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Chapter 1
Chapter 1
37
Economics
Graduate
01/10/2009

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Term
Macroeconomics
Definition
Deals with aggregate economic variables such as the level of growth of national output, interest rates, unemployment and inflation. Used in fiscal policy and monetary spending.
Term
Microeconomics
Definition
deals with the behavior of individuals, firms or an industry as well as the markets that these units comprise
Term
Trade-offs
Definition
a focus of microeconomics that describes how individual economic units optimize scare resources
Term
Consumer theory
Definition
describes how consumers, based on their preferences, maximize their well being by trading off the purchase of more of some goods for the purchase of less of others.
Term
Theory of the firm
Definition
describes the trade offs a firm makes in deciding the kinds of products they will produce and the resources they use to produce them. Begins with the simple assumption that firms try to maximize their profits.
Term
Markets
Definition
where buyers and sellers meet and how their behaviors effect prices through their actual or potential interactions
Term
Positive Analysis
Definition
statements that describe relationships of cause and effect. States the facts.
Term
Normative Analysis
Definition
examines questions of what ought to me.
Term
Industry
Definition
a collection of firms that sell the same or closely related products.
Term
Market definition
Definition
determination of the buyers, sellers and range of products that should be included in a particular market
Term
Arbitrage
Definition
practice of buying at a low price at one location and selling at a higher price at another location.
Term
Perfectly competitive market
Definition
has many buyers and sellers so that no single buyer or seller has a significant impact on price.
Term
Noncompetitive market
Definition
contains many products but individual firms can jointly affect the price. OPEC for example.
Term
Market price
Definition
price prevailing in a competitive market
Term
Cartel
Definition
a group of produces that acts collectively such as OPEC.
Term
Extent of a market
Definition
it's boundries, both geographically and in terms of the range of products produced and sold in it.
Term
Nominal price
Definition
Current dollar price, absolute price, quoted price, market price or marked price of a good unadjusted for inflation
Term
Real Price
Definition
price of a good relative to an aggregate measure of prices; price adjusted for inflation
Term
CPI/Consumer Price Index
Definition
Measure of the aggregate level price. Used to convert nominal prices to real prices.
Term
Role of prices in market economy
Definition
determine what is produced and who will buy it
Term
Supply
Definition
what a firm is willing to sell under specific circumstances
Term
Demand
Definition
what people are willing to buy under specific circumstances
Term
Price/Quanity relationship
Definition
a given price will dictate a quanity sold
Term
Real
Definition
a specific meaning in economics which is "adjusted for inflation"
Term
Optimum allocation
Definition
teh best choice, given a fixed base of resources
Term
Free goods/resources
Definition
acquired without effort or paying a price, hasn't been available since the Garden of Eden
Term
Scare resources/goods
Definition
have prices, require sweat, have alternative uses
Term
Ceteris paribus
Definition
everything else remaining constant
Term
Opportunity cost
Definition
value of a second choice, alternative cost, that which is foregone
Term
Four questions for economics
Definition
what to produce, who to produce, how to produce, for whom to produce. Price determines the answers to these 4 questions.
Term
Consumer sovereignty
Definition
consumers are free to buy what they choose and determine what is produced
Term
Factors of Production
Definition
basic elements of any economy: land, labor, capital, entrepreneurships
Term
Circular flow model
Definition
Term
Demand
Definition
a schedule of prices and corresponding quanities for which consumers are willing to buy. Inverse relationship, Prices up, quantity of output increases and vice versa.
Term
Supply
Definition
a schedule of prices and corresponding quanities for which producers are willing to sell
Term
Law of demand
Definition
if price declines, quanity sold increases
Term
Law of Supply
Definition
if price increases, quanity of output increases and vice versa
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