Economics 2302

business cycle

Fluctuations in economic activity, such as employment and production

The short-run tradeoff between inflation and unemployment implies that, in the short run,

a decrease in the growth rate of the quantity of money will be accompanied by an increase in the unemployment rate.

Model:

a highly simplified representation of a more complicated reality.

market failure

a situation in which a market left on its own fails to allocate resources efficiently

A circular-flow diagram is a model that

a. helps to explain how participants in the economy interact with one another. b. helps to explain how the economy is organized. d. Both (a) and (b) are correct.

Which of the following is an economic principle concerning how people interact?

all of the above

Productivity is the...

amount of goods and services produced from each unit of labor input.

Inflation is defined as

an increase in the overall level of prices in the economy.

Which of the following is the primary cause of inflation?

an increase in the quantity of money

Economic models

are simplifications of reality, and in this respect economic models are no different from other scientific models.

The adage, "There is no such thing as a free lunch," means

everything has a value and cost

Refer to Figure 2-2. If the owners of land, labor, and capital are represented by Box B of this circular-flow diagram, then

firms are represented by Box A.

markets for goods and services

firms sells / households buy (milk, eggs)

Economists make assumptions in order to

focus their thinking on the essence of the problem at hand

the cost of something is what you...

give up to get it (lost wages + tuition = degree )

Two types of "actors" in a circular flow diagram:

households firms

markets for factors of production

households sell / firm buys (labor)

define micro economics focus

how households and firms(companies) interact and make decisions

Two markets in a circular flow diagram:

-the market for goods & services -the market for "factors of production"

Dee can earn more in the hour it would take her to work on her lawn than she must pay her landscaper. This scenario is an example of which principle of economics?

...

Guns and butter are used to represent the classic societal tradeoff between spending on

...

What is the most important factor that explains differences in living standards among countries?

...

trade and specilization

...

two reason economists may give conflicting advice

1. may disagree about theories importance of parameters/economic variables 2. have different personal values 3. perception vs reality ()

The Production Possibilities Frontier (PPF) is a graph that shows the combinations of:

2 goods the economy can possibly produce given the available resources and the available technology

inflation

A rise in the general level of prices in an economy.

reverse causality

A situation where the researcher believes that A causes B when actually B causes A

invisible hand

Adam Smith's economic theory (free market) that the greatest benefit to a society is brought by individuals acting freely in a competitive market place in the pursuit of their own self interest

market economy

An economy in which the decisions of households and firms interacting in markets allocate economic resources.

Inefficient production is represented by which point(s)?

D

land, labor, and capital

Factors of production

Efficient production is represented by which point(s)?

K, N

scarcity

Not having enough resources to satisfy every need.

If opp. cost remains constant,

PPF is a straight line.

marginal changes

Small, incremental adjustments to one's plan of action.

incentive

Something that induces a person to act

causality

The relationship between a cause and its effect

What equals the "rise over the run," the amount the line rises when you move to the right by one unit on a PPF graph?

The slope of a line

Delta symbol signifies...

change in a variable

The Circular-Flow Diagram, a visual model of the economy, shows how:

dollars flow through markets among households and firms

PPF illustrates the concepts of tradeoff and opportunity cost, efficiency and inefficiency, unemployment, and

economic growth.

define macro economics focus

employment rates, inflation, economic growth (as a large organization - county, state, world)

The terms equality and efficiency are similar in that they both refer to benefits to society. However they are different in that

equality refers to uniform distribution of those benefits and efficiency refers to maximizing benefits from scarce resources.

The principle that "people face tradeoffs" applies to

individuals, families, and societies, every person and/group on the planet

society faces a short term trade off between

inflation and unemployment (more $ printed means more spending, increasing demand and need for employees)

A normative economic statement such as "The minimum wage should be abolished"

involves values (religion, ethics, political philosophy) in addition to data

A society allocates its scarce resources to various jobs. These scarce resources include

land, people, and machines -among countless others

rational people think along...

margins (don't believe its all or nothing)

Government can improve

market outcomes (protect property rights or )

trade can make things

more competitive (lower costs and higher wages for in demand jobs)

policy advisors base their advice on _____ , that are based on the fairy tale view

normative statements

Points above the PPF are:

not possible

The slope of the PPF tells you the

opportunity cost of one good in terms of the other.

A bow-shaped PPF illustrates the concept of increasing

opportunity cost.

markets are the most efficient way to

organize trade

Economic growth shifts the PPF line -

outward.

Billie Jean wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that

people face trade-offs.

rational people

people who systematically and purposefully do the best they can to achieve their objectives

economic scientists make _____ , that can be refuted and analyzed.

positive statements

Points on the PPF are:

possible efficient: all resources are fully utilized

Points under the PPF are:

possible but not efficient: some resources underutilized

The "invisible hand" directs economic activity through

prices

productivity

quantity of goods and services produced from each unit of labor input

The overriding reason why households and societies face many decisions is that

resources are scarce

People respond to...

rewards and punishment (good deal vs a fee)

slope formula

rise/run

Which of the following words and phrases best captures the notion of equality?

sameness

Resources are

scarce for households and scarce for economies.

Economics deals primarily with the concept of

scarcity

during an oil shortage, an economic policy maker would figure out how n=best to respond, while an economic scientist would______

see it as a chance to gather interesting data

A model can be accurately described as a

simplification of reality.

Assumptions are used to:

simplify the complex world, make it easier to understand.

PPF is bow-shaped when different workers have different

skills, opportunity costs of producing one good in terms of the other, or mix of resources with varying opportunity costs. (E.g., different types of land suited for different uses).

efficiency

society getting the most it can from its scarce resources

Efficiency means that

society is getting the maximum benefits from its scarce resources.

economics

study of how people and societies use limited resources to satisfy unlimited wants; the management of scarcity and choice

guns n butter

term to describe how society allocates resources for different uses. (defense, goods, aid, etc. )

market power

the ability of a single or group of actors to substantially alter the market price of a good or service

property rights

the ability of an individual to own and exercise control over scarce resources

A macroeconomist — as opposed to a micro economist — might study

the effect of an increasing inflation rate on national living standards

If the PPF is bow-shaped, opp. cost of a good rises as more of...

the good is produced,

opportunity cost

the highest valued alternative that must be given up in order to engage in an activity

externality

the impact of one person's actions on the well-being of a bystander

equality

the property of distributing economic prosperity uniformly among the members of society

positively related

the variables move in the same direction

a country's living standards are linked to...

their ability to produce

prices rise when...

too much $ is in circulation

People face...

trade offs (work vs leisure)

efficiency versus equality is an example of a

tradeoff

PPF illustrates the concepts of _____, ______ ____ , _______ and inefficiency, unemployment, and _______ growth.

tradeoff ,opportunity cost, efficiency, economic

Economic Scientists:

try to explain the world

Economic Policy advisors:

try to improve the world

negatively related

two variables are negatively related if they move in the opposite direction

A positive economic statement such as "Pollution taxes decrease the quantity of pollution generated by firms"

would require values and data in order to be evaluated.