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0
Q

Principle 2

A

The true cost of something is the opportunity cost

1
Q

Principle 1

A

Choices are necessary bc resources are scarce

2
Q

Principle 3

A

How much is a decision at the margin

3
Q

Principle 4

A

People usually respond to incentives, exploiting opportunities to make themselves better off

4
Q

Principle 5

A

Gains from trade

5
Q

Principle 6

A

Bc people respond to incentives, markets move toward equilibrium

6
Q

Principle 7

A

Resources should be used efficiently to achieve society’s goals

7
Q

Principle 8

A

Because people usually exploit gains from trade, mRkets usually lead to efficiency

8
Q

Principle 9

A

When markets don’t achieve efficiency, government intervention can improve society’s welfare

9
Q

Principle 10

A

One persons spending is another persons income

10
Q

Principle 11

A

Overall spending sometimes gets out of line with the economy’s productive capacity

11
Q

Three types of models

A

Production possibilities frontier
Comparative advantage
Circular flow diagram

12
Q

Production possibilities frontier

A

Demonstrates trade off between an economy that produces two goods

13
Q

Quantity pairs inside or on the frontier are

A

Possible

14
Q

Quality outside or not on the frontier are

A

Not possible

15
Q

Positive economics

A

Attempts to analyze how the world works

16
Q

Normative economics

A

Describes how the world should work

17
Q

Circular flow diagram

A

Represents transactions by showing the flow of goods and services and flow of money

18
Q

Quantity supplied DOES NOT equal supply

A

Quantity supplied : single price or point on line

Supply: entire curve

19
Q

Supply is normally

A

Upward sloping

20
Q

Higher price means

A

Increase supplied

21
Q

Lower price means

A

Decrease in the quantity supplid

22
Q

Change in price result in

A

Movement

23
Q

Change in other factors result in

A

Shifts

24
Q

Rightward shift of a supply curve means

A

Increase in supply

25
Q

Leftward shift of supply curve means

A

Decrease in supply

26
Q

What shifts a supply curve

A
Input prices (k=capital! labor! material)
Prices
Technology
Expectations
Number of producers
27
Q

Market demand equation

A

Qd= 800-20P

D = alpha-(beta times P)

28
Q

A demand curve is

A

Downward sloping

29
Q

Law of demand

A

High price means reduced quantity demanded

Low price means increased quantity demanded

30
Q

Movements along the curve

A

Changes in quantity demand of good x due to change in price

31
Q

Shifts along the curve

A

Changes in quantity demanded of good x due to any other factor

32
Q

What shifts a demand curve

A

Income
Tastes
Expectations
Prices of related goods/services

33
Q

Substitutes

A

As price goes up for y, demand goes up for x

Coffee and tea
Donuts and muffins

34
Q

Complements

A

As price goes up demand goes down

Car and gas
Peanut butter and jelly

35
Q

A perfectly competitive market is in

A

Equilibrium

36
Q

Finding equilibrium price

A

D= 800-20P

S=30P-200

37
Q

Finding equilibrium quantity

A

Plug in price into supply

S=30(P)-200

38
Q

Surplus

A

Excess supply

39
Q

Shortage

A

Excess demand

40
Q

Price controls

A

When governments intervene, they are imposing price controls

41
Q

Price ceiling

A

Upper limit, rent control

42
Q

Price floor

A

Lower limit

Minimum wage

43
Q

When are price controls not bad

A

If markets are failing/inefficient

44
Q

What is the main price control in the US

A

Rent control

45
Q

Ceilings go below or above equilibrium level?

A

Below

46
Q

Price ceilings produce shortages if?

A

The ceiling price is lower than equilibrium price

47
Q

How do price ceilings create inefficiency

A
  1. Reduce quantity of good consumed below the efficient level
  2. Inefficient allocation to consumers
  3. Leads to wasted time and effort, hunting for the good
  4. Leads to lower quality good
    * * also create black markets**
48
Q

Quota

A

Quantity control by which gov. Regulates how much can be bought or sold

49
Q

Wedge/quota rent

A

Earnings that the license holder receives from ownership of the license

50
Q

How do quantity controls create inefficiencies?

