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"How the world is"
True statements, not opinion |
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"How the world should be"
Opinion statements, can't be proven |
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People who purposely do the best they can to achieve their objectives.
All economics based on "rational people" |
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The study of economy-wide phenomena.
Includes inflation, unemployment and economic growth |
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| The study of how households and firms make decisions and interact in markets |
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| 4 factors of Production (Resources) |
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| Land (Rent), Labor (Wages), Capital (Interest), and Entrepreneurship (Profit) |
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| Resources that can be depleted but replenished |
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| Resources that can't be renewed and can be depleted |
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| Resources that can't be replenished or depleted |
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| The work and time people devote to production |
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| Something produced that is long lasting used to make other things used to produce goods |
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| Total amount of capital at a nations disposal at any time |
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| Human resource that organizes labor, land and capital. |
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| Production Possibilities Frontier |
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| A graph showing the combinations of output that the economy can possibly produce given the available factors of production |
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| When the economy is getting everything out of the scarce resources it has available |
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| When the economy is producing less than it could from the resources available |
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| Desirable but unattainable amount of production due to the resources available |
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| When Marginal Cost = Marginal Benefit, it is impossible to make people better off by reallocating resources |
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| Whatever must be given up in order to obtain some item |
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| Law of Increasing Opportunity Cost (PPF) |
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Bowed out - Increasing
Straight line - Constant |
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| The ability to produce a good using fewer inputs than another producer |
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The ability to produce a good at a lower opportunity cost than another producer.
The producer that has the smaller opportunity cost of producing a good |
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| When two countries specialize in production of the good they are more suitable to produce and then trade with each other |
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| Specializing on Comparative Advantage, countries can produce more of both goods |
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| The amount of goods produced for each hour of a workers time |
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When a society acquires new resources.
Includes capital accumulation and an increase in the labor force |
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An increase in capital (things used to produce more goods)
Ex. more factories |
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When a society learns to produce more using existing resources.
Increase in human capital (skills of workers) and technological change |
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| The present consumption given to developing technology or increasing capital |
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| An economic unit that hires and organizes factor of production to produce and sell goods |
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| An economic unit that buys and consumes goods |
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| Any arrangement that allows buyers and sellers to interact and exchange info |
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| The combining of distinct things into a single whole |
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| A market with so many buyers and sellers that each has a small impact on the market price |
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| The amount of money that must be given up |
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| The ratio of one money price to another |
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The arrangement that governs the ownership, use and disposal of resources, goods and services.
Includes Real Property, Financial Property, and Intellectual Property |
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| Intangible products protected by copy rights and patents |
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| The quantity demanded of a good decreases when the price increases |
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| Substitution Effect (Law of Demand) |
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| When the relative price of a good changes, people buy less of the good and more of its substitute |
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| Income Effect (Law of demand) |
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| The increase of the price of a good causes a decrease in the demand of the good |
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| 5 factors of the change in demand |
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Definition
Income vs. wealth
Price of other related goods
Preferences
Population
Expectation |
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Demand increase when income increases.
Cars, clothing |
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Demand decreases when income increases
Frozen dinners |
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Demand same when income increases or decreases
Sampoo |
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| Two goods for which and increase in price leads to to an increase in the demand for one of the goods |
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| Two goods for which an increase in the price of one leads to a decrease in the demand for the other |
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| Demand goes up when people like a good |
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| Demand goes up when population grows |
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Expectations about the future may effect demand today.
Gasoline |
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| Law of Supply (Marginal Cost) |
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| The quantity supplied of a good rises when the price of a good rises |
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| Prices of Productive Resources |
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| Supply is increasing when the input price is decreasing |
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| Number of sellers (Law of Supply) |
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| Supply increases when there are more sellers |
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| Expectations (Law of Supply) |
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| Supply increases "today" when price is expected to decrease tomorrow |
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| When production achieves quantity supplies = quantity demanded |
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| Excess demand - Shortage (QD>QS)
Excess supply - Surplus (QD |
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| The markets in which goods and services are exchanged |
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| The markets in which resources used to produce more products are exchanged |
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1. Economic Growth
2. Full employment (low unemployment)
3. Stable prices
- achieving all of theses gives us opportunity to make all citizens better off |
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| The market value of all finals goods and services produced within a country in a given period |
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| The production of goods and services valued at constant prices |
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| The value of production when all the economy's labor, land, and entrepreneurial ability are fully employed |
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| The growth rate of a variable is x per year, the variable doubles at 70/x |
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| The price at which each item is sold in markets |
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| Only the goods that are sold to the final users. Excludes intermediate goods |
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| An item that is produced by one firm and purchased by another and used as a component of a final good |
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| Total income earned world-wide by US firms and residents |
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| Expenditure Approach (Measuring GDP) |
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Definition
C + I + G + NX
C - Personal Consumption, purchases by households of currently produced goods
I - Private Investment, purchases by businesses
G - Government purchases - the purchases of newly produced goods and services by the government
NX - Net exports (total exports - total imports) |
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| Government Outlays (Government Spending) |
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| Transfer payments - money redistributed from one group of citizens to another |
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| Value Added Approach (Calculate GDP) |
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| The sum of value added by all firms in the economy |
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| The Factor Payments (Calculate GDP) |
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Sum of factor payments made by all firms in the economy.
= wages + interest + rent + profit + proprietor's net income = household income |
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| GDP that measures current price |
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GDP adjusted for price changes, uses base year prices
P(in base year) x Q (in current year) |
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A measure of the price level calculated as the ratio of nominal GDP to real GDP
(Nominal GDP/Real GDP) x 100
USE OPPOSITE YEAR OF BASE |
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| (Higher R GDP - Lower R GDP)/Lower R GDP |
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| (R GDP/Person Higher - R GDP/Person Lower)/(R GDP/Person Lower) |
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Non- market production
Underground economy
Quality of Life
Environment damage
Distribution of goods |
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