ECON MIDTERM 1
Chapters: 1, 2:20-29, 3, 5, 6,7,8, 9, 13:321-326
- How people make choices about how to allocate and coordinate resources to
production and output to consumption.
- focuses on the economy of a country, not just the sum of the parts of the country
- all individuals grouped as consumers or producer, all consumption output
will be grouped together known as output, all labor will be grouped together and known
as employment, all prices grouped together and known as price.
is a system for allocating resources to production and output to consumption.
measures the waste of this allocation “equal” different “fair” An efficient
allocation is also pricto optimal: full employment, specialize according to comparative
- shortrun length of
time when at least one variable fixed barriers to entry/
exit, wages cant adjust (years) , medium run- undefined between short and long, longrun
– no fixed variables entry exit wages adjust (decades)
vs real (days, months, quarters,
Methods of trade- output from efficient resource allocation, markets use prices, price is a
rule of exchange.
direct exchange of goods, inefficient when lots of participants
and lots of goods, problem of coincidence of wants- hard to find someone who wants
what you have and has what you want.
- uses money as form of
exchange. Medium of exhange- facilitates trade because readily acceptable by market
participants, store of value- holds purchasing power over time, unit of account- common
measure of value avoids problem of coincidence of wants.
Total value of financial assets at particular time and place (same as
money aggregate) M1= currency
checking travelers cheques,
M2= M1 + savings
accounts money market accounts short term bonds and certs of deposit, M3= M2+ long
term bonds and certs of deposit, (decreasing liquidity) NOT- loans, stocks, credit cards,
physical assets (houses) Need to have money supply grow as fast as economy
in order to
stay functional. Credit cards- not part of supply cause liability not assets
until 1850s limit supply to commodity supply, ties up commodities
so less is consumable, object used as money has intrinsic value (gold silver vodka
Commodity backed money-
1873-1971 roosevelt object no intrinsic value is
exchangeable for something of value relies on promise that money is exchangeable for
something of value relies on promise that money is exchangeable credibility of bank
paper easier to carry than gold,
since 1971 object no intrinsic value used as
money by government decree no limit to supply relies on stability .
Value of money