eco 111

midterm 1

basic economic foundations

unlimited wants + limited resources

economic resources

land, labor, capital, entrepreneurship

method of economics

economics ask + answer questions

2 types of economic questions

positive + normative

positive statements

facts (no judgement)

normative statements

what ought to be (with judgement

2 types of positive statements

descriptive economics + macroeconomic theory

descriptive economics

compilation of data that describes facts

macroeconomic theory

construction of models of behavior of certain economic variables

variables

any factor in an economy that changes + can be measured

model

1+ relationships between variables

market

institution that brings together buyers/sellers of specific products

law of demand

negative (inverse) relationship between price + Qd

law of supply

positive (direct) relationship between P + Qs

quantity demanded

amount of good that buyers can/will buy

increase

rightward shift

decrease

leftward shift

demand determinants

price, population, income

quantity supplied

amount of a good that sellers can/will sell

supply determinants

price, taxes/subsidies, # of sellers, tech

surplus

excess supply

shortage

excess demand

consumer surplus

what consumers are willing to pay vs what they fr pay

producer surplus

what producers are willing to sell vs what they fr sell

aggregate demand

total $ that everyone in market is willing to spend

aggregate supply

total # products that all sellers can/will sell

unemployment equation

(# unemployed/labor force) x 100

frictional unemployment

due to normal turnover, short term/voluntary

structural employment

due to loss of demand fro skills

cyclical employment

bad part of business cycle

seasonal employment

job isn’t year round

stagflation

when inflation + recession coexist

Gross Domestic Product

GDP sum of $ of all final products produced in an economy over P.O.T.

GDP equation

C + i + G + x-M

nominal gdp equation

sum of (PxQ)

real gdp equation

sum of (base year P xQ)

growth rate equation

((real GDP-previous)/previous) x100

how to find market basket/cost

PxQ

CPI equation

(cost/base cost) x100

inflation rate equation (w/ CPI & GDP deflator)

((cost-previous)/previous) x100

GDP deflator equation

(nominal/real) x100

fiscal policy

gov’t plan for spending/taxation

consumption function

positive relationship between C+DI

Marginal Propensity to Consume

MPC = C=a+bDI

saving

difference between C / DI

saving equation

s = c - DI

MPS/MPC → slope equation

(C1-C2)/(DI1-DI2)

MPS

Marginal propensity to save

MPS + MPC =

1

potential output

level of output if we were in full employment

inflationary gap

amount that GDPe exceeds potential GDP

recessionary gap

amount that GDPe falls short of potential GDP

price ceiling

legal max price that can be charged

price flooring

legal minimum price that can be charged