1. NORMAL GOOD: one for which demand increases with an increase in consumer income
2. DETERMINANTS (SHIFTERS) OF DEMAND: the external factors that shift dermand to the left or right
3. DEMAND CURVE: shows the quantity of a good demanded at all prices
4.DEMAND SCHEDULE: a table showing quantity demanded for a good at various prices
5. INCOME EFFECT: the change in quantity demanded that results from a change in the consumer's purchasing power or real income
6. SUBSTITUTION EFFECT: the change in quantity demanded resulting from a change in the price of one good relative to the price of other goods
7. RELATIVE PRICES: the price of one unit of good X measured not in currency, but in the number of units of good Y that must be sacrificed to acquire good X
8. ABSOLUTE (OR MONEY) PRICES: the price of a good measured in units of currency
9. CETERIS PARIBUS (ALL ELSE EQUAL): the assumption that all other variables are held constant so we can predict how a change in one variable affects a second
10. DEMAND PRICE: the price of a given quantity at which consumers will demand that quantity.
11. LAW OF DEMAND all else equal, when the price of a good rises, the quantity demanded of that good falls
12. CURVE: a line on a graph that shows the relationship between two variables
13. PRODUCTION POSSIBILITY FRONTIER the graphical device used to show the production possibilities of two goods
14. MARKET ECONOMY (CAPITALISM): an economic system in which resources are allocated through the decentralized decisions of firms and consumers
15. ECONOMY: a system for coordinating society's productive activities
16. ECONOMIC GROWTH: the increase in an economy's production possibilities over time
17. NECESSITY: a good for which the proportional increase in consumption is less than the proportional increase in income
18. LUXURY: a good for which the proportional increase in consumption is greater than the proportional increase in income
19. INCOME ELASTICITY: a measure of how sensitive the consumption of a good is to a change in consumer's income
20. ELASTICITY AND DEMAND CURVES: at the midpoint of a linear curve, Ed = 1. Above the midpoint demand is elastic, and below the midpoint demand is inelastic.
21. SPECIALIZATION: production of goods or performance of tasks based upon comparative advantage
22. COMPARATIVE ADVANTAGE: the ability to produce a good at a lower opportunity cost than all other producers.
23. ABSOLUTE ADVANTAGE: the ability to produce more of a good than all other producers.
24. LAW OF INCREASING COSTS: as more of a good is produced, the greater is its opportunity (or marginal) cost.
25. DEFLATION: a decline in the overall price level
26. MARGINAL BENEFIT( MB) the additional benefit received from the consumption of the next unit of a good or service
27. MARGINAL: the next unit, or increment, of an action
28. OPPORTUNITY COST: the value of the sacrifice made to pursue a course of action
29. DISPOSABLE INCOME (DI) the income a consumer has left over to spend or save once he or she has paid net taxes
30. MARKET POWER: the ability to set the price above the perfectly competitive level
31. PATENT: a temporary monopoly given by the government to an inventor fot the use or sale of an invention
32. IMPERFECT COMPETITION: a market structure in whih firms have market power to affect prices.
33. AVERAGE FIXED COST: total fixed cost divided by the level of output
34. MARGINAL COST: the additional cost of producing one more unit of output
35. TOTAL COST: the sum of total fixd and total variable costs at any level of output
36. TOTAL VARIABLE COSTS: production costs that change with the level of output
37. TOTAL FIXED COSTS: production costs that do not vary with the level of output
38. LAW OF DIMINISHING RETURNS: as successive units of a variable resourse are added to a fixed resource, beyond some point the marginal product will decline
39. AVERAGE PRODUCT OF LABOR: total product divided by the labor employed
40. PRODUCTION FUNCTION: the mechanism for combining production resources, with existing technology into finished goods and services
QUIZ ON MONDAY 25 JANUARY 2021l 20 RANDOM ITEMS FOR #1-#40
41. LONG RUN: a period of time long enought for the firm to alter all production inputs, including the factory size
42. SHORT RUN: a period of time too short to change the size of the factory, but many other more variable resources can be adjusted to meet demand
43. IMPLICIT COSTS: indirect, nonpurchased, or opportunity costs of resources provided by the entrepreneur
44. EXPLICIT COSTS: direct, purchased, out-of-pocket costs, paid to resource suppliers outside the firm; also referred to as "accounting costs."
