ECO201: Principles of Macroeconomics Exam 1 Review

Flashcards derived from economics lecture notes covering key concepts related to scarcity, macroeconomics, market structures, and GDP.

Scarcity

It is impossible to completely fulfill the unlimited human desire for goods and services with the limited resources available.

Macroeconomics vs Microeconomics

Macroeconomics is concerned with aggregate markets, while microeconomics focuses on individual markets.

Economies of scale

As the level of production increases, the average cost of producing each individual unit declines.

Monetary policy tool

An example of a monetary policy tool is interest rates.

Goods and services market

In the goods and services market, households receive goods and services and pay firms for them.

Command economy

An economy where the government makes most economic decisions or strongly influences them.

Market-oriented economy

In this type of economy, the amount of a good produced is primarily decided by the interaction of buyers and sellers.

Underground markets

Exist substantially due to conditions of a command economy.

Division of labor

The way in which the work required to produce a good or service is divided into tasks performed by different workers.

Opportunity cost

The benefit to Gomer's grades from studying for an hour while he plays basketball instead.

Production possibilities frontier

A graphically represents the combination of goods that can be produced with available resources.

Diminishing marginal utility

As a person receives more of a good, the additional satisfaction from each additional unit declines.

International trade

Considered the most important factor for countries with small economies to fully utilize specialization.

Fiscal policy

Involves government spending and is one of the main tools of macroeconomic policy.

Circular flow of income

Represents how businesses buy resources from households, and households use their income to buy goods and services.

Marginal benefit

The maximum amount that a consumer is willing to pay for a slice of pizza.

Marginal analysis

Comparing the benefits and costs of choosing a little more or a little less of a good.

Positive statements

Describe the world as it is, as opposed to normative statements, which describe how the world should be.

Equilibrium price

The price at which quantity demanded is equal to quantity supplied.

Supply curve

A graphical illustration of the relationship between price and quantity supplied.

Demand schedule

Indicates the quantities that will be purchased at alternative market prices.

Trade balance

The gap between exports and imports in a nation's economy.

Real GDP

The value of GDP after it has been adjusted for inflation.

Trade deficit

Exists when imports exceed exports.

Investment (I) in GDP

Includes spending on new factories and machinery.

Intermediate goods

Not directly included in GDP calculations.