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
