Macroeconomics Exam 1

Front 1

Allocative efficiency

Back 1

A state of the economy in which production is in accordance with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to society equal to the marginal cost of producing it.

Front 2

Association is Causation Fallacy

Back 2

Because B happens in conjunction with A, it must have been caused by A

Front 3

Centrally Planned Economy

Back 3

An economy in which the government decides how economic resources will be used.

Front 4

Circular Flow Model

Back 4

Economy is a circular flow of goods, services, & money

Front 5

Common Errors in thinking

Back 5

1. Fallacy in Composition2. Association is Causation Fallacy3. Ignoring Secondary Effects

Front 6

Economic Model

Back 6

A simplified version of reality used to analyze real-world economic situations.

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Economic Resources

Back 7

1.Natural Resources2.Labor3.Capital (Physical Cap., Human Cap., Social Cap., & Entrepreneurial Ability

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Economic Variable

Back 8

Something measurable that can have different values.(Example: income of Doctors)

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Economics

Back 9

The study of the choices people make to attain their goals, given their scarce resources.

Front 10

Equity

Back 10

The fair distribution of economic benefits.

Front 11

Fallacy in Composition

Back 11

Falsely claiming that what is true of a part (individual) is true of the whole (group)

Front 12

Key Economic Ideas

Back 12

1. People respond to Econ. Incentives2.Optimal Decisions are Made "at the Margin"3.People are Rational

Front 13

Machine Model

Back 13

"Steam-Engine" If there is an issue, the economy will fix itself. Only accurate to a degree.

Front 14

Macroeconomics

Back 14

The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth.

Front 15

Marginal analysis

Back 15

Analysis that involves comparing marginal benefits and marginal costs.

Front 16

Market

Back 16

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Front 17

Market Economy

Back 17

An economy in which the decisions of households and firms interacting in markets allocate economic resources.

Front 18

Microeconomics

Back 18

The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices.

Front 19

Mixed economy

Back 19

An economy in which most economic decisions result from the interaction of buyers and sellers in markets but in which the government plays a significant role in the allocation of resources.

Front 20

Normative analysis

Back 20

an analysis concerned with what out to be.

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Opportunity cost

Back 21

The highest valued alternative that must be given up to engage in an activity.

Front 22

Positive analysis

Back 22

Analysis concerned with what is.

Front 23

Productive efficiency

Back 23

A situation in which a good or service is produced at the lowest possible cost.

Front 24

Scarcity

Back 24

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Front 25

Scientific Method

Back 25

1. Identify2. Specify3. Formulate4. Test5a. Reject5b. Use

Front 26

Three Economic Questions

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1.What should we produce?2.How should we produce it?3.For whom should we produce it?

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Trade-off

Back 27

The idea that, because of scarcity, producing more of one good or service means producing less of another good or service.

Front 28

Voluntary exchange

Back 28

A situation that occurs in markets when both the buyer and seller of a product are made better off by the transaction.

Front 29

Ways in which people are not rational

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1.Overestimate investment smarts2.Follow the herd3.Overreact to good/bad news4. Don't properly take inflation into account5.Young people do not save rationally

Front 30

Why do Economists Disagree?

Back 30

1. Problem of Data2. Problem of Complexity3. People have wills and intentions

Front 31

Absolute Advantage

Back 31

The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.

Front 32

Circular flow diagram

Back 32

A model that illustrates how participants on markets are linked

Front 33

Comparative advantage

Back 33

The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

Front 34

Economic growth

Back 34

The ability of an economy to produce increasing quantities of goods and services.

Front 35

Entrepreneur

Back 35

Someone who operates a business, bringing together the factors of production-labor, capital, and natural resources- to produce goods and services.

Front 36

Factor Market

Back 36

A market for the factors of production-labor, capital, natural resources & entrepreneurial ability.

Front 37

Factors of production

Back 37

Labor, capital, natural resources, and other inputs used to produce goods and services.

Front 38

Free market

Back 38

Trade between countries that is without government restrictions.

Front 39

Market

Back 39

A group of buyers and sellers of good or service and the institution or arrangement by which they come together to trade.

Front 40

Opportunity cost

Back 40

The highest valued alternative that must be given up to engage in an activity.

Hint 40

Δ what you are giving up Δ what you are acquiring

Front 41

Product market

Back 41

A market for goods or services

Front 42

Production possibilities frontier (PPF)

Back 42

A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

Front 43

Property rights

Back 43

The rights individuals or firms have to the exclusive use of their property, including the right to buy or sell it.

