ec
When we compare European GDP per capita to U.S. GDP per capita, the European GDP per capita is ____
...
Number of new jobs created per month to keep the unemployment rate from rising
150,000
Federal Reserve's benchmark for price stability
2.0% inflation
During the worst year of the Great Depression in the United States, unemployment reached ____
24.9% percent in 1933.
Formula #1: Suppose a basket of goods in the base year cost $4,971. In Year X, the same basket cost $8,909. What is the index number for Year X?
4971 * 100 / 8909 = 55.8
What is the current U.S. unemployment rate?
5.7 % as of Jan 2015 5.5% (May 2015)
The Soviet Union never produced very many automobiles. This was primarily due to...
A Soviet planner's decision to not devote resources to consumer goods.
production possibilities
A _______ ___________ curve graphically shows the trade-off that occurs when more of one output is obtained at the sacrifice of another. This curve is a graphical representation of, among other things, opportunity cost.
division
A _________ of labor occurs when different workers are assigned different tasks. Together, the workers produce a desired product.
Real Price
A price that has been adjusted for both inflation and deflation.
Nominal Price
A price that isn't adjusted for inflation or deflation.
fixed
A production possibilities curve is drawn holding the quantity and quality of all resources _________ over the time period under study.
Demand
A schedule showing how much of a good or service people will purchase at any price during a specified time period, other things being constant
If supply exceeds demand, a surplus will result
A surplus in a market will always cause the market price to decrease
more; smaller
A trade-off is involved between current consumption and capital goods or, alternatively, between current consumption and future consumption. The __________ we invest in capital goods today, the greater the amount of consumer goods we can produce in the future and the ________ the amount of consumer goods we can produce today.
Peak unemployment rate during a typical U.S. recession
About 10 percent
As a benchmark, how long have U.S. recessions averaged during 1854-2009?
About 16 months
During the worst year of the Great Depression in the United States, unemployment reached...
About 25 percent.
As a benchmark, how long have U.S. expansions averaged during 1854-2009?
About 42 months
Current "full-employment level of unemployment" for the U.S.
About 5.0% - 6.0%
Market
All of the arrangements that individuals have for exchanging with one another. Thus, for example, we can speak of the labor market, the automobile market, and the credit market.
next-best
Another way to look at opportunity cost is the trade-off that occurs when one activity is undertaken rather than the ____-________ alternative activity.
Suppose consumers reduce their expenditure and take their savings to the bank, What do banks do with these savings?
Banks turn this money into real investment by loaning money to business firms.
The U.S. business cycle can be traced back to the mid-1850s. However, the U.S. as a nation can be traced back to 1780s. Why do we not discuss the U.S. business cycle from 1780-1850?
Because it wasn't until 1860 that Clement Juglar initiated the first systematic inquiry into dating and tracking business cycles.
outward
Because many resources are better suited for certain productive tasks than for others, the PPC is bowed __________, reflecting the law of increasing additional costs.
Like all indexes, the CPI-U and the CPI-W follow a basket of goods. The two baskets for these indexes are different. Why?
Because you can't measure all the goods and services in the same basket, these need to be appropriately separated by category. Some items will weight themselves and others will need quantities added to them.
During periods of unanticipated inflation...
Borrowers usually benefit.
First country to experience the Business Cycle (or Trade Cycle)
Britain since 1790
Which index in the U.S. is most often used in "indexing" and in COLA and escalator clauses in contracts?
CPI
What is the most-used price index in the US?
CPI-U- Consumer Price Index
Only two types of economies have successfully devised institutions that facilitate this choice. They are ____
Capitalism and Socialism.
Which types of economies have managed to grow and develop at a rate fast enough to meet modern expectations?
Capitalist and socialist economies have.
lowest
Comparative advantages are found by determining which activities have the ___________ opportunity costs.
If supply exceeds demand, a surplus will result. The surplus will subsequently cause the market to
Compete for the limited quantity demanded by cutting pricing and reducing output.
According to Adam Smith, the essential requirement needed to make Smith's Formula work
Competition
Economists usually argue that market transactions (trades) make society better off because...
Conflicting self-interests provides checks and balances to one another.
Churn
Constant laying off and repositioning.
