Chapters 1-5 review Flashcards by Katelynn Hale

improvement in technology will?

Increase supply, reduce production costs

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Opportunity Cost

change of output of one good changes, change of another output changes

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price of a good decreases from $12 to $10

substitution effect more people want to buy the good

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Relative price of good

ratio of its money price of the next best alternative price

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Comparative Advantage

who can produce product at a lower cost ( whos faster)

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quantity demanded

the amount of a good consumers plan to purchase of a particular price

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Law of demand states what

Other things remain the same, higher price of good= smaller quantity demanded

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if X shifts leftward

price increase, increase cost of machinery

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GDP

Gross domestic Product ( all produced through the year)

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Nominal GDP

Measures GDP using current prices

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Real GDP

Measures GDP valued using prices prevailing during base year

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Potential GDP

Measures non inflationary maximum sustainable level of production

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Demand increases , Supply no change

Price and quantity increases

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Demand decrease , Supply no change

price and quantity decrease

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Decrease supply? no change demand

price increase, quantity decrease

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Increase Demand and Supply

Price change intermediate, Quantity increase

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Decrease Demand and Supply

Price intermediate, Quantity decrease

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Relative Price of a good

ratio of its money price of the next best alternative good

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Microeconomics

study of choices of individuals and businesses make, interact with markets, influence government.

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Income effect

price of good increases, everything else constant, reduced amount we purchase.

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Auto workers negotiate wage increase , how does this effect the supply of cars

decreases supply of cars

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Law of supply and demand

price of any good adjusts to bring the quantity supplied and quantity demanded.

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Any price above Equilibrium

there is a surplus and price falls

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Final goods and services

value of the most all imputs used to produce those goods

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Market value

defined using market prices , enables adding value of diverse set of outputs

increase of price of related good will?

decrease supply of another good , produce more quantity

Negative state of nature

decrease supply , increase production costs

positive state of nature

increase supply, decrease production costs

Law of demand

price increase , quantity demand decrease

Absolute Advantage

produce more then other producers. ( doesnt consider opportunity cost

Supply increase, no change in demand

price decreases, quantity increases

Increase Demand, Decrease Supply

Price increase, Quantity change intermediate

Decrease Demand, Increase Supply

Price falls, Quantity change intermediate

Macro economics

study of national and global economics

Positive economics

testable, confronted with data

Globalization

increasing flows of capital, goods, and services internationally

Trade off choices

choice of purchases of something reduces about to do or purchase

Marginal cost

the cost of producing one or more unit of a good measured in units of the other good

Marginal Benefit

measured by the amount some one is willing to pay

Diminishing Marginal benefit

Consumption increases, marginal benefit decreases

Substitution effect

price of a good increases, everything else constant, opportunity cost increases , leads consumers to substitute goods

Quantity Demand

amount of good consumers plan to purchase a specific price during a given time period

Complements

if one is used in conjunction of another

Substitutes

One good is substituted or used in place of another.

capital

anything that improves labor productivity , capital earn interest

when a price of a good falls the substitution effect leads to_______ in quantity purchased and the income effect leads to__________ in the quantity purchased

Increase, decrease

Law of Supply

other things equal the quantity supplied of a good rises when price of good rises

Any price below Equilibrium

shortage = price rises

Lost incomes

those unemployed have reduced incomes

Lost human capital

longer person is unemployed, more difficult it is to compete for new position

People in Labor force

population umployed-emplyed

Employment to population ratio

Labor force participation rate

labor force/working age population x 100

Marginally attracted workers

people who are not working but want to

Frictional unemployment

normal market turnover, some industries either contract or expand, workers look for a better position.

Structural unemployment

changes in tech and foreign competition that change skills needed or location of jobs

Cyclical Unemployment

result from expansions and contractions through business cycle, increases during recessions, decreases during expansions

natural rate of unemployment

the normal rate of unemployment, consisting of frictional unemployment and structural unemployment

calculate output GAP

Actual GDP-Potential GDP

If the unemployment rate is higher than the natural rate then

the output will be below potential GDP

if unemployment rate is below natural rate then

output will exceed potential GDP

Price Level

Average level of prices

Inflation

persistent increase in price level

Deflation

persistent decrease in price level

Redistributes Income

between employees and employers

If inflation is higher then expected then

employers are generally better, employees are worse

Redistribute wealth

between borrowers and lenders

if inflation is higher then expected loans will be what

repaid

CPI

Consumer Price Index - measures the average prices paid by urban consumers

Inflation Calculation

CPI current year - CPI present year X 100

when price level is rising quickly

inflations rising

when price level is rising slow

Inflations lost

When price level is falling

deflation biases CPI

Why does quality change

Increase in price

What is difficult about tracking new goods

tracking prices

Chained CPI

uses current or prior period quantities of goods and services to account for substitution effect and new goods.

Personal consumption expenditure

relys on broader market basket consumed

GDP deflator

on relies on final goods and services produced in the economy

Headline Inflation

Core Inflation

calculated without food or fuel prices

Outlet Substitution Bias

As the structure of retailing changes, people switch to buying from cheaper sources, but the CPI, as measured, does not take account of this outlet substitution

Chapters 1-5 review Flashcards

(81 cards)