Micro-Economics Mid-Term Exam Study Guide

Flashcards covering micro and macro-economic concepts, market structures, fiscal policy, and historical economic acts based on the Valencia College study guide.

What is the economizing problem in economics?

Making the most efficient use of scarce resources to satisfy as many needs and wants as possible.

How is micro-economics defined in the study guide?

The economic analysis of the individual, such as individual markets and individual consumers.

What is the aggregate expenditure model used in macro-economics?

$$GDP = C + Ig + Xn + G$$

What are considered substitute goods in the context of production?

Labor and technology.

What does a Production Possibility Curve depict regarding efficiency?

Everything on the curve is efficient and attainable, while points to the left are attainable but inefficient.

What is the result of the division of labor?

Specialization.

According to the notes, who is the originator of the Theory of Absolute Advantage?

Adam Smith

According to the notes, who is the originator of the Theory of Comparative Advantage?

David Ricardo

How does a $1/4\%$ increase in investment in capital equipment affect productivity?

It leads to a $1\%$ increase in productivity.

What does it mean when the dollar appreciates on the world market?

It purchases more foreign currency (exchange).

What are the three functions of price on the market?

It organizes the market, rations scarce goods, and steers resources into their most efficient or profitable use.

Where is a price floor located relative to the market price, and what does it lead to?

It is above the market price and leads to a surplus.

Give two examples of a price ceiling from the notes.

Rent controls and wages controls.

What is the difference between labor costs and wages?

Labor costs are wages plus benefits (social security, Medicare tax, etc.) paid by the employer, while wages are the price paid to workers per unit of time.

What is the 'ratchet effect'?

The concept that once prices are ratcheted up, they tend to be downwardly inflexible or sticky.

What is the specific shelf life threshold that distinguishes durable goods from non-durable goods?

Greater than $3$ years for durable goods; less than $3$ years for non-durable goods.

What three entities or policies were created by the Full Employment Act of 1946?

Fiscal policy and Monetary policy, the Council of Economic Advisors (CEA), and the Joint Economic Committee of Congress (JEC).

According to the Full Employment Act of 1946, what are the target ranges for unemployment and GDP growth?

Unemployment between $4\%$ and $6\%$; GDP growth of at least $2\%$ to 3\%^.

What is the difference between a structural deficit and a cyclical deficit?

A structural deficit is a planned deficit used by Congress to maintain the natural rate of unemployment, while a cyclical deficit is a business cycle deficit caused by a business downturn.

How is productivity defined in the study guide?

The average output per worker per hour, or the real output per unit of input.

What are tariffs, and what type of tax are they?

Monetary restrictions on imported goods; they are an excise tax.

What was the major cause of the world-wide depression of the 1930s?

The Smoot-Hawley Act.

What is expansionary fiscal policy?

A policy to expand private spending where the government lowers taxes, increases government spending, or both.

What is subjective valuation?

The concept that something is only worth what somebody is willing to pay for it.

What are the four factors of production (inputs)?

Land, labor, capital, and entrepreneurship.

What are the payments for the four factors of production?

Rent, wages, interest, and profits.

What is Say's Law?

Supply creates its own demand.

What is the difference between an independent variable and a dependent variable?

An independent variable is the first mover, while a dependent variable changes in value only because the value of another variable changed.

What is the difference between a firm and a plant?

The firm is the administrative function of the business, while the plant is where the service or product is produced.

What was the major reason for the rapid increase in international trade after WWII?

Transportation technology, specifically the development of the shipping container and container ports.

What are the primary determinants for demand and supply?

For demand, number one is personal tastes and preferences; for supply, number one is the cost of the inputs of production.

Define the Law of Demand.

Price and demand are inversely related; when price goes up, demand goes down, and when price goes down, demand goes up.

What is the Free Rider Problem?

When others pay for a good or service and anyone can use it regardless of whether they pay, such as the fire or police departments.

What are the four phases of the business cycle?

The peak, the recession, the trough, and the recovery.

What is the Pareto Positive Superior Theorem?

The idea that both the buyer and the seller must benefit or the exchange will not take place.

What defines a recession according to the notes?

When the GDP declines for greater than $2$ quarters (6 months).