The largest component in the Expenditure Approach to measuring GDP is ____
Consumption expenditure
In capitalism, distribution tends to be based on...
Contribution.
opportunity
Cost is a forgone _________.
What is our benchmark for average U.S. real GDP growth per year?
Current US Real GDP Growth Rate is 1.80%.
Prices before World War II
Deflation
Shortage
Demand exceeds supply.
Prices after World War II
Disinflation
Communist Principle of Distribution
Distribution should be based on need.
What types of activities are included in the underground economy?
Economic activity that may be illegal such as prostitution, criminal acts, drugs, illegal gambling. Also includes workers getting paid cash that does not get reported.
Many European countries have enacted laws restricting the ability of firms to reduce their labor force through cut-backs and lay-offs. These policies have been well-intended, but they have had an unanticipated consequence; these restrictions tend to reduce...
Employment.
In village economies, economic decisions such as what to produce, how to produce it, and how to distribute it were usually made by...
Following tradition.
How much inflation have we had in the U.S. economy since 1967?
Formula#2 Use to figure out inflation/deflation ((Index in Y- Index in X)/Index in X) * 100% = % change in prices from X through Y ((237.1-33.4)/33.4)*100%=609.88%
How did US prices change from 1930 through 1933?
Formula#2 Use to figure out inflation/deflation and how much prices have changed ((Index in 1933 - Index in 1930)/Index in 1930) * 100%= ((13.0-16.7)/16.7)x100%= -22.15```% Prices fell about 22.2%
In 1970, the Puma Shoe Company paid soccer superstar Pele $120,000 to suddenly kneel just before the referee blew his whistle to start to a World Cup match. The television cameras dutifully zeroed in on Pele tying his shoes, showcasing the distinctive Puma logo for all to see. What was the real value of the payment in 2013 dollars?
Formula#3 (Nominal price in X)/Index in X) * Index in Y= $ in year Y ($120000/38.8)*237.1 = $733,298.97
In 1954, Westinghouse was selling its 12.5 inch TV for $1,295. What is the price equivalent to in today's money?
Formula#3 To convert any nominal price into a real value expressed in the dollars from a different time period. (Nominal price in X)/Index in X) Index in Y= $ in year Y($1,295/26.9)237.1= $11,414.3
Laissez-Faire
French term adopted by Smith to describe an economic policy of limited government interference in markets.
Fracking is an oil and gas drilling technique that dramatically increases oil and gas output , but it may also generated water pollution. How is this pollution handled in the US measure of real GDP?
GDP is not a measure of nation's overall welfare. There is not a set criteria for net welfare.
First country to break the 90-10 rule
Great Britain
How does the Obama Recession compare to the Great Depression and to the Reagan Recession of the early 1980s?
Great Depression: -High contraction -High unemployment rate- 24.9% worse year -Deflation -Duration: 1 decade -GDP was created in 1929 Typical Recession: -Real GDP diminishes- 3-5% -Unemployment rises to about 10% -Disinflation -Duration: About 16 months
Economies that devote more scarce resources to the production of capital goods (rather than consumer goods), tend to...
Grow and develop faster.
Adam Smith
He elevated positive economic analysis over normative economic analysis.
In Europe, Denmark has taken the lead in reforming its labor market laws. Specifically, the Danes have made it much easier for firms to lay-off or fire workers. This has caused...
Higher job growth.
If people do tend to respond to incentives, what may be the unintended (or unwanted) consequence of extending unemployment benefits?
Higher unemployment
What type of activities are included in household production?
Housecleaning, child care, and other tasks performed by people in their own households and for which they receive no payments through the marketplace.
How does the Federal Reserve feel about "deflation?"
If the US experienced deflation, the price of goods and services would show an overall decline in prices. This in itself is not a danger from the economists perspective. Many prices drop due to seasonal sales, cheaper input (raw commodity) costs, technological advances, demographic shifts or changes in currency rates.
How does a V-recession differ from a U-recession?
In a U-shaped recession, an economy first goes through a sharp recession. After that, instead of seeing a quick recovery (as is the case in a "V-shaped" recession), the economy stagnates and continues to decline for a period of time before finally recovering. A "U-shaped" recession usually lasts 12-24 months. A V-recession is comprised by a fast decline followed by a fast recovery.
