Macro

economists use graphs to

present real world data and abstractions

marginal cost

the extra cost that is over and above the cost you have already accumulated; the change in total cost of producing one additional unit of income

Government intervention

The practice of government to intervene in markets, preventing the free functioning of the market, usually for the purpose of achieving particular economic or social objectives. (loans, taxes, subsidies).

implicit cost example

frequent flyer

market mechanism

the use of market prices and sales to signal desired outputs (or resource allocations)

economists explain

scarcity, production & consumption

economic models

econ framework for perceiving world based on econ principles

three basic macroeconomic goals

employment price stability (keeping inflation under control) economic growth

economic surplus

the benefit of taking an action minus its cost

The table below shows the relationship between the number of times you get your car washed each month and your total monthly benefit from car washes. Each car wash costs $15. Number of Car Washes Per Month Total Monthly Benefit from Car Washes 0 $0 1 $20 2 $36 3 $48 4 $56 5 $60 What is the marginal benefit of the 3rd car wash each month?

$12

Larry was accepted at three different graduate schools, and must choose one. Elite U costs $50,000 per year and did not offer Larry any financial aid. Larry values attending Elite U at $60,000 per year. State College costs $30,000 per year, and offered Larry an annual $10,000 scholarship. Larry values attending State College at $40,000 per year. NoName U costs $20,000 per year, and offered Larry a full $20,000 annual scholarship. Larry values attending NoName at $15,000 per year. Larry's opportunity cost of attending State College is:

$15,000

two types of economists

-theoretical & analytical

If the members of Macromania's underground economy (people being paid "under the table" or "off the books") are presently counted as part of the unemployed when in fact they are employed, the official unemployment rate will be overstated by _________.

3% If the underground workers are counted among the unemployed, the official unemployment rate is 10% (100 unemployed persons out of a work force of 100 + 750 + 150 = 1000). If they are in fact employed, there would only be 70 unemployed workers, for an unemployment rate of 7%.

If the population is 300 million, the labor force is 150 million, and there are 141 million workers employed, then the unemployment rate is:

6% The unemployment rate is defined as the percentage of the labor force that is not employed. In this instance, there are 9 million unemployed workers out of a labor force of 150 million; the unemployment rate is 9/150 = .06, or 6%.

Economic Prespective

A way of viewing the world which explains economic behavior and outcomes in terms of scarcity of resources and rational decision making based on a cost-benefit analysis

Orlando has just finished school and is waiting to report to his new job at the beginning of the month. Orlando is considered to be __________.

Frictionally unemployed The frictionally unemployed include those who are searching or waiting for jobs in the near future.

The last time gas prices increased drastically, sales of large Sport Utility Vehicles (SUVs) fell. Why?

Higher gas prices increased the COST of driving a SUV

Scarcity

Limited quantities of resources to meet unlimited wants/needs

Invisible Hand

Refers to the price mechanism. Under certain ideal conditions, rising and falling prices tend to allocate scarce resources efficiently

Carlos is an unemployed software designer. In his area, the software industry is in decline, but there are many jobs in the real-estate sector. Carlos' unemployment is best classified as __________.

Structural unemployment Structural unemployment is a mismatch of the skills of unemployed workers and the skills required for available jobs.

Suppose the total population is 200 million workers, 100 million of whom are in the labor force. 80 million people are employed full time and another 16 million are employed part time; 5 million people are discouraged workers. The unemployment rate is ____.

There are 96 million employed workers out of 100 million in the labor force, meaning 4 million are officially unemployed, for an unemployment rate of 4%.

sunk cost

a cost that has already been committed and cannot be recovered (buffet ex) or if you bought a concert ticket and can't reset it shouldn't influence whether you attend concert

Chris has a one-hour break between classes every Wednesday. Chris can either stay at the library and study or go to the gym and work out. The decision Chris must make is:

an economic problem because Chris has only one hour, and engaging in one activity means giving up the other.

Cost-Benefit Principle (aka No Free Lunch Principle)

an individual should take an action if, and only if, the extra benefits from taking the action are at least as great as the extra costs

rational behavior and marginal analysis

are part of the economic perspective

In economic terms, the most basic cost of unemployment is

foreign output This means, that when there are not enough jobs to go around, the potential that could have been produced is lost forever. Think of this as opportunity cost but in terms of the national labor market.

gov't main job in econ

keeping structural unemployment low

Four factors of production

land, labor, capital, entrepreneurship

The field of economics that would be most concerned with a recent fall in interest rates is:

macroeconomics

Which branch of economics is most likely to study differences in countries' growth rates?

