ECON 8 Flashcards

Terms Definitions
Total Revenue - Total Cost.
Opportunity Cost
The highest-valued alternative that must be given up to engage in a given activity.
the relocation of production done abroad the the United States
Although our wants are UNLIMITED, the resources needed to obtain them are LIMITED.
A limit on the number of imports.
Demand Schedule
A table showing the relationship between the price of a product and the quantity of the product demanded.
Governmental failures
situations in which the government intervenes and makes things worse
the study of hos human beings coordinate their wants and desires, given the decision making mechanisms, social customs, and poltical realities of the society
Accounting Profit
Exclude the cost of some economic resources that the firm does not pay for explicitly.
A group of firms that collude by agreeing to restrict output to increase prices and profits.
Anything used in the production of a good or service.
Market Economy
an economic system based on private property and the market forces such as supply and demand regulate the market
marginal revenue
the change in total revenue associated with a change in quantity
Diseconomies of Scale
The situation when a firm's long-run average costs rise as the firm increases output.
Cooperative Equilibrium
An equilibrium in a game in which players cooperate to increase their mutual payoff.
Absolute Advantage
The ability of an individual, a firm, or a country to produce more of a good or service than competitors using the same amount of resources.
Law of Supply
An increase in price causes an increase in the quantity supplied, and visa verse, ceteris paribus.
perfectly competitive market
a market in which economic forces operate unimpeded1) Both buyers and sellers are price takers2) The number of firms is large3) There are no barriers to entry4) Firms' products are identical5) There is complete information6) Selling firms are profit-maximizing entrepreneurial firms
Marginal Product of Labor
The additional output a firm produces as a result of hiring one more worker.
Business Strategy
Actions taken by a firm to achieve a goal, such as maximizing profits.
Normative Economics
The study of what the goals of the economy should be
Technological Change
A change in the ability of a firm to produce a given level of output with a given quantity of inputs.
45 Degree Line
A line along which the value of GDP (measured horizontally) is equal to the value of aggregate expenditures (measured vertically).
The marginal revenue for a perfect competitor will be the same at all levels of output. True or False
True (as long as the demand curve is constant)
Who Prints money?
Federal reserve
Total Revenue (TR)
Price x Quantity=PxQ=
A general increase in prices
Goods and Services bought by households. Divided into Durable, Nondurable, and Services.
former FRG
enjoyed double-digit growth rates through 1955
_____ can make everyone better off
    common resources left to the market suffer from overuse: individuals ignore the fact that their use depletes the amount of the resource remaining for other. (Figure 18-3)
using fewer resources than an economy is capable of
regard for one's own interest or advantage, esp. with disregard for others.
sensitivity analysis
Limited form of computer simulation that focuses on important decision variables
Prices rise when the government prints too much ______
leading indicators
data that reflect current economic conditions and can suggest future developments or fluctuations in the nation's economy
Mixed Economy
Includes some elements of both market and command economies
identification problem
Henry Moore wrestled withwhat is the significance of the data observed?can a person identify how the data observed were generated in the economy?
Mikhail Gorbachev
was considered a moderate despite the last ditch effort called 500 Days: Transistion to Market(Khrushchev, Yeltsin, Brezhnev, Putin, Gorbachev)
Choke price
Price at which the quantity demanded falls to 0(Q=0). Determined by a/b. 
macoreconomic equilibrium
The equilibrium level of output and the price level where aggregate demand equals aggregate supply.
profits from a mutual savings bank go to
any group migration or flight from a country or region; dispersion.
3% or below
considered to be a good inflation rate
Trade deficit
when a country's exports are less than imports
Purchasing Power Parity
Exchange rate that makes a given basket of goods equally expensive in two countries.
LRTC = (formula)
LRAC x Output aka Long-run Average Costs x Output aka LRAC x Q
what is economics?
the study of peoples incentives and choices, and what happesn to coordinate their decisions and acitons

economics is a social science--study of human behavior
Inflation CalculationConsumer Price Index
CPI=(cost of basket in current year)/(cost of basket in base year) x 100

or the percentage change of the GDP deflator

GDP vs CPI = CPI includes goods that typical people buy (not produced in US)
Define: Traditional Economy
people rely on traditions or customs to make the what, how, and for whom choices
foreign direct investment
the purchase or building by a domestic firm of a facility in a foreign country
citizens of former East Germany
previously suffered from low standard of living and extensive pollution, especially from coal-burning
What are the 3 Unrealistic Characteristics?
1. Unbounded Selfishness
2. Unbounded Willpower
3. Unbounded Rationality
law of demand
states that a good price has an important effect on the amount of that good people will buy.
A Decrease in demand (for whatever reason) will
decrease equilibrium price and decrease equilibrium quantity
Purchasing Power Parity (PPP) theory
The theory that postulates that the change in the exchange rate between two currencies is proportional to the change in the ratio in the two contries general price levels.
change in supply curve (5)
change in prie of inputs technology, number of sellers in market price of items made form resources change in price about future price
four properties of an indifference curve:
1. When the consumer likes both goods(MUx and MUy are both positive) all the indifference curves have a negative slope
2. Indifference curves cannot intersect 
3. Every consumption basket lies on one and only one indifference curve
4. Indifference curves are not "thick"
What is happening in the business cycle during a trough phase
output and employment reach their lowest level in the cycle



