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EC102 > EC102 Midterms > Flashcards

EC102 Midterms Flashcards

1
Q

Reasons why economics wasn’t necessary over history

A

“Caveman period”

  • unlimited resources
  • production and consumption relationship was clear

Tribes
- division of labor was based on hierarchy

Slave economy, Ancient Societies, Feudal System

  • aristocracy ruled with divine right while everyone else simply labored for them
  • clear division of labor and resources based on class
  • was not dependent on a trade economy
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2
Q

Revolutions in Economic History

A

Cultural

  • brought about open-mindedness
  • innovation also led to rise of technology which created surplus in harvests

Political

  • challenged the feudal system
  • rise of the bourgeoisie
  • change in mode of production (not unpaid labor anymore)

Economic

  • surplus led to more trade
  • lesser dependence on weather and social classes
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3
Q

Capital (funding businesses)

A

Financial Market

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4
Q

Capital goods

A

Capital Market

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5
Q

Money in exchange for physical power

A

Labor Market

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6
Q

What is produced and sold

A

Goods and Services Market

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7
Q

Economists

  • Originated from France
  • First to use the input, output table
A

Physiocrats

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8
Q

Economists

  • Originated from England
  • Protected the production of goods from the outside (high tax on imports, promotion of exports)
  • Focus on accumulation of gold and silver
A

Mercantilists

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9
Q

Economists

  • Social classes
  • Labor Theory of Value
A

Classical

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10
Q

Economists

  • Supply and Demand curve
  • Firms and households
A

Neoclassical

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11
Q

Price is determined by how much labor was put into the production of the good

A

Labor Theory of Value

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12
Q

“Free market”

A

Laissez-faire

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13
Q

The belief that the market corrects itself

A

Invisible Hand theory

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14
Q
  • Proponent of the Invisible Hand theory
  • Believes that the selfish interest of people leads to common good
  • Competition can lead to innovation
A

Adam Smith

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15
Q

Proponent of Doomsday prophecy

A

Thomas Malthus

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16
Q

Population increases exponentially and production won’t be able to keep up

A

Doomsday prophecy

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17
Q
  • Took after Adam Smith

- Believes that the “last” in quality is the basis of the overall price

A

David Ricardo

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18
Q
  • Assumes free trade across all goods
  • “Theory of Exchange”
  • Explains why countries should trade with each other for diversified goods in each country
A

Theory of Comparative Advantage

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19
Q

If specialized, no reason to leave specialty

A

Absolute Advantage

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20
Q

Choosing to specialize in something you’re better at

A

Comparative Advantage

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21
Q
  • Predicted the doom of capitalism

- Class struggle

A

Karl Marx

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22
Q

Market value of all final goods and services produced in a country or region in a given period of time

A

GDP (Gross Domestic Product)

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23
Q

GDP Equation

A

Y = C + G + I + NX

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24
Q
  • Shows who bought the goods and how much was paid

- GDP = C + G + I + X - M

A

Expenditure Approach

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25
Q
  • Shows the value of the markets in the country

- GDP = A + Ind. + S

A

Supply Approach

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26
Q
  • Shows who produced what and how much was produced; includes all the steps in production
    - GDP = C + G + X + X - M + SD
A

Value-Added Approach

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27
Q

Spending by households

A

Consumption

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28
Q

Spending by government

A

Government purchases

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29
Q

Spending on goods/services that will contribute to future goods/services

A

Investments

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30
Q
  • C
  • G
  • I
  • X
  • M
  • A
  • Ind.
  • S
  • SD
A
  • Consumption
  • Government purchases
  • Investment
  • Exports
  • Imports
  • Agriculture, fisheries, foresting (raw materials)
  • Industries
  • Services
  • Statistical Discrepancy
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31
Q
  • Computes GDP using constant prices
  • Uses a base year as reference
  • Reflects amount of goods and services produced
A

Real GDP

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32
Q
  • GDP computation using prices in current year

- Reflects the price of the goods and services produced and the quantity produced

