Unit One: Basic Economic Concepts
Okun's Law
1 percent more unemployment results in 2 percent less output
changes in supply/demand
A new equilibrium point. Supply rises or lowers, demand rises or lowers. Rises goes right, lowers goes left.
production possibilities
The alternative combinations of final goods and services that could be produced in a given time period with all available resources and technology
inflationary gap
The amount by which equilibrium GDP exceeds full-employment GDP.
recessionary gap
The amount by which the aggregate expenditures schedule must shift upward to increase the real GDP to its full-employment, noninflationary level
changes in quantity supplied/demanded
The degree to which the quantity demanded in correspondence with supply changes with respect to price.
fallacy of composition
The incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or whole.
consumer goods
_____ (as food or clothing) intended for direct use or consumption
ceteris paribus
a Latin phrase, translated as "other things being equal," used as a reminder that all variables other than the ones being studied are assumed to be constant
inferior goods
a good for which, other things equal, an increase in income leads to a decrease in demand
normal goods
a good for which, other things equal, an increase in income leads to an increase in demand
elasticity
a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants
recession
a period of declining real incomes and rising unemployment
model
a simplified description of a complex entity or process
market equilibrium
a situation in which quantity demanded equals quantity supplied
scarcity
a small and inadequate amount
trough
a treasury for government funds
inflation
an increase in the overall level of prices in the economy
economic growth
an increase in the total output of an _______
constant costs
as the production of a good increases, the opportunity cost of producing additional units remains unchanged. A straight-line PPC curve shows ________ _____.
capital goods
buildings, machinery, tools, and other _____ that provide productive services over a period of time.
inelastic and elastic goods
demand will change due to rise or fall in prices vs. constant demand regardless of a change in price
inputs
labor, machinery, buildings, and other resources used to produce output
capital
money or assets put to economic use
supply
offering goods and services for sale
labor
one of the factors of production; among the things that determine its supply is the number of able people in the population.
land
one of the factors of production; owners of it earn money by charging rent
business cycle
recurring fluctuations in economic activity consisting of recession and recovery and growth and decline
market demand
the ______ by all the consumers of a given good or service
demand
the ability and desire to purchase goods and services
quantity demanded
the amount of a good that buyers are willing and able to purchase
quantity supplied
the amount of a good that sellers are willing and able to sell
positive economics
the analysis of facts or data to establish scientific generalizations about ________ behavior
law of demand
the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises
law of supply
the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.
unemployment
the inability of labor-force participants to find jobs
factors of production
the ingredients of economic activity: land, labor, capital, and enterprise
normative economics
the part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics
recovery
the phase in which unemployment begins to decrease, demand for goods and services increases, and GDP begins to rise again
entrepreneurship
the process of starting, organizing, managing, and assuming the responsibility for a business
efficiency
the property of society getting the most it can from its scarce resources
equilibrium quantity
the quantity supplied and the quantity demanded when the price has adjusted to balance supply and demand
macroeconomics
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
microeconomics
the study of how households and firms make decisions and how they interact in markets
economics
the study of how society manages its scarce resources
law of increasing opportunity cost
to produce more of one good, a successively larger amount of the other good must be sacrificed
complements
two goods for which an increase in the price of one leads to a decrease in the demand for the other
substitutes
two goods for which an increase in the price of one leads to an increase in the demand for the other
opportunity cost
whatever must be given up to obtain some item
