Econ 101 Exam #1 Review

quantity demanded

# purchased at a SPECIFIC PRICE point on curve

Adam Smith - invisible hand (Wealth of Nations)

- everyone is driven by self interest the "invisible" hand is the self-interest that drives firms to produce what the consumers want, consumers to purchase what brings them the greatest satisfaction, and the resources owners to supply the resources that are most highly valued

determinants of supply

- prices of resources - expectations of producers - # of producers - taxes and subsidies - tech. & productivity any change in any of these (ceteris paribus) will result in a shift in the ENTIRE supply curve

Sole Proprietorship

1 owner they maintain all profits, and they are legally responsible for all debt personally

partnership

2 (individuals or businesses) more owners they get to maintain all profits both responsible for all the debt that incurs

divide

6/24 why? - cookies relative to chillies

sole properietorships

A business owned by one person who receives all the profits and is responsible for all the debts incurred by the business. is a business owned by one person This type of firm may be a one-person operation or a large enterprise with many employees. In either case, the owner receives all the profits and is responsible for all the debts incurred by the business.

partnership

A business with two or more owners who share the firm's profits and losses is a business owned by two or more persons who share both the profits of the business and the responsibility for the firm's losses. The partners can be individuals, estates, or other businesses.

households

A household may consist of a single person, related family members, like a father, mother, and children, or it may comprise unrelated individuals, like three college students sharing an apartment. The person in whose name the house or apartment is owned or rented is called the householder Household spending is called consumption Household spending is the largest of the aggregate sectors in the economy. The primary determinant of the spending is income. - constituting about 70 percent of total spending in the economy.

points inside the production possibilities curve

A point lying inside the production possibilities curve indicates that resources are not being fully or efficiently used. If the existing work force is employed only 20 hours per week, it is not being fully used. If two workers are used when one would be sufficient—say, two people in each Domino's Pizza delivery car—then resources are not being used efficiently

developing countries vs. industrial countries

Developing countries are often referred to as emerging markets or LDCs, less-developed countries. Developing countries greatly outnumber industrial countries (see Figure 3) Low-income economies are those with per capita incomes of less than $1,000. Middle-income economies have per capita annual incomes of $1,000-$10,000. High-income economies—oil exporters and industrial market economies—are distinguished from the middle-income economies and have per capita incomes of greater than $10,000 [The World Bank (an international organization that makes loans to developing countries) groups countries according to per capita income (income per person] low-income countries are called "emerging" and high-income are called "industrial market economies," or in the case where oil or another resource makes a country high income but not an industrial country, it is called "still developing.". The economies of the industrial nations are highly interdependent, meaning that as conditions change in one country, business firms and individuals may shift large sums of money from one country to another, thereby affecting many economies. As a result, countries are forced to pay close attention to each other's economic policies. *When exports exceed imports, a trade surplus exists* *When imports exceed exports, a trade deficit exists*

investment

Expenditures by business firms for capital goods—machines, tools, and buildings—that will be used to produce goods and services are called investment. def. Spending on capital goods to be used in producing goods and services. Investment is equal to roughly one-fourth of consumption, or household spending, but fluctuates a great deal more than consumption Unlike consumption, which generally just increases, *investment rises but does not do so in a smooth manner*

Which of the following situations is an example of creative destruction?

Farm workers moving to technologically advanced industrial sector after undergoing proper training resources simply moved to where they are more highly valued (after having received the proper training)

consumption

Figure 1, along with household income. The pattern is generally one of steady increase, but you can see that from the second quarter 2008 to the second quarter 2010, real household expenditures actually declined. (A quarter refers to three months.) This was a period of financial crisis and recession. As income declined, so did consumption. household spending aka consumer spending

why does the market system work?

For a very simple reason: People are looking for the best deal—the highest-quality products at the lowest prices. So when an opportunity for a "best deal" arises, people respond to it by purchasing where the price is low and selling where the price is high. As long as the market is free to change, it will ensure that resources are allocated to where they have the highest value and people get what they want at the lowest price. Arbitrage in the movement of Big Macs does not take place because regulations interfere with the market process. So, when something interferes with the market process, resources do not go to where they are most highly valued, and consumers do not get what they want at the lowest prices.