macroeconomics

One thing that distinguishes normative economic principles from positive economic principles is that:

normative principles tell us how people should behave positive principles tell us how people will behave

macroeconomics

the part of economics concerned the economy as a whole, including its major aggregate parts such as households, businesses and government

marginalism

the process of analyzing extra benefits and costs and making decisions

You paid $35 for a ticket (which is non-refundable) to see SPAM, a local rock band, in concert on Saturday. Assume that $35 is the most you would have been willing to pay for a ticket. Your boss called, and she is looking for someone to cover a shift on Saturday at the same time as the concert. You would have to work 4 hours and she would pay you $11/hr. The psychic cost to you of working is $2/hr. Your economic surplus from going to work instead of seeing SPAM on Saturday is:

working is 44-8=36 economic surplus 36-35=1

slope of a horizontal line

zero (it goes straight up vertically)

You won a free ticket to see the latest Star Trek movie this Friday night (which you can costlessly resell for its face value of $15). Your favorite band is also performing on Friday and is your only alternative activity. Friday is your last chance to see either the movie or the band. Tickets to see your favorite band cost $30, and on any given day, you would be willing to pay as much as $50 for a ticket. Based on this information, what is your opportunity cost of going to see the Star Trek movie on Friday?

$35 Band ticket (App cost is benefit-cost=20+opportunity to sell Star Trek ticket if you didn't go 15= 35)

Your classmates from the University of Chicago are planning to go to Miami for spring break, and you are undecided about whether you should go with them. The round-trip airfares are $600, but you have a frequent-flyer coupon worth $500 that you could use to pay part of the airfare. All other costs for the vacation are exactly $900. The most you would be willing to pay for the trip is $1400. Your only alternative use for your frequent-flyer coupon is for your trip to Atlanta two weeks after the break to attend your sister's graduation, which your parents are forcing you to attend. The Chicago-Atlanta round-trip airfares are $450. What is the opportunity cost of using the coupon for the Miami trip?

$450 forgone opportunity of paying 450 for the eChicago-Atlanta trip

Consider the following groups of individuals for the next question: 1. Workers employed full-time, 2. Workers employed part-time, 3. Officially unemployed workers, 4. Discouraged workers.

Groups 1, 2, and 3 only The labor force consists of all employed workers and the officially unemployed. Discouraged workers—those who have become discouraged after unsuccessfully searching for a job and have quit actively looking—are not members of the labor force.

Suppose there are two parallel highways between two cities with approximately equal traffic. What would you expect to happen if the state began charging tolls to drive on one of those highways?

a. More drivers would drive on the non-toll road, making the toll road less congested.

opportunity cost

benefit forgone of the next best alternative (spending $3 bill on one part of budget rather than another)

An economic naturalist is someone who:

c. applies economic insights to understand everyday life.

economic principle

commonly agreed upon assumption in economic world (based on cause/effect results)

At the deepest point of the Great Depression, most unemployment consisted of __________.

cyclical At its height, unemployment reached approximately 25%. Several factors led to a decline in demand for goods and services, creating demand-deficient, or cyclical, unemployment.

The Scarcity Principle applies to:

everyone.

Suppose Mary is willing to pay up to $15,000 for an used Ford pick-up truck. If she buys one for $12,000, her ______ would be ______.

economic surplus; $3,000

market clearing price

equilibrium. the price that clears the market where there is no excess quantity demanded or supplied and the price at which the demand curve intersects the supply curve.

Scarcity principle

having more of any good thing necessarily requires having less of something else

Economics is best defined as the study of:

how people make choices in the face of scarcity and the implications of those choices for society as a whole.

Incentive Principle

if you want to predict people's behavior, a good place to start is by examining their incentives.

Tony notes that an electronics store is offering a flat $20 off all prices in the store. Tony reasons that if he wants to buy something with a price of $50, then it is a good offer, but if he wants to buy something with a price of $500, then it is not a good offer. This is an example of:

inconsistent reasoning; saving $20 is saving $20

An editorial in the paper argues that a person only should be allowed to attend school if the marginal cost of educating that person is less than the marginal benefit of educating that person. The writer's reasoning is an application of:

normative economics.

most important economic force

scarcity

theoretical economists

systematically arrange fact, interpret them, and generalize

consumption

the amount spent by consumers on final goods & services

marginal benefit

the extra reward or advantage above what you have already received; the change in total benefit of producing one additional unit of outcome

if two vairables are directly related

they will change in the same direction

The cost-benefit model used by economists is:

useful because most people follow it most of the time.

analytical economists

usually on news// use theories and models to understand cause and effect and make predictions

rational behavior

we make decisions based on self-interest=a cost/benefit analysis decision-making behavior is based on weighing the costs and benefits of different courses of action.