Macro test 1_1 Flashcards

income increases
Terms Definitions
substitute good
positive relationship. decreases in the price of one good decreases demand for the other good. ex tea and coffee
complement good
negative relationship, decrease in price for one good increases the demand for the other good. ex peanut butter and jelly
Opportunity cost
what you give up to get what u want
building and machines used in production process
Normal Good
goods which demand increases when income increases and falls when income decreases, when price is constant
Inferior Good
good that decreases in demand when income increases, increase in demand when income decreases
Fallacy of false cause
When you think event A causes event B just b/c it precedes it
Fallacy of division
When you think whats good for the whole is good for the part
guardian of capitalism
privately owned
you have motivation to keep factors of production as efficient as possible
economic system where factors of production are privately owned and operated for personal gain, in competitive atmosphere
law of increasing cost
when you increase production of one good then you sacrifice greater and greater amount of the alternative good
production possibility frontier
graph showing any point in time the production of your company
law of scarcity
economic resources are scarce, there is never enough to produce all the goods and services wanted
is a social science concerned with how people use their limited resources for goods and services
four things that make up the factors of production
material - land/capital Human resource - labor, entrepreneurship
Fallacy of composition
when you think what is good for the part is good for the whole
all nonhuman natural resource
recognizing the opportunity to be gained from production, assembling the factors of production, investing in, organizing management
manufactured good to produced other goods, ex machine
effort and activities of people hired to assist in production of goods and services
supply land and other natural resources get rent
money received from lending out money is interest
workers who sell their labor get wages
entrepreneurs receive profits if successful
expenditure approach
adds up spending on all final goods and services during the year
income approach
adds up earning during the year by those who produce all that output
Gross domestic product
includes only final goods and service
double counting
counting items value more than once
law of demand
price and quantity demanded is negatively related
real GDP
adjusted for price level
social good
public or merit good, goods that are not adequately provided by free market but provided by the govt
public good
you cannot be excluded from consuming this good, ex. national defense
exclusion principle
if you do not pay for the good you can be excluded from consuming it. ex food
merit goods
govt deems these goods worthy of production, ex national parks, public hospitals.
external benefit or cost for which no compensation is made
market failure
affect of spillover, market hasn't allocated its resources efficiently
demand price
highest price buyers are willing to buy at
supply price
lowest price seller are willing to supply at
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