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comparative advantage refers to
the ability to produce a good with a lower opportunity cost than another producer
what causes increase in supply
an improvement in the technology used in production
the theory of comparative advantage is:
always relevant for identifying whether gains from trade can be obtained
what does the law of demand state
as the price of a good increases, consumers purchase less of that good
the equilibrium price is
stable cause at this price the quantity demanded equals the quantity supplied
the fundamental idea behind the production possibilities frontier is
the trade offs that exist in production
the supply curve illustrates
the relationship between quantity supplied and the price of a good
the production possibility frontier shows
the combinations of output that an economy can produce given its productivity and supply of inputs
an increase in supply and decrease in demand occur in a market, what happens to the equilibrium price and quantity
the equilibrium price decreases, the change in the equilibrium quantity is uncertain
in a market, the equilibrium condition is given by the following
quantity demanded = quantity supplied
one benefit of trade is that
allows for increased specialization and mass production techniques that lower per unit costs of production
a government subsidy to producers causes the
supply of the product to increase
what you give up to obtain an item is called your
opportunity cost
a decrease in supply refers to
a leftward shift of the supply curve
economic boom and busts
can be moderated but cannot be avoided
in free markets surplus lead to
lower prices
a decrease in demand refers to
a leftward shift of the demand curve
the quantity demanded is the quantity that buyers are
willing and able to buy at a given price
to benefit the most from trade a person should
specialize in an activity for which she has a comparative advantage
when there is a recession the price of oil tends to fall because
incomes fall during a recession and oil is a normal good
trade creates value because
people exchange things they do no want for things they do
for a normal good, higher income results in
an increase in demand
the great economic problem is how to arrange our scarce resources
to satisfy as many of our wants as possible
if demand increases, what happens with the supply curve
there is a movement rightward along the supply curve
the labor force consists of
employed workers and adults who do not have jobs but who are looking for work
the % of adults in the labor force is the
labor force participation rate
a discouraged worker is a
person who has given up looking for work but would still like a job if one is available
the short term unemployment caused by ordinary difficulties of matching employee to employer is called
frictional unemployment
higher unemployment benefits tend to
increase the unemployment rate
cyclical unemployment is
unemployment correlated with the business cycle
the natural rate of unemployment is defined as the rate of
structural plus frictional unemployment’s
as the baby boomers retire the us labor force participation rate will
decrease
inflation is
an increase in the avg level of prices
the consumer price index measures the prices of
a basket of goods bought by a typical american consumer
deflation is
a decrease in the avg level of prices
the quantity theory of money assumes that the velocity of money
is relatively stable
money illusion is
mistaking changes in nominal prices for changes in real prices
the term business fluctuations refers to
movement in real gdp around its long term trend
a recession is defined as a widespread decline in
real income GDP
the AD-AS model consists of the
AD, SRAS and LRAS curve
in the graph of AD-AS model, what is measured on the vertical axis
the inflation rate
the aggregate demand curve is
downward sloping
the main reasons for the slope of SRAS is
both sticky prices and sticky wages
countries with high GDP per capita tend to have a lot of
physical capital, human capital and technological knowledge per worker
the main reason for the influence of institutions on the wealth of nations is that good institutions:
a raise people’s incentives to build wealth
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