MACRO UNIT 1 TEST

Comparative Advantage

 the producer with the lowest opportunity cost (who loses less)

Absolute Advantage

the producer that can produce the most output or requires the lease amount of inputs (resources)

Law of Demand

there is a relationship between price and quantity demanded

Law of Supply

there is a direct (or positive) relationship between price and quantity supplied

5 Shifters of Supply

1. prices/availability of inputs (resources or production) 2) Number of sellers 3) Technology (will always cause a shift to the right) 4) Government action: taxes and subsidies 5) Expectations of future profit

5 Shifters of Demand

1) Tastes and preferences 2) Number of consumers 3) The price of related goods 4) Income 5) Future expectations

Subsidy

a government payment to a business or marker. Subsidies cause the supply of a good to increase

What makes movement along the curve vs shifting the curve

Shifters change the curve, quality and price moves up and down the curve

Shortage

demand is more than supply (raise price)

Surplus

more supply than demand (lower price)

Equilibrium

point where supply and demand cross

Opportunity cost

what you give up/lose after a decision

Scarcity

short in supply

Microeconomics

small scale, looking at small businesses

Macroeconomics

big scale, looking at whole economy of country

Marginal Analysis

Is making decisions based on increments (increase)

Marginal Cost

cost added by producing one unit

Positive vs Normative

based on facts, avoids values judgments (what is) vs all judgments and personal opinions (what ought to be)

Utility

a measure of satisfaction

4 Factors of Production

land, labor, captial, entrepreneurship

 3 economic goals that all countries have

1) Promote economic growth 2) Limit unemployment 3) Keep prices stable (limit inflation)

What is NOT included in GDP

1) goods inside final goods 2) Non production transactions 3) illegal activities

GDP formula

Consumption + I or total spending +Government spending +(X or exports - M or imports)

Investment

when a company puts money into itself to immprove it

nominal vs real GDP

GDP measured in current prices of year (no inflation) vs GDP adjusted for inflation

unemployment

people who are willing to work, not in schools, at least 16, not in military (#unemployed/ #in labor force \* 100)

Circular Flow of income

demonstrates how money moves from producers to households and back again in an endless loop

What is inflation and how do we measure it?

rising of prices each year (new #- old #/ old# x 100)

Deflation

decrease in general prices or negative inflation rate

Disinflation

prices increasing at slower rates

CPI

items that consumers would normally purchase (Price of market basket/ price of market basket in base year times 100)

3 problems with the CPI

1) Substitution Bias (when prices go up we buy subsitutes) 2) New products arent included 3) Product quality- increase or decrease

Natural Rate of Unemployment

Frictional plus structural unemployment. The amount of unemployment that exists when the economy is healthy and growing

GDP deflator

measures the prices of all goods producer (Domestic ONLY, not Imported goods)

Business Cycle

shows the economy going up and down