A

Nominal GDP

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33
Q

GDP Deflator Equation

A

(Nominal GDP / Real GDP) x 100

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34
Q

Inflation Equation

A

(Current deflator - Previous deflator) / Previous deflator]

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35
Q

Market value of all final goods and services produced anywhere in the world by nationals of a country

A

GNP (Gross National Product)

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36
Q

Measure of overall cost of the goods and services bought by a typical consumer

A

Consumer Price Index

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37
Q

CPI Inflation

A

[(Current CPI - Previous CPI) / Previous CPI] x 100

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38
Q

Goal of firms

A

Maximize profit

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39
Q

Increase in output due to increase in input

A

Marginal product of labor

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40
Q

Costs when you actually shell out money

A

Explicit costs

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41
Q

Costs when money isn’t spent but given up

A

Implicit costs

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42
Q

All opportunities foregone to acquire a product

A

Opportunity costs

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43
Q

Costs that to do not vary with quantity produced (i.e. rent, rate, interest)

A

Fixed costs

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44
Q

Costs that vary with quantity produced (i.e. labor, material)

A

Variable costs

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45
Q

Study of how households and firms make decisions and interact in markets

A

Microeconomics

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46
Q

Study of economic-wide phenomena (i.e. inflation, unemployment, economic growth)

A

Macroeconomics

47
Q

Situation in which the economy’s overall price level is rising

A

Inflation

48
Q

Steps in computing for CPI

A
  • Fix the basket
  • Find the prices at each point in time
  • Compute the basket cost in each year
  • Choose a base year and compute CPI in each year
49
Q

CPI Equation

A

CPI = [(Price of basket in current year / Price of basket in base year)] x 100

50
Q

Comparing amounts of money at different points in time

A

Interest Rate

51
Q
  • Model that explains how the economy is organized and how participants interact with one another
  • Firms and households
A

Circular-Flow Diagram

52
Q

Labor, land, and capital

A

Factors of production

53
Q

Market where households are buyers, firms are sellers

A

Market for goods and services

54
Q

Market where firms are buyers, households are sellers

A

Market for factors of production

55
Q

Amount firm receives for the sale of output

A

Total revenue

56
Q

Amount firm pays to buy input

A

Total costs

57
Q

Total revenue minus total costs

A

Total profit

58
Q

Decline in marginal product of an input due to increase in quantity of input

A

Diminishing marginal product

59
Q

Shows the relationship between output quantity and input quantity

A

Production function

60
Q

Inputs that don’t vary with quantity of output

A

Fixed input

61
Q

Inputs that vary with quantity of output

A

Variable input

62
Q

Production process where some inputs are fixed

A

Short-run production

63
Q

Production process where all inputs are variable

A

Long run production

64
Q

Marginal product of labor equation

A

Change in output / Change in Labor

65
Q

Shows relationship between quantity produced and total costs

A

Total-Cost Curve

66
Q

Average total cost equation

A

total cost / quantity of output

67
Q

Average fixed cost equation

A

fixed cost / quantity of output

68
Q

Average variable cost equation

A

variable cost / quantity of output

69
Q

Increase in total cost due to increase in unit of production

A

Marginal Cost

70
Q

Short-run decision not to produce anything for a while due to current market conditions

A

Shutdown

71
Q

Shutdown conditions

A
  • TR < VC
  • TR/Q < VC/Q
  • P < AVC
72
Q

Limitations of GDP

A
  • Population size must be taken into account
  • Doesn’t reflect income distribution
  • Doesn’t reflect quality of life
  • Doesn’t include non market activities that could be considered part of economic activity
  • Doesn’t include illegal and informal sectors
73
Q

Characteristics of Perfectly Competitive Market

A
  • Deals with homogenous products (cannot distinguish one from the other)
  • Many small buyers and sellers
  • No barriers to entry and exit
74
Q

Goal of households

A

Maximize utility of goods they buy

75
Q

Budget Constraint Equation

A

P1C1 + P2C2 = Y

76
Q
  • P
  • C
  • Y
A
  • Price
  • Consumption
  • Assets + Wage (Time - Leisure)
77
Q

Group of buyers and sellers of a particular good or service

A

Market

78
Q

Determined by buyers

A

Demand

79
Q

Determined by sellers

A

Supply

80
Q

Means everything else equal; everything else the same; other things equal; other things constant

