Principles of Economics Macroeconomics Waseem Noor

production possibilities curve

shows the relationship between the maximum production of one good for a given level of production of another good.

attainable and inefficient

Point A is?

attainable and efficient

Point B is?

unattainable

Point E is?

give up/gain

opportunity cost formula (of other good/of good you are asked to compare)

3/4

if you lose 3 websites in order to gain the production of 4 computers what is the opportunity cost of computers produced?

comparative advantage

the ability to produce a good at a lower opportunity cost than another producer

specialization

occurs when someone produces only if they have a comparative advantage

absolute advantage

the ability of being able to produce more given the same resources

terms of trade

the negotiated exchange rate of goods for goods

fixed

In the short run the PPC is?

fluctuates

In the long run the PPC?

person B

If the opportunity cost is 1.76 who produces the good?

benefitial

trading is always

Exports

produced domestically and sold abroad (uppercase first letter)

Imports

goods produced abroad and sold domestically (uppercase first letter)

net importer

imports are worth more than exports over a given time period

free trade

the ability to trade without hindrance or encouragement from the government

world price

the price of a good that prevails in the world market for that good

domestic price

the price of a good or service within a country, determined by domestic demand and supply

Sellers win, buyers lose

If domestic price is below the world price the country becomes an exporter. What happens with sellers and buyers

Sellers lose, buyers win

If domestic price is above the world price the country becomes an importer. What happens with sellers and byuers?

Determinants of comparative advantage

Natural resources, techonology, education/labor force, abundance of labor and physical capital, capital

Arguments against free trade

1. National security concerns

2. Fear of the effects of globalization on a nation's culture

3. Environmental and resource concerns

4. Infant industry arguments

5. Potential negative effects on local wages and jobs

Protectionism

The idea that free trade can be harmful and that the goverment has to intervene. Raises price to consumers and lowers social surplus

Tarrifs

taxes levied against goods and services transported across political boundaries

Orange

What is the color of the original consumer surplus?

Purple

What is the color of the new consumer surplus?

blue

What is the color of the new producer surplus?

green

What is the color of the original producer surplus?

goverment earnings

What does rectangle I show

Yes (G and J)

Is there a deadweight loss on the following graph?

autorky

when a country makes things by itself

macroeconomics

economics as a whole, the aggregate economy

Income per capita (GDP per capita)

nation's aggregate income/number of people in the counrty

recession

a period lasting at least two quarters in which aggregate economic output falls

has no job

first condition of unemployment (has)

looked to get a job

first condition of unemployment (looked)

is currently available

first condition of unemployment (is)

unemployment rate

the percentage of the labor force that is unemployed expressed as a fraction

national income accounts

maeasured by the level of aggregate economic activity in a country

production=expenditure=income

Three things that are = to GDP

aggregate income

the total income received by all factors of production in a given period

factors of production

inputs of the production processes (capital, labor)

capital

land, factories and machines are an example of what type of factor of production

labor

oil is an example of what type of factor of production

households

who owns all factors of production

Production of goods and services

Purple line

Expenditure on goods and services

Blue line

Income paid for factors of production

Grren line

Factors of production

Orange line

value added (adding all the value added by firms will sum up to the GDP)

the firms sale revenue minus its purchases of intermediate products from other firms

consumption

goods and services bought by domestic households

investment

market value of new physical capital that is bought by domestic households and firms. Purchase of only physical capital.

goverment expenditure

the market value of goverments or powers

exports

Market value of all domestically produced goods and servuces that are purchased by households, firms and goverments in foreign countries. Measured in value added.

imports

The market value of all foreign-produced goods and services that are sold to domestic households, domestic firms, and the domestic government.

C+I+G+X-M

formula for GDP or national income accounting identity

production

the creation of goods and services

expenditure

an expense; the amount needed to be paid out

income

money received, especially on a regular basis, for work or through investments.

Labor and capital

Two types of categories in which income payments come?

Investment

Savings is equal to