ECON FINAL

What makes up GDP?

Government expenditure, investment, consumption, net exports

Government Expenditure

Money spent by the government (ex. infrastructure, defense, education, & healthcare)

Consumption

Consumer/household spending

Investment

Companies purchasing capital

Net Exports

the exports (x) minus the imports (m)

What is the top of the business cycle called?

Peak

What is the dip in the business cycle called?

Trough

What is a flatline in the business cycle called?

Recession/depression

What kind of policy does the Fed make?

Monetary Policy

Why does the Fed run monetary policy?

They can make quick decisions to do things like lower the interest rates.

Poverty Threshold

Minimum amount of money a person can make to meet basic living essentials

Write out the business cycle

Expansion, peak, contraction, trough

When GDP goes up does unemployment go up or down?

Up

Cost-push

when prices of resources go up, the prices of the products do as well

Demand-pull

as demand increases so do prices

What is anm example of a contractionary policiy?

raising interest rates

to expand fiscal policy the gov…

decreases taxes and increases spending

resverve requirment

The fraction of deposits that banks must hold in reserve and not lend out.

Progressive taxes

A tax system where the tax rate increases as the taxable amount increases.

Regressive taxes

A tax system where the tax rate decreases as the taxable amount increases, meaning lower-income individuals pay a higher percentage of their income in taxes.

proportional taxes

A tax system where the tax rate is fixed, regardless of the taxable amount, also known as a flat tax.

examples of expansionary monetary policy

Lowering interest rates, decreasing the reserve requirement, and buying government securities (open market operations).

examples of contractionary monetary policy

Raising interest rates, increasing the reserve requirement, and selling government securities (open market operations).

examples of expansionary fiscal policiy

Decreasing taxes and increasing government spending.

examples of contractionary fiscal policy

Increasing taxes and decreasing government spending.

Oligopoly

A market structure in which a few large firms dominate the market, they often collude

Monopoly

A market structure characterized by a single seller of a unique product with no close substitutes, giving that seller significant market power.

Perfect Competition

A market structure characterized by many firms competing with identical products, where no single firm can influence the market price.

Monopolistic Competition

A market structure where many firms sell similar but not identical products, allowing for some price-setting power.

Partnership

A type of business organization where two or more individuals share ownership and management responsibilities, sharing profits and liabilities.

Franchise

a legal agreement allowing a party to operate a business under a recognized brand name. It combines elements of both independence and support from the franchisor.

Sole proprietorship

A business owned and operated by a single individual, who is personally liable for its debts and obligations.

limited life

A characteristic of a business where its legal existence is tied to the life of its owner(s), meaning it dissolves upon the death or withdrawal of an owner.

corporation

A legal entity separate from its owners, offering limited liability to shareholders and having a potentially unlimited life.

cooperative

An autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.

What do wage rates and stock price have in common?

They are both determined by supply and demand

what are the physical properities of $$

• durability

• portability

• divisibility

• uniformity

• limied supply

• acceptability

• scarce

• stability

economic properties of $$

medium of exchange- store of value- unit of account

Minimum wage is a???

price floor

diversification

A strategy employed to minimize risk by investing in a variety of assets or securities.

Bond

A debt security where an investor lends money to an entity (corporate or governmental) for a defined period, receiving periodic interest payments.

Elasticity

A measure of the responsivness of the quanity demanded or supplied to a change in one of its determinants. 

Demand

The quanitity of a good or service that consumers are willing and able to purchase at various prices during a specific period. 

Law of demand

An inverse relationship between price and quantity demanded, as price decreases, demand goes up

Law of supply

Direct relationship between price and quantity supplied, as price goes up, quantity increases

Law of Diminishing Marginal Utiltiy

As a consumer consumes more units of a good, the additional marginial utility gained from each successive unit decreases. 

Income Effect

The change in consumption resulting from a change in income caused by a change in price

Subsitution Effect

The change in quantity demanded of a good resulting from a change in its relative price, with the consumer's real income held constant.

Fixed Costs

Costs that do not vary with the level of output in the short run (e.g., rent, insurance, capital)

Variable Costs

Costs that change with the level of output (e.g., raw materials, labor wages).

Fixed Cost + Variable Cost = ?

Total Costs

Marginal Product

The additional output produced by adding one more unit of a specific input (e.g., labor), while holding all other inputs constant.

Equlibrium Price

The price at which the quantity demanded equals the quantity supplied, resulting in no surplus or shortage.

Surplus

A situation where the quantity supplied is greater than the quantity demanded at a given price.

Shortage

A situation where the quantity demanded is greater than the quantity supplied at a given price.

Price Ceiling (think upside down house)

Ex: Rent Control, price cannot go higher

Price Floor (think upside down house)

Ex: Cigarettes, price cannot go lower

What are the determinate factors (shifters) of demand?

   1. Tastes and preferences

2. Income

3. Price of related goods (substitutes and complements)

4. Number of buyers

5. Consumer expectations

What are the determinate factors (shifters) of supply?

   1. Technology

2. Price of Resources 

3. Taxes & Subsidies  

4. Number of producers

5. Expectations

When in doubt…

graph it out

When demand or supply increases where does the graph shift?

To the right →

Scarcity

people have unlimited wants, but there are limited resources, leads to 3 q’s

How to produce it?

What to produce?

For whom to produce it for?

Consumer Sovern

the economic concept that consumer demand ultimately dictates what goods and services are produced in a market economy

incentives

offered to encourage people to act in certain ways 

trade off

what you give up when you make a decision

opportunity cost

the loss of potential gain from other alternatives when one alternative is chosen.

utility

benefit gained from use of a good or service

public good/service

the loss of potential gain from other alternatives when one alternative is chosen.

public safety net

a collection of federal, state, and local government programs designed to provide a minimum standard of living by offering essential benefits like food, housing, healthcare, and temporary financial assistance to individuals and families experiencing hardship or financial crisis

public transfer payment

a payment by the government to individuals or households for which no current or future goods or services are provided in return, with the aim of redistributing income or providing economic security.

subsidy

gov giving $$ (disablity, food stamps, stimulus checks)

econimizing

to make decisions according to what you believe is the best combination of costs and benefits 

market failure

occurs when someone (free rider) benefits from a marketplace interaction without paying for any of its costs

who owns factors of production?

government

factors of production

land, labor, capital, entreperneruship

revanue-production cost =?

profits

externality

consequences of market interasctions

Positive: benefit for people not involved

Negative: costs for people not involved

diminishing marginal utility

the more you do something the less you enjoy it (ex. roller coaster)

Consumer