ECON 201 Exam 1 Wesley Austin ULL

Economics

the social science that studies how people, businesses, and governments make choices when dealing with limited resources to satisfy unlimited wants

role of entrepreneurship

The role of entrepreneurship is to drive innovation, create new businesses, and stimulate economic growth by identifying opportunities and transforming ideas into viable products or services.

Factors of production

land, labor, capital, entrepreneurship

Human Capital

The economic value of an individual's skills, knowledge, and experience that can enhance productivity and contribute to economic growth.

Microeconomics

1.What are we going to produce?

- can change overtime

- land (place to put hospitals), labor (nurses), capital (MRI machines)

2. How are we going to produce it?

3. Who is going to get this and who is not?

- everything that gets produces is scarce

- economists have to figure

Macroeconomics

1.What determines the standards of living?

2. What determines the cost of living?

3. Why do we have Business Cycles?

Marginal Benefit

maximum amount a consumer is willing to pay for an additional good or service

Marginal Cost

the cost added by producing one additional unit of a product or service.

Opportunity cost

the value of the next best alternative forgone (given up)

Why does Opportunity cost increase

as you produce more of one good, resources that are not perfectly transferable to other uses become less efficient, leading to higher costs.

Characteristics of Markets

The characteristics of markets include the number of buyers and sellers, the type and degree of competition, product differentiation, and the presence of barriers to entry. These factors determine the market structure and affect pricing and output decisions.

PPF (Production Possibility Frontier)

A graphical representation showing the maximum attainable combinations of two goods that can be produced with available resources and technology, illustrating trade-offs and opportunity costs.

What does the PPF show?

the maximum possible output combinations of two different goods or services that an economy or business can produce using limited resources and fixed technology

Absolute Advantage

the ability of an individual, company, region, or country to produce a specific good or service more efficiently, faster, or at a lower cost than its competitors

Comparative Advantage

an economy's ability to produce a specific good or service at a lower opportunity cost than its trading partners

Relative Price

the price of a commodity such as a good or service in terms of another; i.e., the ratio of two prices.

Quantity Demand (QD)

the exact amount of a good or service that consumers are willing and able to buy at a specific price during a given period of time

Quantity Supplied (QS)

exact amount of a good or service that producers are willing and able to sell at a specific price point

Difference between change in QD, QS and change in demand/supply.

A change in quantity demanded/supplied is a movement along an existing curve caused solely by a change in the good's own price, whereas a change in demand/supply is a shift of the entire curve caused by non-price determinants

GDP

The market value of all final goods and services

What is included in GDP?

Aggregated Income and Aggregated expenditures

What isn't included in GDP?

Quality improvements, household production, underground economy, health & life expectancy, leisure time, environmental quality, political freedoms.

How is investment financed?

private savings

government

borrowing from rest of the world

Expenditure Approach

C + I + G + (x-m)

consumption + investment + government purchases + exports - imports

Income Approach

Compensation to workers + corporate profits + rental income + net interest + proprietors income

Real GDP

P (previous year price) x Q (current year)

prices cannot rise/ fall, if it changes, then it is because Quantity changes

Structural Unemployment

if technology comes along and takes your job or if foreigners take your jobs

Frictional Unemployment

lost job by choice: businesses just go out of employment because of whatever the reason

In Labor force

employed workers and unemployed workers

Not in Labor Force

retired people, full-time college students, stay at home parents, extremely wealthy people who do not need a job, people who do not need to work.

CPI (Consumer Price Index)

a weight average of prices of all goods and services in our economy.

Why does marginal benefit decline?

customers tend to become less willing to buy a product at the original price after their first purchase.

CPI Formula

CPI (current year) - CPI (previous year) / CPI (previous year)

WAP (working age population)

Non LF and LF. Also employed and unemployed

NON WAP

People younger than 16, incarcerated, or mentally challenged/ unstable

Discouraged workers

Unemployed for a while, cannot find a job, stops looking for a job (for about a month or longer) - you have dropped out of the labor force

Unemployment rate

number of people unemployed/ number of people in the labor force

Labor Force participation rate

number in LF/ WAP

Inflation

general increase in prices, based of CPI percentage

CPI bias

biased towards new goods, quantity change bias, commodity substitution bias, outlet substitution bias.