Macroeconomics Lecture 1-4

competitive market

competitive market

many buyers and sellers of the same good and service who cannot influence the price of buying/selling

quality demanded

actual amount of a good/service consumers are willing to buy at a specific price

demand curve

shows relationship btw quantity demanded and price

law of demand

higher the price (all other things equal) leads people to demand a smaller quantity of good/service

shift in demand curve

represents a change in quantity demanded at a certain price

movement along demand curve

shows a change in quantity demanded based on change in price

causes of shifts in demand curve

• changes in price of related goods

• changes in income

• change in tastes

• change in expectation

• change in number of consumers

substitutes

rise in the price of one good → increase in demand for other good

complements

rise in the price of one good → decrease in demand for the other good

normal good

rise in income increases demand for a good

inferior good

rise in income decreases demand

quantity supplied

amount of a good/service producers will sell at a specific price

supply curve

relationship btw quantity supplied and price

shift in the supply curve

represents change in the quantity supplied at a given price

movement along supply curve

represents change of quantity supplied at different prices

causes shifts in supply curve

• Changes in input prices

• Changes in the prices of related goods or services

• Changes in technology

• Changes in expectations

• Changes in the number of producers

input

is a good or service that is used to produce another good or service.

equilibrium price

price where quantity of good supplied and good demanded is equal

equilibrium quantity

quantity where quantity of good supplied and good demanded is equal

imports

goods/services bought from other countries

exports

goods/services sold to other countries

comparative advantage

opportunity cost of producing the good or service is lower for that country than for other countries; they give up less to get more

causes of comparative advantages

• difference in climate

• difference in factor endowments

• differences in technology

factor abundance

how large a country’s supply of a factor is compared to other factors

factor intensity

the ratio that measures which factor is used in relatively greater quantities (ie labor-intensive or capital-intensive)

Heckscher-Ohlin model

a country with an abundant supply of a factor will have a comparative advantage in goods whose production is intensive in that factor

world price

the fixed price at which goods/services can be bought/sold abroad

tariff

tax on imports

import quota

legal limit on the quantity of a good that can be imported

employment

number of people currently employed in the economy either full or part time

unemployment

number of people who are actively looking for work but aren’t currently employed

labor force

the sum of employment and unemployment

labor force participation rate

share of working aged population (oer 16) in the labor force

discouraged workers

nonworking people who have given up looking for a job in the current market

marginally attached workers

would like to be employed and have looked for a job in the recent past but not currently looking

underemployment

part time workers who cannot find full time jobs

jobless recovery

real GDP growth rate is positive but unemployment rate is still rising

frictional unemployment

unemployment due to time workers spend in job search

structural unemployment

result of more people seeking jobs than jobs available at current wage rate in a given labor market

efficiency wages

wages above equilibrium used to incentivise better performance

natural rate of unemployment

unemployment rate that arises from effects of frictional + structural unemployment

cyclical unemployment

deviation of actual rate of unemployment from natural rate

real wage

wage rate divided by price level

real income

income divided by price level

inflation rate

as opposed to price level, percent increase in overall level of prices on the year

shoe-leather costs

increased cost of transactions caused by inflation

menu cost

cost of changing listed prices in inflation

Unit-of-account costs

arise from the way inflation makes money a less reliable unit of measurement. (ie paying taxes for a gain erased by inflation)

interest rate

price, calculated as a percentage of the amount borrowed, that a lender charges a borrower for the use of their savings for one year.

nominal interest rate

interest rate expressed in dollars

real interest rate

nominal interest rate minus rate of inflation

disinflation

reducing inflation rate

number of years to double

70/annual growth rate of variable

labor productivity

output per worker

physical capital

manufactured resources that increase productivity per worker

human capital

education of workers that increases productivity

technological progress

increase in technical means of production

diminishing returns to physical capital

holding the amount of human capital per worker and the state of technology fixed, each successive increase in the amount of physical capital per worker leads

Total factor productivity

is the amount of output that can be achieved with a given amount of factor inputs

aggregate production function

hypothetical function that shows how productivity depends on the quantities of physical and human capital along with the state of technology

research and development

spending to create and implement new technology

infrastructure

roads, power lines, ports, info networks, and other accessories for economic activity

convergence hypothesis

international differences in real GDP per capita tend to narrow over time since emerging economies can benefit from preexisting innovations