Households are the owners of labor and firms are the
owners of capital.
True or False?
What type of good is the following? (Consumption,
Investment, Old, Intermediate)
Dry Cleaning Service
What type of good is the following? (Consumption
Factors that affect managerial decisions, including the
number of firms competing in a market, the relative size of
firms, technological and cost considerations, demand
conditions, and the ease with which firms can enter or exit
What is the relationship between marginal product and
the average product curves of a variable input?
The connection between them is the change in the average
product depends on a comparison between average
product and marginal product.
If MP<AP, then ave
How much should be paid for each input
How much of each input should be used
_ are aggregated measures of cost and revenue
Unit-level measures of expected cost and revenue behavior
Total Quality Management (TQM)
a philosophy designed to integrate all organizational areas
in order to provide customers with superior products and
services, while meeting organizational goals throughout
the value chain
groups that have a sta
demand elasticity ha biggest effect on _
(ie it is a _ determinant)
rational consumers respond to price drops by buying _
elasticity of demand (E)
quantitative tool that measures the responsiveness of one
demand-side variable to changes in an
What is 'Vertical Integration'?
*Developing the ability to produce goods or service
*Integration may be forward, towards the customer, or
backward, towards suppliers
*Can improve cost, quality, and inventory but requires
consists of a group of firms and individuals that are in
touch with each other in order to transfer goods and
-classified generally based on a firm's degree of price
control and ability to earn a profit in the long run
4 types of markets
When two people hate each other, but they hate you more?
Saying you will pay all medical bills because someone
saved your life, and then changing your mind.
No right to sue dad for making promise to buy
Economic profit is:
the difference between total revenue and the opportunity
cost of all the resources used in production
lowers the transaction costs of doing business and any
arrangement that brings buyers and sellers together to
What are reasons that firms go out of business?
Poor leadership, moving before the market is ready, poor
quality of product, bad brand image, overextending
What are the advantages of being the first mover?
Setting industry standards, gaining economies of
Theory of the Firm
Basic model of business
Expected Value Maximization
Optimization of profits in light of uncertainty and the time
value of money.
Value of the Firm
PV of the firm's expected future net cash flows.
Residual of sales reve
the group of institutions in the economy that help to match
one person's saving with another person's investment
financial institutions through which savers can directly
provide funds to borrowers
a certificate of i
the total market value of all final goods and services
produced in the economy in a given year
why are market prices used?
to standardize value across the range of goods and services
measured in macroeconomics
why are only final goods counted?
a schedule or curve that shows the amount of a nation's
output (real GDP) that buyers collectively desire to
purchase at each possible price level (downward slope)
a change in the price level; when a price increases,
We begin in this chapter by discussing the key
macroeconomic variables that describe an open economy's
interactions in world markets. They are:
Exports, Imports, the Trade Balance, and Exchange Rates
Exports, Imports, the Trade Balanc
the total number of people currently employed, either full
time or part time
defined as the total number of people who are actively
looking for work but aren't currently employed
the sum of employment and unemployment
an economy that does not interact with other economies in
an economy that interacts freely with other economies
around the world
goods and services that are produced domestically and sold
Price x Quantity of current year (P x Q)
Price of Base Year x Quantity of current year
Nominal GDPReal GDPx100
(expenditures in current year Base YR)100
Labor Force Participation Rate
(#L.F. #Adult Pop.)
labor, machinery, buildings and other resources used to
goods and services that the economy produces
government policy intended to make the economy grow
faster in the long run
amount of outpu
Recurring increases and decreases (fluctuations) in the
level of in economic activity over periods of years; consists
of peak, recession, trough, and expansion phases. (such as
employment and production)
the study of how society m
Someone with well defined goals who tries to achieve them
as best they can.
The value of what must be given up to undertake an
The costs associated with an action's best alternative.
defined as the percentage of the change in the annual real
growth rate of real gdp
this is found when you divide (real gdp in the current year real gdp in the previous year) by real gdp in the previous
year multiplied by 100
Aggregate demand and aggregate supply curve
a model that explains short-run fluctuations in real GDP
and the price level
Aggregate demand (AD) curve
a curve that shows the relationship between the price level
and the quantity of real GDP demand by househo