Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
71 Cards in this Set
- Front
- Back
Market
|
a group of buyers and sellers of a particular good or service.
|
|
Competitive Market
|
a market in which there are many buyers and many sellers so that each has a negligible impact on the market price.
|
|
Perfectly Competitive markets require 2 characteristics
|
1. the goods offered for sale are all exactly the same
2. the buyers and sellers are so numerous that no single buyer or seller has any influence over the market price. |
|
Quantity Demanded
|
The amount of a good that buyers are willing and able to purchase.
|
|
Law of Demand
|
The claim that, other things equal, the quantity demanded of a good falls when the price rises.
|
|
Demand Schedule
|
A table that shows the relationship between the price of a good and the quantity demanded.
|
|
Demand Curve
|
A graph of the relationship between the price of a good and the quantity demanded.
|
|
Market Demand
|
The sum of all individual demands for a particular good or service.
|
|
What shifts the demand curve?
|
Any change that increases or decreases the quantity demanded at each price shifts the demand curve to the right or left. (Income, price of related goods, tastes, expectations, number of buyers)
|
|
Normal good
|
A good for which, other things equal, an increase in income leads to an increase in demand.
|
|
Inferior good
|
A good for which, other things equal, and increase in income leads to a decrease in demand.
|
|
Substitutes
|
2 goods for which the increase in the price of one leads to an increase in the demand for the other.
|
|
Compliments
|
2 goods for which the increase in the price of one leads to a decrease in the price for the other.
|
|
What represents a movement along the demand curve?
|
Price
|
|
Quantity Supplied
|
The amount of a good that sellers are willing and able to sell.
|
|
Law of supply
|
the claim that, other things equal, the quantity supplied of a good rises when the price of a good rises.
|
|
Supply Schedule
|
Table that shows the relationship between the price of a good and the quantity supplied.
|
|
Supply Curve
|
A graph of the relationship between the price of a good and the quantity supplied.
|
|
Market Supply
|
Sum of supplies of all sellers.
|
|
What is a shift in the supply curve?
|
Any change that raises or reduces the quantity supplied at every price, shift the supply curve. (Input prices, technology, expectations, number of sellers)
|
|
Equilibrium
|
A situation in which the market price has reached the level at which quantity supplied equals quantity demanded.
|
|
Equilibrium Price
|
The price that balances quantity supplied and quantity demanded.
|
|
Equilibrium Quantity
|
The quantity supplied and quantity demanded at the equilibrium price.
|
|
Surplus
|
A situation in which quantity supplied is greater than quantity demanded.
|
|
Shortage
|
A situation in which quantity demanded is greater than quantity supplied
|
|
Law of supply and demand
|
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance.
|
|
3 Steps to analyzing the change in equilibrium
|
1. Shift in supply curve, demand curve, or both?
2. Shift of curve to the right or to the left? 3. Effect of shift on equilibrium price and quantity. |
|
What is the difference between supply/demand and quantity supplied/quantity demanded?
|
Supply refers to the position of the supply curve/demand curve, whereas quantity supplied/quantity demanded refers to the amount suppliers wish to sell or buyers wish to buy.
|
|
microeconomics
|
the study of how households and firms make decisions and how they interact in the markets.
|
|
macroeconomics
|
the study of economy wide phenomena, including inflation, unemployment, and economic growth.
|
|
gross domestic product (GDP)
|
single measure of economy's well-being. the market value of all final goods and services produced within a country in a given period of time.
|
|
For an economy as a whole...
|
...income must equal expenditure.
|
|
Components of GDP
|
Y = C + I + G + NX
|
|
consumption
|
spending by households on goods and services, with the exception of purchase of new housing. (70%)
|
|
investment
|
spending on capital equipment, inventories and structures, including household purchases and new housing.
|
|
government purchases
|
spending on goods and services by local, state, and federal governments.
