ECON 2305:Test One

CourseStructure object (264566) - University of Texas at Arlington

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Transactions Demand	postively related to Income
Speculative Demand	negatively related to the Interest rate
Precautionary Demand	positively related to Income
Post Hoc, Ergo Propter Hoc Fallacy ("because of this, therefore because of this")	the erroneous notion that because A . precedes B that A causes B
Fallacy of Composition	the erroneous notion that what holds true for the individual must also hold true for the group as a whole
Violation of ceteris paribus - ("all other things being equal")	the error in comparing items when the situations are not comparable
Correlation does not mean Causation	the erroneous notion that when items are correlated that one item must cause the other
Reverse causation	the erroneous notion that A causes B when, in fact, B causes A
Author & Year of Wealth of Nations	Adam Smith, 1776
Association-is causation fallacy	The incorrect idea that if two variables are associated in time one must necessarily cause the other
Behavioral Assumption	An assumption that describes the expected behavior of economic decision makers, what motivates them
Capital	The buildings, equipment, and human skills used to produce goods and services
Circular Flow Model	A diagram that traces the flow of resources, products, income, and revenue among economic decision makers
Dependent Variable	A variables whose value depends on that of the independent variable
Economic fluctuations	The rise and fall of economic activity relative to the long-term growth trend of the economy; also called business cycles
Economic theory, or economic model	A simplification of reality used to make predictions about cause and effect in the world
Economics	The study of how people use their scarce resources to satisfy their unlimited wants
Entrepreneur	A profit seeking decision maker who starts with an idea, organizes an enterprise to bring that idea to life, and assumes the risk of the operation
Entrepreneurial ability	The imagination required to develop a new product or process, the skill needed to organize production, and the willingness to take the risk of profit or loss
fallacy of composition	The incorrect belief that what is true for the individual, or part, must necessarily be true for he group, or the whole
Good	A tangible product used to satisfy human wants
Hypothesis	A theory about how key variables relate
Independent Variable	A variable whose value determines that of the dependent variable.
Interest	Payment to resource owners for the use of their capital
Labor	The physical and mental effort used to produce goods and services
Macroeconomics	The study of the economic behavior of entire economics, as measured, for example, by total production and employment
Market	A set of arrangements by which buyers and sellers carry out exchange at mutually agreeable terms
Microeconomics	The study of the economic behavior in particular markets, such as that for computers or unskilled labors
Natural resources	All gifts of nature used to produce goods and services; includes renewable and exhaustible resources
Negative relation (inverse relation)	Occurs when two variables moves in opposite directions; when one increases, the other decreases
Normative Economic Statement	A statement that reflects an opinion, which cannot be proved or disproved by reference to the facts
Positive Economic statement	A statement that can be proved or disproved by reference to facts
Product Market	A market in which a good or service is bought and sold
Profit	Reward for entrepreneurial ability; sales revenue minus resource cost
Rational self-interest	Each individual tries to maximize the expected benefit achieved with a given cost or to minimize the expected cost of achieving a given benefit
Rent	Payment to resource owners for the use of their natural resources
Resource market	A market in which a resource is bought and sold
Resources	The inputs, or factors of production, used to produce the goods and services that people want; resources consist of labor, capital, natural resources, and entrepreneurial ability
Scarcity	Occurs when the amount of people desire exceeds he amount available at a zero price.
Secondary Effects	Unintended consequences of economic actions that may develop slowly over time as people react to events
Service	An activity, or intangible product, used to satisfy human wants
Variable	A measure, such as price or quantity, that can take on different values at different times
Wages	Payment to resource owners for their labor
Absolute Advantage	The ability to make something using fewer resources than other producers use
Barter	The direct exchange of one product for another without using money
Comparative Advantage	The ability to make something at a lower opportunity cost than others
Division of Labor	Breaking down the production of a good into separate tasks
Economic Growth	An increase in the economy's ability to produce goods and services; reflected by an outward shift of the economy's production possibilities frontier
Economic System	The set of mechanisms and institutions that resolve the what, how, and for whom questions
Efficiency	The condition that exists when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another; getting the most from available resources
Law of Comparative advantage	The individual, firm, region, or country with the lowest opportunity cost of producing a particular good should specialize that good
