Intro to Economics Test 3 (Chs. 6 and 8)

National Income and Product Accounts (NIPA)

a set of statistics compiled by the BEA concerning production, income, spending, prices, and employment

Bureau of Economic Analysis (BEA)

the agency in the United States in charge of compiling and publishing the national accounts

depreciation

a decrease in the quantity or quality of a stock of capital due to wear and tear or obsolescence

gross investment

all flows into the capital stock over a period of time

net investment

gross investment minus an adjustment for depreciation of the capital stock

gross domestic product (GDP) (BEA definition)

a measure of the total market value of final goods and services newly produced within a country’s borders over a period of time (usually one year)

imputation

a procedure of assigning values for a category of products, usually based on the market values of related products or the cost of inputs

final good

a good that is ready for use, needing no further processing

intermediate good

a good that will undergo further processing

consumption

purchases of goods and services by the households and institutions sector

investment

spending by businesses undertaken to increase or maintain their productive capacity in order to produce final goods and services for sale 

government spending

expenditures made by the government at the federal, state, and local levels

closed economy

an economy with no foreign sector

open economy

an economy with a foreign sector

net exports

the value of exports less the value of imports

nominal (current dollar) GDP

the dollar value of all final goods and services produced in a year in that year’s prices

real GDP

a measure of gross domestic product that seeks to reflect the actual value of goods and services produced, by removing the effect of changes in prices over time

base year (in the constant-dollar method of estimating GDP)

the year whose prices are chosen for evaluating production in all years

index number

a figure that measures the change in magnitude of a variable, such as a quantity or price, compared to another period

consumer price index (CPI)

an index measuring changes in the prices of goods and services bought by households

inflation

a rise in the general level of prices

bureau of labor statistics (BLS)

the U.S. government agency that compiles and publishes employment and unemployment statistics

civilian noninstitutional population (BLS definition)

persons 16 years or older who do not live in institutions (for example, correctional facilities, nursing homes, or long-term care hospitals) and who are not on active military duty

employed person (BLS definition)

a person who did any work for pay or profit during the week before he or she is surveyed by the BLS or who worked for 15 hours or more in a family business

unemployed person (BLS definition)

a person who is not employed but who is actively seeking a job and is immediately available for work

labor force (BLS definition)

people who are employed or unemployed

“not in the labor force” (BLS definition)

the classification given to people who are neither “employed” or “unemployed”

unemployment rate

the percentage of the labor force made up of people who do not have paid jobs but who are immediately available and actively looking for paid jobs

marginally attached workers

people who want employment and have looked for work in the past 12 months but not in the past four weeks

discouraged workers

people who want employment but have given up looking because they believe that there are no jobs available for them

underemployment 

working fewer hours than desired or at a job that does not match one’s skills

defensive expenditures

money spent to counteract activities that have caused harm to human or environmental health

Green GDP

GDP less depreciation of both manufactured and natural capital

satellite accounts

additional accounting systems that provide measures of social and environmental factors in physical terms, without necessarily including monetary valuation

subjective well-being (SWB)

a measure of welfare based on survey questions asking people about their own degree of life satisfaction

Better life index (BLI)

an index developed by the OECD to measure national welfare using 11 well-being dimensions

human development index (HDI)

a national accounting measure developed by the United Nations based on three factors: life expectancy, education, and real GNI per capita

market power

the ability to control, or at least affect, the terms and conditions of a market exchange

perfect competition

a market for the exchange of identical units of a good or service in which there are numerous small sellers and buyers, all of whom have perfect information

price taker

a seller that has no market power to set price. Price is determined solely by the interaction of market supply and market demand

total revenues

the total amount of money received by a seller, equal to price times quantity sold

profits

the difference between total revenues and total costs

accounting profits

the difference between total revenues and accounting costs

economic profits

the difference between total revenues and economic costs

marginal revenue

the additional revenue obtained by selling one more unit. In a perfectly competitive market, marginal revenue equals the market price

profit maximization (under perfect competition)

a seller should increase production up to the point where MR=MC. As MR=P under perfect competition, we can also define the profit-maxim

perfectly competitive market equilibrium

the market equilibrium in a perfectly competitive market in which the economic profits of each individual seller are zero, and there is no incentive for entry or exit

sunk cost

an expenditure that was incurred or committed to in the past and is irreversible in the short run

barriers to entry

economic, legal, or deliberately created or maintained obstacles that keep new sellers from entering a market

natural monopoly

a monopoly that arises because the minimum efficient scale of the producing unit is large relative to the total market demand

predatory pricing

a powerful seller’s temporary pricing of its goods or services below cost, in order to drive weaker competitors out of business

local monopoly

a monopoly limited to a specific geographic area

regulated monopoly

a monopoly run under government supervision

price maker

a seller that can set the selling price, constrained only by demand conditions

price discrimination

the practice of charging different customers different prices for the same good or service

nonprice competition

competition through activities other than setting prices, such as advertising and location

duopoly

a market with only two sellers

collusion

cooperation among potential rivals to gain market power as a group

tacit collusion

collusion that takes place without the creation of a cartel

price fixing

a form of collusion in which a group of sellers implicitly agrees to maintain a common price 

concentration ratio

the share of the market, based on revenues, output, or value added, attributed to the largest producers in an industry

path dependence

the idea that the state of a system such as the economy is strongly shaped by its history