economics test 3 Final Set

nominal value

not adjusted for inflation

A monopolistic competitive firm is able to charge P> MC because:

of product differentiation, some people will prefer its product.

monopsony

only buyer in the market

start and end of recession called

peak and trough

imperfect competition = firm has market

power

Types of Discrimination

prejudice, implicit bias, statistical discrimination

markup equation

price - marginal cost

where MR = MC

profits are maximized

inflation hurts

savers

Structural unemployment is unemployment:

that occurs because wages don't fall to bring labor demand and labor supply into equilibrium.

macro data gathered since when

the Great Depression

consumers substitute away from avocadoes and buy hummus instead. If the CPI basket does not change to reflect the move away from avocados, the result is

the failure to capture real variables versus nominal variables

federal funds rate

the interest rate at which banks make overnight loans to one another

natural rate of unemployment

the lowest rate of unemployment whereby inflation is stable

reservation wage

the lowest wage a worker would accept for a given job

monetary policy

the setting of the money supply by policymakers in the central bank

GDP

the value of all goods and services produced within a country in a single year

The Rational Rule for Employers implies that they keep hiring until

the wage equals the marginal revenue product of the last worker hired

recession

two or more consecutive quarters of decline in the GDP

three key indicators in macro

unemployment rate, inflation rate, GDP

If the frictional rate of unemployment is 1.45%, the structural rate of unemployment is 2.3%, and the total unemployment rate is 6%, then we can conclude that the

economy is experiencing an economic downturn

Labor Force includes

employed people or actively looking for work

trade balance

exports - imports

trade surplus

exports -imports E>I

Oligopoly

a market structure in which only a few sellers offer similar or identical products

In a graph showing a straight-line market demand curve, the marginal revenue curve is:

a straight line that begins at the same point as the demand curve on the y-axis but with twice the slope.

goals of macro economics

economic growth, low unemployment, low inflation

as GDP increases, unemployment

decreases

market power comes form three things

differentiation, barriers to entry, different degrees of market power

we want what percent of inflation

2%

In the long run equilibrium, monopolistically competitive firms have

NOOOO economic profit.

In the long run, monopolistic competitive firms will

NOT NOT NOT end up producing at a price equal to that of competitive markets

Employers should hire more workers when the marginal revenue product is greater than (or equal to) the wage. This rule is known as the

Rational Rule for Employers.

Which of the following is NOT a principle used in determining how many workers a company should hire?

The absolute advantage principle

Why should you avoid holding cash during periods of high inflation

The cash loses value as prices keep rising.

Economist Michael Kremer

The government should buy out the rights of the patent from the monopoly and destroy the patent.

in a monopolistically competitive market. In the long run you would expect:

more firms to enter the market.

key econ growth factors

adherence to rule of law (legal system), Protection of contractual rights (property rights), production function (firm turns inputs into outputs),

value of the marginal product

as vmp increases, demand increases

Law of Demand

DECREASED wages = INCREASED quantity of labor demanded

Cyclical unemployment is unemployment

due to a temporary downturn in the economy.

The consumer price index is an index that tracks the

average price that consumers pay over time for a representative basket of goods and services

GDP per capita

GDP divided by population

use GDP per Capita to compare

GDP of different nations in one year

fiscal policy

Government policy that attempts to manage the economy by controlling taxing and spending.

Law of Supply

INCREASED wages = DECREASED quantity of labor supplied

first rule of labor markets

If a firm wants to maximize profits, it will never pay more (in terms of wages and benefits) for a worker than the value of his or her marginal productivity to the firm.

federal reserve chairman

Jerome Powell

In order to be considered unemployed, the person must be:

(i) over the age of 16.(ii) actively searching for work.(iii) available to work.

profit = (equation)

(price - average cost) x Quantity

inflation helps

borrowers

Demand for labor

Marginal product of labor x value of that output

Monopoly power (a.k.a. Market power) is best described as the ability to:

charge a price higher than marginal cost.

Frictional unemployment is unemployment:

due to the time it takes for employers to search for workers and for workers to search for jobs.

Five main parts of production

durable goods, nondurable, services, structures, inventory changes

Four parts of GDP

consumer spending, business spending, government spending, net exports

economic growth

growth of production and real GDP

income effect

higher income makes people work LESS hours

substitution effect

higher wages = people work longer hours

incentivized worker characteristics

human capital (accumulated knowledge and skills), signaling, efficiency wages

trade defecit

imports -exports I>E

Most economist agree that individual labor supply between $40 and $80 and hour is

inelastic.

inelastic markup

is high

elastic mark up

is small

reasons wages vary

labor demand, labor supply, institutional factors, discrimination

the opportunity cost of working is

leisure time

Monolistic Competition

many producers, few barriers to entry, some control over prices, ex: restaurants DOWNWARD SLOPING DEMAND CURVE

Marginal revenue product is the

marginal revenue from hiring an additional worker.

GDP Deflator (price index)

measuring the average prices of all goods/services