Macro Exam 1

Front 1

Define Economics

Back 1

The study of how human beings coordinate their wants and desires, given the decision making mechanism, social customs, and political realities of society.

Front 2

Definition of marginal costs

Back 2

The additional costs over and above costs already occurred.

Front 3

Definition of marginal benefit

Back 3

The additional benefit above and beyond what has already occurred.

Front 4

Define Opportunity Cost

Back 4

The benefit forgone of the next- best alternative to the activity you have chosen.

Front 5

Define Economic Institutions

Back 5

Laws, common practices, and organizations in a society that affect tge economy.

Front 6

Define Positive Economics

Back 6

Statement of the facts and what is reality; it is value free

Front 7

Define Normative Economics

Back 7

Statement of what should be; it is a value judgement

Front 8

What is the Art of Economics

Back 8

Taking positive economics to achieve the goals of normative economics

Front 9

Define Absolute Advantage

Back 9

The ability to produce more of a good of service than others can with a given amount of resources.

Front 10

Define Comparative Advantage

Back 10

The ability to produce a good or service at a lower opportunity cost.

Front 11

Define Institutions

Back 11

The formal and informal rules that constrain human economic behavior.

Front 12

What are the three types of economic systems?

Back 12

Market Economy

Capitalism

Socialism

Front 13

What are the key elements of a Market Economy?

Back 13

1. Private Property

2. Political, historical, and social forces

3. Price is the main coordinatimg activity

Front 14

Define Market Economy

Back 14

An economic system based on private property and the market in which, in principle, individuals decide how, what, and for whom to produce.

Front 15

Define Socialism

Back 15

An economic system based on individuals goodwill towards others, not on their own self interest, and in which society determines what, how, and for whom to produce.

Front 16

Define Capitalism

Back 16

An economic system based on the market in which the ownership of the means of production resides woth a small group of individuals called capitalists.

Front 17

Define Market

Back 17

Buyers and sellers trade a particular good or service.

Front 18

Assumptions/Characteristics of a Competitive Market

Back 18

1. Perfect information

2. A standardized product

3. There are no transaction costs

4. Buyers and sellers are price takers (they have no influence over the price)

Front 19

Determinants of Demand

Back 19

1.Consumer preferences/tastes

2. Prices of related goods

3. Income

4. Expectations

5. Number of buyers

6. Time period

7. Taxes and subsidies

Front 20

Determinants of Supply

Back 20

1. Price of related goods

2. Technology

3. Prices of inputs

4. Expectations

5. Number of sellers

6. Time period

7. Taxes and subsidies

Front 21

Define the Classical Theory of Economics

Back 21

A free market, laissez-faire; believes business cycles are just temporary glitches and the market will self adjust. Long-term growth, supply side

Front 22

Define the Keynesian Theory of Economics

Back 22

Believes business cycles effect underlying problems in the economy.

Short-term growth, demand side

Front 23

Gross Domestic Product formula

Back 23

Consumer Spending + Investment + Gov. Spending

Front 24

Define Potential Output

Back 24

The highest amount of putput an economy can sustainable produce and sell using existing production procesees and resources.

Front 25

Define Structural Stagnation

Back 25

A cyclical downturn that we do not expect to end anytime soon with major changes in the economy.

Front 26

Define Unemployment Rate

Back 26

The percentage of people in the economy who are willing and able to work but cannot find jobs.

Front 27

Unemployment Rate Formula

Back 27

Number unemployed ÷ labor force

Front 28

4 Typesof Unemployment

Back 28

1. Cyclical

2. Structural

3. Frictional

4. Seasonal

Front 29

Define Cyclical Unemployment

Back 29

Results from fluctuations in the economy.

Front 30

Define Structural Unemployment

Back 30

Caused by the institutional structure of an economy or by an economic restructuring making some skill obsolete.

Front 31

Define Target Rate of Unemployment

Back 31

The lowest sustainable rate of unemployment that policymakers believe it's achievable under existing conditions.

Front 32

Define Growth

Back 32

Changes in total output over a long period of time.

Front 33

What are the Roles of Businesses?

Back 33

Decide what, how, how much, and for whom to produce

Front 34

What are the Roles of Households?

Back 34

Groups of individuals living together and making joint decisions

Front 35

What are the gains from trade?

Back 35

Can lead to increased economic functions