shifts of the production possibilities curve

If a nation obtains more resources or if the existing resources become more efficient, everything else the same, then the PPC shifts outward. Suppose a country discovers new sources of oil within its borders and is able to greatly increase its production of oil without using more resources. Then some resources could be allocated to other uses, and the country would be able to increase production of all types of goods and services and have as much or more oil. The outward shift of the PPC can be the result of an increase in the quantity of resources, but it also can occur because the quality of resources improves *Economists call an increase in the quality of resources an increase in the productivity of resources*

private sector

households, businesses, and the international sector households: buyers and the resource owners (does not have to constitute a family) -- also referred to consumption or consumer spending (denoted by the letter C in a graph) - 70% of all spending businesses: sellers or business firms (controlled by a single management) sole proprietorship/ partnership/ corporation international: households and firms in other countries

relative prices ex.

if a basketball is priced at $12, and a sleeve of 3 golf balls is priced at $6, the relative price of one golf ball in terms of a basketball is? $6/3 = 1 golf ball = $2 $2/ $12 = 1 golf ball is worth 1/6 of a basketball

random allocation system

incentivizes you to do nothing—you simply hope that manna from heaven falls on you.

the determination of income

income and prices determine who gets what in a market system (those who have the most income, gets the most goods and services) income is obtained by selling services and resources, thus, owners of resources determine income b/c of this, sellers of goods and services (firms) and the owners of resources (households) are linked in the economy

the only way a price ceiling is going to be effective,

is if the price is actually set BELOW the equilibrium price if we were to set the price ceiling above a equilibrium price, it will actually have NO impact on the market price; it will fall back down to its equilibrium price

allocation systems

is the process of determining who gets the goods and services and who does not. 1. govt. - run system 2. lottery 3. first come, first serve 4. market system 1. work for the govt.! to have more goods + services allocated to you - economic growth? - fair? no 2. hope your name gets pulled - incentives? nope, just luck - fair? no 3. get up early! get there first (to ensure you get your goods and services you desire) 4. those that have the most $ get the most goods and services - incentives? yes!; makes you work harder; the more you work the more $ you get - more goods and services - economic growth? yes - fair? no

when we discuss international trade

it is not typically the individual buyer or seller we are talking about. It is, instead, the country as a whole or specific sectors of economies such as the household, business, or government sector.

3 categories of resources

land (all natural resources) ex. water, oil, minerals, labor (physical and intellectual services of people) - us = humans capital (products used in production) - physical/ financial we distinguish b/w physical and financial capital physical capital ex. loaf of bread, factory, ovens, machinery (anything man-made) *most firms use a combo of these 3 resources*

economists have classified resources into 3 general categories: land, labor, and capital

land: includes all natural resources, such as minerals, timber, and water, as well as the land itself. labor: refers to the physical and intellectual services of people and includes the training, education, and abilities of the individuals in a society. capital: refers to physical products such as machinery and buildings that are used to produce other goods and services. You will more often hear the term capital used to refer to financial items such as stocks and bonds than to the physical capital. Economists try to distinguish between these two by referring to funds used to purchase the physical capital as financial capital.

corporation

legal entity all on its own you own a stock in a company many owners (shareholders) limited liability (creditors cannot go after personal property, they can only go after value of stock) - deplete its value of the stock negative thing: subject to double taxation (corp. pays out its resources; whatever is left over is corp. profit that is taxed at the corporate tax rate, whatever is left over goes paid out to shareholders as dividends) - shareholders claim this as personal income in which they have to pay their personal income taxes on those dividends = double taxation

Microeconomic functions

market failures (ex. externalities) transfer payments (income transfers) - ex's social security, unemployment payments

firms

may refer to a business at a single location or a worldwide business. Many firms are global in their operations, even though they may have been founded and may be owned by residents of a single country. Firms typically first enter the international market by selling products to foreign countries As revenues from these sales increase, the firms realize advantages by locating subsidiaries in foreign countries. In addition, companies seek the location where taxes and regulations are the lowest and, of course, where profit potential is highest.

scarcity

means that there is not enough of an item to satisfy everyone who wants it the shortage that exists when less of something is available than is wanted at a zero price

Macroeconomic functions

monetary policy fiscal policy

monetary policy

money and credit - by the federal reserve

The resources owned by firms that shut down in the process of creative destruction:

move to activities where they are more highly valued

resources

people obtain income from their resources - owners of land receive *rent* - people who provide labor are paid *wages* (most common! more than 5%) - owners of capital receive *interest*are also called factors of production and inputs; the terms are interchangeable.)

