Economic Concepts & Strategy Flashcards
(36 cards)
Demand Curve
A demand curve shows that the inverse relationship between price and the quantity of a product or service that a group of consumers are willing and able to buy at a particular time.
Demand Curve Shifts
The DEMAND CURVE SHIFTS if there are changes in relevant factors other than a change in price. “ the demand curve shifted upward,” “the demand curve shifted outward,” “the demand curve shifted to the right” or “ demand increased”.
Changes in the demand curve where QUANTITY DEMANDED becomes SMALLER for each and every price are described as “the demand curve SHIFTS DOWNWARD,” “ the demand curve SHIFTS inward,” “ the demand curve shifted to the LEFT,” or “DEMAND DECREASES.”
Reasons why demand curves may shift are?
1.) The price of a SUBSTITUTE.
Increases in the PRICE of product A, will make product B, MORE attractive
2.) EXPECTATIONS of price INCREASES
Consumers are more likely to buy now if they think that prices will increase in the future
3.) INCOME (for normal goods)
When income INCREASES (wealth increases), demand INCREASES.
4.) Extent of the MARKET
NEW CONSUMERS may increase demand, therefore increasing the SIZE of the market
Demand Curve Shifts (download)
a. ) The price of a complement good– when products are normally used together an increase in the price of one of the goods decreases demand for the other.(chips and salsa)
b. ) Income (for inferior goods) – for some goods(e.g.,old cars) when income increases (wealth), demand decreases as consumers shift their spending to other goods (e.g. new cars)
c. ) Consumer boycotts - an organized boycott will, if effective, temporarily decrease in demand for a product.
* consumer tastes are indeterminate relationships.
Okun’s Law
Okun’s Law
Provides a general rule of thumb linking changes in the ECONOMIC GROWTH and UNEMPLOYMENT. Okun’s Law does NOT have PRECISE predictive power NOR does it focus on INTEREST RATES or INFLATRION.
Macroeconomics
Macroeconomics is the study of the economy as a whole (Big Mac). The key concerns of macroeconomics include UNEMPLOYMENT, INFLATION, and LONG -TERM ECONOMIC GROWTH. Macroeconomics studies to roles of HOUSEHOLDS (CONSUMERS), (NON-FINANCIAL) BUSINESSES, GOVERNMENTS, the FINANCIAL SECTOR, and FOREIGN ECONOMIES and causing and/or alleviating undesired FLUCTUATION in DOMESTIC economic conditions
Gross Domestic Product (GDP)
Gross Domestic Product (GDP) also known as NOMINAL GDP. The total dollar value, at current (or nominal) market prices, of all the FINAL GOODS AND SERVICES produced WITHIN ONE countries BORDERS (regardless of the citizenship of the individual residents or the country of headquarters of the companies involved during a period of time typically a year.
Quantitative Easing
Quantitative Easing involves the Fed BUYING SECURITIES to add LIQUIDITY at the time, when SHORT-TERM interest RATES are already close to zero. Quantitative easing does NOT involve LOWERING interest rates because they’re already close to zero. Running budget surpluses would NOT result in increased overall liquidity for the economy.
Full Employment
Full employment consists of the TOTAL of FRICTIONAL unemployment and STRUCTURAL unemployment. CYCLICAL unemployment is assumed to be zero.
Opportunity Cost
Opportunity Cost is defined as the best ALTERNATIVE USED for benefit FOREGONE as a result of a business decision.
Percentage change for account Balances
When calculating PERCENTAGE CHANGE of account balances from one period to another, the prior. BASE QUANTITY is used to measure the change. The CHANGE in balances is DIVIDED by the BASE. To calculate percentage change: [(CURRENT BALANCE – PRIOR BALANCE)/PRIOR BALANCE] = PERCENTAGE CHANGE.
To maintain a Fixed Exchange Rate
a country may have to increases interest rates if they have trade deficit with the country whose currency it targets, increase its interest rates if it has higher inflation rates in the country whose currency it targets, or change its interest rates to match changes in the country whose currency it targets..
Elasticity
Elasticity measures the sensitivity of demand to change in a determinant. If elasticity is greater than 1, demand is considered elastic and total revenue will decline if the price is increased. If elasticity is less than 1, demand is considered inelastic and total revenue will increase in the price is increased. If elasticity is equal to 1, demand is said to be unitary, and is not sensitive to price changes. The point of inflection is = 1.0.
Price Elasticity Of Demand
Price elasticity of demand = percentage change in quantity demanded / percentage change in price.
Price Elasticity of Demand (ARC Method)
Change in quantity demanded / average quantity demanded divided by changing price /average price
Income Elasticity of Demand
Income elasticity of demand = Percentage of change in quantity demanded / percentage change in income
Cross Elasticity of Demand
Cross Elasticity of Demand = percentage change in quantity demanded for a product X / percentage change in the price of product Y
Direct relationships with supply curves (increases in that factor cause supply curve to shift outward or supply to increase.
Direct Relationships:
– Number of Producers – will produces normally increase the quantity supplied of a product at a given price.
– Government Subsidies – additional funding permits producers to produce more inputs and thus increase quantity supplied at any given price.
– Price Expectations – if producers expect higher prices, producers will increase quantities.
– Reduction in costs of production and technological advances.
*Inverse relationship with supply curve:
Increasing production costs (e.g.,production taxes) if producers costs increase produces will decrease their quantity supplied at a given price.
Prices of other products – if producers may produce both product A and B, and producing A becomes more profitable, produces will decrease their quantity supplied of B at any given price.
Price Elasticity of Supply
Price Elasticity of Supply (ES) = percentage change in quantity supplied / percentage change in price
Economic Profit (loss)
Economic Profit (loss) – The excess (shortfall) of the profit or suppliers of a particular product over (under) the normal profit of the economy (and economic profit attracts new suppliers and an economic loss causes suppliers to exit production.
Price Ceilings
Price Ceilings resulting SHORTAGES of goods.
Price Floors
Price Floors result in unsold SURPLUSES of goods.
Marginal Utility (satisfaction)
Marginal Utility – the SATISFACTION VALUE to the consumer of the next dollar they spend on a particular product.
Marginal Propensity to Consume (MPC)
Marginal Propensity to Consume (MPC) – the percentage of the next dollar in personal disposable income that the consumer would be expected to spend (change in consumption(spending) / change in income).