A

Due to missed opportunities by preventing mutually beneficial transactions
* also create incentives for illegal activity*

51
Q

Macroeconomics

A

Deals with economy as a whole

52
Q

The whole is greater than the sum of its parts

A

:)

53
Q

Paradox of thrift

A

When someone is worried about the possibility of economic hard times, they prepare by cutting their spending, this depresses the economy and the person will end up worse off

  • and vice versa
54
Q

Self regulating economy

A

What they thought we had before the Great Depression

55
Q

Keynesian economics

A

Economic slumps are caused by inadequate spending and can be mitigated by government intervention
- monetary and fiscal policy

56
Q

Monetary policy

A

Uses changes in the quantity of money to alter the interest rates and affect overall spending
- federal reserve

57
Q

Fiscal policy

A

Uses changes in government spending and taxes to affect overall spending

58
Q

Real GDP

A

A measure of the economy’s overall output

59
Q

Recession

A

(Or contractions) are periods of economic downturn when output and employment are failing

  • poor labor market conditions
  • lower standards
  • shrinking profits
  • psychological costs
60
Q

Expansion

A

(Recoveries) are periods of economic upturn when output and employment are rising

61
Q

Business cycle

A

The short run alternation between recessions and expansions

62
Q

Business cycle peak

A

The point at which the economy turns from expansion to recession

63
Q

Business cycle trough

A

Point at which the economy turns from recession to expansion

64
Q

What is the most widely used indicator of the labor market?

A

The unemployment rate

65
Q

Long run economic growth

A

The sustained upward trend in the economy’s output over time

66
Q

Inflation

A

Rising overall level of prices

- discourages holding cash

67
Q

Deflation

A

Falling overall level of prices

68
Q

Price stability

A

When the overall level of prices changes slowly or not at all
- goal for economists

69
Q

Open economy

A

an economy that trades goods and services with other countries

70
Q

Trade deficit

A

When the value of goods and services bought from foreigners is more than the value of goods and services it sells to them

  • but not the end of the world, many successful countries have them
71
Q

Trade surplus

A

When the value of goods and services bought from foreigners is less than the value of the goods and services it sells to them

72
Q

National income and product accounts

A

Track consumer spending, producing sales, business investment spending, gov purchases,

  • can be visualized with a circular flow diagram
73
Q

How do households obtain incomes?

A

Stocks, bonds, rent

74
Q

Where does the income they don’t retain go?

A

Taxes

Or gained via transfers

75
Q

Disposable income

A

Income = income + transfers - taxes

Yd = Y + TR - T

76
Q

Private savings equations

A

Savings = income - consumption

77
Q

Governments participate by

A

Purchasing goods and services
Transferring money
Collecting taxes
Borrowing

78
Q

Budget balance equation

A

79
Q

Firms participate by

A

Purchasing goods and services

Accumulate inventories of finished products

80
Q

Investment spending

A

Purchases of productive capital and changes to inventory

81
Q

Rest of the world participates by

A

Purchasing US goods and services (exports)
Selling foreign products to US (imports)
Foreign lending and foreign borrowing

82
Q

Net exports

A

Exports minus imports

NX = EX - IM

  • if it’s negative you have a deficit
  • if it’s positive you have a surplus
83
Q

Final goods and services

A

Goods and services sold to the final or end user

Laptop, house, cAr

84
Q

Intermediate goods and services

A

Goods and services that are inputs for production

85
Q

Gross domestic product

A

The total value of all final goods and services produced in an economy in a given period, usually a year

86
Q

3 approaches to calculating GDP

A

Direct approach
Expenditure approach
Earned factor income approach

87
Q

Value added approach

A

Intermediate goods are excluded so we don’t double count

88
Q

Real GDP measures

A

Aggregate output

89
Q

Aggregate output

A

The total quantity of FGS the economy produces during a year, calculated as if prices had not changed

90
Q

Nominal GDP

A

The value of FGS at today’s prices

91
Q

Chain dollars?

A

.

