macro final

Economics

the science of choice, exploring the choices made by individuals and organizations; the study of choices when there is scarcity

Scarcity

the resources we use to produce goods and services are limited

The Five Factors of Production

the resources used to produce goods and services

What are the five factors of production?

Natural Resources, Labor, Physical Capital, Human Capital, Entrepreneurship

Natural Resources

resources provided by nature and used to produce goods and services

Labor

human effort (physical and mental) used to produce goods and services

Physical Capital

the stock of equipment, machines, structures, and infrastructure that is used to produce goods and services

Human Capital

the knowledge and skills acquired by a worker through education and experience and used to produce goods and services

Entrepreneurship

the effort used to coordinate the factors of production-natural resources, labor, physical capital, and human capital-to produce and sell products

Positive Analysis

answers the question "What is?" or "What will be?"

Normative Analysis

answers the question "What ought to be?"

The three key economic questions are?

What products do we produce? How do we produce the products? Who consumes the products?

Economic Model

simplified representation of an economic environment, often employing a graph

Variable

a measure of something that can take on different values

Ceteris Paribus

latin expression meaning that other variables are held fixed

Marginal Change

a small, one-unit change in value

Macroeconomics

study of the nation's economy as a whole; focuses on issues of inflation, unemployment, and economic growth

Microeconomics

the study of choices made by households, firms, and government and how these choices affect the markets for goods and services

Positive Relationship

relationship in which two variables move in the same direction. *direct

Negative Relationship

relationship in which two variables move in opposite directions. *inverse

Slope of a Curve

vertical difference between 2 points divided by the horizontal difference. Rise/Run

Principle

self-evident truth that most people readily understand and accept.

Opportunity Cost

what you sacrifice to get something.

Production Possibilities Curve

a curve that shows the possible combinations of products that an economy can produce, given that its productive resources are fully employed and efficiently used; separates the attainable combinations by a shaded area.

Marginal Benefit

the additional benefit resulting from a small increase in some activity.

Marginal Cost

the additional cost resulting from a small increase in some activity.

Nominal Value

the face value of an amount of money.

Real Value

the amount of money in terms of what it can buy.

Comparative advantage

the ability of one person or nation to produce a good at a lower opportunity cost than another

Absolute Advantage

the ability of one person or nation to produce a product at a lower resource cost than another.

Import

goods or services produced in a foreign country and purchased by residents of the home country.

Export

goods or services produced in the home country and sold in another country.

Outsourcing

when a domestic firm shifts part of its production to a different country.

Market Economy

an economy in which people specialize and exchange goods and services in markets.

Centrally Planned Economy

an economy in which a government bureaucracy decides how much of each good to produce, how to produce the good, and who gets the good.

Market Failure

occurs when a market doesn't generate the most efficient outcome.

Perfectly Competitive Market

market with many sellers and buyers of a homogeneous product and no barriers to entry.

Quantity Demanded

the amount of a product that consumers are willing and able to buy.

Demand Schedule

a table that shows the relationship between the price and quantity demanded, ceteris paribus.

Individual Demand Curve

curve that shows the relationship between the price of a good and the quantity demanded by an individual consumer, ceteris paribus.

Law of Demand

there is a negative relationship between price and quantity demanded, ceteris paribus.

Change in Quantity Demanded

a change in the quantity consumers are willing to and able to buy when the price changes; represented graphically by the movement along the demand curve.

Market Demand Curve

shows the relationship between the price of the good and the quantity demanded by all consumers, ceteris paribus.

Quantity Supplied

the amount of product that firms are willing to and able to sell.

Supply Schedule

a table that shows the relationship between the price of a product and quantity supplied, ceteris paribus.

Individual Supply Curve

curve showing the relationship between price and quantity supplied by a single firm, ceteris paribus.

Law of Supply

there is a positive relationship between price and quantity supplied, ceteris paribus

Change in Quantity Supplied

a change in the quantity firms are willing and able to sell when the price changes; represented graphically by movement along the supply curve.