|
|
net exports
|
spending on domestically produced goods by foreigners (exports) minus spending on foreign goods by domestic residents (imports).
|
|
nominal GDP
|
the production of goods and services valued at current prices.
|
|
real GDP
|
the production of goods and services valued at constant prices. (multiply using base year prices)
|
|
GDP deflator
|
nominal GDP
____________ X 100 real GDP |
|
consumer price index (CPI)
|
the measure of the overall cost of the goods and services bought by a typical consumer.
price of basket of goods/services _______________________ X 100 price of basket in base year |
|
5 steps that BLS follows
|
1. fix the basket
2. find the prices 3. compute the basket's cost 4. chose a base year and compute index 5. compute inflation rate |
|
inflation rate
|
percentage change in the price from the preceding period
CPI yr2 - CPI yr1 ________________ X 100 CPI yr1 |
|
producer price index
|
the measure of the cost of a basket of goods and services bought by firms
|
|
amount in today's dollars
|
amount in year T dollars X
price level in today's dollars __________ price level in year T dollars |
|
indexation
|
the automatic correction of a dollar amount for the effects of inflation by law or contract
|
|
nominal interest rate
|
the interest rate as usually reported without a correction for the effects of inflation
|
|
real interest rate
|
the interest rate corrected for the effects of inflation
nominal interest rate - inflation rate |
|
problems with consumer price index
|
1. substitution bias
2. introduction of new goods 3. unmeasured quality change |
|
GDP deflator vs. CPI
|
1. GDP deflator reflects the prices of all goods and services produced domestically, while the CPI reflects the price of all goods and services bought by consumers.
2. CPI compares the price of a fixed basket of goods and services to the price of the basket in the base year, while the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year. |
|
real GDP
|
the production of goods and services valued at constant prices. (use base year prices)
|
|
GDP Deflator (only the prices of good and services)
|
Nominal GDP
___________ X 100 Real GDP |
|
productivity
|
the quantity of goods and services produced from each unit of labor input. (real GDP/L)
|
|
physical capital
|
the stock of equipment and structures that are used to produce goods and services.
|
|
human capital
|
the knowledge and skills that workers acquire through education, training, and experience.
|
|
natural resources
|
the inputs into the production of goods and services that are provided by nature such as land, rivers, and mineral deposits.
|
|
technological knowledge
|
society's understanding of the best ways to produce goods and services.
|
|
diminishing returns
|
the property whereby the benefit of an extra unit of an input declines as the quantity of the input increases.
|
|
catch-up effect
|
the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich.
|
|
what factors determine productivity?
|
1. physical capital
2. human capital 3. natural resources 4. technological knowledge |
|
3 ways government policies can increase an economy's growth rate.
|
savings and investment, investment abroad, education, good health, property rights and stability, free trade...
|
|
standards of living depend on...
|
productivity
|
|
the trade off between unemployment and inflation is a...
|
short-run trade off
|
|
Why does the Demand curve slope downward?
|
because the opportunity cost of consuming a good increases with its price, and some people are willing to pay more for a good than others. (increase P = decrease Qd)
|
|
What was the approximate GDP in 2007?
|
$14 trillion
|
|
When is GDP greater than 100?
|
If and only if prices are above the base year prices.
|
|
2 Formulas using CPI to adjust income for inflation:
|
income baseyr $ =
nom. income x 100 ___________ CPI income yrX $ = nom.income X CPIyrX ______ CPI |
|
What is the key to economic growth?
|
capital and technology
|
|
The effectiveness of additional capital (k) in increasing productivity does what as the amount of K increases?
|
declines (catch-up effect)
|
|
net capital flows have unexpectadly moved from ______ to ______ countries over the past 20 yrs.
|
poorer to richer
|
|
investment from abroad includes two specific things:
and is... |
1. foreign direct investment (FDI)
2. foreign portfolio investment ...the source of investment that globalization advocates seek to encourage. |