Economics : Comp Extra Credit Sheet
Unit 1: Foundations of Economics
Efficiency is a point on the PPC
Inefficiency is a point inside the ppc
Economic growth requires expansion of the PPC
In a bowed-out PPC, goods are not similar
In a straight-line PPC, goods are similar
More physical capital means that businesses can permanently produce more output than before. More human capital makes workers more productive since they are smarter and more educated
Private Goods are rival and excludable
Public Goods are non-rival and non-excludable. Public goods are often provided by the government since the free market has little incentive to produce them.
Unit 2: Personal Financial Literacy
A progressive tax takes a larger percentage of income from higher-income individuals and groups than from lower-income ones, while a regressive tax takes a larger percentage of income from lower-income individuals and groups. Progressive taxes are often seen as more equitable as they tend to reduce income inequality, while regressive taxes can exacerbate it.
Unit 3: Supply and Demand
The law of demand shows a negative relationship between price and quantity demanded because of the substitution effect, income effect, and the law of diminishing marginal utility.
An increase in the price of a good decreases the quantity demanded, not the demand. The demand does not shift!
A decrease in price increases the quantity demanded and decreases the quantity supplied resulting in disequilibrium. There is a shortage because more units are demanded than producers are making.
A double shift causes a definitive change in either equilibrium price OR quantity. The one that doesn’t definitely change is indeterminate (or ambiguous) because it depends on the severity (size) of the shift.
A price ceiling is a cap on market prices. If this cap is above equilibrium price, the regulation will have no effect on the market. Sellers will continue to sell at the market price since it is still legal to do so.
A minimum wage increases the wage causing disequilibrium. The quantity demanded decreases since firms hire less workers and the quantity supplied increases as more workers enter the market.
Unit 4: Production Costs, Market Structures, and Profit
Explicit Costs are out-of-pocket costs and Implicit Costs are opportunity costs like forgone income, time, and other things given up.
Perfectly Competitive Firms have both efficiencies in the long-run (allocative efficiency and productive efficiency). They are allocatively efficient because the price equals marginal cost (P=MC) and they are productively efficient because price equals the minimum average total cost (P=minATC).
In the long run, other firms can enter the market when there is profit because there are no barriers to entry. When these firms enter, the price falls causing all firms to make no economic profit in the long run.
High barriers to entry provent other firms from entering the market.
A monopoly (high barriers to entry) is a market structure where a single firm controls the entire supply of a product with no close substitutes, giving them significant price-setting powers. Monopolistic Competition (low barriers to entry), on the other hand, involves many firms competing with slightly differentiated products, where each firm has some influence on price, but faces competition from other firms offering similar products.
A cartel is a colluding oligopoly where firms work together to hold back production and increase prices. In a regular oligopoly, firms are actively competing against each other.
Antitrust Policies are designed to create more competition and prevent monopolies.
Unit 6: Intro to Macroeconomics and GDP
GDP measures goods and services produce. Transfer payments are not included because nothing new is purchased or produced. GDP also excludes intermediate goods, used goods, volunteer work, and financial transactions.
The official unemployment rate ignores discouraged workers. These are jobless workers who have given up looking for work. They are not counted as unemployment because they are not in the labor force.
Full employment (or the natural rate of unemployment) is not 0% unemployment because 0% is not possible. The economy will always have some frictional and structural unemployment. Full employment is when there is no cyclical unemployment.
An increase in unexpected inflation helps borrowers because when inflation increases, borrowers pay back loans with dollars that have lower purchasing power.
The difference between the annual inflation rate and the consumer price index is the inflation rate shows how prices changed compared to last year whereas the CPI shows how prices changed compared to a base year. Unlike the inflation rate, the CPI is not a percentage; it is an index number.
Unit 7: Aggregate Demand, Aggregate Supply, & the Business Cycle
Aggregate demand is influenced by factors like consumer spending, investment, government spending, and net exports, while short-run aggregate supply is affected by input prices, taxes and subsidies, business expectations, inflationary expectations, labor productivity and technology.
A negative supply shock results in a leftward shift in the SRAS causing the price level (PL) to increase and the real gdp (rGDP) to decrease. It results in a recessionary gap.
Government spending increases real GDP and decreases unemployment. The actual increase in real GDP is significantly more than the initial increase in government spending due to the multiplier effect.
A tax cut increases consumer spending/real GDP and decreases unemployment. It also decreases government tax revenue and moves the government towards a budget deficit.
Unit 8: Fiscal Policy
Progressive taxes are an example of an automatic stabilizer because they slow down or speed up the economy automatically. When there is a recessionary gap, income taxes automatically fall as people fall into lower tax brackets.
A budget deficit is an annual measure showing how much spending outpaced tax revenue in a year. The national debt is the cumulation of all budget deficits over time.
Congress and the President can conduct fiscal policy using changes in tax rates, government spending levels, and government transfers (like unemployment benefits)
Unit 9: Monetary Policy
Money serves as a medium exchange because it is used to buy and sell goods and services, store of value because it is used to save purchasing power for a later date, and a unit of account because it is used to measure the value of different goods and services.
The demand for money is sloping downward because when the interest rate is high, people tend to hold less money in cash or checking accounts and, instead, purchase assets that can earn them the higher interest rates, such as bonds.
Open market operations can increase/decrease the money supply because when the central bank (Federal Reserve) buys previously issued government bonds it allows banks to loan out more money which increases money supply. The opposite happens when the central bank sells government bonds.
In the United States, the Federal Reserve (the Fed) is responsible for conducting monetary policy. It’s primary tool is open market operations (buying and selling bonds). It also uses the reserve requirement and discount rate to achieve its goals.
Unit 10: International Economics
To determine if a country has a comparative advantage, compare how much each country gives up when they produce something. The country that has the lower opportunity cost has the comparative advantage. By specializing in what they produce most efficiently, individuals and countries can increase overall productivity and benefit from trade.
Appreciation of the currency results in a decrease in net exports for the country because when a country’s currency appreciates, it becomes more expensive for foreigners. These foreigners purchases fewer goods and services causing net exports to decrease.