ECON 121 Final Review Flashcards

Flashcards for reviewing key concepts from ECON 121, covering chapters on economics, production possibilities, demand, supply, elasticity, consumer choice, and market structures.

Economics

The study of the choices people make to attain their goals, given their scarce resources.

Rationality (in Economics)

People use all available information to achieve their goals.

Incentives

People respond to these.

Marginal Analysis

Optimal decisions are made at the margin.

Opportunity Cost

The highest-valued alternative that must be given up to engage in some activity.

Economic Models

Presenting reality with simplified assumptions.

Production Possibilities Frontier (PPF)

A curve showing the maximum attainable combinations of two goods that can be produced with available resources and current technology.

Absolute Advantage

The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.

Comparative Advantage

The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

Quantity Demanded

The amount of a good or service that a consumer is willing and able to purchase at a given price.

Law of Demand

Holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.

Demand Shifters

Factors influencing demand include income, tastes, population and demographics, expected future prices, natural disasters, and pandemics.

Quantity Supplied

The amount of a good or service that a firm is willing and able to supply at a given price.

Law of Supply

Holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.

Supply Shifters

Factors influencing supply include prices of inputs, technological change, prices of related goods in production, number of firms in the market, expected future prices, natural disasters, and pandemics.

Consumer Surplus

The difference between the price a consumer is willing to pay and the market price.

Producer Surplus

The difference between the price a producer receives and the cost of production.

Economic Surplus

The sum of consumer surplus and producer surplus.

Deadweight Loss

The reduction in economic surplus resulting from a market not being in competitive equilibrium.

Price Floor

A legally determined minimum price above the equilibrium price.

Price Ceiling

A legally determined maximum price below the equilibrium price.

Elasticity

A measure of how much quantity demanded or supplied responds to a change in price or other factors.

Price Elasticity of Demand

A measure of the responsiveness of the quantity demanded to a change in its price.

Cross-Price Elasticity of Demand

A measure of the responsiveness of the quantity demanded of one good to a change in the price of another good.

Income Elasticity of Demand

A measure of the responsiveness of the quantity demanded to a change in income.

Elasticity of Supply

A measure of the responsiveness of the quantity supplied to a change in price.

Total Utility

The total satisfaction a person receives from consuming a particular quantity of a good or service.

Marginal Utility

The change in total utility a person receives from consuming one additional unit of a good or service.

Law of Diminishing Marginal Utility

The principle that as a person consumes more of a good or service, the additional satisfaction from each additional unit decreases.

Budget Constraint

The limit on the consumption bundles that a consumer can afford.

Marginal Cost

An increase in total cost resulting from producing another unit of output.

Average Total Cost

Total cost divided by the quantity of output produced.

Average Fixed Cost

Fixed cost divided by the quantity of output produced.

Average Variable Cost

Variable cost divided by the quantity of output produced.

Explicit cost

A cost that involves spending money.

Implicit cost

A nonmonetary opportunity cost.

Market Structure

The characteristics of a market that influence the behavior of firms in the market.

Perfect Competition

A market structure with many firms, identical products, and easy entry.

Monopolistic Competition

A market structure with many firms, differentiated products, and relatively easy entry.

Oligopoly

A market structure with few firms and high barriers to entry.

Monopoly

A market structure with one firm, a unique product, and blocked entry.

Gross Domestic Product (GDP)

The market value of all final goods and services produced in a country during a period of time, typically one year.

Nominal GDP

The value of final goods and services evaluated at current-year prices.

Real GDP

The value of final goods and services evaluated at base-year prices.

unemployment rate

The percentage of the labor force that is unemployed.

Labor Force

Number of working-age individuals who are actively working or searching for employment

Marginal Propensity to Consume (MPC)

The slope of the consumption function: the amount by which consumption spending changes when disposable income changes.

Fiscal Policy

Changes in federal government purchases, transfer payments, and taxes that are intended to achieve macroeconomic policy objectives.

