fall 2019 micro exam 1

- relatively "closed"

Share of exports has grown over time, but compared to other countries the U.S is a _______ _______ economy

efficient

points in the frontier are

marginal utility

the maximum amount of money a consumer is willing to pay for one more unit of the good

Relatively open (closed) economy

-exports and imports are large (small) share of GDP

gross domestic product (GDP)

-measure if the size of the economy -total amount it produces

monetary policy

control of money and interest rates

income effect

if prices rises i am relvatively poorer so i purchase less of the god

opportunity cost

is the value of the next best alternative that must be given up.

Y2-Y1/ Y1 x100

percent change

private enterprise ( free market) economy

-consumers and businesses voluntarily buy and sell things - all economies have a mixture of private and public ownership - US one of the most "marketized" economy

the law of supply and demand

-quantity demanded = quantity supplied -in free market, forces of supply and demand push the price towards equilibrium

W+R+int+ pie

GDP income equation

outputs/ factor of production

Goods and services that consumers and others want to acquire

law of comparative advantage

One country is said to have a comparative advantage over another in the production of a particular good relative to other goods if it produces that good less inefficiently than it produces other goods, as compared with the other country.

correlation

Two variables are said to be correlated if they tend to go up or down together. Correlation need not imply causation.

role of government

United states economys more contentious here than in most other countries.

70% of total gDP

percent of americas consumer spending

recession

period in which GDP declines

American Workforce

production, service sector, government, agricultural

antitrust laws

promote social objection

regulation

promote social objections

law of increasing costs

states that as the production of a good expands, the opportunity cost of producing another unit generally increase

-unemployment -inputs assigned to wrong tasks -goods produced at the wrong scale -favoritism -restrictive labor practices

why would an economy produce inefficiently (inside PPF)

optimal decision making

- decisions made best serve objectives of decisioon maker -explicit or implicit comparison with possible alternatives -common method: marginal analysis

-consumer income -population size and compostion - consumer preference -prices of related goods (substitutes, complements)

what can cause the demand curve to shift

-industry size: #firms -technological progress -prices of inputs -prices related outputs

what can cause the supply curve to shift

consumer surplus

what consumers are willing to pay minus what consumers actually pay Cs= Total utility -total expenditures

C+I+G+(x-m)= GDP

what is the formula for calculating GDP

15%

what percent of GDP is comprised of imports and exports

-it explains why trade benefits both countries both parties gain in free voluntary trade

why is law of comparative advantage important

productivity in US economy

$53,000 per person, $116000 per worker

shifts of the demand curve

-a change in the price of a good: movement -change in other variables: shift

law of demand

-as price rises quantity demanded of a good declines.

US economy

-biggest national economy -just under 320 million people - working population is 144 million in 2013

shifts of the supply curve

-change in the price of a good: movement -change in other variable: shift

price floors

A legal minimum below which the price charged for a commodity is not permitted to fall

price ceilings

A maximum that the price charged for a commodity cannot legally exceed

boom

A period of increasing real GDP is known as a

how to use resources efficiently

At Big Drop Coffee, some employees brew coffee, others deal with customers, and others prepare sandwiches. This best exemplifies how a market system performs which coordination task required in the economy?

inferior good

Quantity demanded decreases (increases ) when real income increases (decreases)

normal good

Quantity demanded increases (decreases) when real income increases (decreases

law of diminishing the marginal utility

The more of a good a consumer has the less marginal utility an additional unit contributes to overall satisfaction, all other things remain unchanged

-Chinese imports account for less than 20% of all imports into the United States. -The standard of living in the United States (as measured by real GDP per person) is higher now than it was 50 years ago.

Which of the following are facts about the U.S. economy?

demand curve

a graphical representation of a demand schedule

real GDP

adjusts for changes in purchasing power of money (for inflation)

"invisible hand"

by pursuing their own self- interests, people in a market system " are led by an invisible hand" to promote the well being of the community -self interest does not mean selfish -"invisible hand" means not peoples intent

if marginal net utility is positive

consumer buying too small a quantity to maximize total net utility

fiscal policy

control of taxes and government spending

price ceilings

create a shortage

price floors

create a surplus

difference in values

due to disparate beliefs on vaule judgement (economists may disagree about the right trade-off between efficiency and equality.)

theory of consumer choice

each consumer spends income in the way that yields the greatest amount of satisfaction, or utility

market mechanism

ensures that the products of the economy are divided among consumers in a rational manner, meaning that this distribution tends to fit in with the preferences of the different purchasers.

demand curve: shifts inward (left)v

equilibrium price falls and quantity falls

supply shifts inward (left)

equilibrium price falls and quantity falls

demand shifts outward (right)

equilibrium price rises and quantity rises

suppy shifts outward (right)

equilibrium price rises and quantity rises

shortage

excess quantity demanded over quantity supplied -buyers cant purchase what they desire at current price -prices increase

scarcity

fact that resources are always limited

marginal analysis

is a method for calculating optimal choices—the choices that best promote the decision maker's objective. It works by testing whether, and by how much, a small change in a decision will move things toward or away from the goal.

normative economics

judgments about economic fairness or what the outcome of the economy or goals of public policy ought to be.

1. scarce 2. unlimited

resources are ______ and wants are ______

supply schedule

table that shows how the quantity supplied changes as the price changes, other things equal

Adam smith

the founder of modern economics, first marveled at how division of labor raised efficiency and productivity when he visited a pin factory

total monetary utility

the maximum amount of money a consumer is willing to give up in exchange for a quantity of a good

demand schedule

- a table that shows how the quantity demanded changes as the price changes, other things equal -as price rises (falls), quantity demanded falls (rises)

division of labor

-break a task into smaller and smaller specialized tasks workers become more adept at a particular task

surplus

-excess quantity supplied over quantity demanded -sellers cant sell what they desire at current price -prices decrease

quantity demanded

-number of units of a good that consumers are willing and can afford to buy over a specified period of time -depends on price, other things equal

quantity supplied

-number of units of a good that producer want to sell over a specified period of time -as the price rises (falls), quantity supplied rises (falls)

measuring utility

-pleasure -units of another good -money

production possibilities frontier (PPF)

-shows different combinations of two goods produced, given available resources and existing technology -slope is the opportunity cost - bowed outward

inputs of production

Land, labor, capital

true

True or False: Economists today believe monetary and fiscal policy can help reduce the magnitude of fluctuations in real GDP.

rule 2: if marginal net utility is negative

a buyer can get a higher total net utility by cutting back the quantity they bought

specialization

consists of the performance of particular tasks by particular individuals who are best suited to that task. ( a system of exchange must be in place)

positive economics

focuses on the description, quantification, and explanation of economic developments, expectations, relies on objective data analysis, relevant facts, and associated figures

outputs

goods and services produced by a firm or economy

opportunity cost and monetary costs

goods that have a high (low) opportunity cost have a high ( low) monetary costs>

supply curve

graphical representation of a supply schedule - shows the relationship between price and quantity supplied, holding other determinants constant.

An economy will be most efficient

if people specialize in doing what they do best and then trade with one another

substitution

if prices rise i substitute away from the higher priced good to a relatively cheaper good.

inputs/ factors of production

labor, machinery, buildings, natural resources Capital ( equipment, tools machinery)

imperfect information

lack of conclusive data and evidence indicating what the optimal size of the tax cut should be

role of economic theory

theory is a deliberate simplification of a relationship uses to explain how it works -correlation and causeation

short-run trade off between inflation and unemployment

there is an inverse relationship between unemployment and inflation.