Equilibrium
In a competitive market, it's neither good, bad, fair, or unfair; it's a positive statement about where a market will go and stay.
What does the 90-10 rule refer to?
In village economies, it took 90 percent of the workforce working in agriculture to feed themselves as well as the remaining 10 percent.
Incentives Problem
Incentives Problem Taxes or distribution based on something other than contribution reduces the incentives to work and invest in the economy.
Discouraged Worker
Includes a person who has given up looking for a job because he or she thinks it is just a waste of time.
Frictional Unemployment
Includes a person who is fired from his or her job.
Structural Unemployment
Includes a person who lacks basic job skills and job experience.
Cyclical Unemployment
Includes a person who loses a job due to lay-offs during a recession.
Frictional Unemployment
Includes a person who quits in order to find a better job.
Seasonal Unemployment
Includes a person who works during the holidays or during the busiest times of the year. Includes a person who is laid-off from a fish cannery that shuts down during the off-season.
comparative
Individuals and nations specialize in their areas of _________ advantage in order to reap the gains of specialization.
How does inflation affect the ability of businesses to engage in contracting?
Individuals may be reluctant to enter into contracts when inflation cannot be predicted making relative prices uncertain. This reluctance to enter into contracts over time will inhibit investment which will affect economic growth. In this case inflation will inhibit investment and could result in financial recession(Hellerstein, 1997). In an inflationary environment intermediaries will be less eager to provide long-term financing for capital formation and growth. Both lenders and borrowers will also be less willing to enter long-term contracts. High inflation is often associated with financial repression as governments take actions to protect certain sectors of the economy. For example, interest rate ceilings are common in high inflation environments. Such controls lead to inefficient allocations of capital that inhibit economic growth
How is the underground economy treated or handled in the measurement of GDP?
Individuals will not report these activities so they will not be counted in the GDP.
Part of the Production Possibilities Curve, which illustrates scarcity, where inefficient production and/or unemployed resources are
Inside the PPC
What happens to the economy's circular flow if there is a break in one part of the flow?
It affects all areas throughout.
Nixon's 1970 Wage and Price Control Policy
It fell apart because a price control policy can't distinguish between relative price increases and inflation.
What was the unemployment rate in the worst month of the Great Depression?
It was 33 percent in March 1933.
Which historical event was most responsible for the creation of macroeconomics?
It was the Great Depression.
"A good economy is an economy that produces more goods and services that people need and want."
It's a normative statement because it involves an ethical criteria.
"An increase in the minimum wage is good for workers."
It's a normative statement because it involves an ethical criteria.
Consider the statement: The Minimum wage causes unemployment to increase. Is this a positive or normative statement? Why?
It's a positive statement because it's a purely descriptive statement.
Ceteris Paribus
It's an analytical assumption that means that when you consider a relationship, you assume that all other factors and variables are constant and don't change.
While the Reagan Tax Cut of 1981 was about the same size as the Kennedy-Johnson Tax Cut, it had a very different rationale. What was the goal or rationale of the Reagan Tax Cut?
It's goal was to reduce taxes in order to restore production incentives rather than to stimulate demand and spending.
Which of the following is true about your opportunity cost in attending this class?
It's measured by the lost value of what the student would've been doing if he or she didn't come to class.
How is household production treated or handled in the measurement of GDP?
It's not a market transaction therefore it's excluded from GDP calculations with the exception of the materials purchased for household production purposes.
What did J.M. Keynes think the Great Depression was?
Keynes thought the Great Depression was a permanent depression, and his goal was to get rid of laissez-faire.
The largest component in the Income Approach to measuring GDP is ____
Labor income
Drunk drivers cause a large share of emergency room admissions and cause great suffering and huge medical expenses. How do the medical costs associated with drunk driving affect U.S. real GDP?
Medical costs increase GDP.
Which of the following is most true of economics before Adam Smith?
Mercantilism was the world's first systematic economic policy. It was practiced by businesspeople and governments. There was no interest in economics prior to the Great Depression although it existed. Macroeconomics came after the Great Depression in the '30s, but mercantilism was practiced from 1500 to 1850 as the world's first systematic economic policy. Smith created economics and disliked mercantilism.
Law of Increasing Additional Cost
More of a certain good produced means giving up more of the other goods.