45. ECONOMIC PROFIT: the difference between total revenue and total production cost, including the implicit costs
46. ACCOUNTING PROFIT: the difference between total revenue and total explicit costs
47. THE FIRM: any organization that employs factors of production to produce a good or service that it hopes to profitably sell.
48. CONSUMPTION BUNDLE: the set of all goods and services consumed by a given individual
49. LAW OF DIMINISHING MARGINAL UTILITY: in a given time period, as consumption of an item increases, the marginal (additional) utility from that item falls
50. UTILS: a hypothetical unit of measurement often used to quantify utility; also referred to as "Happy Points."
51. MARGINAL UTILITY: the change in an individual's total utility from the consumption of an additional unit of a good or service
52. TOTAL UTILITY: total happiness received from consumption of a number of units of a good
53. MINIMUM WAGE: a price floor in the labor market
54. PRICE CEILING: a legal maximum price, above which the product cannot be sold
55. PRICE FLOOR: a legal minimum, below which the product cannot be sold
56. IMPORT QUOTA: a limitation on the amount of a good that can be imported into the domestic market
57. PROTECTIVE TARIFF: an excise tax levied on an imported good produced in the domestic market so that good may be protected from foreign competition
58. REVENUE TARIFF: an excise tax levied on goods not produced in the domestic market
59. GLOBALIZATION: the phenomenon of growing economic linkages among countries
60. FREE TRADE: trade unhindered by regulations like tariffs
61. DETERMINANTS OF EXCHANGE RATES: external factors that increase the price of one currency relative to another
62. APPRECIATING (DEPRECIATING) CURRENCY: when the value of a currency is rising (falling) relative to another currency
63. EXCHANGE RATE: the amount of one currency that must be given up to get one unit of the second currency
64. CAPITAL INFLOW: net inflow of funds into a country (total inflow of foreign funds and total outflow of domestic funds)
65 OFFICIAL RESERVES ACCOUNT: the Fed's adjustment of a deficit or surplus in the current and capital account
66. CAPITAL ACCOUNT: shows the flow of investment on real or financial assets between a nation and foreigners
67. CURRENT ACCOUNT: import and export payments of goods and servies and investment income from US to foreign investors and investment income received by US citizens who invest abroad
68. BALANCE OF PAYMENTS STATEMENT: a summary of payments from foreign countries and payments sent to foreign countries
69. DOMESTIC SUPPLY CURVE: shows the quantity of a good supplied by only domestic suppliers at all prices for that good
70. DOMESTIC DEMAND CURVE: shows the quantity of a good demanded by only domestic consumers at all prices for that good
71. WORLD PRICE: global equilibrium price of a good when nations engage in trade
72. DOMESTIC PRICE: equilibrium price of a good in a nation without trade
73. AUTARKY: a situation in which a country does not trade with other countries
74. FUTURE VALUE: if r is the current interest rate, the future value of $1 invested today is $1 * (1 = rr)
75. PRESENT VALUE: if r is the current interest rate, the present value of $1 received one year from now is $1/(1 + r )
76. MONETARISM: the theory of business cycles that asserts gross domestic product will grow steadily if the money supply grows steadily
77. TIME VALUE OF MONEY: money today is more valuable than the same aount of money in the future
78. MONETARY BASE: the sum of currency in circulation and bank reserves
79. MONEY SUPPLY: the fixed quantity of money in circulation at a given point in time as measured by the central bank
80. FUNCTIONS OF MONEY: money serves three functions: a medium of exchange, a unit of account, and a store of value
81. FIAT MONEY: paper and coin money used to make transactions because the government declares it to be legal tender: has no intrinsic value: is backed by public trust
82. INTEREST RATE: the price, calculated as the percentage of the amount borrowed, charged by the lender
