Principles of Macroeconomics Chapters 1-5 Test Material

Economics

is the study of how human beings coordinate their wants and desires, given the decision making mechanisms, social customs, and political studies

Scarcity

the goods available are few too satisfy individuals

Scarcity has two elements

our wants and our means of fulfilling those wants

Macroeconomics

is the study of the economy as a whole. It considers the problems of inflation, unemployment, business cycles,, and growth

Microeconomics

is the study of how individual choice is influenced by economic forces

Managerial Economics

the study of "value"

Economic Reasoning

is making decisions on the basis of costs and benefits

Marginal Cost

("extra", cost of doing something). is the additional cost to you over and above the costs you have already incurred.

Sunk Cost

the additional cost to you over and above the costs you have already incurred.

Marginal Benefit

("extra", benefit of doing something)... is the additional benefit above what you've already derived.

Opportunity Cost

(the cost of sacrificing one option for another option). is the benefit that you might have gained from choosing the next best alternative

Market force

is an economic force that is given relatively free rein by society to work through the market

Economic model

a framework that places the generalized insights of the theory in a more specific contextual setting

Economic principle

a commonly held economic insight stated as a law or principle

Experimental economics

a branch on economics that studies the economy through controlled laboratory experiments

Natural experiments

naturally occurring events that approximate a controlled experiment where something has changed in one place but has not changed somewhere else

Theorems

propositions that are logically true based on the assumption in a model

Precepts

policy rules that conclude that a particular course of action is preferable

Efficiency

means achieving a goal as cheaply as possible

Economic policies

are actions (or inaction) taken by government to influence economic actions

Production possibility table

is a table that lists the trade offs between two choices

Production possibility curve

a combination of resources that will maximize our resources for a given output

Comparative and Competitive

doing something better than others

Productive efficiency

achieving as much output as possible from a given amount of inputs or resources

Inefficiency

getting less output from inputs that, if devoted to some other activity, would produce more output

Laissez-faire

means "let events take their course; leave things alone"

Globalization

is the increasing integration of economics, cultures, and institutions across the world

Law of One Price

wages in one country will be similar to wages in other countries

Market economy

an economic system based on private property and the market in which, in principle, individuals decide how, what and for whom to produce

Private Property Rights

the control a private individual or firm has over an asset

Consumer Sovereignty

the consumer is "king or queen" by influencing the decisions of business

Market Failure

situations where the market does not provide the desired result

Government Failure

when the government gets involved and makes the situation worse

Externality

is the effect of a decision on a third party not taken into account by the decision maker

Macroeconomics externalities

is the effects of an individual decision that affects the level of unemployment, inflation, or growth in an economy as a whole but is not taken into account by the individual decision maker

Public good

is a good that if supplied to one person must be supplied to all

Private good

is a good that when consumed by one individual cannot be consumed by another individual

Demerit goods or activities

goods or activities that government believes are bad for people

Merit goods or activities

goods and activities that government believes are good for you

Global corporations

are corporations with substantial operations on both the production and sales sides in more than one country

Demand

willingness and ability to obtain a good/service

Law of Demand

price and quantity are inversely related

Price goes up quantity goes down

Price goes down quantity goes up

Giffen Good

exception to the Law of Demand

Price goes up quantity goes up (superior)

Price goes down quantity goes down (inferior)

Change in quantity of demand

short-term change

Change in demand

long-term change

Supply

willingness and ability to provide a good/service

Law of Supply

direct relationship between price and quantity

Price goes up quantity goes up

Price goes down quantity goes down

Change in quantity supplied

short-term change

Change in supply

long-term change

Demand Curve

is the graphic representation of the relationship between price and quantity demanded

Movement along a demand curve

the graphical representation of the effect of a change in price on the quantity demanded

Shift in demand

the graphical representation of the effect of anything other than price on demand

Market demand curve

is the horizontal sum of all individual demand curves

Supply Curve

is the graphical representation of the relationship between price and quantity supplied

movement along a supply curve

the graphical representation of the effect of change in price on the quantity supplied

shift in supply

the graphical representation of the effect of a change in a factor other than price on supply

market supply curve

is the horizontal sum of all individual supply curves

equilibrium

is a concept in which opposing dynamic forces cancel each other out

equilibrium quantity

is the amount bought and sold at the equilibrium price

equilibrium price

is the price toward which the invisible hand drives the market

excess supply

(a surplus), quantity supplied is greater than quantity demanded

excess demand

(a shortage), quantity demanded is greater than quantity supplied

fallacy of composition

the false assumption that what is true for a part will also be true for the whole

price floor

sets the minimum price, (surplus); helps: seller and producer

price ceiling

sets the maximum price, (shortage); helps: buyer and consumer

rent control

a price ceiling on rents set by government

minimum wage laws

laws specifying the lowest wage a firm can legally pay an employee

excise tax

is a tax that is levied on a specific good

tariff

is an excise tax on an imported good

third party payer markets

the person who receives the good differs from the person paying for the good.