Econ - Chapters Flashcards

Terms Definitions
Net Investment=...
Gross Investment-depreciation
Increasing Marginal Opportunity Cost:

Opportunity Costs _____ as you produce ____ of one product
increase

more
Financial Markets...

Promote economic effeciency by producing an effecient allocation of capital which increases production
Directly improve the well being of consumers by allowing them to time purchases better
Production Possibilities Curve:

____ at which we are ____ ___ something to ____ something else
Rate
Giving up
produce
B2B
B2C
C2B
C2C
Firms Exchanging
Stores selling to people via online catalogs, etc...
Contractors or Consultant
Individuals selling to individuals (ebay)
Money
looks at how households/firms obtain and use money
Economic growth occurs when...
Real GDP increases
Unemployment results in:

Lost production and incomes
Lost human capital
The three types of unemployment are:

Frictional
Structural
Cyclical
"Study of What is"

"Study of What should be"
Positive economics

Normative economics
relocation of production to foreign countries
outsourcing
The key types of financial institutions are:

Investment banks
Commercial banks
Government-sponsored mortgage lenders
Pension funds
Insurance companies
The three economic growth theories are:

Classical
Neo Classical
New Growth
Structural Unemployment
Unemployment created by changes in technology and foreign competition that change the skills needed to perform jobs or the locations of jobs. (Lasts longer than frictional)
Real GDP
Adjusts/uses a price index (currently measured in 2000's dollars)
Rest of the world...
Imports and exports goods/services.
_____ & _____ allows everybody to win!
Specialization

Trade
Economic system based on the market & self interest

economic system based on individuals good will toward others
capitalism

socialism
example of externality
smoking (government makes non-smoking areas)
Full Employment
Occurs when there is no cyclical unemployment or when all unemployment is frictional or structural.
National Income and Expenditure Accounts divide income into 5 categories:
-Compensation of Employees (Wages)
-Net Interest
-Rental Income
-Corporate Profits
-Proprietors' Income
New Growth Theory
Growth occurs because of choices people make in pursuit of profit.
Market Economy needs what 3 things?
Private Property
LIMITED government
Freedom of Choice
Which of the shifts explains what would happen to the production possibility curve if improved technologies increased the production of pre-kindergarten (pre-k) toys by 25% and the production of children's toys by 50%?
A. I
B. II
C. III
D. IV
C. III
What are Economic forces?
mechanisms that RATION scarce GOODS
What are the 4 evolving economic systems in order?
Feudalism
Mercantilsm
Industrial Revolution
Capitlalism
How to produce?
Efficiently! (achieve a goal as cheaply as possible)

*The most efficient will survive
Neo Classical Growth Theory
Growth occurs because of technology. Technology changes results from chance.
Output Gap
The gap between Real GDP and Potential GDP.
Two types of labor excluded from statistics are:

Marginally attached worker
Part-time workers who want full-time jobs
Saving
The amount of income not paid in taxes or spent on goods/services.
Funds used to finance investment are supplied and demanded in three markets:

Loan Markets
Bond Markets
Stock Markets
Debt and Equity Markets consist of...

Debt instruments (bonds, money market)
Equities (Common and preferred stock)
Problems with Feudalism
prevented people from doing what they did best