Minimum Supply Price

the lowest price at which a product will be supplied.

Market Supply Curve

a curve showing the relationship between the market price and the quantity supplied by all firms, ceteris paribus.

Market Equilibrium

a situation in which the quantity demanded equals the quantity supplied at the prevailing market price.

Excess Demand

a situation in which, at the prevailing price, the quantity demanded exceeds the quantity supplied. Causes a shortage

Excess Supply

a situation in which the quantity supplied exceeds the quantity demanded at the prevailing price. Causes a surplus

Change in Demand

a shift of the demand curve caused by a change in a variable other than the price of the product

Normal Good

a good for which an increase in income increases demand

Inferior good

a good for which an increase in income decreases demand

Substitutes

two goods for which an increase in the price of one good increases the demand for the other good.

Complements

two goods for which a decrease in the price of one good increases the demand for the other good.

Change in Supply

a shift of the supply curve caused by a change in a variable other than the price of the product

Inflation

sustained increases in the average prices of all goods and services

GDP

the total market value of final goods and services produced within an economy in a given year; the most common measure of the country's total output; measured in dollars.

Total Market Value

the quantity of goods produced multiplied by their respective prices, then add up the totals.

Final goods and services

the quantity of goods and services that are sold to final purchasers (households or businesses).

Intermediate Good

goods used in the production process that are not final goods and services.

Consumption Expenditures

purchases of newly produced goods and services by households.

Private Investment Expenditures

purchases of newly produced goods and services by firms.

Gross Investment

total of new investment expenditures.

Depreciation

reduction in value of capital goods over a 1-year period due to physical wear and tear and to obsolescence; sometimes called capital consumption allowance.

Net Investment

gross investment - depreciation

Government Purchases

purchases of newly produced goods and services by local, state, and federal governments.

Transfer Payments

payments from governments to individuals that do not correspond to the production of goods and services.

Net Exports

exports - imports

Imports

goods and services produced in a foreign country and purchased by residents of the home country.

Exports

goods and services produced in the home country and sold in a foreign country.

Trade Deficit

the excess of imports over exports.

Trade Surplus

the excess of exports over imports.

Real GDP

a measure of GDP that controls for changes in price.

Nominal GDP

the value of GDP in current dollars.

Economic Growth

sustained increases in the real GDP of an economy over a long period of time.

National Income

the total income earned by a nation's residents both domestically and abroad in the production of goods and services; measures the income earned in a given year by the entire private sector.

Gross National Product

GDP + net income earned abroad

Personal Income

income, including transfer payments, received by households

Personal Disposable Income

personal income that households retain after paying income taxes

Value Added

the sum of all the income-wages, interest, profits, and rent-generated by an organization.

GDP deflator

an index that measures how the prices of goods and services included in the GDP change over time

Chain-Weighted Index

a method for calculating changes in prices that uses an average of base years from neighboring years used by the Commerce Department

Recession

commonly defined as 6 consecutive months of declining real GDP

Peak

the date at which a recession starts

Trough

the date at which output stops falling in a recession

Expansion

the period after a trough in the business cycle during which the economy recovers

Depression

common name for a severe recession

Labor Force

the total number of workers, both the employed and the unemployed

Unemployment Rate

the percentage the labor force that is unemployed

Labor Force Participation Rate

the percentage of the population older than 16 that is in the labor force

Discouraged Workers

workers who left the labor force because they could not find jobs

Marginally Attached Workers

people who worked and have searched for work in the past but stopped looking for a variety of reasons. Includes discouraged workers.

Seasonal Unemployment

the component of unemployment attributed to seasonal factors (includes construction workers, farmers, teenagers looking for summer jobs, etc.).

Cyclical Unemployment

unemployment that occurs during fluctuations in real GDP

Frictional Unemployment

unemployment that occurs with the normal workings of the economy, such as workers taking time to search for suitable jobs and firms taking time to search for qualified employees

Structural Unemployment

unemployment that occurs when there is a mismatch of skills and jobs