marginal costs v. marginal benefits

point B = 175 DG - 130 DG = lost 45 units of defense goods (that's what we gave up; our opp. cost of going from point B to C) - this is also your "*marginal cost*" due to it being the result of an additional unit being taken into consideration *marginal benefits*( = what you GAIN when you make a choice [point B 75 NDG to point C 125 NDG = you GAINED 50 units of defense goods] whatever you give up, is the opp. cost for that decision

when demand changes

price and quantity change in the same direction—both rise as demand increases, and both fall as demand decreases.

when supply changes

price and quantity change, but not in the same direction. When supply increases, price falls and quantity rises. When supply decreases, price rises and quantity falls.

change in quantity demanded

price change! movement ALONG a demand curve

private property rights

private property rights are necessary in order for voluntary trade to occur private property rights create incentives do you have infrastructure that enforces private property rights? - yes? your property is more valuable and you can engage in trade, if not, there is no incentive

determination of equilibrium

Notice that the curves intersect at only one point, labeled e, a price of $3 and a quantity of 66. *The intersection point is the equilibrium price, the only price at which the quantity demanded and quantity supplied are the same*. You can see that at any other price, the quantity demanded and quantity supplied are not the same. *This is called disequilibrium* Surpluses lead to decreases in the price and the quantity supplied and increases in the quantity demanded. Shortages lead to increases in the price and the quantity supplied and decreases in the quantity demanded. A shortage exists only when the quantity that people are willing and able to purchase at a particular price is more than the quantity supplied at that price. Scarcity occurs when more is wanted at a zero price than is available.

If the price of hot dogs were to decrease, which of the following changes would we expect to occur in the hot dog bun market?

The equilibrium price of hot dog buns would increase and the quantity of hot dog buns sold would increase - the second half of the answer is b/c hot dog buns are a complement to hot dogs

paradox of thrift

The idea that when many households simultaneously try to increase their saving, actual saving may fail to increase because the reduction in consumption and aggregate demand will reduce income and employment. if a household saves more $ now, it will have more $ to spend in the future. Therefore, if all households save more money now, they will all have more $ to spend in the future.

law of demand

The more formal definition of the law of demand can be broken down into five phrases: 1. The quantity of a well-defined good or service that 2. people are willing and able to purchase 3. during a particular period of time 4. decreases as the price of that good or service rises and increases as the price falls, 5. everything else held constant.

productivity

The quantity of output produced per unit of resource. Improvements in technology cause productivity increases, which lead to an increase in supply.

inferior goods

The reason could be that these are goods or services that people use only when their incomes are declining—such as bankruptcy services. In addition, people might not like the good or service as well as they like a more expensive good or service, so when their income rises, they purchase the more expensive items. These types of items are called inferior goods Goods for which demand decreases as income increases

a govt. scheme

provides an incentive either to be a member of government and thus help determine the allocation rules or to do exactly what the government orders you to do. There are no incentives to improve production and efficiency or to increase the quantities supplied, and thus there is no reason for the economy to grow. This type of system is a failure, as evidenced by the Soviet Union, Mao Tse-Tung's China, Cuba, and socialist systems in Latin America and Africa and in virtually every poor country in the world.

business spending

refer to this as "investments" financial transactions such as buying real estate, stocks, bonds, etc. investments refer to the spending on capital goods to be used in producing goods and services (letter "i" in a formula or graph) business investment spending tends to fluctuate widely over time is an IMPT. factor in determining the economic health of a nation if business spending decreases, this can cause U.S. and world economies to grow slowly or even decline

points outside the production possibilities curve

represents the use of more resources than are available—it lies outside the production possibilities curve. Unless more resources can be obtained and/or the quality of resources improved (for example, through technological change) so that the nation can produce more with the same quantity of resources, there is no way that the society can currently produce 200 million units of defense goods and 75 million units of nondefense goods. (point outside the PPC)

In its most fundamental sense, economics is the study of:

scarcity and choice.