Trade

The exchange of goods and services between countries or regions.

How do you calculate comparative advantage?

Give up/Gain

If CPED is positive

substitutes

If CPED is negative

complements

If CPED is zero

unrelated goods

If IED is positive but less than one

normal and a necessity

if IED positive and greater than 1

normal and a luxury

If IED is negative

inferior

marginal utility equation

MU = ΔU/ΔQ, where MU is marginal utility, ΔU is the change in utility, and ΔQ is the change in quantity.

Total cost equation

Total Cost = Fixed Costs + Variable Costs, representing the overall expense incurred in production.

Average total cost

(ATC) is calculated by dividing total cost by the quantity of output produced, indicating the cost per unit of production.

Average fixed cost

(AFC) is found by dividing total fixed cost by the quantity of output produced, representing the fixed cost per unit.

Average variable cost

(AVC) is calculated by dividing total variable cost by the quantity of output produced, representing the variable cost per unit.

Marginal cost equation

(MC) is the additional cost incurred from producing one more unit of output, crucial in decision-making regarding production levels.

GDP

total value of all final goods and services produced within a country's borders in a specific time period, serving as a broad indicator of economic activity.

Measuring GDP

involves calculating the total economic output using the production, income, or expenditure approaches. (Y= C + I + G + Nx)

GDP includes

consumption, investment, government spending, and net exports.

GDP does not include

income distribution, environmental factors, intermediate goods, illegal transactions, and non-market activities.

GDP deflator

Nominal GDP/Real GDP x 100

What does each variable mean in Y= C + I + G + Nx

C= Consumption, I= Income, G= Government Purchases, Nx = Nex Exports

Monopoly

A firm that is the only provider/seller of a good or service where no close substitute is present.

4 main reasons a monoply arises

1. Government restrictions on entry
   2. Control of a key resource

   3. Network externalities

   4. Natural monopoly

Patents

Exclusive legal rights to produce a product

What is an example of a Public Franchise?

The US postal service.

Network externalities

a situation where the usefulness of a product increases with the number of people who use it

Virtus cycle

value of product continue to increase akong with the price it can charge

Natural Monopoly

a situation where a single firm produces and sells product or service at a lower cost than competitors resulting in little to no competition

Monopolists Choice

1. price maker

2. constraint on market demand

3. Marginal rev is downward slope below demand

GDP per capita

GDP/Population

Nominal GDP per Capita

Nominal GDP/population

Growth

percentage change in GDP

Gross national product (G N P)

Production performed by citizens of a nation, including overseas production.

National Income

G D P minus the consumption of fixed capital; that is, G D P minus depreciation.

Personal Income

Income received by households; includes transfer payments but excludes firms’ retained earnings.

Disposable personal income

Personal income minus personal tax payments; this measures the amount that households are able to spend or save

Labor Force

Number of working-age individuals who are actively working or searching for employment 

Unemployment Rate

Unemployment/Labor Force x 100

Labor Force participation rate

Labor Force/Working age - population

Employment to Population Ratio

Employed / working age - population

CPI equation

Expendurites in current year / Expendures in base year x 100

CPI

measure of the average of the prices a typical urban family of four pays for the goods and services they purchase.

Marginal propensity to consume (M P C)

The slope of the consumption function: the amount by which consumption spending changes when disposable income changes.

MPC equation

Change in Consumption / Change in disposable income

Marginal Propensity to Save

The Multiplier Effect

Change in Y / Change in Investment spending

How do you find the Multipler?

1/1-MPC

• Fiscal policy 

changes in federal government purchases, transfer payments, and taxes that are intended to achieve  macroeconomic policy objectives.

Expansionary fiscal policy

increasing government purchases or decreasing taxes

Contractionary fiscal policy

decreasing government purchases or increasing taxes.

Aggregate Expenditure

total spending in the economy, including consumption, investment, government spending, and net exports

Aggregate Demand

represents the total demand for goods and services in the economy at different price levels.