Law of Increasing Opportunity Cost	To produce more of one good, the amount of another must be sacrificed.
Mixed System	Mixed System
Opportunity Cost	The value of the best alternative forgone when an item or activity is chosen
Private Property Rights	An owner's right to use, rent, or sell resources or property
Production Possibilities Frontier	A curve showing alternative combinations of goods that can be produced when available resources are used efficiently; a boundary line between inefficient and unattainable combinations
Pure Capitalism	An economic system characterized by the private ownership of resources and the use of prices to coordinate economic activity in unregulated markets
Pure Command System	An economic system characterized by the public ownership of resources and centralized planning
Specialization of Labor	Focusing work effort on a particular product or a single task
Sunk Cost	A cost that has already been incurred, cannot be recovered, and thus is irrelevant for present and future economic decisions
Alternative Goods	Other goods that use some or all of the same resources as the good in question
Complements	Goods, such as milk and cookies, that relate in such a way that an increase in the price of one shifts the demand for the other leftward
Demand	A relation between the price of a good and the quantity that consumers are willing and able to buy per period, OTC
Demand Curve	A curve showing the relation between the price of a good and the quantity consumers are willing and able to buy per period, otc
Disequilibrium	The condition that exists in a market when the plans of buyers do not match those of sellers; a temporary mismatch between quantity supplied and quantity demanded as the market seeks equilibrium
Equilibrium	The condition that exists in a market when the plans of buyers match those of sellers, so quantity demanded equals quantity of those supplied and the market clears
Income Effect of a Price Change	A fall in the price of a good increases consumers' real income, making consumers more able to purchase goods; for a normal good, the quantity demanded increases
Individual Demand	A relation between the price of a good and the quantity purchased by an individual consumer per period, OTC
Individual Supply	The relation between the price of a good and the quantity an individual producer is willing and able to sell per period, OTC
Inferior Good	A good, such as used clothes, for which demand decreases, or shifts, leftward, as consumer income increases
Law of Demand	The quantity of a good that consumers are willing and able to buy per period relates inversely, or negatively, to the price, OTC
Law of Supply	The amount of a good that producers are willing and able to sell per period is usually directly related to its price, OTC
Market Demand	The relation between the price of a good and the quantity purchased by all consumers in the market during a given period, OTC; sum of the individual demands in the market
Market Supply	The relation between the price of a good and the quantity all producers are willing and able to sell per period, OTC
Money Income	The number of dollars a person receives per period such as $400 per week
Movement a long a demand Curve	Change in quantity resulting from a change in the price of the good, OTC
Movement along a supply curve	Change in quantity supplied resulting from a change in the price of the good, OTC
Normal Good	A good, such as new clothes, for which demand increases or shifts rightward, as a consumer income rises
Price Ceiling	A maximum legal price above which a product cannot be sold; to have an impact, a price ceiling must be set below the equilibrium price
Price Floor	A minimum legal price below which a product cannot be sold; to have an impact it must be set above the equilibrium price
Quantity Demanded	The amount of a good a consumer is willing and able to buy per period at a particular price, as reflected by a point on a demand curve
Quantity Supplied	The amount offered for sale per period at a particular price, as reflected by a point on a given supply curve
Real Income	Income measured in terms of the goods and services it can buy; real income changes when the price changes
Relevant Resources	Resources used to produce the good in question
Shift of a demand curve	Movement of a demand curve right or left resulting from a change in one of the determinants of demand other than the price of the good
Shift of a Supply Curve	Movement of a supply curve resulting from a change in one of the determinants of supply other than price
Shortage	At a given price, the amount by which quantity demanded exceeds quantity supplied; a shortage usually forces the price up
Substitutes	Goods, such as Coke and Pepsi, that relates in such a way that an increase in the price of one shifts the demand to the other rightward
Substitution Effect of a Price Change	When the price of a good falls, that good become cheaper compared to other goods so consumer tend to substitute that good for other goods
Supply	A relation between the price of a good and the quantity that producers are willing and able to sell per period, OTC
Supply Curve	A curve showing the relation between the price of a good and the quantity producers are willing and able to sell per period, OTC
Surplus	At a given price, the amount by which quantity supplied exceeds quantity demanded; a surplus usually forces the price down
Tastes	Consumer preferences; likes and dislikes in consumption; assumed to remain constant along a given demand curve
