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30 Cards in this Set
- Front
- Back
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Definition of perfectly competitive market
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Goods offered for sale are all exactly the same and buyers and sellers are so numerous so that they cannot influence prices
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Definition of price takers
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buyers and sellers have to take the market price as given
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Definition of demand curve
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amount of a product a consumer is willing and able to purchase at alternative prices, holding all else constant, during a specific time period
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Law of Demand
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holding all else constant, when the price of a good rises, the quantity demanded falls for that good and is ALWAYS NEGATIVE
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Definition of Market demand curve
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total quantity demanded in the market at a given price
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Derivation of Market demand curve
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add quantity demanded of each individual at a given price. Repeat for all prices
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Variables that are held constant on demand curve (5)
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Income, prices of related goods, expectations, taste, number of buyers...A shift will occur
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Normal good
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an increase in income leads to an increase in demand
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Inferior good
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an increase in income leads to a decrease in demand
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Subsitute
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two goods for which an increase in price in one leads to an increase in demand for the other
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Complements
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two goods for which an increase in price in one leads to a decrease in demand for the other
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Change in demand vs change in quantity demanded
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due to a change in one of the variables held constant = SHIFT vs. due to a change in price of the good = MOVEMENT along curve
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Definition of supply curve
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a graph that shows relationship between the price of a good and the quantity supplied
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Law of supply
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relationship between price and quantity...always a POSITIVE CORRELATION
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Market supply curve
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Adding together how much each individual supplies of one good at a given price
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Variables held constant on supply curve (5)
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Input prices, technology, expectations, number of sellers, unexpected events...these represent a SHIFT of the supply curve
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Definition of equilibrium
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market price has reached the level at which quantity supplied equals quantity demanded
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Surplus and Shortage
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quantity supplied is greater than quantity demanded and vice versa
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Definition of Standard of Living
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access to goods and services that make peoples lives more happy and healthy
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Definition of Gross domestic product
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the market value of all final goods and services produced within a country in a given period of time
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Components necessary for calculating by the Expenditure Approach
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Consumption (C)
Investment (I) government purchases (G) Net Exports (NX) |
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What Consumption includes
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spending by households on goods and services:
non-durable goods:short period durable goods: long period Services: doctor, dentist |
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What investment includes
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Spending by firms on goods that will be used in the future to produce more.
Capital equip.: new capital goods like machinery and equipment Structures: construction of new factories, warehouses, and office buildings AND new homes and appt buildings (purchased by households) Inventory investment: addition of unsold goods to company inventories (if something doesnt sell in a period of time) |
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What government purchases includes
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purchases by federal, state, and local governments on final goods
roads, bridges, schools, equip for military |
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Transfer payments
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What gov spends on social security benefits and welfare payment, paid for with tax dollars ...NOT INCLUDED IN GOV PURCHASES
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How to find NX
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Exports (domestic goods sold abroad) - imports (goods bought domestically from abroad)
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Income approach
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W&S + R + I + P + Prop I
wages and salaries (earned by labor) PLUS rent (earned by households owning land, buildings, etc) PLUS interest (earned by households that made loans less the interest households pay on their debts) PLUS Profit (what is left after paying expenses) PLUS proprietors' income (what self employed businesses earn) |
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Why are imports subtracted out of GDP?
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Imports do not equal spending on domestic production
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Calculations for Nominal and real GDP and GDP deflator
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Nominal: Q x P + Q2 x P2 +...
For each year Real: Q x P of base year +... for each year Deflator: Nominal/Real x 100 |
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Why Real GDP is prefered over Nominal GDP
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it is a measure of the actual amount produced in the economy and changes in that amount over time
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