Unit One: Basic Economic Concepts

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Okun's Law

1 percent more unemployment results in 2 percent less output

changes in supply/demand

A new equilibrium point. Supply rises or lowers, demand rises or lowers. Rises goes right, lowers goes left.

production possibilities

The alternative combinations of final goods and services that could be produced in a given time period with all available resources and technology

inflationary gap

The amount by which equilibrium GDP exceeds full-employment GDP.

recessionary gap

The amount by which the aggregate expenditures schedule must shift upward to increase the real GDP to its full-employment, noninflationary level

changes in quantity supplied/demanded

The degree to which the quantity demanded in correspondence with supply changes with respect to price.

fallacy of composition

The incorrect belief that what is true for the individual, or part, must necessarily be true for the group, or whole.

consumer goods

_____ (as food or clothing) intended for direct use or consumption

ceteris paribus

a Latin phrase, translated as "other things being equal," used as a reminder that all variables other than the ones being studied are assumed to be constant

inferior goods

a good for which, other things equal, an increase in income leads to a decrease in demand

normal goods

a good for which, other things equal, an increase in income leads to an increase in demand

elasticity

a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants

recession

a period of declining real incomes and rising unemployment

model

a simplified description of a complex entity or process

market equilibrium

a situation in which quantity demanded equals quantity supplied

scarcity

a small and inadequate amount

trough

a treasury for government funds

inflation

an increase in the overall level of prices in the economy

economic growth

an increase in the total output of an _______

constant costs

as the production of a good increases, the opportunity cost of producing additional units remains unchanged. A straight-line PPC curve shows ________ _____.

capital goods

buildings, machinery, tools, and other _____ that provide productive services over a period of time.

inelastic and elastic goods

demand will change due to rise or fall in prices vs. constant demand regardless of a change in price

inputs

labor, machinery, buildings, and other resources used to produce output

capital

money or assets put to economic use

supply

offering goods and services for sale

labor

one of the factors of production; among the things that determine its supply is the number of able people in the population.

land

one of the factors of production; owners of it earn money by charging rent

business cycle

recurring fluctuations in economic activity consisting of recession and recovery and growth and decline

market demand

the ______ by all the consumers of a given good or service

demand

the ability and desire to purchase goods and services

quantity demanded

the amount of a good that buyers are willing and able to purchase

quantity supplied

the amount of a good that sellers are willing and able to sell

positive economics

the analysis of facts or data to establish scientific generalizations about ________ behavior

law of demand

the claim that, other things equal, the quantity demanded of a good falls when the price of the good rises

law of supply

the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises.

unemployment

the inability of labor-force participants to find jobs

factors of production

the ingredients of economic activity: land, labor, capital, and enterprise

normative economics

the part of economics involving value judgments about what the economy should be like; focused on which economic goals and policies should be implemented; policy economics

recovery

the phase in which unemployment begins to decrease, demand for goods and services increases, and GDP begins to rise again

entrepreneurship

the process of starting, organizing, managing, and assuming the responsibility for a business

efficiency

the property of society getting the most it can from its scarce resources

equilibrium quantity

the quantity supplied and the quantity demanded when the price has adjusted to balance supply and demand

macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

microeconomics

the study of how households and firms make decisions and how they interact in markets

economics

the study of how society manages its scarce resources

law of increasing opportunity cost

to produce more of one good, a successively larger amount of the other good must be sacrificed

complements

two goods for which an increase in the price of one leads to a decrease in the demand for the other

substitutes

two goods for which an increase in the price of one leads to an increase in the demand for the other

opportunity cost

whatever must be given up to obtain some item


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