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.