83. M1: the most liquid measure of money: cash plus coins plus checking deposits plus traveler's checks
84. M2: M1 plus savings deposits, small time deposits, and mone market and mutual funds balances
85. M3: M2 and larger time deposits
86. VELOCITY OF MONEY: the average number of times a dollar is spent in a year V = PQ/M
87. DISCOUNT RATE: the interest rate commercial banks pay on short-term loans from the Fed
88. FED FUNDS RATE: the interest rate paid on short-term loans made from one bank to another
89. THE MONEY MULTIPLIER: measures the maximum aount of new checking deposits that can be created by a single dollar of excess reserves: MM = 1/Reserve Ratio
90. QUANTITY THEORY OF MONEY: the quantity of money determines the price level and the growth rate of money determines the rate of inflation
QUIZ ON RANDOM 20 ITEMS FROM 41-90 ON MARCH 5, 2021
91. BANK ASSET: anything owned by the bank or owed to the bank, includes cash and loans made to citizens
92. BANK LIABILITY: anything owned by depositors or lenders: checking deposits of citizens or loans made to the bank
93. CONTRACTIONARY MONETARY POLICY: decreases in the money supply meant to increase real interest rates, shift aggregate demand to the left toward full employment, and reduce inflationary pressures
94. EXPANSIONARY MONETARY POLICY: increases in the money supply meant to decrease real interest rates, shift aggregate demand to the right toward full employment
95. OPEN MARKET OPERATION: a tool of monetary policy involving the Fed's buying or selling of treasury bonds from or to commercial banks and the general public
96. T-ACCOUNT OR BALANCE SHEET: a tabular way to show the assets and liabilities of a bank
97. EXCESS RESERVES: the portion of a deposit that may be borrowed by customers
98. REQURED RESERVES: the portion of a deposit that must be held at the bank for withdrawals
99. RESERVE RATIO: required reserves/total deposits: the fraction of total deposits that must be kept on reserve
100 :THEORY OF LIQUIDITY PREFERENCE John Maynard Keynes' theory that the interest rate adjusts to brin the money market into equilibrium
101. MONEY DEMAND: the negative relationship between the nominal interest rate and the quantity of money demanded as an asset plus the quantity of money demanded for transactions
102. ASSET DEMAND: the amount of money demanded as an asset is negatively related to the real interest rate: as nominal interet rates rise, the opportunity cost of holding money begins to rise
103.LIQUIDITY: liquidity: a measure of how easily as asset can be converted to cash
104.DEBT FINANCING: a firm's way of raising investment funds by issuing bonds to the public
105.BOND a certificate of indebtedness from the issuer to the bondholder
106.BANK: a financial intermediary that provides liquid assets in the form of bank deposits to lenders and uses those funds to finance the illiquid investments or investment spending needs of borrowers
107.EQUITY FINANCY: the firm's method of raising funds for investment by issuing shares of stock to the public
108. STOCK: a certificate that represents a claim to or share of the ownership of a firm
109. SUPPLY SIDE FISCAL POLICY: fiscal policy centered on incentives to save and invest to prompt economic growth with very little inflation
110.INVESTMENT TAX CREDIT: a reduction in taxes for firms that invest in new capital like a factory or piece of equipment
111.TECHNOLOGY--a nation's knowledge of how to produce goods in the best possible way
112. RENEWABLE RESOURCES: natural resources that can replenish themselves if they are not overharvested
113. NONRENEWABLE RESOURCES: natural resources that cannot replenish themselves
114. HUMAN CAPITAL: the amount of knowledge and skills that labor can apply to the work done
115. PRODUCTIVITY: the quantity of output that can be produced per worker in a given amount of tiME
116. NET EXPORT EFFECT: the process of how expansionary fiscal policy decreases net exports due to rising interest rates (ANOTHER FORM OF CROWDING OUT)
117. CROWDING OUT EFFECT: the result of government borrowing to fund deficit spending --the decline in spending in one sector due to an increase in spending from another sector