one person dominated all decisions
According to Adam Smith, individuals are directed to do those things for which they have a comparative advantage by:
A. their self interest.
B. corporate management.
C. government policy.
D. the educational system.
A. their self interest.
Markets coordinate economic activity through:
asking individuals what to do.
explain partnership
partners form to share work and risk. unlim. personal liability, limited ability to get funds
Assume you can make the combinations of Ums and Umies shown in the table. The opportunity cost of producing 60 Umies instead of 30 Umies is:
Ums Umies
60 0
40 30
20 60
0 90
A. 10 Ums.
B. 20 Ums.
C. 30 Ums.
D. 40 Ums.
B. 20 Ums.
A country that specializes according to its comparative advantage and then trades with another country will be able to:
A. consume more goods
B. produce more of all goods.
C. produce less of all goods and consume more of one good.
D. both produce and
A. consume more goods
In the U.S. economy, what is the primary means of dealing with scarcity?
A. Government.
B. Corporations.
C. Markets.
D. Religion.
C. Markets.
Financial Institution
A firm that operates on both sides of the financial market
Firms sell and Households buy...
Consumer goods/services in the goods market.
Microeconomics includes the study of:
A. inflation.
B. unemployment
C. business cycles.
D. a firm's pricing policies.
D. a firm's pricing policies.
The price of computers has fallen each year for the last 10 years. This is likely an example of the working of:
A. market forces
B. political forces
C. social forces
D. demographic forces
A. market forces
Roles of Government in the market:
(6)
1. stable institutional framework
2. promote competition
3. correct externalities
4. ensure stability
5. provide public goods
6. adjust for undesirable market results
The 2 categories of the US Labor force are:

Working age (16+)
Not old enough
Households sell and Firms buy...
The services of labor, capital, and land in factor markets.
The slope of the PPC gives you the ____ ___ of the good on the ____ ___
Opportunity Cost

horizontal axis
Government is on the:
demand side of both factor markets and goods markets.
What is the Art of Economics??
Using the knowledge of positive economics to achieve goals determined in normative economics.
The table below shows how the marginal benefit of video tape rentals varies for Carol with the number rented per month. The price (i.e., marginal cost to Carol) of each tape rental is reduced from $2.99 to $1.99.
1 $6
2 $5
3 $4
4 $3
5 $2
Assuming that Ca
d. 4 to 5
What is the invisible hand?
a MARKET FORCE that rations goods by CHANGING PRICES
The principle of increasing marginal opportunity cost is true in which of the following cases?
A. All inputs are equally adaptable to the production of all goods.
B. The production possibility curve is a downward sloping straight line.
C. Some inputs
C. Some inputs are better off producing particular goods.
Governments do all of the following except:
A. oversee the interaction of households and businesses in the goods and factor markets.
B. demand labor services from households in the factor market.
C. demand goods and services from businesses in the goo
D. supply labor services to businesses in the factor market.
Why did Russia's state socialism fail?
People had no motivation by profit or self interest

products were good quality

they didn't produce what consumers wanted
Mexico has a comparative advantage in producing corn:
A. if its opportunity cost of producing corn is higher than the opportunity cost in other countries.
B. if its opportunity cost of producing corn is the same as the opportunity cost in other countrie
C. if its opportunity cost of producing corn is lower than the opportunity cost in other countries.
In contrast to the capitalism of the early Industrial Revolution, both feudalism and mercantilism:
relied less on the "invisible hand" to coordinate economic decisions.
Total value of the ___ ___ ___ of ___ ___ ____ ___ is the OPPORTUNITY COST of choosing something
next best alternative

what you gave up
Orson can clean the house in three hours and do the laundry in four. Eliza can clean the house in two hours or do the laundry in two. Can they benefit by specialization and trade?
A. Neither can benefit because Orson has nothing to offer.
B. Orson coul
D. Both can benefit because Orson has a comparative advantage in cleaning.
Alan is sitting in a bar drinking beers that cost $1 each. According to the economic decision rule, Alan will quit drinking when the marginal:
A. benefit to him of an additional beer is less than $1.
B. cost to him of an additional beer is less than th
A. benefit to him of an additional beer is less than $1.
The slope of a line is the:
A. value on the vertical axis divided by the value on the horizontal axis.
B. value on the horizontal axis divided by the value on the vertical axis.
C. change in the value on the vertical axis divided by the change in the
C. change in the value on the vertical axis divided by the change in the value on the horizontal axis.
If the hourly wage of U.S. workers is $16, the hourly wage of Mexican workers is $2, and U.S. workers produce 9 times as much output per hour as Mexican workers, then, all else equal, it would be efficient to locate production facilities in:
A. the U.S.
B. the U.S. since the cost per unit of output will be lower.
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