change in demand

shift in entire curve change in a determinant of demand

factors of production

some goods are used to produce other goods (these are called "factors of production") also called inputs and resources

fiscal policy

spending and taxation by the government collects taxes; they decide what the tax rates are, and they figure out how they are going to spend it after the govt. collects our taxes and then spends them, depending on how much they spend in relation to how much they tax = Budget surplus OR budget deficit

budget deficit

spending is GREATER than tax receipts every time the U.S. has to borrow money in order to finance overspending, that increases our national debt (deficit) 2015 = $17 trillion every time we run a deficit, we add to our national debt

budget surplus

spending is LESS than tax receipts

law of supply

supply is the relation between the price and the quantity supplied supply = def.; The amount of a good or service that producers are willing and able to offer for sale at each possible price during a period of time, everything else held constant. formal statement ------ - The quantity of a well-defined good or service that - producers are willing and able to offer for sale - during a particular period of time that - increases as the price of the good or service increases and decreases as the price decreases, - everything else held constant.

the U.S.

tends to buy primary products such as agricultural produce and minerals from the developing countries and manufactured products from the industrial nations. Products that a country buys from another country are called imports. Products that a country sells to another country are called exports. The United States tends to sell, or export, manufactured goods to all countries. The majority of U.S. trade is with the industrial market economies

what is the economic way of thinking?

the economic approach is a logical method of approaching and solving problems (using models and/or theories) 2 types of analysis can take place: - positive analysis (sticks to facts) - normative analysis (subjective, opinions)

public sector

the govt. refers to the government, government spending and taxing, and government-sponsored and government-run entities.

opportunity cost

the highest- valued alternative that must be forgone when a choice is made Opportunity cost includes not just the dollars you give up but all costs involved with your purchase When economists refer to costs, it is opportunity costs they are measuring. The cost of anything is what must be given up to get that item.

the aggregate sectors

the household sector, the business sector, and the foreign sector We classify the buyers and the resource owners into the household sector; the sellers or business firms are the business sector; households and firms in other countries, who may also be buyers and sellers of this country's goods and services, are the international sector The market economies tend to have smaller public sectors relative to the total economy than do the more socialist or centrally planned economies.

demand

total amount demanded at ALL price levels ENTIRE line/ curve (graphically)

change in quantity supplied

upward or downward move ALONG the supply curve change in the price

production possibilities curve

Trade-offs can be illustrated in a graph known as the production possibilities curve (PPC) The production possibilities curve shows all possible combinations of quantities of goods and services that can be produced when the existing resources are used fully and efficiently All societies allocate their scarce resources in order to produce some combination of defense and nondefense goods and services. Because resources are scarce, a nation cannot produce as much of everything as it wants. illustrates the concept of opportunity cost. Each point on the PPC means that every other point is a forgone opportunity The production possibilities curve is defined by the quantity and quality of resources. With fewer resources, the curve would shift in; with more resources, the curve would shift out.

a change in supply and a change in the quantity supplied

When only the price changes, a greater or smaller quantity is supplied. This is shown as a movement along the supply curve, not as a shift of the curve. A change in price is said to cause a change in the quantity supplied. An increase in quantity supplied is shown in the move from point A to point B on the supply curve of Figure 8(b).

demand v quantity demanded

When they refer to the quantity demanded, they are talking about the *amount of a product that people are willing and able to purchase at a specific price*. When they refer to demand, they are talking about the *amount that people would be willing and able to purchase at every possible price*. Demand is the quantities demanded at every price.

association of causation

aka "correlation does not imply causation" the mistaken assumption that b/c 2 even seem to occur together, one causes the other ex. every time I wear my lucky socks, the San Francisco 49ers win

first-come, first-served

allocation scheme the incentive is to be first You have no reason to improve the quality of your products or to increase the value of your resources. There is no incentive to increase the amounts of goods and services supplied. Why would anyone produce when all everyone wants is to be first? As a result, with a first-come, first-served allocation system, growth will not occur, and standards of living will not rise. A society based solely on first-come, first-served would die a quick death.

fallacy of composition

another common mistake in economic analysis def. the mistaken assumption that what applies in the case of one applies to the case of many ex. If I stand up at a baseball game, then I can see better, thus, everyone should stand up (everyone would have a hard time trying to look above or to the side of other peoples heads to get a better view if they were to all stand up)

economic good

any item that is scarce positive value

economic bad

any item we would pay to have less of ex. pollution, garbage negative value, not desirable

budget deficits and surpluses

are SEPARATE from national debt

Some economists have noted that throughout recent U.S. history, as the occurrence of sun spots has increased, so has the rate of overall inflation. If any of these economist based this observation on a short-term forecast of inflation, he/she would be:

committing the error of interpreting association as causation.

