Term
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Definition
| a group of buyers and sellers of a particular good or service |
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Term
| Perfectly competitive market |
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Definition
1) So many buyers and sellers that they each have no effect on market price—all “price takers”
2) Homogeneous product |
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Term
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Definition
| (C.P.) quantity demanded falls when the price rises. |
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Term
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Definition
| a good for which (C.P.) an increase in income yields an increase in consumption |
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Term
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Definition
| a good for which (C.P.) an increase in income yields a decrease in demand. |
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Term
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Definition
| goods for which an increase in price of one yields an increase in demand for the other. |
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Term
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Definition
| two goods for which in increase in price of one leads to a decrease in demand for another. |
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Term
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Definition
| (C.P.) an increase in price leads to an increase in quantity supplied. |
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Term
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Definition
| a situation where neither buyers nor sellers have reason to alter their behavior. |
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Term
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Definition
| the price of any good adjusts to bring the quantity supplied and the quantity demanded for the good into balance. |
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Term
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Definition
| the ability to produce a good using fewer inputs than another producer |
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Term
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Definition
| whatever must be given up to obtain some item |
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Term
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Definition
| the ability to produce a good at a lower opportunity cost than another producer |
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Term
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Definition
| goods produced abroad and sold domestically. |
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Term
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Definition
| good produced domestically and sold abroad. |
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Term
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Definition
| the study of economy-wide phenomena |
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Term
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Definition
| the market value of all final goods and services produced within a country over a given time period. Measures total income and total expenditure (but not at the same time) |
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Term
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Definition
| spending by households on goods and services |
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Term
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Definition
| spending on capital equipment, inventories, structures, and household purchases of new housing |
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Term
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Definition
| government spending on goods and services |
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Term
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Definition
| spending on domestically produced goods by foreigners minus spending on foreign goods by domestic residents |
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Term
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Definition
| the production of goods and services valued at current prices |
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Term
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Definition
| the production of goods and services valued at constant prices. |
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Term
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Definition
| a measure of price level calculated by Nominal GDP/Real GDP x 100. |
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Term
| Consumer price index (CPI) |
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Definition
| a measure of the overall cost of the goods and services bought by the typical consumer. |
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Term
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Definition
| sustained increase in the economy-wide price level. |
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Term
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Definition
| the automatic correction of a dollar amount for the effects of inflation by law or contract. |
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Term
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Definition
| reported without a correction for the effects of inflation. |
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Term
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Definition
| interest rate corrected for effects of inflation |
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Term
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Definition
| quantity of goods and services produced from each unit of labor input |
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Term
| Things that can change the demand curve |
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Definition
(TECIB)
- Income
- Prices of related goods (complements and substitutes)
- Tastes
- Number of buyers
- Expectations |
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Term
| Things that can change the supply curve |
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Definition
(SETI)
- Input prices
- Technology
- Expectations
- Number of sellers |
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Term
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Definition
| (C)onsumption + (I)nvestment + (G)overnment Purchases + (N)et E(x)ports (exports minus imports) |
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Term
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Definition
Doesn’t cover:
1) Volunteerism
2) Underground economy
3) Income disparity
4) Leisure time
5) Externalities
6) Wealth |
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Term
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Definition
| CPInew- CPIold/ CPIold x 100 or GDPDefnew-GDPDefold/GDPDefold x 100 |
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Term
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Definition
1) Subsitution bias
2) New goods
3) Quality changes
4) Discount stores
C: CPI tends to overestimate inflation. |
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Term
| Differences between GDP Deflator and CPI |
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Definition
- Differences in goods calculated
o GDP doesn’t count Volvos.
o CPI counts oil harder
o CPI doesn’t count military/government spending
- Basket updates
o CPI doesn’t count basket changes quickly enough |
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Term
| Calculate a constant income |
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Definition
| Babe Ruth’s salary x (Price level today/Price level in year T) |
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Term
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Definition
| real interest rate + inflation |
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Term
| Effects of unexpected inflation |
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Definition
(LWPM):
1) Hurts lenders, helps borrowers
2) Wages tend to lag behind inflation
3) Price confusion
4) Menu costs |
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Term
| How productivity is determined |
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Definition
- Physical capital per worker. Tools.
- Human capital per worker. Knowledge the workers have.
- Technology. Knowledge that society has. |
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Term
| What can be done to create the Big 3? |
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Definition
*1) Protect property rights. Stop "redistributive" (read "criminal") activities. People won't develop if they can't be assured control.
2) Encourage education.
3) Encourage investment.
4) Encourage foreign investment.
- foreign portfolio investment
- foreign direct investment
5) Research and development.
- technology has positive externalities
6) Encourage international trade. |
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Term
| diminishing marginal returns |
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Definition
| the benefit of an extra unit of input declines as the quantity of the input increases (capital, the reason US investment is less productive) |
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Term
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Definition
| Average cost goes down as size increases. |
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Term
| Things that don't matter for productivity as much as you think |
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Definition
1) Natural resources.
- the "oil curse"-- capital intensive, labor unintensive. Concentrates power in the hands of a few.
- Dutch disease-- discovery of oil pushed up value of marc, price of other Dutch goods skyrockets, lose market share
2) Foreign aid. Tends to go through corrupt gov'ts-- they haven't developed property rights.
3) Population growth
- Thomas Malthus. More people, DMR on people, lower productivity, people starve. Assumes constant capital and technology. |
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Term
| How do we measure technology? |
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Definition
Total factor productivity. The amount of growth that can't be explained by human and physical capital.
- about 2/3 of total growth |
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Term
| What's causing the income distribution polarization? |
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Definition
1) Economics of superstars. Top 10% are better able to capitalize on globalizing markets and tech that demands higher skill workers.
2) Policy efforts. Income tax is less progressive than it used to be. |
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Term
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Definition
| The incentives societies and governments create that encourage people to engage in productive and not destructive behavior |
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