ECON 401.01: Principles of Macroeconomics - Chapter 1-5 Flashcards

Principles of Macroeconomics | Macroeconomics by David C. Colander

Demand

Refers to a schedule of quantities of a good that will be bought per unit of time at various prices, other things constant

Quantity Demanded

Refers to a specific amount that will be demanded per unit of time at a specific price, other things constant

Movement Along a Demand Curve

The graphical representation of the effect of a change in price on the quantity demanded

Shift in Demand

The graphical representation of the effect of anything other than price on demand

Shift Factors of Demand

1. Society’s income

2. The prices of other goods

3. Tastes

4. Expectations

5. Taxes and subsidies

Market Demand Curve

The horizontal sum of all individual demand curves

Shift Factors of Supply

1. Prices of inputs

2. Technology

3. Expectations

4. Taxes and subsidies

Law of Supply

Quantity supplied rises as prices rises, other things constant (or inverse)

Law of Demand

Quantity demanded rises as price falls

Equilibrium

A concept in which opposing dynamic forces cancel each other out

Equilibrium quantity

The amount bought and sold at the equilibrium price

Equilibrium price

The price toward which the invisible hand drives the market

Excess Supply

Quantity supplied is greater than quantity demanded

Excess Demand

Quantity demanded is greater than quantity supplied

Prices rise when

Quantity demanded is greater than quantity supplied (prices…)

Prices fall when

Quantity supplied is greater than quantity demanded (prices…)

Fallacy of composition

The false assumption that what is true for a part will also be true for the whole

Movement along a supply curve

The graphical representation of the effect of a change in price on the quantity supplied

Shift in supply

The graphical representation of the effect of a change in a factor other than price on supply

Supply curve

The graphical representation of the relationship between price and quantity supplied

Excise Tax

A tax that is levied on a specific good

Tariff

An excise tax on an imported good

Third-party-payer Markets

The person who receives the good differs from the person paying for the good

Minimum Wage Laws

Laws specifying the lowest wage a firm can legally pay an employee

Price Ceiling

Government imposed limit on how high a price can be charged

Price Floors

Government imposed limits on how low a price can be charged

Rent Control

A price ceiling on rents, set by government

Partnerships

Businesses with two or more owners

Private good

A good that, when consumed by one individual, cannot be consumed by another individual

Private property rights

The control a private individual or firm has over an asset

Profit

The amount left over from total revenues after all the appropriate costs have been subtracted

Public good

A good that if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual

Business

Private producing units within society

Capitalism

An economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists

Consumer sovereignty

The consumer's wishes determine what's produced

Corporations

Businesses that a treated as if they are a person, and are legally owned by their stockholders, who are not liable for the actions of the corporate 'person'

Demerit goods or activities

Goods or activities that the government believes are bad for people even though they choose to use the goods or engage in the activities (ie. illegal drugs)

Entrepreneurship

The ability to organize and get something done

Externality

The effect of a decision on a third party not taken into account by the decision maker

Global corporations

Corporations with substantial operations on both the production and sales sides in more than one country

Government failures

Situations in which the government intervenes and makes things worse

Households

Groups of individuals living together and making joint decisions

Institutions

The formal and informal rules that constrain human economic behavior

Macroeconomic externalities

Externalities that affect the levels of unemployment, inflation, or growth in the economy as a whole

Market economy

An economic system based on private property and the market in which, in principle, individuals decide how, what, and for whom to produce

Market failures

Situations in which the market does not lead to the desired result

Merit goods or activities

Goods and activities that the government believes are good for you even though you may not choose to engage in the activities or to consume the goods

Socialism

An economic system based on individuals' goodwill towards others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce

Socialism (classic)

Based on government ownership of the means of production

Sole proprietorships

Businesses that only have one owner

Circular Flow Model

Model representing the relationships between households, businesses, markets, and governments

Comparative Advantage

Better suited to the production of one good than to the production of another good

Efficiency

Achieving a goal using as few inputs as possible

Globalization

The increasing integration of economies, cultures, and institutions across the world

Inefficiency

Getting less outputs from inputs that, if devoted to some other activity, would produce more output

Lassiez-faire

An economic policy of leaving coordination of individuals’ actions to the market

Law of One Price

The wages of workers in one country will not differ significantly from the wages of (equal) workers in another institutionally similar country

Production Possibility Curve

A curve measuring the maximum combination of outputs that can be obtained from a given number of inputs

Productive Efficiency

Achieving as much output as possible from a given number of inputs or resources

Art of Economics

The application of knowledge learned in positive economics to achieve the goals one has determined in normative economics

Economic Decision Rule - If the marginal costs of doing something exceed the marginal benefits…

Don’t do it

Economic Decision Rule - If the marginal benefits of doing something exceed the marginal costs…

Do it

Economic Forces

The necessary reactions to society

Economic Model

A framework that places the generalized insights of the theory in a more specific contextual setting

Economic Principle

A commonly held economic insight stated as a law or principle

Economic Policies

Actions (or inaction) taken by government to influence economic actions

Economics

Is the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society

Three Central Problems

1. What to produce

2. How to produce it

3. For whom to produce it

Experimental Economics

A branch of economics that studies the economy through controlled experiments

Impartial Spectator Tool

Each person places themselves in the position of a third-party examiner and judges a situation from everyone’s perspective, not just their own

Implicit Costs

Costs associated with a decision that often aren’t included in normal accounting costs

Invisible Hand

The price mechanism, the rise and fall of prices that guides our actions in the market

Invisible Hand Theorem

A market economy, through the price mechanism, will tend to allocate resources efficiently

Macroeconomics

The study of society as a whole

Marginal Benefit

The additional benefit above what you’ve already dervied

Marginal Cost

The additional cost to you over and above the costs you have already incurred

Market Force

An economic force that is given relatively free rein by society to work through the market

Microeconomics

The study of individual choice, and how that choice is influenced by economic choices

Normative Economics

The study of what the goals of the economy should be

Opportunity Cost

The benefit that you might have gained from choosing the next-best alternative

Political Forces

Legal directives that direct individuals’ actions

Positive Economics

The study of what is, and how the economy works

Precepts

Policy rules that conclude that a particular course of action is preferable

Scarcity

The goods available are too few to satisfy the individuals’ desires

Social Forces

Forces that guide individual actions even though those actions may not be in an individual’s selfish interest

Sunk Costs

Costs that have already been incurred and cannot be recovered

Theorems

Propositions that are logically true based on the assumptions in a model

Adam Smith

Founder of Economics

Coercion

Limiting people’s wants and increasing the amount of work individuals are willing to do in order to obtain their wants