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Determinants of Demand
Income, Availability and price of complements, Availability and price of substitute goods, Taste/ consumer preference, Expectations, Size of Market
Determinants of Supply
Cost of Inputs, Technology, Cost of alternative goods, Expectations, Number of producers
Production Possibilities Frontier
3 Assumptions of PPF
- 1. Fixed point in time.
- 2. Involves 2 goods or services.
- 3. All resources are deployed efficiently.
3 Economic Assumptions
- 1. People will act in a rational manner.
- 2. People will act in their own best interest.
- 3. People will utilize information to make decisions.
Factors of Production
- Land - Natural Resources
- Entrepreneurial Skill
Schedule of what consumers are willing and able to purchase at various prices.
Price varies inversely with quantity demanded.
Law of Demand
Schedule of what producers are willing and able to sell at various prices.
Social science concerned with how society allocates scarce resources.
Strictly conservative economic theory where the market dictates and there is no government involvement.
Economic theory that favors government involvement in the form of large infrastructure projects.
Economic theory that states market and government are tangled. Economic decisions are based on political factors.
Economic theory concerned with the money supply.
Economic theory which applies common sense and very little math.
Classical theory with lots of math. Applies economic theory to non-economic issues.
Economic theory that promotes removing barriers to production.
Processing current available information before making a decision.
Using past events to make current decisions.
Post hoc ergo propter hoc
After it, therefore, because of it.
All other things being equal.
3 basic economic questions
The next best option.
Arena where buyers and sellers meet to make transactions.
Everyone over 16 who is able to work and is looking for work.
People who are excluded from the Labor Force
Disabled, Incarcerated, Institutionalized
Labor Force Participation Rate
Labor Force divided by Potential Labor Force
Unemployed divided by Labor Force
Problems with Unemployment Rate
Diccouraged Worker Effect, Underemployment
Discouraged Worker Effect
Survey Respondents report that they aren't looking for work because of embarrassment.
Not being able to use specific skill set.
4 types of Unemployment
Related to the Business Cycle
Due to the nature of an industry changing - Technology, Outsourcing
Literally between jobs
General rise in level of prices or devaluation of currency.
Consumer Price Index
Determined by the Market Basket, a list of common household expenditures.
Problems with CPI
- New goods take longer to incorporate
- Quality of goods is not taken into account
- Substitution Effect is not taken into account
Cost Of Living Adjustment
Quantity Theory of Money
Money times Velocity equals Price times Quantity. Velocity and Quantity are fixed.
Demand rising in one sector causes demand to fall in another. Assumes people don't have access to credit.
If people no longer have faith in currency, it becomes worthless.
3 Focuses of Macroeconomics
Gross Domestic Product
Total dollar value of all final goods and services produced within a country's borders for a given period of time.
Adjusted for Inflation
Problems with the GDP
- Black Market
- Non Market - Household Labor, etc.
- Leisure Time
Reasons for US shift to service based economy
- Dual Income Households
- Mass Production Overseas
- Improved Transportation
- Health Care
Piece of ownership of a company
Piece of debt owed by a company.
Fractional Reserve Banking
Banks lend out most of the money deposited with them.
Number of regional Fed Banks
Changing the money supply to impact economic conditions.
1/rr (Reserve Requirement)
Loose Money Policy
More currency in the market. Used to fight unemployment.
Tight Money Policy
Less currency in the market. Used to fight inflation.
Use of taxes to impact the economy.
Marginal Propensity to Consume. What you spend from each additional dollar, after obligations are met.
Spending unrelated to level of income.
Aggregate Expenditures. Everything purchased in the economy.
Causes Deficit, Inflation
3 Issues with Fiscal Policy
- Recognition Lag
- Implementation Lag
- Operational Lag
Incentive that backfires on one of the parties.
Intangible reward for work.