Economics Quiz

Economics 101 with Spencer at John Carroll University

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By: Megan Blakney
Created: 2011-02-01
Size: 77 flashcards
Views: 70

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Economics

The study of how best to allocate scarce resources among competing uses.

Opportunity Cost

The most desired goods and services that are foregone in order to obtain something else.

-The highest valued alternative that is sacrificed for the chosen alternative.

Factors of Production

Resource inputs used to produce goods and services.

The Four Resources for Factors of Production

-Capital

-Entrepreneurship

-Land

-Labor

Scarcity

Lack of available resources to satisfy all desired uses of those resources.

-Central problem of economics.

Production Possibilities Curve

Depicts the alternative combinations of goods and services that can be produced given the quality and quantity of the factors of production.

Investment

Expenditures on (production of) new plant and equipment (capital) in a given time period, plus changes in inventories.

Economic Growth

An increase in output (real GDP).

-An expansion of production possibilities outward.

Incentives

Distribution based on need rather than work effort may result in less work effort.

-There is less output to distribute.

-The size of the pie may get smaller.

The Market Mechanism

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

-Market sales and prices send a signal to producers about what mix of output consumers want.

Laissez Faire

The doctrine of "leave it alone," or nonintervention by government in the market mechanism.

Central Planning

The government decides what goods are produced, at what prices they are sold, and who gets them.

-This mechanism of choice is associated with Karl Marx.

Market Failure

An imperfection in the market mechanism that prevents optimal outcomes.

Externalities

Costs (or benefits) of a market activity borne by a third party.

-The difference between the social and private costs (or benefits) of a market activity.

Macroeconomics

The study of aggregate economic behavior, of the economy as a whole.

Microeconomics

The study of individual behavior in the economy, of the components or pieces of the larger economy.

Ceteris Paribus

The assumption that nothing else is changing.

-It is an important part of "thinking like an economist".

Gross Domestic Product (GDP)

The total value of final goods and services produced in a country during a given period of time.

-It is a summary of a nation's output measured by the Bureau of Economic Analysis- part of the commerce department.

Nominal GDP

The value of GDP measured in current dollars.

-Because of inflation, it is useless to compare this from one year to another.

Real GDP

The inflation-adjusted value of GDP or the value of output measured in constant prices.

-These inflation adjustments delete the effects of rising prices by valuing output in constant prices.

Per Capita GDP

Total GDP divided by total population: average GDP.

-It is an indicator of how much output each person would get if all output were divided evenly among the population.

-In 2009 it was approximately $49,000- more than five times the world average.

Economic Growth

An increase in output (real GDP), or an expansion of production possibilities.

-Household Consumption

-Business Investment

-Government Services

-Exports

The major uses of total output

-Durable goods

-Nondurable goods

-Services

Three types of consumer goods

Durable Goods

Expected to last three years.

-They tend to be big-ticket items like cars, appliances and furniture

-Purchases are often cyclical, that is, very sensitive to economic trends.

Nondurable Goods

Items that are bought frequently.

-They include clothes, food and gasoline.

Services

The largest and fastest-growing component in consumption.

-Over half of all consumer output consists of medical care, entertainment, utilities and other services.

Investment

Expenditures on (production of) new plant and equipment (capital) in a given time period, plus changes in business inventories.

Investment Goods

The plant, machinery, and equipment that are produced for use in the business sector.

Income Transfers

Payments to individuals for which no current goods or services are exchanged.

-Examples: Social Security, welfare and unemployment benefits

Exports

Goods and services sold to foreign buyers.

Imports

Goods and services purchased from foreign sources.

Capital Intensive

Production processes that use a high ratio of capital to labor inputs.

Productivity

Output per unit of input, e.g., output per labor hour.

Human Capital

The knowledge and skills possessed by the work force.

Factor Mobility

Our continuing ability to produce the goods and services that consumers demand also depends on our agility in reallocating resources from one industry to another.

Corporations, Partnerships and Proprietorships

Three different legal organizations:

Corporations

Owned by many individuals who owns shares of (stock in) the corporation and have limited liability.

Partnerships

Owned by a small number of individuals who share liability.

Proprietorships

Owned by one individual with sole liability.

-The quantity and quality of resources owned

-The price that those resources command in the market

In a market economy, an individuals income depends on:

-Capitalists would continue to accumulate wealth, power and income

-All capitalists are rich, all workers are poor.

