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ECO Test 1
2books
52
Economics
Undergraduate 3
02/13/2012

Additional Economics Flashcards

 


 

Cards

Term
International Trade
Definition
  • the basics of world trade
  • countries buy and sell goods and services from one another constantly
Term
Trade Balance
Definition
the differene between its total value of exports and its total value of imports
Term
Trade Surplus
Definition
countries that export more than they import run a trade surplus, whereas countries that import more than they export run a trade deficit
Term
Bilateral Trade Balance
Definition
Relationship between two countries
Term
12 Key Elments of Economics
Definition
Term
Incentives Matter
Definition

Incentive: pursuasion, bonus, motivation, money

  • incentives are more than money
  • incentives drive markets
  • underpin effective policy
  • incentives change behaviors

 

Term
There's no such thing as free lunch
Definition
  • limited resources, unlimited wants
  • opportunity cost
  • value of the next best alternative
Term
Decisions are made at the margin
Definition
  • additional unit, one unit more
  • incremental unit
  • marginal benefit vs. marginal cost
  • marginal benefit > marginal cost -> keep going/continue activity
  • "all or nothing" cost or "on the margin"
  • ex: if building a second factory will increase revenue, it's a good decision to build the new factory: the additional unit
Term
Trade promotes economic progress
Definition
  • the foundation of trade is mutual gain
  • trade moves goods from those who value them less to those who value them more (preferences, demand)
  • trade introduces variety, creates wealth
  • trade fascilitates higher levels of production and consumption = specialization, comparative advantages
  • "low-cost" producer

trade can lower unit costs = benefit from large-scale production

Term
Transaction costs are an obstacle to trade
Definition
  • tax, middleman, regulations, transportaiton, currency conversions, time, physical obstacles (waiting, researching)
Term
Prices bring the choices of buyers and sellers into balance
Definition

Law of supply - as prices rise, quantity supplied increases

  • law of demand = negative relationship between price of a good and the quantity demanded (price more expensive, demand goes down)
Term
Profits direct businesses toward activities that increase wealth
Definition
  • profit = revenue - cost total
  • less productive uses should be discouraged (resources)
Term
People earn income by helping others
Definition
  • provide others with what they value
  • people with high incomes ->improve the well-being of many people
  • Producers give consumers what they want, in order to earn income
Term
Production of goods and services people value, not jobs, provide the source of high living standards
Definition
  • standard of living
  • GDP per capita = the value of all new, final goods and services produced within a country within 1 year
  • per capita: divide by the population
  • ex: building luxury products versus people in Indonesia who have many, low-quality jobs
  • quality of job does not necessarily contribute to high living standards
Term
Economic progress comes primarily through trade investment, better ways of doing things, and sound economic institutions
Definition
  • investment in assets and skills enhance our ability to produce goods and services
  • improvements in technology (Efficiency and innovation)
  1. Improvements in economic organization (legal sys)
  • property rights
  • contract enforcement
  • settlement disputes
Term
The invisible hand of market prices directs buyers and sellers toward activities that promote the general welfare "Adam Smith"
Definition
  • when directed by the invisible hand, remarkably, self interested individuals will have a strong incentive to undertake actions that promote the general prosperity of a community
  • invisible hand = prices that are determined by competitive markets
  • individual intends only his own gain, but is directed by the invisible hand of market prices to promote the goals of others = prosperity
Term
Too often the long-term consequences, or secondary effects, of an action are ignored
Definition
  • secondary effects or long-range consequences of short-run processes
  • proponents of tariffs and quotas on foreign products almost always ignore the secondary effects of their policies - by limiting importation with tariffs and quotas, it initially protects US workers who make comprable products at highre cost, but secondary consequences afterward
  • ex = steel quotas
Term
7 Sources of Economic Progress
Definition
Term
Legal Sys: the foundation for economic progress is a legal system that protects privately owned property and enforces contracts in an evenhanded manner
Definition
  • right to exclusive use
  • legal protection against invaders
  • right to transfer your property
  1. Encourages
  • wide stewardship (use of resources)
  • productive use of property
  • incentive to develop in beneficial ways
  • wise development and conservation of resources
Term
Competitive Markets: Competition promotes the efficient use of resources and provides a continuous stimulus for innovative improvements
Definition
  • open, free entry and free exit
  • pressure to: opperate efficiently in markets to cater to preferences
  • to out-perform rivalts
  • keeps firms from: raising prices, supplying bad products, supplying bad service
Term
Limits on Gov't regulation: regulatory policies that reduce trade also retard economic progress
Definition