international trade (who has the comparative advantage in a wider scope)

comparative advantage of countries is determined by: - productivity differences, factor abundance (natural resources,), human skills international trade is restricted through: - govt. policy (tarrifs, quotas, subsidies, preferential trade agreements) product life cycles (innovators/ efficient copiers) and consumer preferences also influence the direction of trade

consumer sovereignty

consumers determine what goods and services will be produced by demanding more or less of products the authority of the consumers to determine what is produced through their purchases of goods and services

business firms

def. A business organization controlled by a single management. is a business organization controlled by a single management. The terms company, enterprise, and business are used interchangeably with firm. *Firms are organized as sole proprietorships, partnerships, or corporations*

comparative advantage

An advantage derived from comparing the opportunity costs of production in two countries.

voluntary exchange

If we have a choice, we should devote our time and efforts to those activities in which we are relatively better than others. In other words, we should specialize in those activities that require us to give up the smallest amount of other things relative to others. If we focus on one thing, how do we get the other things that we want? The answer is that we trade—we earn money and purchase goods and services. The teacher teaches, earns a salary, and hires a plumber to fix the sinks. This is called voluntary trade or voluntary exchange. - The teacher is trading money to the plumber for the plumber's services. The teacher is trading her time to the students and getting money in return. By specializing in the activities in which opportunity costs are lowest and then trading, everyone will end up with more than if everyone tried to produce everything. This is the gains from trade.

barter and money exchanges

If we simply exchanged a gallon of milk for the piece of cake, we would be engaging in barter Most markets involve money because goods and services can be exchanged more easily with money than without it - Economists say the costs of transacting are lower with money than without it Barter requires a *double coincidence of wants*: IBM must have what Yakamoto wants, and Yakamoto must have what IBM wants. - The difficulty of finding a double coincidence of wants for barter transactions is typically very high. - Using money makes trading easier - To obtain the microchips, all IBM has to do is provide dollars to Yakamoto. Yakamoto is willing to accept the money, since it can spend that money to obtain the goods that it wants.

determinants of demand

Income, consumer tastes & preferences, number of buyers in a market, price of related goods/ services, consumer expectations of future

trade offs

Life is a continuous sequence of decisions, and every single decision involves choosing one thing over another or trading off something for something else def. the giving up of one good or activity in order to obtain some other good or activity Because your income is scarce, if you purchase one thing you have to forgo other things. Because your time is limited, if you decide to attend a football game you are forgoing time spent studying or sleeping. You trade off time at studying for time spent at the football game. opp. cost is easy to understand when you think of it as a trade off. In other words, the "value" of the trade-off is represented by the opp. cost ex. suppose you earn 20$/ hr tutoring students after class. Today, however, you cancel your 2 hr tutoring session to attend a movie that costs $10. What is your opp. ost of this decision? 20 x 2 = $40 (opp. cost if you had engaged in your tutoring session) $10 (movie) - highest valued alternative $40 + the $10 you could've spent on something else (opp. cost)

gains from trade

Most people specialize in one or two activities for which they earn income and then purchase whatever else they want. As long as trade is voluntary, people trade only when trading benefits them - If all parties in an exchange did not anticipate to gain, then at least one of the parties would refuse to make the exchange. In other words, people are better off focusing on those activities that have the lowest opportunity costs to them than in doing activities that have higher opportunity costs. This is called *comparative advantage*—focusing on activities that have the lowest opportunity costs. ex. A plumber does not do plumbing, teaching, and electrical work because doing all three would provide him less (that is, cost him more) than if he sticks to plumbing. def.: The difference between what can be produced and consumed without specialization and trade and with specialization and trade. By specializing in an activity that one does relatively better than other activities, one can trade with others and gain more than if one carried out all activities oneself. *This additional amount is referred to as gains from trade*

quantity supplied

The amount that sellers are willing and able to offer at a given price during a *particular period of time*, everything else held constant. the amount of the good or service that producers are willing and able to offer for sale at a specific price during a period of time, *everything else held constant*

net exports

The difference between the value of exports and the value of imports. refers to the difference between the value of exports and the value of imports: Net exports equals exports minus imports (exports - imports = net exports) Positive net exports represent trade surpluses; negative net exports represent trade deficits. the size of the trade deficit or surplus will ALWAYS be equal to the absolute value of net exports

