Econ Test 1

Altruism

When an individual does something that does not offer them benefits or may even put them in harm's way 

• Psychology says that we do it because it feels good 

• Evolutionary biology says that we do it to further the survival of the human race. The brain has evolved to reward activities that promote the group's success. 

Invisible Hand

A metaphor for the unseen forces that move the free market economy. Through individual self-interest and freedom of production and consumption, the best interests of society, as a whole, are fulfilled. 

Utility

The total happiness or benefits from a good or service. 

• individuals seek to maximize their own utility, which is a similar concept to happiness, only broader 

Inputs

The process of taking something in. Usually raw materials like labor, machinery, materials. 

Outputs

The goods or services that are produced in the end.  

Macroeconomics

Relating to the branch of economics concerned with large-scale or general economic factors.

• inflation, price levels, rate of economic growth, national income, gross domestic product (GDP), and changes in unemployment. 

Microeconomics

A social science that studies how individuals respond to changes in incentives, prices, resources, and/or methods of production. 

Aggregation

The process of combining individual economic variables into a larger, more comprehensive measure. Like GDP. 

Inflation

The rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country. 

Human Capital

Human capital is the sum total of skills embodied within an individual: education, intelligence, charisma, creativity, work experience, entrepreneurial vigor, etc. 

• We always want to improve on our human capital 

• People with low human capital usually end up in jobs that may not require much skill (factory work, etc.) Those people are affected the most when there are cuts due to technological improvements/renovations. 

• People who don’t graduate high school usually have a low human capital 

• People getting cut from jobs can be both positive and detrimental. Detrimental because of loss of income, but beneficial because they may feel compelled to improve their human capital to get a better job 

Equilibrium

Any state in the economy where forces are balanced. This can be related to prices in a market where supply is equal to demand, but can also represent the level of employment, interest rates, and so on. 

Incentive

Factors that motivate individuals, businesses, or governments to take specific actions. They are often financial rewards or penalties that influence behavior, encouraging or discouraging certain choices.

• Examples include sales, coupons, tax breaks, and fines 

GDP

Gross domestic product is a monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries 

• Cannot be used to measure economic health. Ecological issues, no value on leisure, good and bad goods get counted 

What does GDP measure?

Final goods and services that are currently being produced within the country at a given period of time. 

• Consumption: Spending on household goods and services, with the exception of purchasing new housing 

• Investment: Goods that will be used in the future to produce more goods and services (inventories, structures, new homes) 

• Government purchases: Spent on goods and services by local, state, and federal governments. 

What does GDP not measure?

• Products sold illegally 

• Items produced and used within the home that never enter the market. Ex) Vegetables you buy at the grocery store count for GDP, vegetables grown at home don’t 

• Net exports: foreign purchases of domestically produced goods (exports) minus the domestic purchases of foreign goods (imports)