Macroeconomics Midterm

Total Vs. Per Capita

.. show for different countries the levels of GDP per PERSON, calculated by dividing the value of GDP for a country by the country's population ...Used as a measure of well being, measures a countries.. production

Real Vs. Nominal

...The value of goods and services evaluated at base-year prices ...Calculated by summing the current values of final goods and services

PPF's (Production Possibilities Frontier)

A curve showing the maximum attainable combinations of 2 goods that can be produced with available resources and current technologies

Quota

A numerical limit a gov't imposes on the quantity of a good that can be imported into that country

Definition of Recession

A period during which production and employment are decreasing

Market Equilibrium

A situation in which quantity demanded and quantity supplied are equal

Tariff

A tax imposed by a gov't on imports competing industries and its workers from foreign competition

Comparative Advantage

Ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors, this is the basis for trade

Absolute Advantage

Ability of an individual, a firm, or a country to produce more of a good or service than competitors using the same amount of resources, this is not the basis for trade

Ceteris Paribus

All Else Equal

Firms choose how to produce the goods and services they sell. In many​ cases, firms face a​ trade-off between using more workers or using more machines. For​ example, A. a local service station has to choose whether to provide car repair services using more diagnostic computers to support their auto mechanics and fewer tools to support their auto mechanics or more tools to support their auto mechanics and fewer diagnostic computers to support their auto mechanics. B. many times in the past several​ decades, firms may have chosen between a production method in the United States that uses fewer workers and more machines and a production method in China that uses more workers and fewer machines. C. movie studios have to choose whether to produce animated films using more highly skilled animators to draw them by hand or fewer highly skilled animators and more​ low-skill animators. D. many times in the past several​ decades, firms may have chosen between a production method in the United States that uses fewer machines and more workers and a production method in China that uses more machines and fewer workers.

B

GDP Component Categories

C+I+G+NX(Consumption, Investment, Government Purchases, and Net Exports)

Sources of Comparative Advantage

Climate, Natural Resources, Relative Abundance of labor and Capital, Technology, and External Economies

Impact of a Tariff or Quota

Cost of Jobs outside the industries are immediately affected

A free market exists A. when the government places significant restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed. B. only in fiction. There are no markets or economies which even come close to approaching the status of a free market. C. when the government places absolutely no restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed. D. when the government places few restrictions on how a good or a service can be produced or sold or on how a factor of production can be employed.

D

Law of Demand

Decrease in Quantity, Causes Increase in Price Increase in Quantity Causes increase in Price

Problems of GDP

Doesn't include Household Production- Goods and services people produce for themselves Example: If the carpenter makes a bookcase for personal use If the carpenter does not live in the house and makes a bookcase for someone else, it is included in GDP Underground Economy- Individuals and firms conceal what they buy and sell for 3 main reasons: They are dealing in illegal goods and services such as drugs or prostitution, they want to avoid paying taxes on income they've earned, or want to avoid gov't regulations

Scarcity

Exists because we have unlimited wants but only limited resources are available to fulfill those wants ex: Time

Imports

Goods and Services produced domestically but BOUGHT in other countries

Exports

Goods and Services produced domestically but SOLD in other countries

Compliments

Goods and Services that are used together PB&J, Ice Cream and Hot Fudge

Substitutes

Goods and Services that can be used for the same purpose Ex: Coca Cola, Pepsi

Trade-Off

Idea that because of scarcity producing more of 1 good or service means producing less of an other good or service 3 Questions- What goods and services will be produced?, how will the goods and services be produced?, and who will receive the goods and services produced?

Demand Shifters

Income, Prices of Related Goods, TASTES, Population and Demographics, and Expected Future Prices

Law of Supply

Increase in Price, Causes Increase in Quantity Price decreases, quantity supplied decreases.

Factors Of Production(Circular Flow Diagram)

Labor, Capital, Land, and Entrepreneurship

Exchange

Marketplace in which securities, commodities, derivatives and other financial instruments are traded

GDP(Gross Domestic Product) Definition

Measure of economic output= trade balance, consumer spending, government spending, investment Not adjusted for pollution or other negative effects of pollution Not adjusted for Changes in Crime and Other Social Problems Frequently used as a measure of well-being

Percentage Change(Growth Rate)

New-Old ----------x100 Old

Is this GDP, if so what category...Anna spends one hour giving herself a manicure and pedicure?

No, she is giving herself a service

Is this GDP, if so what category...Anna pays $45 for a manicure and pedicure. The shop owner slips the cash into an envelope rather than recording the sale?

No, underground economy, it is probably illegal money

Another Formula for Real GDP

Nominal GDP ---------------x100 GDP Deflator

GDP Deflator

Nominal GDP ____________________X100 Real GDP

Final Good

Not used to make something else ex:Pickup Truck, New home

Capital

Physical..., such as machinery, that is used to produce other goods

Shift to the right in Demand

Price Increases, Quantity Increases

Shift to the left in Supply

Price Increases, Quantity decreases

Shift to the right in Supply

Price decreases, Quantity Increases

Shift to the left in demand

Price decreases, Quantity decreases

Supply Shifters

Price of Inputs, TECHNOLOGICAL Change, Prices of Related goods in PRODUCTION, Number of Firms in a Market, Expected Future Prices

Shortage

Q demanded is greater than supplied

Surplus

Quantity supplied is greater than demanded

Opportunity Cost

Refers to a benefit that a person could have received, but gave up, to take another course of action As chemistry score goes up the economics score falls

One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls

Scarcity

Economics

Study of human action, how people make choices

When the federal government crafts environmental policies that make it less expensive for firms to follow green​ initiatives

The policies are consistent with economic incentives

Difference Between a Quota and Voluntary Export

The... is unilaterally imposed by one nation on the other while the VER(Voluntary Export Restraints) is the result of negotiations between nations

Non-Durable Good

Those that do not last long at all (Fast Food)

Durable Goods

Those that last a long period of time(3 years, Lamp)

Intermediate Good

Used in production of another good ex: Cotton, Coffee beans purchased by a coffee shop

Protectionism

Usually justified on the basis of the following arguments: Saving jobs, PROTECTING high wages, PROTECTING infant industries, PROTECTING national security

Normative Statements

Vanilla ice cream is the best(Opinion) Health Insurance is important

Positive Statements

Vanilla is the top flavor at Baskin-Robbins(Can be proven) People without health insurance weigh less than people with health insurance

Is this GDP, if so what category, ...Anna's parents spend $60 on french wine

Yes, French wine is an Import(Consumer)

Is this GDP, if so what category, ....Anna's aunt and uncle, who live in Houston TX, spend 12,000 on NEW equipment for their business

Yes, Investment

Economists use the word marginal to mean an extra or additional benefit or cost of a decision. An optimal decision occurs when

marginal benefit equals marginal cost

Incentives

offered to encourage people to make certain choices or behave in a certain way

Specialization

refers to people, companies or countries focusing on providing a single good or service, instead of a range of different goods or goods and services in a particular area as opposed to a large one so that they can increase their efficiency and profit. Not all goods and services are traded​ internationally, production of most goods involves increasing opportunity​ costs, and tastes for products differ.

Difference between a normal and inferior good...

when income​ increases, demand for a normal good increases while demand for an inferior good falls.