terms list for first midterm

terms list for first midterm - Consumer sovereignty:...

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consumer preferences shift the relative prices of each good— guides suppliers’ decisions 12 principles of basic economic interaction: Individual choice: 1. resources are scarce 2. real cost of something= opportunity cost 3. tradeoffs in decision making 4. people take advantage of incentive Interaction: 1. specialization gains from trade 2. markets move towards equilibrium 3. efficient use of resources (equity-efficiency tradeoff) 4. markets lead to efficiency by default 5. gov’t intervention can be beneficial when markets aren’t efficient Economy-wide interaction: 1. chain reactions—1 person’s spending=another’s income 2. overall spending DOESN’T always match economy’s productive capacity (recession/inflation) 3. gov’t policy can change spending (macro policy) income distribution: how total income is divided among owners of various production factors positive: how economy ACTUALLY works normative: how economy SHOULD work indifference curve: all combinations of consumption goods that give equal levels of happiness/utility monetary policy: changes in quantity of money fiscal policy: changes in gov’t spending/taxes trade deficit: value of g and s bought is more than value sold (high investment spending relative to savings) trade surplus: value of g and s bought is less than value sold (low investment spending relative to savings) countercyclical policy: risk aversion/ smoothing out business cycle—contractionary policy in expansion, expansionary in recession
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This note was uploaded on 02/02/2011 for the course ECON 102 taught by Professor Rossana during the Fall '08 term at University of Michigan.

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terms list for first midterm - Consumer sovereignty:...

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