Econ 101: Test 1

market power

a single buyer or seller has substantial influence on market price ex) monopoly

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

supply schedule

a table that shows the relationship between the price of a good and the quantity supplied

perfectly competitive market

all goods are exactly the same many markets price takers

Normal goods

positively related to income: increase in income causes the increase of demand

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

absolute advantage

the ability to produce a good using fewer inputs than another producer

quantity demanded

the amount of any good that consumers are willing and able to purchase

Who measures CPI

the bureau of labor statistics

law of demand

the claim that the quantity demanded of a good falls when the price of a good increase

law of supply

the claim that the quantity supplied of a good rises when the price of the good rises

substitute goods

the increase in the price of a good results in increase in demand of another good

complements

the increase in the price of a good results in the decrease in demand of another good

gdp

the market value of all final goods & services produced within a country in a given period of time (current) -For the economy as a whole, income equals expenditure because every dollar a buyer spends is a dollar of income for the seller

Comparing dollar figures from different times to today (amount in today's dollars)

amount in t years * cpi level today/ cpi level in year t

Which US agency is responsible for the national income accounts?

bureau of economic analysis

net exports

exports-imports

Consumption component

the total spending of households goods and services -renters include rent payments -for homeowners does not include mortage payments

Intermediate goods

used as components or ingredients in the production of other goods ex) tires

Substitution bias

when princes change, they don't change proportionately so consumers substitute away from goods that have become more expensive towards goods that have become less expensive consumer price index is constructed using a fixed basket of goods, it ignores the possibility of consumer substitution and thus overstates increases in the cost of living. Examples of this include increased personal computer purchases in response to a decline in their price and greater use of fuel-efficient cars after gasoline prices increase.

market failure

when the market fails to allocate society's resources efficiently

Externalities

when the production or consumption of a good affects bystanders ex) pollution

GDP Deflator

is a measure of the overall level of prices -nominal gdp in year 2 dollars/ real gdp in base year dollars*100

gov purchases

is all spending on the g&s purchased by govt at the federal, state, and local levels -excludes transfer payments

Investment

is total spending on goods that will be used in the future to produce more goods -capital -structures -inventory -services involving intellectual property

Real GDP

measured using prices from base year. it is corrected for inflation -nominal gdp/deflator=real gdp in year 1 prices for year 2

Nominal GDP

measured using the then current prices

CPI

measures the typical consumers cost of living. the cost of living is based on a basket of goods and services that are typically purchased -mostly on housing

inferior good

negatively related to income: increase in income causes the decrease of demand

quantity supplied

of any good is the amount that sellers are willing and able to sell

competitive market

one with many buyers and sellers, each has a negligible affect on the price

supply curve shifters

-input prices -tech -number of sellers -expectations

Real interest rate

-ir corrected for inflation -the rate of growth in the purchasing power of a deposit or debt -nominal minus inflation

Nominal Interest rates

-ir not corrected for inflation -the rate of growth in the dollar value of a deposit or debt

demand curve shifters

-number of buyers ex) pop inc -prince of related goods -income -tastes -expectations

Introduction of new goods

As new goods are introduced, consumers have more choices, which reduces the cost of maintaining a given level of economic well-being. Because the consumer price index is based on a fixed basket of goods and services, it does not reflect the increase in the value of a dollar that arises from the introduction of new goods. An example of this is the invention of cell phones.

Unmeasured quality change

If the quality of a good rises while its price remains the same, the value of a dollar rises because you are getting a better good for the same amount of money. Although the Bureau of Labor Statistics attempts to account for quality changes, such changes are an ongoing problem, since quality is hard to measure. Examples of this include the introduction of air bags in cars and more scoops of raisins in each package of Raisin Bran. See Section: Problems in Measuring the Cost of Living.

price ceiling

a legal maximum on the price of a good or a service

price floor

a legal minimum on the price of a good or a service