5 - Economics Flashcards
(28 cards)
What are the characteristics of a positive supply curve shift (shift right)?
Examples: Government subsidies or technology improvements that decrease costs for suppliers
What are the characteristics of a negative supply curve shift (shift left)?
Examples: Shortage of gold- so less gold watches are made; wars or crises in rice-producing countries means there is less rice on the market
What is a Positive Demand Curve Shift (Shift Right)?
Price of substitutes go up - price of beef rises- so people buy more chicken
Future price increase is expected - War in Middle East- people go out and buy gas
Market expands - i.e. people get new free health care plan- demand at clinic rises
Expansion - more spending increases equilibrium GDP
What is a Negative Demand Curve Shift (Shift Left)?
Price of complement goes up - price of beef goes up- less demand for ketchup
Boycott - Company commits social blunder- consumers boycott
Consumer income rises - Demand for inferior goods drops as people have more money to spend
Consumer tastes change
Contraction - less spending decreases equilibrium GDP
What is the Marginal Propensity to Consume?
How much you spend when your income increases Calculate: Change in Spending / Change in Income
What is the Marginal Propensity to Save?
How much you save when income increases
Calculate: Change in Savings / Change in Income
Also = 1 - MPC
How does spending change due to the multiplier effect?
The increase in demand ends up being larger than the amount of additional income spent in the economy due to the multiplier effect. One consumer spends money- which: *Increases the income of a business *Increases the income of a vendor *Increases income of employees *Increases tax revenue
How is Price Elasticity of Demand calculated?
% Change in Quantity Demand / % Change in Price
What is Unitary Demand?
Total revenue will remain the same if price is increased
Considered unitary if coefficient of elasticity : 1
How is Income Elasticity of Demand calculated?
% Change Quantity Demanded / % Change in Income
Normal goods > than 1 (D increases more than income)
Inferior goods < than 1 (D increases less than income)
What conditions occur under periods of inflation?
Interest rates increase Reduced demand for loans Reduced demand for houses- autos- etc.
Value of bonds and fixed income securities decrease
Inferior good demand to increase
Foreign goods more affordable than domestic
Demand for domestic goods decrease
What is GDP (Gross Domestic Product)?
The annual value of all goods and services produced domestically at current prices by consumers- businesses- the government- and foreign companies with domestic interests
Included: Foreign company has US Factory
Not included: US company has foreign factory
What is Nominal GDP?
Measures goods/services in current prices.
What is Gross National Product (GNP)?
Like GDP; Swaps foreign production. US Firms overseas are included- Foreign firms domestically are not included
What is the Consumer Price Index (CPI)? How is it applied?
Price of goods relative to an earlier period of time- which is the benchmark. Year 1 : 1.0
((CPI Current - CPI Last) / CPI Last) * 100
How is disposable income calculated?
Personal Income - Personal Taxes
How is Return to Scale calculated?
% Increase in output / % Increase in input
Greater than 1 : Increasing returns to scale
Less than 1 : Decreasing returns to scale
How does inflation relate to unemployment?
High Unemployment : Low Inflation (Vice Versa)
What is the Discount Rate?
The rate a bank pays to borrow from the Fed.
What is the Prime Rate?
The rate a bank charges their best customers on short-term borrowings.
What is Deficit Spending?
Increased spending levels without increased tax revenue.
Lower taxes without decrease in spending
Gamble that the multiplier effect will take over and boost economy
How does the Fed control economy-wide interest rates?
By adjusting the discount rate charged to banks
How do international trade restrictions affect domestic producers?
They are good for domestic producers.
Demand curve shifts right
Fewer substitutes
They can charge higher prices
How to international trade restrictions affect foreign producers?
They are bad for foreign producers
Demand curve shifts left
Fewer buyers
They must charge lower prices
