ECON 211 Exam 1 (UNL)

Economists study....

all human behavior

Economic agent

an individual or a group that makes choices

(examples: consumer eating bacon cheeseburger or tofu burger, parent enrolling child in public or private school)

scare resources

things that people want, where the quantity that people want exceeds the quantity that is available

scarcity

exists because people have unlimited wants in a world of limited resources

economics

the study of how agents choose to allocate scarce resources and how those choices affect society

positive economics

describes what people actually do

normative economics

recommends what people ought to do

microeconomics

the study of how individuals, households, firms, and governments make choices and how those choices affect prices, the allocation of resources and the well-being of other agents

macroeconomics

the study of the economy as a whole

optimization

people decide what to do by consciously or unconsciously weighting all of the known pros and cons of the different available options and trying to pick the best feasible option

equilibrium

a situation in which no agent would benefit personally by changing his or her own behavior

empiricism

analysis that uses data or analysis that is evidence-based

trade-offs

they arise when some benefits must be given up in order to gain others

budget constraints

the set of things that a person can choose to do (or buy) without breaking her budget

opportunity costs

the best alternative activity

cost benefit analysis

is a calculation that adds up costs and benefits using a common unit of measurement, like dollars

market

a group of economic agents who are trading a good or service, and the rules and arrangements for trading

market price

if all sellers and all buyers face the same price

perfectly competitive market

1. sellers all sell an identical good or service

2. any individual buyer or any individual seller isn't powerful enough on his or her own to affect the market price

price-takers

buyers and sellers accept the market price and can't bargain for a better price

quantity demanded

at a given price, the amount of the good or service that buyers are willing to purchase

demand schedule

the quantity demanded at different prices

"holding all else equal"

everything other than the price of gas is help constant or fixed, including income, rent and highway tolls

demand curve

plots the relationship between prices and quantity demanded

Law of Demand

the quantity demanded rises when the price falls (holding all else equal)

willingness to pay

the highest price that a buyer is willing to pay for an extra unit of a good

diminishing marginal benefit

as you consume more of a good, your willingness to pay for an additional unit declines

market demand curve

the demand of all buyers in a market

the demand curve shifts only when....

the quantity demand changes at a given price

normal good

an increase in income causes the demand curve to shift to the right (holding the good's price fixed)

inferior good

rising income shirt the demand curve for a good to the left (holding the good's price fixed)

substitutes

when two goods fall in the price of one leads to a left shift in the demand curve for the other

complements

when two goods fall in the price of one, leads to a right shift in the demand curve for the other

The demand curve shifts when these factors change:

1. takes and preferences

2. income and wealth

3. availability and prices of related goods

4. number and scale of buyers

5. buyers' beliefs about future

The ONLY reason for a movement along the demand curve:

a change in the price of the good itself

quantity supplied

is the amount of a good or service that sellers are willing to sell at a given price

supply schedule

a table that reports the quantity supplied at different prices, holding all else equal

supply curve

plots the quantity supplied at different prices. A supply curve plots the supply schedule

Law of Supply

in almost all cases, the quantity supplied rises when the price rises (holding all else equal)

willingness to accept

the lowest price that a seller is willing to get paid to sell an extra unit of a good. Willingness to accept is the same as the marginal cost of production

market supply curve

the sum of the individual supply curves of all the potential sellers. It plots the relationship between the total quantity supplied and the market price, holding all else equal

The supply curve shifts when the factors change:

1. Prices of inputs used to produce the good

2. Technology used to produce the good

3. Number and scale of sellers

4. Sellers' beliefs about the future

The ONLY reason for a movement along the supply curve:

A change in the price of the good itself

excess demand

then the market price is below the competitive equilibrium price, quantity demanded exceeds the quantity supplied

income per capita

income per person

recessions

periods in which aggregate economic outputs falls (lasts at least 2 quarters)

National income accounts

measure the level of aggregate economic activity in a country

National Income and Product Accounts (NIPA)

the system of national income accounts that is used by the US government

Gross Domestic Product (GDP)

the market value of the final goods and services produced within the borders of a country durning a particular period of time

Factors of production

1. production

2. expenditure

3. income

4. factors of productions

value added

the firm's sales revenue minus the firm's purchases of intermediate products from other firms

consumption

is the market value of consumption goods and consumption services that are bought by domestic households

investment

market value of new physical capital that is bought by domestic households and domestic firms

Government expenditure

the market value of government purchases of goods and services

exports

all domestically produced good and services that are purchased by households, firms, and governments in foreign countries

imports

all foreign-procured goods and services that are sold to domestic households, domestic firms, and the domestic government

GDP equation or national income accounting identity

=C+I+G+X-M

=consumption+investment+government expenditure+exports-imports

labor income

any form of payment that compensates people for their work

capital income

any form of payment that derives form owning physical or financial capital

Gross National Product (GNP)

is the market value of production generated by the factors of production - both capital and labor - possessed or owned by the residents of a particular nation

Nominal GDP

total value of production, using current market prices to determine the value of each unit that is produced

Real GDP

the total value of production, using market prices from a specific base year to determine the value of each unit that is produced

Real GDP growth

growth rate of GDP

GDP deflator

is 100 times the ratio of nominal GDP to real GDP in the same year

GDP deflator equation

(Nominal GDP/Real GDP) x 100

Consumer Price Index (CPI)

100 times the ratio of the cost of buying a basket of consumer goods using 2013 prices divided by the cost of buying the same basket of consumer goods using base year prices

inflation rate

the rate of increase in price

Income per capita or GDP per capita

GDP/total population

Purchasing Power Parity (PPP)

constructs the cost of a representative bundle of commodities in each country and uses the relative costs for comparing income across counties

Productivity

refers to the value of goods and services that a worker generates for each hour of work