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ECON 2305:Test One
Transactions Demand
|
postively
related to Income
|
Speculative Demand
|
negatively related
to the Interest rate
|
Precautionary Demand
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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
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Fallacy of Composition
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the erroneous notion that what holds true for the individual must also hold true for the group as a whole
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Violation of ceteris paribus -
("all other things being equal")
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the error in
comparing items when the situations are
not comparable
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Correlation does not mean Causation
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the erroneous notion that when items are
correlated that one item must cause the
other
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Reverse causation
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the erroneous
notion that A causes B when, in fact, B
causes A
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Author & Year of Wealth of Nations
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Adam Smith, 1776
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Association-is causation fallacy
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The incorrect idea that if two variables are associated in time one must necessarily cause the other
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Behavioral Assumption
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An assumption that describes the expected behavior of economic decision makers, what motivates them
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Capital
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The buildings, equipment, and human skills used to produce goods and services
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Circular Flow Model
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A diagram that traces the flow of resources, products, income, and revenue among economic decision makers
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Dependent Variable
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A variables whose value depends on that of the independent variable
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Economic fluctuations
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The rise and fall of economic activity relative to the long-term growth trend of the economy; also called business cycles
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Economic theory, or economic model
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A simplification of reality used to make predictions about cause and effect in the world
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Economics
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The study of how people use their scarce resources to satisfy their unlimited wants
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Entrepreneur
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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
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Entrepreneurial ability
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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
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The incorrect belief that what is true for the individual, or part, must necessarily be true for he group, or the whole
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Good
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A tangible product used to satisfy human wants
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Hypothesis
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A theory about how key variables relate
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Independent Variable
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A variable whose value determines that of the dependent variable.
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Interest
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Payment to resource owners for the use of their capital
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Labor
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The physical and mental effort used to produce goods and services
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Macroeconomics
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The study of the economic behavior of entire economics, as measured, for example, by total production and employment
|
Market
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A set of arrangements by which buyers and sellers carry out exchange at mutually agreeable terms
|
Microeconomics
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The study of the economic behavior in particular markets, such as that for computers or unskilled labors
|
Natural resources
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All gifts of nature used to produce goods and services; includes renewable and exhaustible resources
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Negative relation
(inverse relation)
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Occurs when two variables moves in opposite directions; when one increases, the other decreases
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Normative Economic Statement
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A statement that reflects an opinion, which cannot be proved or disproved by reference to the facts
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Positive Economic statement
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A statement that can be proved or disproved by reference to facts
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Product Market
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A market in which a good or service is bought and sold
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Profit
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Reward for entrepreneurial ability; sales revenue minus resource cost
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Rational self-interest
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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
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Payment to resource owners for the use of their natural resources
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Resource market
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A market in which a resource is bought and sold
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Resources
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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
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Scarcity
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Occurs when the amount of people desire exceeds he amount available at a zero price.
|
Secondary Effects
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Unintended consequences of economic actions that may develop slowly over time as people react to events
|
Service
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An activity, or intangible product, used to satisfy human wants
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Variable
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A measure, such as price or quantity, that can take on different values at different times
|
Wages
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Payment to resource owners for their labor
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Absolute Advantage
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The ability to make something using fewer resources than other producers use
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Barter
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The direct exchange of one product for another without using money
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Comparative Advantage
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The ability to make something at a lower opportunity cost than others
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Division of Labor
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Breaking down the production of a good into separate tasks
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Economic Growth
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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
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The set of mechanisms and institutions that resolve the what, how, and for whom questions
|
Efficiency
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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
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Law of Comparative advantage
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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
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To produce more of one good, the amount of another must be sacrificed.
|
Mixed System
|
Mixed System
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Opportunity Cost
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The value of the best alternative forgone when an item or activity is chosen
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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
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Specialization of Labor
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Focusing work effort on a particular product or a single task
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Sunk Cost
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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
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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
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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
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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
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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
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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
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The amount offered for sale per period at a particular price, as reflected by a point on a given supply curve
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Real Income
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Income measured in terms of the goods and services it can buy; real income changes when the price changes
|
Relevant Resources
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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
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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
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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
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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
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At a given price, the amount by which quantity supplied exceeds quantity demanded; a surplus usually forces the price down
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Tastes
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Consumer preferences; likes and dislikes in consumption; assumed to remain constant along a given demand curve
|
Transactions Costs
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The costs of time and information required to carry out market exchange
|
Aggregate Demand
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The relationship between the economy's price level and aggregate output demanded, OTC
|
Aggregate output
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A composite measure of all final goods and services produced in an economy during a given period; real GDP
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Coincident economic indicators
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Variables that reflect peaks and troughs in economic activity as they occur; i.e. employment, personal income, and industrial production
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Contraction
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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
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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
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A flow variable measuring the amount by which the government outlays exceed federal government revenues in a particular periods, usually a year.
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Federal Debt
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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
|
(P*Q) (P*Q)
--------- + -------- * 100
(P*Q) (P*Q)
|
GDP DEFLATOR
|
(P*Q) (P*Q)
--------- + --------
(P*Q) (P*Q)
|
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
|