Front 44

Scarcity

Back 44

A situation in which unlimited wants exceed the limited resources available to fulfill those wants.

Front 45

Trade

Back 45

The act of buying and selling.

Front 46

"Ceteris paribus" ("all else equal") condition

Back 46

The requirement that when analyzing the relationship between two variables- i.e. price and quantity demanded- other variables must be held constant.

Front 47

Competitive market equilibrium

Back 47

A market equilibrium with many buyers and sellers.

Front 48

Complements

Back 48

Goods and Services that are used together.

Front 49

Demand Curve

Back 49

A curve that shows the relationship between the price of a product and the quantity of the product demanded.

Front 50

Demand schedule

Back 50

A table that shows the relationship between the price of a product and the quantity of the product demanded.

Front 51

Demographics

Back 51

The characteristics of a population with respect to age, race, and gender.

Front 52

Income effect

Back 52

The change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power, ceteris paribus.

Front 53

Inferior Good

Back 53

A good for which the demand increases as income falls and decreases as income rises.

Front 54

Law of Demand

Back 54

The rule that, ceteris paribus, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.

Front 55

Law of Supply

Back 55

The rule that, Ceteris paribus, increases in price causes increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.

Front 56

Market Demand

Back 56

The demand by all the consumers of a given good or service.

Front 57

Market Equilibrium

Back 57

A situation in which quantity demanded equals quantity supplied.

Front 58

Normal good

Back 58

A good for which the demand increases as income rises and decreases as income falls.

Front 59

Perfectly competitive market

Back 59

A market that meets the conditions of(1)many buyers and sellers,(2) all firms selling identical products, and(3) no barriers to new firms entering the market.

Front 60

Quantity demanded

Back 60

The amount of a good or service that a consumer is willing and able to purchase at a given price

Front 61

Quantity Supplied

Back 61

The amount of a good or service that a firm is willing and ale to supply at a given price.

Front 62

Shortage

Back 62

A situation in which the quantity demanded is greater than the quantity supplied.

Front 63

Substitutes

Back 63

Goods and services that can be used for the same purpose.

Front 64

Substitution effect

Back 64

The change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods that are substitutes.

Front 65

Supply Curve

Back 65

A curve that shows the relationship between the price of a product and the quantity of the product supplied.

Front 66

Supply Schedule

Back 66

A table that shows the relationship between the price of a product and the quantity of the product supplied.

Front 67

Surplus

Back 67

A situation in which the quantity supplied is greater than the quantity demanded.

Front 68

Technological Change

Back 68

A change in the ability of a firm to produce a given level of output with a given quantity of inputs.

Front 69

Change in Cost of resource inputs

Back 69

Change in Supply: Shift of Supply Curveex. Textbook $ increase when the $ of paper increases

Front 70

Change in Number of Sellers

Back 70

Change in Supply: Shift of Supply CurveProducers entering or leaving the market

Front 71

Change in Production Technology

Back 71

Change in Supply: Shift of Supply Curveex. pre- & post- industrial revolution

Front 72

Change in the selling price of production substitutes

Back 72

Change in Supply: Shift of Supply CurveSwitching from Wheat to Corn when the selling price of corn increases

Front 73

Changes in expectations about Future Prices

Back 73

Change in Supply: Shift of Supply Curvereduces the supply of the product now if future selling prices are expected to be higher.

Front 74

Changes in Income

Back 74

Change in Demand: Shift of Demand Curveex. New Cars: Income High Demand IncreasesIncome Low Demand Decreases

Front 75

Changes in tastes & preferences

Back 75

Change in Demand: Shift of Demand Curveex. Kale

Front 76

Changes in the expectations about future prices & availability

Back 76

Change in Demand: Shift of Demand CurveConsumers will purchase more now if shortages are expected or if prices are expected to increase.

Front 77

Changes in the Number of Buyers

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Change in Demand: Shift of Demand Curve Demographics- ex. As baby-boomers age, they affect the demand for different products.

Front 78

Changes in the Price of a Related Good

Back 78

Change in Demand: Shift of Demand CurveSubstitutes- if the price of a substitute decreases, demand for the good you're looking at decreases.Complements- if the price of a complement increases demand for the product you're looking at decreases