Macroeconomics Dr. Jasso Test 1

I did not make these

3 choices every nation confronts

what to produce with limited resources, how to produce the goods and services selected, and for whom to produce them

scarcity

lack of enough resources to satisfy all desired uses of those resources

limits the amount of goods and services than can be produced

factors of production

resource inputs used to produce goods and services

labor

skills and abilities of all humans at work

capital

goods produced for use in further production

land

all natural resources

entrepreneurship

assembling of resources to produce new products/technologies

4 factors of production

labor, capital, land, and entrepreneurship

production possibilities

the combinations of fixed goods and services that could be produced in a given time period with all available resources and technology

opportunity cost

loss divided by gain

point below PPC

attainable but inefficient

point on PPC

attainable and efficient

point above PPC

unattainable

PPC

production possibilities curve

economic growth

an increase in output, the expansion of production possibilities

caused by increasing the available resources or but technology advancing

raises our standard of living, satisfies more wants and needs, creates jobs

efficiency

a maximum output of a good from the resources used in production

what to produce

the pt we choose on the PPC determines what mix of output gets produced

how to produce

someone must decide which production methods and technologies to use

for whom to produce

there must be a mechanism to determine whose wants and needs will be satisfied and who must go without

GDP

the total value of goods produced and services provided in a country during one year

GDP per capita

GDP divided by the population

an indication of a country's standard of living

the market mechanism

what does the market want

the use of market prices and sales to signal desired outputs and resource allocations

government directive

what does the government want us to produce

Karl Marx and John Maynard Keynes

decisions about what, how, and for whom would be made by political leaders and bureaucrats

the invisible hand

the market mechanism

lassez faire

the doctrine of "leave it alone," of nonintervention by government in economy

mixed market

combination of market mechanism and government directive

index of economic freedom

ranks nations according to economic freedom

market-dominated economies rank high

gov-run economies rank low

market failure

when the market does not produce the mix of goods that society desires

the market mechanism did not lead us to the optimal point on the PPC

establishes a basis for gov intervention

market participants

trying to obtain the maximum return from the scarce resources they have

consumers

maximize the utility they can get from available incomes

businesses

maximize profits by selling goods that satisfy while keeping costs low

government

maximize the general welfare of society

specialization

producing what we can at a lower opportunity cost than others

determinants of demands

tastes, income, expectations, other goods

change in quantity demanded

movement along a demand curve in response to a change in price

price increases

qty demand decreases; supply increases

price decreases

qty demanded increases; supply decreases

change in demand

a shift of the demand curve due to a change in one or more of the determinants of demand but not in response to a change in price

law of supply

the quantity of a good supplied in a given time period increases as its price increases

shortage

demand is greater than supply

society's goal

to produce the optimal mix of output

optimal mix of output

the most desirable combination of output attainable using existing resources, technology, and social values

sources of market failure

public goods, externalities, market power, and inequity

free-rider dilemma

the communal nature of public goods may cause some consumers to try for a free ride

free rider

an individual who reaps direct benefits from someone else's purchase/consumption of a public good

externality

a cost or benefit that is being carried by a third party

correcting positive externalities

gov tries to increase demand for product

correcting negative externalities

gov tries to reduce the supply of the externality

market power

the ability of a firm to manipulate the price of good in the market

gov restricts market power and promotes more competition

inequity

income redistribution

merit good

a good society believes everyone is entitles to some minimal quantity of

goal of macro intervention

to foster economic growth

move out of inefficiency and onto PPC - reduce unemployment

avoid inflation - stable prices

increase capacity to produce - economic growth

inflows

sources of funds

taxes, borrowing

outflows

uses of funds

purchases, payments, transfer payments (gov aid, etc)

price ceiling

maximum you can charge

creates more demand and less supply - shortage

price floor

minimum price

creates more supply and less demand

regressive tax

the more you make, the less ou actually pay (social security)

progressive tax

the more you make, the more you pay