the public sector

When we refer to the public sector, it is government that we are talking about. Government in the United States consists of federal, state, and local government. The United States was founded as a republic, meaning that government is divided between the federal level and state and local levels. Local government includes county, regional, and municipal units Each level affects us through its taxing and spending decisions and its laws regulating behavior. *Total government spending is larger than investment spending but smaller than consumption* In addition to purchasing goods and services, government also takes money from some taxpayers and gives it to others. This is called a transfer payment If federal government spending is less than tax revenue, a budget surplus exists. By the early 1980s, federal government spending was much larger than revenue, so a large budget deficit existed

externalities

a cost or benefit born by someone who is not directly involved in a market transaction ex. (-) pollution from gasoline = negative externality; pollution is created by the initial transaction = taxes on gasoline to help clean up that pollution

free good

a good for which there is no scarcity (will never run out) ex. air - we don't pay for it clean air IS scarce

corporation

def. A legal entity owned by shareholders whose liability for the firm's losses is limited to the value of the stock they own. is a business whose identity in the eyes of the law is distinct from the identity of its owners. For instance, the owners are not responsible for the debts of the corporation. This is referred to as limited liability. The liabilities of the corporation are limited to the extent that an owner's own assets cannot be taken to pay the liabilities of the corporation In fact, a corporation is an economic entity that, like a person, can own property and borrow money in its own name. you own a stock in a company many owners (shareholders) limited liability (creditors cannot go after personal property, they can only go after value of stock) - deplete its value of the stock negative thing: subject to double taxation (corp. pays out its resources; whatever is left over is corp. profit that is taxed at the corporate tax rate, whatever is left over goes paid out to shareholders as dividends) - shareholders claim this as personal income in which they have to pay their personal income taxes on those dividends = double taxation

positive analysis

def. analysis of what is (facts) economists use positive analysis. That is, no moral or subjective judgements enter into their analysis ex. (if A, then B) ex. if the price of gasoline goes up relative to all other prices, then the amount of gasoline purchased will fall - factual statement (no personal views)

normative analysis

def. analysis of what ought to be (imposing opinion and value) usually expresses what we prefer, like, or desire. A normative statement often includes the word "should" ex. if the price of gasoline goes up relative to all other prices, then the amount of gasoline purchased will fall, thus, the govt. should put a cap on gasoline prices (subjective! view or opinion) politicians often engage in normative analysis

choices

economists use the rationality assumption to describe how people make choices def. the assumption that people do NOT intentionally make decisions that would leave them worse off (aka rational self-interest) inherently self-interested

specialization and trade

enable individuals, firms, and nations to get more than they could without specialization and trade.

a budget deficit

exists when govt. spending is greater than revenue (taxes)

a budget surplus

exists when govt. spending is less than revenue (a surplus is shown as a negative deficit on a graph)

market system

the incentive is to acquire purchasing ability—to obtain income and wealth. This means that you must provide goods that have high value to others and provide resources that have high value to producers—to enhance your worth as an employee by acquiring education or training, and to enhance the value of the resources you own. Very importantly, the market system also provides incentives for quantities of scarce goods to increase - In the case of the water stand in Scenario I, if the price of the water increases and the owner of the water stand is earning significant profits, others may carry or truck water to the top of the hill and sell it to thirsty hikers; the amount of water available thus increases. Since the market system creates the incentive for the amount supplied to increase, economies grow and expand, and standards of living improve. The market system also ensures that resources are allocated where they are most highly valued.

the rule of specialization

the individual (firm, region, or nation) will specialize in the activity in which it has the lowest opportunity cost.

relative price

the price of one good in comparison with the price of other goods ex. comparing good A to good B - transaction cost modern markets: prices are already set for us ex. apples - $1/lb vs oranges $2/lb = oranges are twice as valuable

creative destruction

the process of new products and new firms replacing existing products and firms is called "creative destruction" - if the product does NOT make a profit, the production of the product will cease and resources will be allocated elsewhere - this is a good thing. - b/c our tastes and preferences have changed in which they will now be satisfied b/c of this They moved because they could earn more in some other activity

net exports

the size of the trade deficit or surplus will ALWAYS be equal to the absolute value of net exports

micro economics

the study of economics at the level of the individual consumer or firm consumer choice, profits, costs, revenue

macro economics

the study of the economy as a whole GDP (gross domestic product) govt. spending international trade

capital

the term economists use to describe long-term resources that allow people to produce goods and services in the future.