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70 Cards in this Set
- Front
- Back
Positive Statement
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Testable.
"I will study for the midterm" |
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Normative Statement
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What ought to be.
Not testable. "I should study for the midterm" |
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Explicity costs
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dollars sacrificed
Money cost |
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Implicity costs
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value of something sacrificed
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Production Efficiency
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We cannot produce more of one ogood without producing less of some other good.
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Allocative Efficiency
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We cannot produce more of any good without giving up some other good that we "value more highly"
Point on PPF boundary where marginal benefit = Marginal cost |
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Technical Efficiency
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For a given level of output being produced, we cannot decrease our inputs used.
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Bowed Out PPF
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Increasing Slope/Increasing Opportunity Costs
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Linear PPF
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Constant Slope/Constant Opportunity Costs
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When does a person have absolute advantage?
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When that person is more productive than another person in a task.
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When does a person have comparative advantage?
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When that person has less opportunity cost in doing the cost.
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What is necessary in order to specialize in a particular task?
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Comparative Advantage
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What must the acceptable price of trade be?
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Higher than the opportunity cost of the seller.
Lower than the opportunity cost of the buyer. *Between the two opportunity costs* |
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Gain from trade steps (5)
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1. Calculate OC
2. Identify who has Comparative Advantage -> specialization 3. Evaluate the price and identify the required amounts of production that each person has to do to complete the trade. 4. Calculate the costs of production 5. Compare what each person will get from trade ( if benefits exceed costs, then you gain) |
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Economic Growth
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expansion of production
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Extensive Growth
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More Resources
Capital Accumulation |
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Intensive Growth
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Existing Resources become better
Technological Change |
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Methods of Resource Allocation
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Traditional Economy
Command Economy Market Economy |
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Traditional Economy
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Resources are allocated according to long-lived practices from the past
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Command Economy
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According to eplicit instructions from a central authority
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Market Economy
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Resources are allocated through individual decision making
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Market
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Any arrangement that enables buyers and sellers to get information and to do business with each other.
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Markets can only work when...
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Property rights exist
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Property Rights
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The social arrangements that govern the ownership, use and disposal of resources, goods and services
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Real Property
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Land, buildings, durable goods
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Financial Property
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stocks, bonds, money
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Intellectual Property
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Intangible product of creative effort (books, music, inventions)
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Perfectly Competitive Market
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A market that has many buyers and many sellers, so no single buyer or seller can influence the price.
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Goods Market
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Market where households are buyers and firms are sellers
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Factor Market
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Market where households are sellers and firms are buyers
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Factors of Production
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resources that businesses use to produce goods and services
Land, Labor, Capital, Entrepreneurship |
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Land
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earns rent
"gifts of nature" |
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Labor
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earns wages
"the time spent producing goods/services" |
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Capital
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earns interest
"long-lasting products that are used to produce other goods |
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Two Kinds of Capital
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1. Physical Capital
2. Human Capital |
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Physical Capital
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Macinery, equipment, etc.
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Human Capital
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Skills and training of workers
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Entrepreneurship
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earns profit
ability to combine other factors of production into a productive enterprise |
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Money Price
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number of dollars that must be given up in exchange for a product
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Relative Price
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number of other goods that must be given up in exchange for a product
Ratio of one price to another Opportunity Cost |
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Law of Demand
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As price increases, quantity demand decreases
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Substitution Effect
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Price increases, buy more substitutes, buy less of the product, quantity demanded decreases
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Determinants of Demand
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taste/preference
price of other goods average income number of buyers in market |
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Change in price
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does not shift the demand curve
changes the quantity demanded |
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Determinants in Supply
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Technology
Input Price Expectation of future price Number of sellers in the market Law and regulation Price of related goods |
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Change in Price (Supply)
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will not shift the entire supply curve.
will change the quantity supplied |
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Equilbrium
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Intersection of demand and supply curves
Price at which quantity demanded = quantity supplied |
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Shortage
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quantity demanded > quantity supplied
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Three Important Macroeconomic Goals
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Economic Growth
High Employment/Low Unemployment Stable Prices |
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GDP
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the value of the total production of all final goods and services produced within a country during a given year
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Real GDP
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States the GDP value in term of prices of a single year
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Potential GDP
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the value of production when all the economy's factors of production (land, labor, capital and entrepreneurship) are fully employed.
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Business Cycles
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Fluctuations in real GDP around its potential GDP
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Expansion
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period of increasing real GDP (economy is growing)
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Contraction
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period of decreasing real GDP
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Recession
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period of significant decline in real GDP for at least two consecutive quarters (6 months)
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Depression
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an unusually severe recession
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Peak
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represents the end of expansion and the beginning of contraction
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Trough
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represents the end of contraction and the beginning of expansion
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Rule of 72
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given the growth rate of g and initial real GDP, the GDP will be double in approximately 72/g years
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Lucas Wedge
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the accumulated loss of output that results from a slowdown in the growth rate of real GDP per person.
measures the cost of slower productivity growth |
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Okun Gap
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the gap between real GDP and potential GDP
output gap source of loss from economic fluctuations |
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Price level
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the average level of price
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Inflation
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a sustained increase of price level over time
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Deflation
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A situation in which the prices of most goods and services are falling over time so that inflation is negative
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Fiscal Policy
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making changes in tax rates and in government spending programs
federal government |
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Monetary Policy
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Making changes in interest rates and the amount of money in the economy
The Federal Reserve (The Fed) |
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Government Budget Surplus
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Government collects more in taxes than it spends
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Government Budget Deficit
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Government spends more than it collects in taxes
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The Federal Reserve is also known as
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The Fed
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