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53 Cards in this Set
- Front
- Back
Scarcity
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Lack of goods
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How many businesses in U.S?
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30 million
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How many consumers in US?
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300 million
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What are the 3 coordination problems of every society?
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1) How to motivate people to not only produce g+s in cost effective ways but also to find better ways to do so
2) how to decide which of the many possible combinations of g+s it should produce each year 3) how to decide the quantity & type of g+s each person should receive |
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Economics
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The study of how a society solves these 3 coordination problems
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Microeconomics v. Macroeconomics
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Micro/Macro: Price of a single good/All prices in an economy
Micro/Macro: The production of a single good/Total production of an economy (GDP) Micro/Macro: Employment status of a worker/Employment of an economy (Employment rate) |
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Goods
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Anything that gives someone satisfaction
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_______ ---> _____ ---> opportunity cost
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scarcity, choices
time is scarce --> make choices --> give something up |
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Ceteris Paribus
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"Holding all other things equal": we will hold some important variables constant during model building
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Utility
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The total satisfaction or "usefulness" that a consumer receives from a good
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Opportunity Cost
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The most highly valued alternative given up when a choice is made. "What you would have done" "What you gave up to do something"
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Resources?
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Land: animals, trees, water, and shit
Labor: the physical & mental talents of the people who contribute to production Capital: produced g+s that are used to produce other g+s |
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Production Possibilities Frontier (PPF)
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Shows all possible combinations of 2 goods that a person/society can produce in a certain period of time given certain technology & certain resources
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Straight line vs. Bowed out
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Straight line assumes that everyone has the same skills. The PPF is bowed out because every one is diff~
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Law of Increasing Opportunity Costs
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States that opportunity cost rises as more factors are used to produce increasing quantities of on product or the other
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Productive Efficient (PPF)
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Any point on the line/Full employment
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Productive Inefficient (PPF)
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Any point to the left of a line
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Attainable (PPF)
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Any point on the line or to the left of the line
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Unattainable
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Any point to the right of a line
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Causes of economic growth
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Expanding resources, improving technologies
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Comparative Advantage
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The ability to produce something at a lower opportunity cost
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Absolute Advantage
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The ability to produce more than someone else
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Quantity Demanded (QD)
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The number of products a consumer is willing and able to buy in a specific time and place
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Factors of Demand
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Price: P ^ -> QD v
Income: I ^ -> QD ^ Taste & Prefs: TP ^ -> QD ^ Expectations of future prices: Pf^ -> QD ^ Number of buyers: N ^ -> QD ^ Price of complements: Pc ^ -> QD v Price of Substitutes: Ps ^ -> QD ^ |
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Normal Good
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A good for which QD increases as income increases
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Inferior Good
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A good for which QD decreases as income increases (public transportation, store brand products, fast food)
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Law of Demand
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As the price of a good rises, the quantity demanded of the good goes down, assuming all other factors that could affect QD don't change
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Market
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An institution that enables buyers and sellers to interact and transact with one another
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Demand Curve
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Plots the relationship between price & QD, given the factors of demand are constant
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Demand
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The maximum amount of product that buyers are willing and able to purchase over some time period at various prices, holding all other relevant factors constant
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Substitutes
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Pens & pencils
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Complements
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Popcorn & movies
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Market Demand Curve
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the sum of individual demand curves
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Law of diminishing marginal utility
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The marginal utility of each unit decreases as the supply of unit increases
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Quantity Supplied
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The # of products producers will produce and want to sell in a particular time and place
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Factors of Supply
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Price: P ^ QS ^
Cost of Production: - Technology: T ^ -> QS ^ - Labor: W^ -> WS v -Cost of other Resources: CR^ -> QS v Number of sellers: # ^ -> QS ^ |
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Supply Curve
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Plots the relationship between price & QS, assuming all other factors remain constant
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Equilibrium
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When QS = QD
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Surplus
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When QS > QD
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Shortage
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When QD > QS
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Price Ceiling
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A government set maximum price that can be charged for a product or service. When the price ceiling is below equilibrium, it leads to shortages
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Price Floor
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A government set minimum price that can be charged for a product or service. When the price floor is set above equilibrium, it leads to surplus
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Business Cycle
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Alternating increases and decreases in economic activity.
Four phases: peak/boom, recession/downturn/contraction, trough/bottom of cycle, recovery/expansion |
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Circular Flow Diagram
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Shows how businesses and households interact through the product and resource markets. Income = Spending
Business, Product Market, Households, Resource Market |
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Gross Domestic Product (GDP)
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Total market value of all final goods & services produced in an economy in a given time period, where value of goods and services are calculated using nominal GDP or real GDP
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2 types to calculate GDP
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Nominal GDP: The current set of prices
Real GDP: A fixed set of prices from a base year |
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Goals of macroeconomic policy
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High employment, price stability, high economic growth
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Personal Consumption
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Value of all goods & services purchased by residents of US
70% of GDP |
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Investment Spending
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Spending on new homes, equipment, software, & other structures
11% of GDP |
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Gov't Spending
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Wages & salaries of gov't employees, purchases of g+s from the private sector & rest of the world, & government purchases of new structures, equipment, & software
20% of GDP |
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Net Exports
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Exports - Imports
-3% of GDP (Imports are greater than exports) |
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How is GDP calculated
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Consumption + Investment Spending + Government Spending + (exports - imports)
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Problems with our measure of GDP
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-Doesn't take into account: externalities, non-market goods & services, & distrubution
-Can be artificially high after natural disasters |