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| Wrote The Wealth of Nations-Free market economics |
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| Big Theme to Study Economics Correctly |
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| Every resource is limited |
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| What is the difference between microeconomics and macroeconomics |
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Micro: decision making of individuals, businesses, industries and governments
Macro: broader issues such as inflation, unemployment, and national output level of goods and services |
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| Many buyers, many sellers, and neither have the market power |
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| many buyers, a few sellers, and sellers have the market power |
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| many buyers, 2 sellers, and sellers have the market power |
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| many buyers, 1 seller, and seller has the market power |
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| Number of a good that you have to give up in order to get one more unit of another good |
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| Wrote Economics and Foundations of Economic Analysis Dealt with Keynesian Macroeconomics and consumer choice |
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| quantity demanded that a consumer is willing to pay at a given price |
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| Why is the demand curve a downward slope |
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Definition
| the lower the price, the more product the consumer will buy, the higher the price, the more reluctant the consumer is to buy |
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| Price Elasticity of Demand |
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Definition
| How much percentage quantity demanded changes if price changes by 1% |
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| Quantity supplied that a seller is willing to produce and sell at a given price |
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| Explain why the supply curve is an upward slope |
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| the lower the price, the more reluctant the seller is to produce and the higher the price, the more willing a seller is to produce |
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| Wrote Principles of Political Economy and Taxation contributions- "the iron law of wages" and "labor theory of value" |
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| Wrote Principles of Political Economics credit for concepts in supply and demand and establishing economics as a discipline of study |
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| a level of satisfaction from consuming 1 or more goods |
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| additional utility when a consumer consumes one more unit of a good |
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| Marginal Product of Labor |
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Definition
| additional product/output when a firm uses one more unit of labor |
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| All resources are _________ . So economics is the study of "How _________ is allocated ___________ |
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Definition
| All resources are limited. So economics is the study of how a limited resource is allocated efficiently. |
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| Just state firm's profit maximization condition for all markets except the competitive market |
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Definition
| A firm's profit maximization is where marginal cost is equal to marginal revenue (MC=MR) |
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| Explain why firm's demand curve is a horizontal line |
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Definition
| It is horizontal because no matter how many outputs a firm produces it will sell it at p*, market price |
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| additional revenue gained from producing one more unit of a product/output |
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| What is the difference between short run and long run |
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Definition
time: short run is usually less than a year but no more than 2 years, but long run is more than 2 years
capitol and labor: in the short run capitol is fixed and labor is variable, but in the long run both are variable |
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| Why two countries specialize and trade |
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Definition
| Both will be better of if they trade. Their opportunity costs will be lower because each has specialized to lower their opportunity cost. Each country cannot produce equal amounts of each commodity without using more labor hours. They benefit from trading. |
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| Karl Marx and Friedrich Engels |
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Definition
| Crafted the essence of Communism during 1800s wrote The Communist Manifesto and Das Kapital |
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| Gross Domestic Product (GDP) |
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Definition
| market value of all final goods and services produced within a country in a given period of time |
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| What do we call fluctuations in the short run |
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| The U.S. experienced the longest expansion of real GDP mainly during Clinton administration. How may months |
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| It is said that unemployment rate is underestimated under the current calculation method made by the Bureau of Labor Statistics. Explain why. |
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Definition
| Discouraged workers are not part of the labor force and are therefore not included in the unemployment rate |
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| What is the component in CPI basket which share is the largest |
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Definition
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| Medium of exchange, store of value, unit of account |
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| t-shirt sold at WalMart in US |
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| received the Nobel Prize in Economics in 1994 for his game theory and the movie "Beautiful Mind" tells about his life |
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| What happens to money supply if FED bought US treasury bonds |
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Definition
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| total money supply equation |
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| original deposit x (1/reserve ratio) x 100 |
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| biggest recession in US history |
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| Great Depression 25% unemployment rate |
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| What government policy creates structural unemployment |
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| what government program creates fictional unemployment |
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| store of value, unit of account |
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| What happens to the money supply and interest rate if FED buys bonds |
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Definition
| money supply increases and interest rate decreases |
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| Why does FED control money supply |
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Definition
| It controls money supply so that it can change the interest rate in the money market |
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Definition
| power to decide market price |
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| Reasons for Shifts in Demand Curve |
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Definition
Demand increases/decreases
Income increases/decreases |
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| Price Elasticity of Demand Equation |
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Definition
| % change of demand/% change of price |
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Term
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Definition
absolute value of Ep
> 1, then demand is elastic
< 1, then demand is inelastic
= 1, then demand is unit elastic |
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Term
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Definition
I =Pf x F + Pc x C
I= income
P= price
C= cost |
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Definition
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| TVC = total variable cost |
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Definition
| cost of workers, cost for input materials, depends on how many products a firm manufactures |
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Definition
capitol, office rental, factory cost, management fee
Stays the same no matter how many products a firm manufactures |
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Definition
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| AVC = average variable cost |
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Definition
variable cost per unit of output/product
TVC/Q |
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Definition
fixed cost per one product
FC/Q |
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Definition
TVC/Q + TFC/Q
(TVC + TFC)/Q |
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Definition
| firm chooses a number of a quantity to produce so that this firm can maximize the profit |
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Definition
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| Profit Maximization for competitive market |
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Definition
1. MC=MR
2. MR=p*
so..MR=p* |
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| Labor Demand downward slope |
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Definition
| higher wages, firm reluctant to hire, lower wage, firm willing to hire |
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| Labor Supply Curve upward slope |
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Definition
| higher wage, more people want to work, lower wage, less people want to work |
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Definition
C + I + G + Nx
consumption + investment + government expenditure + net export |
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Definition
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| Unemployment Rate equation |
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| number unemployed/labor force x 100 |
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| caused by the time it takes workers to search for a job |
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| job is only open during a certain season |
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| caused by economic condition |
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CPIy -CPIx/CPIx *100
How much percentage overall price changes |
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Definition
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| commodities that can be sold for cash |
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Definition
commodities with unit of currencies
ex. foreign money and items sold at stores |
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| How is money supply determined |
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Definition
1. FED Policies
2. Behavior of Households and Banks |
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| Three ways FED controls money supply |
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Definition
1. Buy/Sell Bonds
2. Change Required Reserve Ratio
3. Change Discount Rate |
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| Quantity Equation of Money |
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Definition
MV=PY
money available * velocity = price level * real GDP |
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Term
| Explain why AD curve is downwardly sloped |
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Definition
| as price goes up, Y must go down in order to keep equation between MV=PY |
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Term
| FED lowers required reserve ratio, money supply? |
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Definition
| increases and interest rate decreases |
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Term
| FED lowers discount rate, money supply? |
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Definition
| increases and discount rate decreases |
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Term
| People not included in labor force |
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Definition
| students, retired people, discouraged workers |
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| Major items for Money Supply |
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Definition
| currencies, deposits, traveler's checks |
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Definition
| helped US military develop 1st computer and Manhattan Project, wrote Theory of Games and Economic Behavior |
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