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52 Cards in this Set

  • Front
  • Back
satisfaction derived from consumption of a good/service.
[TR - TC]
Normal Profit
profit that the firm could make by using its resources in their next best use (opportunity cost)
Abnormal Profit
profit above normal profit, made without necessary efficiency.
Positive Economics
scientific or objective study of the allocation of resources, can be proven.
Normative Economics
study and presentation of policy prescriptions involving value judgments about the way in which scarce resources are allocated. (subjective approach to economics)
Opportunity Cost
The next best alternative already foregone
Giffen Good
special type of inferior good where demand increases when price increases
Veblen Good
(snob goods) goods bought in order to gain status, often sell better at high prices.
Economies of Scale

a fall in the long run average costs of production as output rises.

Technical: automation, specialized equipment, increased dimensions.
Financial: easier credit, lower rate of interest.
Managerial: specialized departments.
Marketing: advertising (brand name, sponsorship, …), packaging.
Risk-bearing: diversify.
Pareto Optimality
it is impossible to make one person better off without necessarily making someone else worse off.
Market failure
where resources are inefficiently allocated due to imperfections in the working of the market mechanism.
Macroeconomic Policy Objectives
Economic growth and development
Full employment
Price stability
External equilibrium
Free Trade Areas
group of countries between which there is free trade in goods and services but which allows member counties to set their own level of tariffs against non-member countries.
Customs Unions
group of countries that have the same external customs and internal free trade.
Common Markets
group of countries between which there is free trade in products and factors of production, and which imposes a common external tariff on imported goods from outside the market.
Preferetnial Trading Partners
Lower tariffs, (EU and ACP)
Economic and Monetary Union
Balance of Payments
transaction of the flows of money in and out of an economy.
Current Account
payments for the purchase and sale of goods and services and net investment incomes (profit, interest, dividends) are recorded.
Capital Account
part of the B.o.P. where flows of savings, investment and currency are recorded. ASSETS
Terms of Trade:
Economic Growth
An increase in the nation's capacity to produce goods and services.
Economic Development
compares countries on the basis of real GDP per capita at PPP, life expectancy, education (literacy and school enrolment)
Human Suffering Index
takes into account factors such as access to clean water, adequate food, and education.
Market-Orientated Supply-Side Policies

X Minimum Wage
X Welfare
- Deregulation
- Privatization
- ↓Tax
X Trade Unions
Interventionist Supply-Side Policies

- Infrastructure
- Research and Development
- Education
- Information
- Subsidies
Changes to Aggregate Demand

- Income
- Investments
- Wealth
- Confidence
- Interest Rate
- X-M
Costs of Inflation

- ↓Savings
- Labour unrest
- Uncertainty
- Trade (↓X)
- ↓Purchasing power
Local Barriers to Economic Growth and Development

- Stability
- Health
- Infrastructure
- Tax
- Corruption
- Laws
- Inequality
- Markets (informal)
- Education
Diverse Characteristics of Developing Countries

- Geography/demographics
- Historical background
- Ethics/religion
- Resource endowment
- Political structure
- Economy
- Structure of industry
Foreign Barriers to Economic Growth and Development

- Financial (debt, flight, no currency)
- Over dependence
- Protectionism (foreign)
Common Characteristics of Developing Countries

- ↓HDI
- Dependence on a single good
- Un/under employment
- ↓ Productivity
- ↑Population and dependency
- Imperfect markets and info
- Vulnerability in world affairs
Causes of Economic Growth

- Resources
- Institutional Factors
- Capital (widening/deepening)
- Human Capital
Consequences of Economic Growth

- ↑Inequality
- ↑Revenue (gov)
- ↑Welfare indicators
- ↑Income
- ↑Negative externalities
Causes of Economic Development

- Health
- Infrastructure
- Political stability
- Education
Reasons to Cancel 3rd World Debt (Boomerang Effect)

- Taxes
- Unemployment
- War
- Immigration
- Drugs
- Environment
Why Do Countries Trade?

- ↑Choice
- ↑Economies of scale
- ↑Resource access
- ↓Prices
- ↑Competition (efficiency)
Pros of Protectionism

- ↑Employment
- ↓Overspecialization
- ↑Taxes
- ↑Standards
- ↑Sunrise industries
- ↑Competitiveness
- ↑Sovereignty
- ↓Dumping
- ↑BoP
Cons of Protectionism

- ↑Prices
- ↓Variety (identical)
- ↓Efficiency
- ↓Specialization
- ↑Retaliation (nasty)
Why is Globalization Happening?

- ↑Transport
- ↑IT
- ↑Integration
- ↑Liberalization
- ↑FDI
- ↑MNCs
Pros of Globilzations

- Market
- Competition (efficiency)
- Choice
- Price
- Stability
- Management
Cons of Globalization

- Failures
- Sovereignty
- WTO Fail
- Discrimination
Fixed Exchange Rate Terms
Floating Exchange Rate Terms
Causes of a Stronger Currency

-↑Foreign Income
Economic Growth Models
Lewis Dual Sector Model

Harrod-Domar Model (savings ration/capital effiency)
Econmic Growth Strategies
Import Substitution
Types of Aid
Development (25% grant, LR welfare)
Types of Development Aid

Long-term loans
Tied Aid
Project Aid
Technical Aid
Commodities Aid
Issues with Aid
Poor distribution
Foreign protectionism
Washington Consensus