Law of Increasing Additional Cost,
More of a certain good produced means giving up more of the other goods.
Law of Supply
More product is brought to market at a higher price than at a lower price
From a Production Possibilities Curve or economic development perspective, the "cost" of more capital goods production for a fully employed economy will be...
More unemployment.
As a consequence of European efforts to minimize churn, most European economies have had "full-employment levels of unemployment" that are...
Much higher than the U.S. full-employment level of unemployment.
According to the Communist Principle of Distribution, distribution should be based on
Need
In socialism, distribution tends to be based on...
Need.
What are Net Exports
Net exports refer to the value of a country's total exports minus the value of its total imports. It is used to calculate a country's aggregate expenditures, or GDP, in an open economy
Which part of the monthly employment report do business leaders, economist, and government officials watch closely?
New jobs created
If people are motivated by self-interest, does this preclude (or prevent) them from doing charitable acts?
No! It doesn't preclude charity because self-interest can (and often does) put a value on the well-being of others.
Does unemployment rate quickly decline in most U.S. recoveries
No, job recovery is the last thing that turns around
If lenders make loans at 7% rate of interest and the economy experiences inflation of 3%, what is the real interest rate?
Nominal rate - Anticipated rate of inflation = Real interest rate 7%-3%= 4%
Compared to developed countries, the size of underdeveloped economies is often under-reported because the measurement of GDP does not include...
Nonmarket production such as household services of homemakers.
Throughout history, traditional economies have tended to...
Not grow or develop.
Not in the work force
Not in the work force Includes a person who quits work in order to stay home in order to care for a family and household.
Soviet Union
Only country to escape the Great Depression
Suppose that we an economy increases its production of consumer goods and gives up capital goods in the process. As it produces more and more consumer goods, what happens to our opportunity cost?
Our opportunity cost increases
Part of the Production Possibilities Curve, which illustrates scarcity, that contains unattainable production levels
Outside to the northeast of the PPC frontier
Growth in the Soviet Union was...
Peaked at 15 percent from the '30s to the '80s before shrinking down to 0 percent at the time of the Reagan Administration although the Soviets claimed it was growing at 18 percent annually during the Cold War.
Socialist planning is basically predicated (or based) on the argument that...
People don't actually know what's good for themselves.
Law of Demand
People will buy more of a good or service at a lower price and buy less at at higher price.
Rationality Assumption
People won't knowingly do something that will hurt themselves.
outside; inside
Points ________ the PPC are unattainable. Points _______ are attainable but represent an inefficient use or underuse of available resources
The relative size of underdeveloped economies- compared to the U.S.- often depends on how their GDP is converted into dollars. These economies will usually have larger GDPs if we use ____________ rates to convert them to dollars.
Purchasing power parity exchange
Suppose someone asks you what the difference is between real GDP and nominal GDP. Give them a to-the-point answer as to the how the two differ.
Real GDP is equal to the economic output adjusted for the effects of inflation. Nominal GDP is economic output without the inflation adjustment. Nominal GDP is usually higher than real GDP because inflation is typically a positive number. Nominal GDP is used when comparing different quarters of output within the same year
If people do respond to incentives, what may be the unintended (or unwanted) consequence of extending unemployment benefits?
Reduces the incentive to find new jobs. People will spend more time searching for jobs that they hope may be "better" instead of seeking out work that may be readily obtainable. Drives up structural unemployment and increases the measured unemployment rate.
next-highest
Scarcity requires us to choose. Whenever we choose, we lose the _________-________-valued alternative
Adam Smith argued that people were motivated to engage in economic activity by...
Self-interest.
Compared to PPP (Purchasing Power Parity) rates, exchange rates are____
Simpler, less expensive.
What did Stanley Jevons think caused the business cycle?
Sun spot activity
The best measure of economic development is ____
The best measure of economic development is ____ Real GDP per capita
need
The concept of _______ is difficult to define objectively for every person. Consequently, we simply consider every person's wants to be unlimited.
Peak
The critical turning point that initiates a recession.
Which part of the economy was responsible for the revival of Western European economies after 950 A.D., and again during the revival after 1500 A.D.?
The market side of the economy caused the revival.
Which statistic-the unemployment rate or the number of jobs created- do most business leaders, government officials and academics primarily watch?