3 ways regulation reduces trade

  1. limits entry into business and occupations
  2. substitutes political authority for rule of law (nationalize property where gov't takes all, protect certain industries and limiting effects of competition, selective waiving of tarrifs)
  3. imposes price controls
  • price ceiling = artificially low price relative to market equilibrium (rent control)
  • price floor = articifially high (minimum wage)

 

Term
An efficient capital market: to realize its potential, a nation must have a mechanism that channels capital into wealth-creating projects
Definition
  1. capital market = market for stock, real estate, businesses, lonable funds
  2. capital investment = construction and develoment of long-lasting resources designed to help us grow more in the future
  3. efficient = channels investments into wealth-creating projects
Term
Monetary Stability: A stable monetary policy is essential for the control of inflation, efficient allocation of investment, and achievement of economic stability
Definition
  • monetary policy = tool to change the supply of money. print more money, change required reserves, buying and selling of bonds
Term
Low Tax rates - people will produce more when they are permitted to keep more of what they earn
Definition

-high tax rates discourage work effort and reduce the productivity of labor

-people work less (work at home, work fewer hours, retire eariler, take jobs with lower pay but more perks, leave the countryand go work elsewhere)

-high tax ratess will reduce both the level and efficiency of capital formation

- the marginal tax rate is the share of additional income that is taxed away at any income level

Term
-Progressive tax system
Definition
in US we have progressive tax system: tax rates are higher for people with higher incomes
Term
-Flat tax sys
Definition
tax rate remains the same no matter the level of income. several E. European countries have this sys
Term
Free Trade - a naiton progresses by selling goods an services that it can produce at a relatively low cost and buying those would be costly to produce domestically
Definition
  • free trade = people are permitted to uy and sell as they want w/o restrictions. there are tariffs, quotas, or other barriers imposed. free trade is of course also voluntary
  • seller that can produce at lowest cost has comparative advantage
  • absolute advantage = indicates the nation that can produce the largest quantity of a good
  1. people of a nation benefit if they can acquire a product or service through trade more cheaply than they can produce it domestically
  2. int'l trade allows domestic producers and consumers to benefit from the economics of scale typical of many large operations
  3. int'l trade promotes competition in domestic markets and allows consumers to purchase a variety of goods at lower prices
Term
Economics of Scale
Definition

factors that cause the average cost of proucing something to fall as the volume of its output increases

- ex: cost of proudcing a good is unrelated to the number of that good sold

-look at int'l trade ex's in text

Term
Economic Freedom of the World (EFW)
Definition

relationship to GDP? as EFW gets higher, GDP is usually higher too

  • index that measures the extent to which a country's institutions and policies are consistent with economic freedom; that is, with personal choice, private ownership, voluntary exchange, and competitive markets
  • reflects elements of economic progress
Term
Gov't Transfer Program
Definition
  • food stamps
  • social security
  • medicare
  • gov't taking money from one source and transferring it to another
Term
The Choice
Definition
Term
Roundabout Way to Wealth/Theory of Comparative Advantage
Definition

America only producing one product and import other products. Only produce the product they are best at producing.