Transactions Costs	The costs of time and information required to carry out market exchange
Aggregate Demand	The relationship between the economy's price level and aggregate output demanded, OTC
Aggregate output	A composite measure of all final goods and services produced in an economy during a given period; real GDP
Coincident economic indicators	Variables that reflect peaks and troughs in economic activity as they occur; i.e. employment, personal income, and industrial production
Contraction	A period during which the economy declines as reflected by falling output, employment, income, and other aggregate measures
Demand-side economics	Macroeconomic policy that focuses on shifting the aggregate demand curve as a way of promoting full employment and a price stability.
Depression	A severe and prolonged reduction in economic activity as occurred during the 1930s
Economy	The structure of economic activity in a activity in a community, a region, a country, a group of countries, or the world
Expansion	A period during which the economy grows as reflected by rising output, employment, income, and other aggregate measures
Federal Budget Deficit	A flow variable measuring the amount by which the government outlays exceed federal government revenues in a particular periods, usually a year.
Federal Debt	A stock variable that measures the net accumulation of annual federal deficits
Flow Variable	A measure of something over an interval of time, such as your income per week
GDP	The market value of all final goods and services producing in a nation
GWP	The market value of all final goods and services produced in the world
Inflation	An increase in the economy's average price level
Lagging economic indicators	Variables that follow, or trail changes in overall economic activity
Leading economic indicators	Variables that predict, or lead to, a recession or recovery; I.E. consumer confidence, stock market prices, business investment, etc
Mercantilism	The incorrect theory that a nation's economic objective should be to accumulate precious metals in the public treasury; this theory prompted trade barriers to cut imports, but other countries retaliated, reducing trade and the gains from specialization
Price Level	A composite measure reflecting the prices of all goods and final services in the economy relative to prices in a base year
Real GDP per capita	Real GDP divided by the population; the beast measure of an economy's standard of living
Real GDP	The economy's aggregate output measured in dollars of constant purchasing power
Recession	A period of decline economic activity lasting more than a few months, as reflected by falling output, employment, income, and other aggregate measures
Stagflation	A contraction, or stagnation, of a nation's output accompanied by inflation in the price level
Stock Variable	A measure of something at a particular point in time, such as the money you have with you right now
Supply Side Economics	Macroeconomic policy that focuses on a rightward shift of the aggregate supply curve through tax cuts or other changes to increase production incentives
COLA	Cost of Living Adjustment; an increase in a transfer payment or wage that is tied to the increase in price level
Cost-Push inflation	A sustained rise in the price level caused by a leftward shift of the aggregate supply curve
Aggregate Supply Curve	A curve representing the relationship between the economy's price level and real GDP supplied, OTC
Aggregate Demand Curve	A curve representing the relationship between the economy's price level and real GDP demanded, OTC
Cyclical unemployment	Unemployment that fluctuates with the business cycle, increasing during contraction and decreasing during expansions
Deflation	A sustained decrease in price level
Demand pull infation	A sustained price level caused by a rightward shift of the aggregate demand curve
Discouraged workers	Those who drop out of the labor force in frustration because they can't find work
Disinflation	A reduction in the rate of inflation
Frictional Unemployment	Unemployment that occurs because job seekers and employers need time to find eachother
Full Employment	Employment level when there is no cyclical unemployment
Hyperinflation	A very high rate of inflation
Interest	The dollar amount paid by borrowers to lenders
Interest Rate	Interest per year as a percentage of the amount loaned
CPI FORMULA	(PQ) (PQ) --------- + -------- * 100 (PQ) (PQ)
GDP DEFLATOR	(PQ) (PQ) --------- + -------- (PQ) (PQ)
INFLATION RATE	CPI - CPI ----------------- *100 CPI
REAL VS NOMINAL	pg. 94-98
DETERMINANT GRAPH	PAGE 64!
3 ?'s all Economic Sys. must answer	What to produce.. How to produce it. Who gets it 2 two ways to answer these questions: a) Centralized economy where the government decides what, how and for whom. b) Market economy where market forces (supply, demand and profit motive) decide what, how and foe whom.
What can shift the PPF	1.) Changes in resource availability 2.) Increases in capital stock 3.) Improvements on rules of the game 4.) Technological changes
What are the determinants of Demand	1.) Income 2.) Tastes 3.) Expectations 4.) Number and Composition of consumers 5.) Prices of other goods
What are the determinants of Supply	1.) Number of producers 2.) Price of resources 3.) Price of other goods 4.) Expectations 5.) Technological


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ECON 2305:Test One

141 Cards in this Set

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