The number of new jobs created.
Cyclical Unemployment
The only type of unemployment that might be significantly reduced by a government policy of stimulating the economy.
What happens to the value (or purchasing power) of money during periods of inflation?
The real value of money will diminish
What happens to the value (or purchasing power) of money during periods of deflation?
The real value of money will increase
What was the goal of the Kennedy-Johnson Tax Cut of 1964?
The tax cut was a Keynesian policy designed to stimulate demand to address a recession.
What was the goal of the Reagan Tax Cut of 1982?
The tax cut was an attempt to address the incentives problem and thereby increases economic activity.
What is the most-watched macroeconomic statistic among the general public?
The unemployment rate
Seasonal unemployment is measured in the unemployment rate. What would it take in order to get rid of all seasonal unemployment?
The unemployment rate the Bureau of Labor Statistics releases each month is "seasonally adjusted" to remove the effects of variations in seasonal unemployment.
To gauge the health and strength of the macroeconomy, the general public watch...
The unemployment rate.
Satiation occurs when people have everything that they need or want. Many economists have been fascinated with satiation. Which of the following is correct regarding satiation?
There has been no indication that we have ever reached satiation or are about to reach it.
Soviet planners rejected the criteria that voluntary exchange because.
They argued that it didn't measure up to their object standards of value.
Why did Western economists argue that the Pet Rock had to be a socially beneficial product?
They argued that no one was ever forced to buy or sell a Pet Rock, so it must have made them better off.
The employment report for Jan 2014 reported that the U.S. economy created 113, 000 new jobs. Given the level of churn in the U.S. labor markets, the 113,000 new jobs resulted from....
Total of jobs created minus total jobs lost.
production possibilities
Trade-offs are represented graphically by a _________ _______ curve showing the max quantity of one good or service that can be produced, given a specific quantity of another, from a given set of resources over a specific period of time.
China's real GDP has been growing at the rate of about 9 percent per year over the last few decades. Suppose that you're asked whether this is fast or slow? Based on the US benchmark, put China's experience in context.
U.S. average real GDP growth rate per year since 1800 is about 3%. China's economy has increasingly embraced markets and if able to sustain this rate of growth will make the transition to a developed economy.
Measurement of a Business Cycle
Usually from peak to peak.
Voluntary Exchange
What's needed and valued is up to each individual. People know what's good for themselves.
Trough
Where the recession ends.
Which of the following is the most true of economics before Adam Smith?
Which of the following is the most true of economics before Adam Smith? There was no division of economics into micro and micro economics.
higher
With a given set of resources, specialization results in __________ output. In other words, there are gains to specialization in terms of greater material and well-being.
wants
________ are unlimited. They include all material desires and all non-material desires, such as love, affection, power, and prestige.
capital
________ goods are goods that will later be used to produce consumer goods.
scarcity
_________ is the situation in which human wants always exceed what can be produced with the limited resources and time that nature makes available
demand curve
a graphical representation of the demand schedule. It is negatively sloped line showing the inverse relationship between the price and quantity demanded (other than being equal)
subsidy
a negative tax, a payment to a producer from the government, usually in the form of a cash grant per unit
supply
a schedule showing the relationship between price and quantity supplied for a specified period of time, other things being equal
shortage
a situation in which quantity demanded is greater than quantity supplied at a price below the market clearing price
surplus
a situation in which quantity supplied is greater than quantity demanded at a price above market clearing price
scarcity
a situation in which the ingredients for producing the things that people desire are insufficient to satisfy all wants at a zero price
economic system
a society institutional mechanism for determining the way which scarce resources are used to satisfy human desires
comparative advantage
ability to produce a good or service at a lower opportunity cost compared to other producers
absolute advantage
ability to produce more units of a good or service using a given quantity of labor or resource inputs. Equivalently, ability to produce the same quantity of a good or service using fewer units of labor or resource inputs.
human capital
accumulated training and education of workers
physical capital
all manufactured resources, including buildings, equipment, machines, and improvements to land that are used for production
goods
all things form which individuals derive satisfaction or happiness
behavioral economics
an approach to the study of consumer behavior that emphaize psychological limitations and complications that potentially interfere with rational decision making
normative economics
analysis involving value judgements about economic policies; relates to whether outcomes are good or bad. A statement of what ought to be.
positive economics
analysis that is strictly limited to making either purely descriptive statements or scientific predictions: for example, "If A, then B" A statement of what is.