-Ex: US making pharmaceudicals and importing TV's

Term
What is message from loss of farming jobs in America?
Definition
Shift, not a loss. A redistribution in types of jobs. found jobs in new places
Term
Are manufacturing jobs better than service jobs?
Definition
Service jobs are just as important. manufacturing jobs pay more b/c most manufacturing jobs were outsourced.
Term
Outsourcing: do foreigners steal jobs from US?
Definition
  • Outsourcing is cheaper, so they can produce more efficiently
  • transition to other jobs in US
Term
Imported goods: why do tarriffs increase the price of domestically produced goods? Who gaines from a tarriff/loses?
Definition
  • protecting domestic producers
  • consumers lose from tariff and foreign producers
  • domestic producer and gov't win
Term
Ch. 10 - The Case for Protectionism OR Arguments against Int'l Trade
Definition
  • Most common arguments:
  1. trade reduces the number of US jobs
  2. it's wrong to trade with countries that use child labor
  3. we need to keep some industries for reasons of nat'l security
  4. we need to keep some "key" industries b/c of beneficial spillovers onto other sectors
Term
10-Arguments Against Int'l Trade
Definition
  • Trade and Jobs
  1. Tariffs raise the price of protected goods
  2. consumers have less money to spend on other goods
  3. jobs are lost in other industries, hard to see
  • increased imports into US result in higher exports from the US
  1. the US dollars we spend on other country's good are used to buy our goods
  2. jobs are created in US exporting industries
Term
10-Arguments Against Int'l Trade
Definition
  • Child labor
  1. restricting imports made by child labor may do more harm than good
  2. children work out of necessity-what else will they do?
  3. Alternatives are worse
  • Child labor is a poverty problem not a trade problem
Term
10-Arguments Against Int'l Trade
Definition
  • Trade and Nat'l Security
  1. some industries probably should be protected
  2. subject to great abuse - almost every industry can make this argument for protection
Term
10-Arguments Against Int'l Trade
Definition
  • Key industries
  1. some industries are characterized by large spillovers to other industries
  2. example: computer chips are alway sused in some other product, protection benefits a large # of firms
  • two comments
  1. subsidy is a better option than a tariff
  2. hard to determine which industries are key
Term
Ch. 11 - Do Trade Deficits hurt America?
Definition
Florida vs. Minnesota oranges example. Florida specializes in Oranges, Minnesota does not. But this does not mean Minnesota is suffering
Term
Dumping
Definition

Selling exports at a price that is too low, a price "below value" or "fair value

  • either = 1) export price is lower than the price charged for comparable domestic sales in the home market of the exporter

2) the export price is lower than the full unit cost (including a profit margin)

Term
Dumping cont.
Definition
  • ex: Golf carts coming from Poland, no market for golf carts in Poland so they are dumped in US
Term
Predatory Dumping
Definition
  • Firm uses temporarily low prices to drive out competition, and then raise the price when they are the only firm winning
  • very risky, highly unlikely due to large losses
Term
Cyclical Dumping
Definition
  • Occurs during a recession = demand drops
  • if firms want to move their goods they have to drop the price
  • natural type of dumping
Term
Seasonal Dumping
Definition
  • Clear out excess inventories
  • ex = low prices ater Valentine's Day
  • Natural
Term
Persistent Dumping
Definition
  • Contrasts predatory
  • Permanent low-prices
  • ex: price in US is always lower than the price of that thing in Japan (If the price is always low, we should be happy to take it)
Term
Ch. 13 - Is Globalization good for the poor?
Definition
  • IMF = Financial Stability
  • World Bank = Ending Poverty
  • Text says that these organizations are ineffective and wasteful
  • Governments recieving money and very corrupt
Term
Ch. 13 - Is Globalization good for the poor?
Definition
  • "But America wasn't wealthy because the other nations were poor."
  1. US Standard of living higher, not at expense of poorer nations pg. 94
  2. Poor countries have benefited as well = creating employment opportunities that didn't exist before
  3. their standards of living is higher now too from trading with US
Term
Ch. 14 - Self-sufficiency is the Road to Poverty
Definition
  • Why?
  1. Self-sufficiency = providing everything that you need. Household vs nation self-sufficiency
  2. Making everything for yourself takes too much time and effort, decrease variety to consume
  3. ex = Ed's wife making bread
  4. If US stopped importing, impossible to produce the same volume of goods
Term
Ch. 15 - The Choice
Definition
  • What is "The Choice?"
  • "If a group of Americans do not compete well in the global market b/c their skills are readily available around the globe, how should America respond?"
  • Hamburger flippers vs. computer software engineers. can't turn computer software person into flipper by banning software
  1. The Choice = making decisions about the future of US economy
  2. Choice between protectionism and free trade
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