92
Q

Aggregate price level

A

Single number capturing the measure of the overall level of prices/cost of living

93
Q

Market basket

A

Hypothetical consumption bundle, used to measure overall price level.
- Florida citrus fruit example

94
Q

Price index

A

A normalized measure of the overall price level

95
Q

Inflation rate

A

Annual percent change of the price index

96
Q

Consumer price index

A

The most common measure of aggregate price level
Intended to show how the cost of all purchases by a typical urban family has changed over time.

  • might overstate inflation
97
Q

Producer price index

A

Measures the cost of a typical basket of goods and services purchased by producers (firms)

  • used to be known as wholesale price index
98
Q

GDP deflator

A

(Nominal GDP/real GDP) times 100

99
Q

Two goals of macro

A

Low unemployment and price stability

- however these two conflict

100
Q

Employment

A

Number of people currently employed in the economy, either part time or full time

101
Q

Unemployment

A

Number of people ACTIVELY LOOKING, but aren’t currently employed
- does not include disabled individuals, retired workers, children, students

102
Q

Labor force

A

The sum of employment and unemployment

103
Q

Labor force participation rate

A

Percentage of the population aged 16 or older that is in the labor force

Labor force / pop. 16 and older times 100

104
Q

Unemployment rate

A

Percentage of the total number of people in the labor force who are unemployed

Number of unemployed workers/labor force times 100

105
Q

3 types of workers not counted in unemployed(the reason unemployment rate is understated)

A

Discouraged workers
Marginally attached workers
Underemployed

106
Q

Discouraged workers

A

Hardworking people capable of working but have given up looking for a job bc there are none

107
Q

Marginally attached workers

A

Would like to be employed and have looked for a job in the recent last but are not currently looking for work

108
Q

Underemployed

A

Number of people who work part time bc they cannot find full time jobs

109
Q

What kind of relationship is between growth in the economy and unemployment rate?

A

A strong negative relationship

110
Q

Economic expansions don’t always mean unemployment will fall

A

After some recessions ended, it still continued to rise

111
Q

Jobless recovery

A

A period in which the real GDP growth rate is positive but the unemployment rate is still rising
- also called growth recession

112
Q

National unemployment rate has never dropped below

A

2.9%

113
Q

Job search

A

Time people spend looking for employment

114
Q

Frictional unemployment

A

Unemployment due to time workers spend in job search

- a certain level is beneficial

115
Q

Structural unemployment

A

More people are seeking jobs in a particular labor market than there are jobs available at the current wage rate.
- occurs when wage rate is above We.

116
Q

Factors leading to wage rate in excess of We

A
Collective bargaining
Minimum wage 
Labor strikes 
Efficiency wages
Side effects of gov policies
Mismatched between employees and employers
117
Q

Minimum wage

A

National is 7.25 an hour

118
Q

Collective bargaining

A

Working together to fight for higher wages, rather than alone

119
Q

Labor strike

A

A collective refusal to work

120
Q

Efficiency wages

A

Wages that employers set above the equilibrium wage rate as an incentive for better employee performance

  • if people get paid more, they’ll work harder to keep their jobs because a new job won’t pay as much
121
Q

Natural rate of unemployment

A

Frictional plus structural

122
Q

Cyclical unemployment

A

The deviation of the actual rate of unemployment from the natural rate due to downturns in the business cycle

123
Q

Actual unemployment

A

Natural plus cyclical

124
Q

What can cAuse unemployment rate to fall?

A

Job training and employment subsidies

125
Q

Real wage

A

Wage rate divided by price level

126
Q

Real incomes

A

Income divided by the price level

127
Q

Level of prices DOESNT MATTER but

A

Rate of change does

128
Q

Inflation rate equation

A

Price index yr 2 - price index yr 1 divided by price index in year 1 times 100

129
Q

Shoe leather cost

A

Increased costs of transactions caused by inflation, wears down the leather on ur shoes from running around to get more money

130
Q

Menu cost

A

The real cost of changing a listed price

  • a worker having to physically change the price
131
Q

Unit of account costs

A

The costs arising from the way inflation makes money a less reliable unit of measurement

132
Q

Interest rate

A

The price calculated as a percentage of the amount borrowed that lenders charge borrowers the use of their savings for one year

133
Q

Nominal interest rate

A

The interest rate expressed in dollar terms

Real plus inflation

134
Q

Real interest rate

A

.

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