Inflation is less disruptive to the economy when it is _____
anticipated
production
any activity that results in the conversion of resources into products that can be used in consumption
inefficient point
any point below PPC, at which the use of resources is not generating max possible output
_________ economics emphasizes psychological constraints and complexities that potentially interfere with rational decision making. This approach utilizes _____ _______ hypothesis that people are not quite rational, because they cannot study every possible alternative but instead use simple rules of thumb to decide among choices.
behavioral bounded rationality
efficiency
case in which a given level of inputs is used to produce max output possible. alternatively, the situation in which given output is produced at min cost
The three basic economic questions ask what and how much will be produced, how will items be produced, and for whom will items be produced. The two opposing answers are provided by the type of economic system with ____ ______ ____ _____ or the _______.
centralized command and control price system
A change demand comes about only because of a change in the ____ ______ conditions of demand. This change in demand is a shift to the demand curve to the left or to the right
ceteris paribus
Most models use the ______ ________ assumption that all other things are held constant or equal.
ceteris paribus
entrepreneurship
component of human resources that performs the functions of raising capital; organizing, managing, and assembling other factors of production; making basic business policy decisions; and taking risks
we measure demand schedule in terms of a time dimensions and in ______ quality units constant
constant
production possibilities curve
curve representing all possible combinations of max outputs that could be produced, assuming a fixed amount of productive resources of a given quality
The law of ___________ applies when other things, such as income and the price of all other goods and services, are held constant.
demand
ceteris paribus conditions
determinants of the relationship between price and quantity that are unchanged along a curve. Changes in these factors causes the curve to shift.
There is normally a _______ relationship between price and quantity of a good supplied, other things being held constant
direct
Consumption and net exports are part of the
expenditure approach to measuring GDP
inferior good
goods for which demand falls as income rises
normal goods
goods for which demand rises as income rises. Most goods are normal goods
economic goods
goods that are scarce, for which the quantity demanded exceeds the quantity supplied at zero price
Whenever the price is _______ than the equilibrium price, there is an excess quantity supplied (a surplus)
greater
In a Production Possibilities Curve depicting the trade-off between capital goods vs. consumer goods, an economy choosing more capital goods and less consumptions goods will, ceteris paribus ____________
have more growth.
demand curves are drawn with determinants other than the price of the good held constant. These other determinants, called ceteris paribus conditions are 1) ____ 2)______ 3)_____ 4)______ and 5)________
income taste and prefreces prices of related goods expectations about future priees and incomes market size (number of potential buyers in the market)
In a competitive market, whenever demand exceeds supply, the market price will
increase
The supply curve is drawn with other things held constant. If these ceteris paribus conditions of supply change, the supply curve will shift. The major ceteris paribus conditions are 1)________ 2)_________3)____________ 4)__________ and 5)_______________
input prices technology and productivity taxes and subsidies expectations of future prices the number of firms in the industry
The market clearing price occurs at the ________ of the market demand curve and the market supply curve. It is also called the _______ price, the price from which there is no tendency to change in demand or supply
intersection equilibrium
The law of demand posits an ______ relationship between the quantity demanded of a good and its price of other things being equal
inverse
deflation
is a decrease in the general price level of goods and services.Deflation occurs when the inflation rate falls below 0% (a negative inflation rate).
Disinflation
is a decrease in the rate of inflation - a slowdown in the rate of increase of the general price level of goods and services in a nation's gross domestic product over time. It is the opposite of reflation.
inflation
is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services.