Karl Marx believed that:

-Labors share of output has risen greatly over time -Differences w/in the labor and capitalist classes have become more impt than diffs bw the classes

Marx's predictions of how output would be distributed turned out to be wrong in two ways:

Personal Distribution of Income

The way total personal income is divided up among households or income classes.

Progressive Tax

A tax system in which tax rates rise as incomes rise.

-An example is federal income tax.

-Makes after-tax incomes more equal than before-tax incomes.

Regressive Tax

A tax system in which tax rates fall as incomes rise.

-Examples include Social Security payroll taxes and state and local sales taxes.

-Tends to make the after-tax distribution of income less equal

-Consumers

-Business Firms

-Governments

-Foreigners

Four groups of market participants:

Market

Any place where goods are bought and sold and includes the interaction of all buyers and sellers.

Factor Market

Any place where factors of production (land, labor, capital and entrepreneurship) are bought and sold.

Product Market

Any place where finished goods and services (products) are bought and sold.

Barter

The direct exchange of one good for another, without the use of money.

-Requires a seller who wants whatever good is up for exchange.

-Supply

-Demand

Market transfers require two sides:

Supply

The ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus (other things being equal).

Demand

The ability and willingness to buy specific quantities of a good at alternative prices in a given time period, ceteris paribus (other things being equal).

Demand Schedule

A table showing the quantities of a good consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus.

-Demand is an expression of buyer intentions- of a willingness to buy- not a statement of actual purchases.

Demand Curve

A curve describing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus.

-Does not state actual purchases, rather only what consumers are willing and able to purchase.

Law of Demand

The quantity of a good demanded in a given time period increases as its price falls, ceteris paribus.

-There is an inverse or negative relationship between price and quantity demanded, ceteris paribus.

Determinants of Demand

-Tastes (desire for this and other goods)

-Income (of the consumer)

-Other goods (their availability and price)

-Expectations (for income, prices, tastes)

-Number of buyers

Movements Along a Demand Curve

A response to price changes for that good.

Shifts of the Demand Curve

Only occur when the determinants of demand change.

Market Demand

The total quantities of a good or service ppl are willing and able to buy at alternative prices in a given time pd

-The sum of individual demands

-Determined by the # of potential buyers and their respective tastes, incomes, other goods and expectations

The Market Demand Curve

A picture of the total quantities demanded by all consumers within a market at different prices.

Determinants of Supply

-Technology

-Factor (or resource) costs

-Other goods

-Taxes and subsidies

-Expectations

-Number of sellers

Law of Supply

The quantity of a good supplied in a given time period increases as its price increases, ceteris paribus.

-There is a direct or positive relationship between price and quantity supplied, ceteris paribus.

Equilibrium

Only one price and quantity are compatible with the existing intentions of both buyers and sellers.

-The price at which the quantity of a good demanded in a given time period equals the quantity supplied.

Equilibrium Price

Occurs at the intersection of the supply and demand curves.

-There is only one.

-The market will naturally move toward this price.

Market Clearing

Collective actions of sellers and buyers create an equilibrium price.

-The equilibrium price and quantity reflect a compromise between buyers and sellers.

-No other compromise yields a quantity demanded that is exactly equal to the quantity supplied.

Invisible Hand

Equilibrium price is determined by the collective behavior of many buyers and sellers.

-Adam Smith coined the term.

Surplus or Shortage

Emerge whenever the market price is set above or below equilibrium.

Market Shortage

The amount by which the quantity demanded exceeds the quantity supplied at a given price.

-Occurs when the selling price is lower than the equilibrium price.

-Sellers supply less than buyers demand at the current price.

Market Surplus

The amount by which the quantity supplied exceeds the quantity demanded at a certain price.

-Occurs when the selling price is higher than the equilibrium price.

-Sellers supply more than buyers demand at the current price.

Price Ceiling

Upper limit (maximum price) imposed on the price of a good or service.

Price Floor

Lower limit (minimum price) imposed on the price of a good or service.

The three predictable effects of price ceilings:

-They increase quantity demanded

-They decrease quantity supplied

-They create a market shortage

The three predictable effects of price floors:

-They increase quantity supplied

-They decrease quantity demanded

-They create a market surplus

Government Failure

A government intervention that fails to improve economic outcomes.

A government imposed price floor may create:

-A wrong mix of output

-An increased tax burden

-An altered distribution of income

About this deck

By: Megan Blakney
Created: 2011-02-01
Size: 77 flashcards
Views: 70

About StudyBlue

“Simply amazing. The flash cards are smooth, there are many different types of studying tools, and there is a great search engine. I praise you on the awesomeness.”
Dennis