A

Ceteris paribus

81
Q

States that, other things equal, the quantity demanded of a good falls when the price of the good rises

A

Law of Demand

82
Q
  • Exception to the Law of Demand
  • Typically an inferior product that does not have easily available substitutes
  • A product that people consume more of as the price rises
A

Giffen Goods

83
Q
  • Exception to the Law of Demand
  • A good for which demand increases as the price increases, because of its exclusive nature and appeal as a status symbol
A

Veblen Goods

84
Q

Shifts in the demand curve

A
  • Consumer income
  • Prices of related goods
  • Tastes and Preferences
  • Expectations
  • Number of buyers
85
Q

Shifts in the demand curve:

Consumer income

A
  • As income increases the demand for a normal good will increase
  • As income increases the demand for an inferior good will decrease
86
Q

Shifts in the demand curve:

Prices of related goods

A
  • Substitutes: fall in the price of one good reduces the demand for another
  • Complements: fall in the price of one good increases the demand for another
87
Q

Shifts in the demand curve:

Tastes and Preferences

A

Fads, fashion, trends

88
Q

Shifts in the demand curve:

Expectations

A

Future prices or future events

89
Q

Shifts in the demand curve:

Number of buyers

A

Population

90
Q

Ability and willingness of sellers to make goods available for sale

A

Supply

91
Q

Ability and willingness to purchase a good

A

Demand

92
Q

Other things equal, the quantity supplied of a good rises when the price of the good rises

A

Law of Supply

93
Q

Graph of the relationship between the price of a good and the quantity supplied

A

Supply Curve

94
Q

Graph of the relationship between the price of a good and the quantity demanded

A

Demand Curve

95
Q

Shifts in supply curve

A
  • Input prices
  • Technology
  • Prices of Related Goods (Production Substitutes)
  • Expectations
  • Number of sellers (Market Supply)
96
Q

Situation in which the price has reached the level where quantity supplied equals quantity demanded

A

Equilibrium

97
Q

The claim that the price of any good adjusts to balance the quantity supplied and the quantity demanded

A

Law of Supply and Demand

98
Q

Measure of sensitivity or responsiveness of quantity demanded or quantity supplied to any of its determinants.

A

Elasticity

99
Q

Measure of how sensitive demand is to change in price

A

Price elasticity of demand

100
Q

Measure of sensitive supply is to change in price

A

Price elasticity of supply

101
Q

Price elasticity of demand equation

A

Percentage change in quantity demanded / Percentage change in price

102
Q

Quantity demanded does not respond strongly to price changes

A

Inelastic demand

103
Q

Quantity demanded responds strongly to price changes

A

Elastic demand

104
Q

Quantity demanded does not respond to price changes

A

Perfectly inelastic demand

105
Q

Quantity demanded changes infinitely with any change in price.

A

Perfectly elastic demand

106
Q

Quantity demanded changes by the same percentage as the price

A

Unit elastic demand

107
Q

Determinants of Demand Elasticity

A
  • Necessities versus Luxuries
  • Availability of Close Substitutes
  • Proportion of the Budget Allocated for the Good
  • Definition of the Market
  • Time Horizon
108
Q

A legal maximum on the price at which a good

can be sold

A

Price ceiling

109
Q

A legal minimum on the price at which a good can be sold

A

Price floor

110
Q

As the price of an item declines, people can buy more of it out of a given income

A

Income effect

111
Q

As the price of an item declines, it becomes more attractive to buyers relative to other items they might spend their money on

A

Substitution effect

112
Q

Additional utility/ satisfaction/ happiness derived from consuming one more unit of a good

A

Marginal utility

113
Q

States that as an individual obtains more and more units of an item/ good successively in a specified time period, he or she will obtain less and less additional utility/ satisfaction/ happiness for each additional unit

A

Law of Diminishing Marginal Utility

EC102 (2 decks)

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