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Exam 1
Principles of Macroeconomics
47
Economics
Graduate
06/18/2007

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Term
Scarcity
Definition
that society has limited resoucres and therefore cannot produce all the goods and services people wish to have
Term
Economics
Definition
the sutdy of how society manages its scarce resources
Term
Efficiency
Definition
that societ is getting the maximum benefits from its scarce resources
Term
Equity
Definition
that those benefits are distributed fairly among society's members
Term
Opportunity cost
Definition
an item is what you give up to get that item
Term
Rational people
Definition
systematically and purposely do the best they can to achieve their objectives, given the oppurtunies they have
Term
Marginal Changes
Definition
describe small incremental adjustments to an existing plan of action
Term
Incentive
Definition
something that induces a person to act
( reward, threaten )
Term
Market economy
Definition
an economy that allocates resources through the decentralized decisions of many firms and household as they interact in markets for goods and services
Term
Property rights
Definition
the ability of an individual to own and exercise control over scarce resources
Term
Market failure
Definition
a situation in which a market left on its own fails to allocate resources efficiently
Term
Externality
Definition
the impact of one person's actions on the well-being of a bystander
Term
Market power
Definition
The ability of a single economic acter to have a substantial influence on market prices
Term
Productivity
Definition
the quantity of goods and services produced from each hour of a worker's time
Term
Inflation
Definition
an increase in the overall level of prices in the economy
Term
Business cycle
Definition
Fluctuations in economic activity, such as employment and production
Term
Circular-flow diagram
Definition
a visual model of the economy that shows how dollars flow through markets among households and firms[image]
Term
PPF ( Production possibilities frontier )
Definition
a graph that shows the combination of output that the economy can possibly produce given production and the available production technology[image]
Term
Microeconomics
Definition
the study of how households and firms make decisions and how they interact in markets
Term
Macroeconomics
Definition
the study of economy-wide phenomena including inflation, unemployment, and economic growth
Term
Positive statement
Definition
claims that attempt to describe the world as it is
Term
Normative statement
Definition
claims that attempt to prescribe how the world should be
Term
Absolute advantage
Definition
the ability to produce a good using fewer inputs than another producer
Term
Comparative advantage
Definition
the ability to produce a good at a lower opportunity cost than another producer
Term
Opportunity cost
Definition
whatever must be given up to obtain some item
Term
Imports
Definition
goods produced abroad and sold domestically
Term
Export
Definition
goods produced domestically and sold abroad
Term
Market
Definition
a group of buyers and sellers of a particular good or service
Term
Competitive market
Definition
a market in which there are many buyers and many sellers so that each has a negligible price
Term
Quantity demanded
Definition
the amount of a good that buyers are willing and able to purchase
Term
Law of Demand
Definition
the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
Term
Demand schedule
Definition
a table that shows the relationship between the price of a good and the quantity demanded
Term
Demand curve
Definition
a graph of the relationship between the price of a good and the quantity demanded
Term
Normal good
Definition
a good for which, other thing equal, an increase in income leads to increase in demand
Term
Inferior good
Definition
a good for which, other things equal, an increase in income leads to descrease in demand
Term
Substitutes
Definition
two goods for which an inscrease in the price of one leads to an inscrease in the demand for the other
Term
Complements
Definition
two goods for which an increase in the price of one leads to a descrease in the demand for the other
Term
Quantity supplied
Definition
the amount of a good that sellers are willing and able to sell
Term
Law of Supply
Definition
the claim that, others things equal, the quantity supplied of a good rises when the price of the good rises
Term
Supply schedule
Definition
a table that shows the relationship between the price of a good and quantity supplied
Term
Supply curve
Definition
a graph of the relationship between the price of a good and the quantity supplied
Term
Equilibrum
Definition
a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
Term
Equilibrium price
Definition
the price that balances quantity supplied and quantity demanded
Term
Equilibrium price
Definition
the quantity supplied and the quantity demanded at the equilibrium price
Term
Surplus
Definition
a situation in which quantity supplied is greater than quantity demanded
Term
Shortage
Definition
a situation in which quantity demanded is greater than quantity supplied
Term
Law of Supply and Demand
Definition
the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance
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