficial to both if there is a difference in opportunity costs.
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Profit-seeking
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A free market will lead to the production and trade according to comparative advantage.
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Benefits of Free International Trade
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1. Extend markets, 2. Increases competition, 3. Speeds the flow of technological advances, 4. Gives consumers access to more variety, 5. Improves international relations
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Extend markets
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Allows for economies of scale and greater returns to innovation
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Trade Restrictions
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Done to protect domestic producers
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Tariff
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a tax on an imported good, tax on exporting country.
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Quota
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A legal limit on the quantity of a good that may be imported
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Arguments for Trade Restrictions
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1. National Defense argument - National defense concerns may require certain trade restrictions, 2. Infant industry argument - New industries need temporary protection from foreign competition, 3. Unfair foreign competition argument - Done through dumping, 4. Low foreign wages argument - If domestic producers are not protected from imports, American wages will be driven down to low levels, 5. Saving domestic jobs argument - Restricting imports can save specific domestic jobs
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National Defense argument
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National defense concerns may require certain trade restrictions
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Infant industry argument
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New industries need temporary protection from foreign competition
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Unfair foreign competition argument
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Done through dumping (rich nation flood foreign with overproduced goods)
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Low foreign wages argument
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If domestic producers are not protected from imports, American wages will be driven down to low levels
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Saving domestic jobs argument
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Restricting imports can save specific domestic jobs
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Exchange Rates Determinants
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1. Differences in inflation rates, 2. Growth rates, 3. Real intrest rates - rates adjusted for inflation, 4. Changes in foreign investment attractiveness
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Macro
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economics decisions made by a nation or group of people
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Micro
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economic decisions made by an individual
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The Law of Demand
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tells us that a change in price will lead to an inverse change in quantity demanded
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Elasticity
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Is a measure of responsiveness one variable to changes in another variable
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Price Elasticity of Demand
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When the demand changes, how does the price change in relationship to the new demand. If people are demanding less, the price will drop...but how much?
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Price Elasticity of Supply
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A direct relationship between the production of the good there and the demand for the good
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Determinants of Price Elasticity of Demand
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1.The number of substitutes for the good, 2.The percentage of a person's budget spent on the good, 3.The nature of the good, 4.Time consumers have to respond
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The number of substitutes for the good
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are there other choices if the price of my product changes
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The percentage of a person's budget spent on the good
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The greater the percentage, the more elastic the demand for the good.
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The nature of the good
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For luxury goods, demand tends to be elastic
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Time consumers have to respond
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The more time consumers have to respond to a price change for a good, the more elastic the demand for the good
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Cross-Elasticity
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The responsiveness of demand for one good in relationship to the demand for another group
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Types of Goods
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Substitute Goods, Complement goods, Inferior goods
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Substitute Goods
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Benefit from a change in related product
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Complement goods
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When a related product is effected, these goods are also effected
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Inferior goods
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As income increases, the demand for this good or service decreases
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Individual Scarcity
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Individuals have limited or scarce resources to pursue the desire for unlimited wants. The goal to achieve as much satisfaction from our consumption choices as possible.
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Utility
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is the measure of satisfaction received from the consumption of a good. It is subjective. The best measurement is the price a person will pay.
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Anticipated Utility
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A combination of personal desire plus the amount of income available.
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Marginal Utility
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The additional utility received from consuming an additional unit of a good.
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Law of Diminishing Marginal Utility
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Law that sates that the marginal utility from consuming addition units of a good eventually declines.
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Micro-economic goal
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Eliminate individual scarcity as much as possibly by using utility maximization
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The Diamond/Water Paradox
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Explains why are essential good often lower priced than non-essential goods, because essentials tend to be less rare than non-essentials so the non-essentials are more worth more. Idea is based off the price of a diamond verse a glass of water.
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