Economics Units 1 and 2 Exam

Gross Domestic Product (GDP)

A measure of the market value of the output of final goods and services in the economy in a given period.

There is double counting in GDP.

False

Disposable Income

Total income - taxes + government transfers

GDP is a complete and holistic measure of the economy

False, why not?

Income Inequality

The uneven distribution of income amoung a population.

Lorenz Curve

A graphical representation of inequality. In which, individuals are arranged in ascending order by how much they have.

Gini Coefficient

A statistical measure that indicates the level of income inequality within a population.

“Hockey-stick” curve

Shows sustained rapid growth.

Industrial Revolution

A period of significant industrial growth and technological advancement.

Technology

A process that takes a set of inputs and creates and an output.

Factor of Production

Any input into a production process, such as, labor, machinery, equipment, land, energy, and raw materials.

Production Function

A graphical or mathematical description of the relationship between the quantities of inputs to a production process and the amount of outputs.

Mathusian Model

An economic theory in which suggests populations grow faster than the resources that sustain them suggesting that resources will become insufficient.

Malthusian model and Diminishing Average Product of Labor

As more labor, or people, join a production process the product relative to each laborer decreases. Eventually the production of labor will not be enough to support the laborer.

Average Product of Labor

The amount of output produced divided by the number of workers.

Subsistence level

The level of income where the population remains constant, anything lower results in a decreasing population.

Equilibrium

The point where there is no tendency to change unless something elese in the economy changes.

Malthus Law

States that population growth will always exceed the growth of food production.Ca

Capitalism

Private property + Markets + Firms

Private Property

A property where the owner has the right to exclude others from using it.

Firm

An economic organization in which private owners of capital goods hire and direct labor to produce goods and services to sell for a profit.

Markets

Enable people to exchange goods and services through direct transfers, voluntarily entered for mutual benefit, often impersonal.

Who first measured GDP and what did he say about it?

Simon Kuznets, it is not a complete measure of the economy

Environmental Accounting

Tracks natural resources their use and the impacts of it.

Structural Transformation

The process of shifting an economy’s activity from a low-productivity sector to a high-productivity sector.

Average Product

Total outputs divided by the total amount of inputs.

Opportunity Cost

What you lose when you choose one action over the next best action.

Economic Cost

The direct cost of an action plus the oppurtunity cost.

Reservation Option

The option that is next best to what you chose.

Economic Rent

The difference between the net benefit of a chosen action and the net benefit of the next best alternative.

Incentive

An economic reward or punishment, which influences the benefit and costs of alternative courses of action.

Innovation Rent

Profits in excess of the opportunity cost of the capital that an innovator gets by introducing a new technology, organizational for, or marketing strategy

Relative Prices

The price of one good or service compared to another (generally expressed as a ratio).

Comparative Advantage

A person or country has this when the production cost of a good is lower than it is for another person or country.

Absolute Advantage

A person or a country has this when they can produce more of something than another person or country.

Division of Labor

The specialization of producers to carry out different tasks in the production process.

Constant Returns to Scale

When inputs and outputs increase proportionally.

Fixed Proportions Technology

A technology that requires inputs in fixed proportions to each other and its output.

Isocost Line

A line that represents all combinations of inputs that costt a given total amount.

Ceretis Paribus

Economists often simpify things that are thought to be of less importance to the question of interest.

Endogenus

Generated by the model; a value that is dertermined by the model.

Exogenus

Gennerated outside of the model; a value/variable set by the modeller.