ECON401 exam1

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mmb65
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137010
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ECON401 exam1
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2012-02-22 16:07:51
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econ401
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exam 1 ch. 1-6
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  1. opportunity cost
    a decision is a value of the next best alternative that must be given up the kids of the decision (for example working instead of going to school)
  2. law of comparative advantage
    shows that even in extreme cases to nations can still benefit from trading and that each could gain as a result
  3. fiscal policy
    control over taxes and government spending
  4. monetary policy
    control over money and Interest rates
  5. closed economy
    an economy is considered relatively close if they constitute a small share
  6. factors of profuction, or inputs
    are the labor, machinery, buildings, and natural resources used to make outputs
  7. Gross domestic product (GDP)
    is a measure of the size of the economy – the total amount it produces in a year. Real GDP address this measure for changes in the producing power of money; that is, to correct for inflation
  8. mixed economy
    -is one with some public influence over the workings of free markets. There may also be some public ownership mixed in with private property
  9. Open economy
    an income is called relatively open if it exports and imports constitute a large share of its GDP
  10. outputs
    are the goods and services that consumers and others want to acquire
  11. progressive tax
    attacks is progressive if the ratio of taxes kinked arises as income rises
  12. recession
    is a period in which the total output of the economy falls
  13. transfer payments
    are sums of money to ensuring individuals receive as our a grant from the governance rather than as payment for services rendered
  14. input includes (2 things):
    1. population (labor force)

    2. quality of labor
  15. role of government
    • - Acts as a referee
    • - Acts business regulator
    • - Acts income distributor
    • - Acts as a consumer in the economy
  16. resources
    are the instruments provided by nature or by people that are used to create goods and services.
  17. optimal decision
    is one that best serves the objective of the decision-maker, whatever those objectives may be. It is selected by explicit or implicit comparison with the possible alternative choices. The term optimal does not mean that we, the observers or analysts approve or disapprove of the objective itself
  18. Production possibilities frontier:
    shows the different combinations of various goods, anyone of which a producer can turn out, given the available resources and existing technology
  19. Principle of increasing cost states
    that as the production other good expands, the opportunity cost of producing another unit generally increases
  20. production possiblity frontier
    Graph represent combinations of various goods/services they can be produced given that resources are limited
  21. 3 coordination tasks of any economy
    1. efficiency

    2. combinations

    3. distributions
  22. how the market fosters efficien resource allocation (2)
    • - Division of labor – specialization
    • - Comparative advantage
  23. invisible hand
    is a phrase used by Adam Smith to describe how, by pursuing their own self interests, people in the market system are "led by an invisible hand" to promote the well-being of the community
  24. quantity demanded
    is the number of units of a good that consumers are willing and can afford to buy over a specified period of time
  25. demand schedule
    is a table showing how the quantity demanded for some product during a specified period of time changes as the price of that product changes, holding all other determinants of quantity demanded constant
  26. demand curve
    is a graphical depiction of a demand schedule. It shows how the quantity demanded for some product will change as the price that product changes. Specified period of time, holding all other determinants of quantity demanded constant
  27. supply schedule
    is a table showing how the quantity supplied of some product changes as the price of the product changes during a specified period of time, holding all other determinants of supplied constant
  28. supply curve
    is a graphical depiction of a supply schedule. Shows how the quantity supplied of a product will change as the price of that product changes during a specified period of time, holding all other determinants of quantity supplied constant
  29. Influences that can affect the supply curve (4)
    1. size of industry

    2. technological progress

    3. prices of inputs

    4. prices of related output
  30. supply-demand diagram
    graphs the supply and demand curves together. It also determines equally grim price and quantity
  31. shortage
    is an excess of quantity demanded over quantity supplied. When there is a shortage, buyers cannot purchase the quantities they desire at the current price
  32. surplus
    is it excess of quantity supplied over quantity demanded. When there is a surplus, sellers cannot sell the quantities they desire to supplied at the current price
  33. equilibrium
    is a situation in which there is no inherent forces that produce change. Changes away from an equilibrium position will occur only as a result of "outside events" that disturb the status quo
  34. law of supply and demand
    states that in the free market forces of supply and demand generally push the price for the level at which quantity supplied and quantity demanded are equal
  35. price ceiling
    a maximum that the price charged for a commodity cannot legally exceed
  36. price floor
    is a legal minimum below which the base charge for commodity is not permitted to fall
  37. Quantity demanded
    #of units of a good that consumers are willing and can afford to buy over a specified period of time
  38. demand curve
    shows how the quantity demanded change as the price changes during a specified period of time hold all other determinants of quantity demanded constant
  39. income effect
    when price goes up, real income decreases. = Consumers buy less = quantity demanded decreases
  40. situation effect
    when price a product increases = consumer buys last = quantity demanded decreases
  41. consequesnces of price floors (4):
    • 1. Dead weight loss (DWL) to society
    • 2. Consumers suffer because they have to pay higher price
    • 3. Producers always benefit from this? No because of surplus => Maintain surplus => Increased inventory = costly
    • 4. Price floor => Black-market
  42. Price ceilings consequences: (4)
    • 1. DWL to society
    • 2. Shortage
    • 3. Producers receive lower price for every unit they sell black market increases
  43. aggregation
    means combining many individual market into one overall market
  44. aggregate demand curve
    shows the quantity of domestic price that is demanded at each possible value of the price level
  45. aggregate supply curve
    shows the quantity of domestic product that is supplied at each possible value of the price level
  46. inflation
    refers to a sustained increase in the general price level
  47. recession
    is a period of time during which the total output of economy declines
  48. Gross domestic product
    is the sum of the money values of all final goods and services produced in the domestic economy and sold on organized markets during a specified period of time usually a year
  49. nominal GDP
    is calculated by valuing all outputs at current prices
  50. real GDP:
    is calculated by valuing output of different years at common prices. Therefore, real GDP is a far better measure than nominal GDP of changes in total production
  51. intermediate good
    is a good purchase for resale or for use in producing another good
  52. deflation
    refers to a sustained decrease in the general price level
  53. stagflation
    is inflation that occurs while the economy is growing slowly ("stagnating") or in a recession
  54. monetary policy
    refers to actions taken by Federal Reserve to influence aggregate demand by changing interest rates
  55. Stabilization policy
    is the name given to the government programs designed to prevent or shorten recessions and to counteract inflation (that is, to stabilize prices)
  56. microeconomics
    small-scale economics single firm, single market, single individual
  57. aggregate demand
    shows the quantity of domestic product that is demanded at each possible value of price level

    - all factors are held constant
  58. Aggregates supplied
    - shows the quantity of domestic product is supplied at each possible price level

    - all other factors are held constant
  59. GDP
    total money value of all final goods and services produced in domestic economy and sold on organized markets during a Specific period of time, usually a year
  60. price level
    is the cost of a specific basket of goods and services
  61. GDP price level
    cost of a specific basket of goods and service. This basket includes fraction of all goods and services produced in the economy
  62. consumer price level
    cost of specific basket of goods and services. This basket includes fraction of goods and supply consummed by a typical household
  63. GDPprice indes
    cost of a specific basket of goods and services in some periods divided by the csot of the same basket

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