We use scarce resources, such as ____________, _______________, ___________ and ____________ capital, and _________________, to produce economic goods.
land; labor; physical; human; entrepreneurship
Whenever the price is _______ than the equilibrium price, there is an excess quantity demanded (a shortage)
less
The ________ __________ curve is derived by summing the quantity demanded by individuals at each price. Graphically, we add the individual demand curves horizontally to derive the total, or market, demand curve
market demand
services
mental or physical labor or assistance purchased by consumers. Examples are the assistance of physicians, lawyers, dentists, repair personnel, housecleaners, educators, retailers, and wholesalers; items purchased or used by consumers that do not have physical characteristics
_____, the study of the decision-making process of individuals (or households) and firms, and ______, the study of the performance of the economy as a whole are the two main branches into which the study of economics are divided.
microeconomics macroeconomics
a _______, or _________, uses assumptions and is by nature a simplification of the real world. The usefulness of a _______ can be evaluated by bringing emperical evidence to bear on its predictions
model theory model
If the price changes, we ____ _______ a curve- there is a change in quantity demanded or supplied. IF some other determinant changes we _______ a curve - there is a change in demand and supply
move along shift
A change in the quantity demanded comes about when there is a change in the price of the good (other things held constant) Such a change in quantity demanded involes a __ ______ a given demand curve
movement along
specialization
organization of economic activity so that what each person (or region) consumes is not identical to what that person (or region) produces.
________ economics is value free and relates to statements that can be refutes, such as "if A, then B" _______ economics involves peoples values and typically uses the word should
positive normative
labor
productive contributions of humans who work
In economics we assume that people do not intentionally make decisions that will leave them worse off. This is known as the ______ assumption.
rationality
relative price
relative price the money price of one commodity divided by the money price of another commodity; the number of units of one commodity that must be sacrificed to purchase one unit of another commodity
empirical
relying on real world data in evaluating the usefulness of model
resources
resources things used to make a goods or services to satisfy peoples wants
incentives
rewards or penitiles for engaging in a particular activity
division of labor
segregation of resources into different specific tasks. For instance, one automobile worker puts on bumpers, another doors, and so on.
models v. theories
simplified representations of the real world used as the basis for predictions or explantions
the _____ curve normally shows a direct relationship between price and quantity supplied. The _______ _____ curve is obtained by horizontally adding individual supply curves in the market.
supply market supply
rationally assumption
the assumption that people do not intentionally make decisions that would leave them worse off
ceteris paribus
the assumptions that nothing changes except the factors or factors being studied
market demand
the demand of all consumers in the marketplace for a particular good or service. The summation at each price of the quantity demanded by each individual.
law of increasing additional cost
the fact that the opportunity cost of additional unit of a good generally increases as people attempt to produce more of that good. This accounts for the bowed-out shape of the PPC.
supply curve
the graphical representation of the supply schedule; a line (curve) showing the supply schedule which generally slopes upward (has a positive slope) other things being equal
opportunity cost
the highest-valued, next best alternative that must be sacrificed to obtain something or to satisfy a want
bounded rationally
the hypothesis that people are nearly, but not fully, rational, so that they cannot examine every possible choice available to them but instead use simple rules of thumb to sort among the alternatives that happen to occur to them
land
the natural resources that are available from nature. includes location, original fertility and mineral deposits, topography, climate, water and vegetation
law of supply
the observation that the higher price of a good, the more of that good sellers will make available over a specified time period, other things being equal
law of demand
the observation that there is a negative, or inverse, relationship between the price of any good or service and the quantity demanded, holding other factors constant
money price
the price expressed in today's dollars; also called the absolute or nominal price
market clearing or equilibrium price
the price that clears the market, at which quantity demanded equals quantity supplied, the price where the demand curve intersects the supply curve
equilibrium
the situation when quantity supplied equals quantity demanded at a particular price
microeconomics
the study of decision making undertaken by individuals (or households) and by firms
economics
the study of how people allocate their limited resources to satisfy their unlimited wants
macroeconomics
the study of the behavior of the economy as a whole, including such economy wide phenomena as changes in unemployment, the general price level, and national income
aggregates
total amounts or quantities. aggregate demand, for example, is is total planned expenditures throughout a nation
technology
total pool of applied knowledge concerning how goods and services can be produced
complements
two goods are complements when a change in the price of one causes an opposite shift in the demand for the other
subsitutes
two goods are substitutes when a change in the price of one causes a shift in demand for the other in same direction as the price change
consumption
use of goods and services for personal satisfaction
Economics is a social science that involves the study of how individuals choose among alternatives to satisfy their ______, which are what people would buy if their incomes were ________.
wants unlimited
Prior to the industrial revolution and the spread of capitalism, most people____
were directly employed in agriculture.
wants
what people would buy if their incomes were unlimited
