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40 Cards in this Set
- Front
- Back
Opportunity Cost
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What you forego in order to engage in
that activity, compared to the best available alternative. |
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Adam Smith
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father of modern economics, introduced the
notion of the `invisible hand' |
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Production Possibilities Frontier
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a graph that shows the combi-
nations of output that can possibly be produced given the available factors of production and the available production technology |
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Optimal Comparative Advantage (Crusoe/Friday)
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for each to be completely specialised in produc-
tion, and will then trade in order to get some of the other's good |
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Diseconomies of scope
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means that there can be gains from trade, even when
production possibilities frontier are identical |
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Quantity Demanded
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the amount of a good that buyers are willing
and able to purchase; falls when the price of the good rises |
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Market Demand
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refers to the sum of all individual demands for a par-
ticular good or service; individual demand curves are summed horizontally to obtain the market demand curve |
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Quantity Supplied
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the amount of a good that sellers are willing
and able to purchase; rises when the price of the good rises |
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Market supply
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refers to the sum of all individual supplies for a particular
good or service; individual supply curves are summed horizontally to obtain the market supply curve |
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Equilibrium
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refers to a situation in which the price has reached the level
where quantity supplied equals quantity demanded |
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Consumer Surplus
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buyer's willingness to pay for a good minus the
amount the buyer actually pays for it |
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Producer Surplus
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the excess of the price of a good over what a seller
would have been willing to sell it for (his cost of production) |
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Elasticity
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measure of the responsiveness of supply and demand to
changes in the price; AKA the slope of the supply or demand curve |
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Price Ceilings
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When the government sets a height maximum on price. Causes excess demand. Example: Rent Control
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Price Floors
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When the government sets height minimum on price. Causes excess supply. Example: Minimum Wage
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Deadweight Loss
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equal to the falls
in consumer and producer surplus, minus the government revenue that results (larger, the more elastic are supply and demand) |
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Gross domestic product (GDP)
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the total market value of all final goods and services produced within a country in a given period of time.
Y = C + I + G + X or = C + I + G + NX |
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GDP Deflator
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measures the changes in the prices of all the goods that together constitute GDP
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Consumer price index (CPI)
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measures the change in the cost of living faced by an `average' consumer
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`Rule of 70'
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if something grows at a rate of x% a year, it will double in approximately 70/x years.
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Productivity
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refers to the amount of goods and services produced from
each unit of labour input |
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Production Function
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Y = A f (L,K,H,N)
sets out the relationship between the quantity of inputs used in production and the quantity of output from production |
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Galton's Fallacy
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higher growth rates imply eventual `convergence' i.e. While the poor countries might have higher percentage growth rates, this
does not mean that they are closing the absolute output gap with rich countries |
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Present Value (of a payment of $R tomorrow)
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$R
-------- (1+r) |
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unemployment rate
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the percentage of the LABOR FORCE that is unemployed
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labor-force participation rate
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the percentage of the adult population that is in the labor force
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Frictional unemployment
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refers to the unemployment that results from the time that it takes
to match workers with jobs |
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Structural unemployment
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results because the number of jobs available is insufficient to provide
one for everyone who is willing to work (at the going wage) |
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Unions
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Workers' associations that bargain with employers over wages, benefits
and working conditions |
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Efficiency wages
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above-equilibrium wages paid by firms in order to increase
worker productivity |
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Money
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3 main functions:
{ medium of exchange { store of value { unit of account |
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Commodity monies
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Something of intrinsic value that everybody likes which means that people are confident others will accept it in future trades like grain.
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Fiat money
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Durable, portable, divisible objects with no intrinsic value, but acceptable in exchange
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The quantity equation
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MV=PY
M is the amount of money in the economy V is the velocity of money P is the aggregate price level Y is the real value of the goods and services traded |
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The classical dichotomy
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holds that the `real' and `monetary' sides of
the economy can be analyzed separately |
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hyperinflations
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money is not neutral and the classical dichotomy does
not hold (i.e. the rate of real income growth g is affected by the nominal variables u and pi) |
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`liquid' assets
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cash or something close to it (e.g. balance in checking
account) |
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`illiquid' assets
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bonds or stocks, or savings accounts at bank
{ not accepted in exchange for goods and services (bad) { but they earn a return |
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the higher the interest rate available . . .
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the less money people will
want to hold |
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the correct opportunity cost of holding money is
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nominal interest rate i
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