Macroeconomics Chapters 1-5

List the [four] sources of government intervention.

1. Legal Framework (i.e. property rights, laws) 2. Environment (i.e. externalities, pos & neg) 3. Protection of Consumers (antitrust, monopoly) 4. Protection of Labor (min wage, child labor laws)

List the [six] determinants of demand.

1. Preferences 2. Income For most goods: increase, increase decrease, decrease For inferior goods: increase, decrease decrease, increase 3. Price of Related Goods Substitutes: price increase, demand increase price decrease, demand decrease Compliments: increase price, demand decrease decrease price, demand increase 4. Expected Future Price increase, increase decrease, decrease 5. Expected Future Income/Credit increase, increase decrease, decrease 6. Population increase, increase decrease, decrease

List the [six] determinants of the market supply.

1. Technology increase, increase decrease, decrease 2. Factor Costs increase, decrease decrease, increase 3. Taxes/Subsidies taxes increase, supply decrease (at some point, taxes make products unprofitable) 4. Expectations of Prices increase, increase supply decrease, decrease supply 5. Number of Sellers increase, increase supply decrease, decrease supply 6. Price of Other Goods increase price, decrease decrease price, increase

What is the price index equation?

100 (base) + % Price Increase divided by 100 (base)

What is the GDP equation?

Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (N)

Who is the grandfather of economics and supports laissez faire economy?

Adam Smith

Define "public good".

Everyone can use and benefit from this good. They are non-excludable, sometimes creating a free rider problem and even market failure.

What is the net exports (N) equation?

Exports minus Imports

What is the per capita GPD equation?

GPD divided by total population

What is the Law of Supply?

As a price of a good increases, demand increases.

What is the Law of Demand?

As price increases, quantity supplied decreases.

How does changes in quantity supplied differ from changes in supply?

Changes in quantity supplied are movements along a given supply curve. Changes in supply are shifts of the supply curve.

What does the law of increasing opportunity cost state?

We must give up ever-increasing quantities of other goods and services in order to get more of a particular good.

Define "monopoly".

a firm that produces the entire market supply of a particular good or service

Define "macroeconomics".

allocating the resources of an entire economy to achieve aggregate economic goals

Define "production possibilities".

alternative combinations of final goods and services that could be produced in a given period with all available resources and technology

Define "market shortage".

an excess of quantity demanded than is supplied

Define "private good".

an excludable good

Define "market failure".

an imperfection in the market mechanism that prevents optimal outcomes

Define "free rider".

an individual who reaps direct benefits from someone else's purchase (consumption) of a public good

Define "price ceiling".

an upper limit imposed on the price of a good

Define "real GDP".

apt to change

Define "microeconomics".

behavior and goals of individual market participants

Define "market power".

being able to manipulate the prices of goods and services (i.e. monopolies, patents, antitrust laws)

What is inequity?

cash transfers (taking from rich, giving to poor), in-kind transfers (not a good, but a service such as medicaid or medicare); government uses our taxes

Define "externalities".

costs or benefits of a market activity borne by a third party; affects the collective well-being of a community

Define "externalities".

costs or benefits of a market activity borne by a third party; the difference between the social and private costs (benefits) of a market activity; there are positive and negative aspects

Define "outsourcing".

doing something in another country; increases output

What type of economy do conservatives support?

laissez faire (resist work place regulation, price controls, and minimum wage)

What are the four basic factors of production?

land, labor, capital, and entrepreneurship

Define "national income accounting".

measurement of aggregate economy activity

Define "capital intensive".

production processes that use a high ratio of capital to labor inputs (i.e. machines and technology)

Define "factor mobility".

reallocating resources from one industry to another (i.e. agriculture -> technology)

Define "efficiency".

squeezing maximum output out of available resources

Define "market supply curve".

summary of the supply intentions of all procedures (combined sales of all market participants)

Define "supply shift".

supply decreases, price increases

Define "market surplus".

the amount by which the quantity supplied exceeds the quantity demanded

Define "economy".

the grand sum of all production and consumption activities

Define "value added".

the increase in the market value of a product that takes place at each stage of the production process

Define "scarcity".

the limitation of a nation's resources

Define "optimal mix of output".

the most desirable combination of output attainable with existing resources, technology, and social values

Define "equilibrium price".

the price at which a quantity of a good demanded in a given time period equals the quantity supplied

Give the basic definition of economics.

the scarcity of resources

Define "human capital".

the skills and knowledge of workers

Define "economics".

the study of how people use scarce resources

Define "gross domestic product (GDP)".

the total market value of all the goods and services a nation produces in a year

Define "market supply".

the total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period, ceteris paribus

Define "market mechanism".

the use of market prices and sales to signal desired outputs

Are output combinations outside of the production possibilities curve attainable or unattainable?

unattainable

Define "gross national product (GNP).

value of all final goods produced in your country (USA); excludes factories in our country owned by another country

Define "nominal GDP".

value of goods with the price NOW (C+I+G+N)

Define "comparative advantage".

what advantage you have with your factors of production; huge aspect of trade

Define "opportunity cost".

what is given up to get something else

What is the equation for opportunity cost?

what you give up divided by what you get

What are the three core choices in the economy?

what, how, and for whom

Define "self adjusting prices".

whenever the market prices is set above or below the equilibrium price, either a market surplus or shortage will emerge

Define "market".

wherever transactions of goods or services occur

Who supports the mixed economy?

John Maynard Keynes

Who is the father of modern Communism?

Karl Marx

What is the real GDP equation?

Nominal GDP divided by price index

What type of economy do liberals support?

government intervention (argue that resistance of work place regulation, price controls, and minimum wage temper the excesses of the market)

Define "per capita GDP".

how much output the average person would get if all output were divided evenly among the population

Define "demand shift".

new demand curve intersects the unchanged market supply curve at a new price

Define "income quintile".

one fifth of the population rank ordered by income

Define "productivity".

output per unit of input

Define "monopoly exploitation".

paying too much for too little (antitrust laws)