barriers to entry



monopoly remains the only seller in its market because other firms cannot enter
the market and compete with it.
what is the defference between substitution effect and income effect?
S.E. means that the price of YOUR good is changing and I.E. means that the price of the product is changing
Why trade with other countries around the globe?
- Make $- Create jobs- Get things we cannot produce- Pay less to buy things
1 seller
utopian socialism
participatory (cooperative) alternative is most like this form, but without its violent inception
Hirfindahl-Hirschman Index: Monopolistic Competitive
Less than 1800
excess demand; quantity demanded is more than quantity supplied.
Vincent Siew
Vice President of Taiwan (ROC)
Measure of the systematic variability of one asset’s returns with returns on other assets
Coincident variables
Consumption, investments, price level, avg labor productivity
non-binding price ceiling
price ceiling set above equilibrium
Marginal cost
the additional cost incurred by producing ne more unit of that good or service
Unemployment and inflation caused by a supply shock
insurance carried by health care professionals to protect them from large malpractice damage awards
malpractice insurance
unemployment benefits
cash transfers to unemployed workers who actively seek work and who meet other qualifications
selling a product for a price below its cost of production
refer to table 6.3 the value for national income in billions of dollars isa.710b.750c.800d.825
risk neutrality
Focus on expected values, not return dispersion
income elasticity
when income increases, the demand for normal goods increase, and inferior goods to decrease. therefore, with an increase/decrease of 1% in income,therefore demand for a:normal good (positive)- increases/ decreasesinferior good (negative)- decreases/increases
Marginal Expenditure
(sim. to marginal cost) the Additional cost of buying one more unit of a good
consumer goods
goods that are ready for consumption in satisfaction of human wants, as clothing or food, and are not utilized in any further production
private property rights
People have the rights and privilege to control their possessions as they wish.
Transportation Costs
The value of resources used in the transportation of goods that finalize any trade.
Current account comprised of 3 Components
*what makes inflow and outflow*
*hint: balance of trade*
Payments for:

1. Merchandise (goods) and services: services provided outward lead to an inflow of funds, and vise versa. Balance of trade - difference between total exports and imports.

2. Factor income: represents income (interest and dividend payments) received by investors on foreign investments in financial assets (securities). Income is inflow, paid is outflow.

3. Transfers: represents aid, grants, and gifts from one country to another. Aid received is inflow, given is outflow.
Define Demand
The various quanties that a person or group is willing to buy at various prices
Property Rights
The ability of an individual to own and exercise control over a scarce resource
Negatively Related
A situation in which an increase in one variable is associated with a decrease in another variable, also called inversely related
in microeconomics, the term price generally refers to the
relative price of an item
comparative advantage
It will always be the case that if person A has the _____________ in one good, person B has the comparative advantage in the other good.
Prosecution and the courts
1. The prosecution and adjudication of accused offenders is labor intensive-actors have high levels of human capital and so recive salaries that reflect their skills.2. The service of public offenders are financed by the same budget so are not paid well3. The outcome of a case rarely depends on a trial--90% of cases are completed with PTS (pretrial settlements) or are dismissed. (only 10% of cases are ever tried)
Disposable Personal Income (DI)
total income the consumer sector has at its disposal after personal income taxes. Consumers are able to use to money to spend (measure of national income)
Federal Deposit Insurance Corporation (FDIC)
a gov't agency that insures each checking account up to $100,000
labor force participation rate LFR computed by BLS
#LF/#Pop trended upward over time, doesn't move with recessions or booms
Steps of calculating the CPI
1. Fix the basket2. Find the prices3. Compute the basket Cost4. Choose a base year and compute the indexCPI=(Price of Basket/Base Yr. Basket)x100
one characteristic of a public good is that it
can be consumed simultaneously by many individuals
Q: If people in America buy all american goods what happens to net exports
Net exports will increase because imports decrease
When a firm changes its price, the change in total revenue...
Depends on the elasticity of demand value and the direction of the price change
• How is the US health care system unique among OECD countries?
Highest cost & does not insure all citizens have coverage, and healthcare outcomes aren't among the best
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