118. AUTOMATIC STABILIZERS: built-in fiscal policy mechanisms: they regulate the economy as it moves through the business cycle, by changing net taxes collected by the government--they "work" without any discretionary change on the aprt of the government
119. BUDGET SURPLUS: revenue collected from taxes eceeds government spen
120. BUDGET DEFICIT: government spending exceeds revenue collected from taxes
121. STICKY PRICES: the case when price levels do not change, expecially downward, with changes in aggregate demand
122. CONTRACTIONARY FISCAL POLICY: decreases in government spending or higher net taxes meant to shift AD to the left toward full employment and reduce the inflationary pressures
123. EXPANSIONARY FISCAL POLICY: increases in government spending or lower net taxes meant to shift AD to the right toward full employment and lower the unemployment rate
124. KEYNESIAN ECONOMICS: economic thought that emerged out of the writings of John Maynard Keynes: the fundamental premise being that a depressed economy is the result of inadequate spending and government intervention can help move the economy back to full employment
125. FISCAL POLICY: deliberate changes in government spending and net tax collection to affect economic output, unemployment, and the price level
126. PHILLIPS CURVE: a graphical device that shows the relationship between inflation and the unemployment rate: in the short run it is downward sloping and in the log run it is vertical at the natural rate of unemployment
127. SUPPLY SHOCKS: economy-wide phenomenon that affects the costs of firms and results in shifting AS curve
128. STAGFLATION: inflation and the unemployment rate are both increasing
129. SUPPLY SIDE BOOM: AS curve shifts outward and the AD curve stays constant, the price level falls, real GDP increases and the unemployment rate falls
130. RECESSION: in the AD/AS mode, a recession is seen as a leftward shift of AD
131. NATURAL RATE OF UNEMPLOYMENT: unemployment rate associated with full employment, somewhere between 4% and 5% in the United States
132.CYCLICAL UNEMPLOYMENT: unemployment that rises and falls with the business cycle--since it is felt economy wide, it is the focus of macroeconomic policy
133. STRUCTURAL UNEMPLOYMENT: the result of fundamental, underlying changes in the economy such that some job skills are no longer in demand
134. SEASONAL UNEMPLOYMENT: periodic, predictable, and follows the calendar--workers and emplyers anticipate these changes and plan accordingly, thus the damage is minimal
135. FRICTIONAL UNEMPLOYMENT: occurs when someone new enters the labor market or switches jobs--relatively harmless form of unemployment and is not expected to last long
136. DISCOURAGED WORKERS: citizens who have been without work for so long that they become tired of looking for work and drop out of the labor force--since they are not counted in the raks of the unemployed, the reported unemployment rate is understated ( THE OBAMA ADMINISTRATION HAD THIS PROBLEM)
137. REAL INCOME: today's income measured in base year dollars--inflation-adjusted dollars can be computed from year to year to determine whether purhasing power has increased or decreased
138. NOMINAL INCOME: today's income measured in today's dollars, unadjusted by inflation
139. INFLATION: an increase in the overall price level
140. CONSUMER PRICE INDEX: measures the average price level of the items in the base year market basket--the main measure of consumer inflation
141. excess capacity: the difference between the long-run output in monopolistic competition and the output at minimum average total cost
142. nonprice competition: between firms in areas not related to price; such as advertising, new product features, or research
143. product differentiation: the strategy of creating real or perceived differences in a firm's product in order to increase sales
144. price discrimination: the sale of the same product to different groups of consumers at different prices
145. marginal cost: the additional cost of producing one more unit of output
146. marginal analysis: making decisions based upon weighing the marginal benefits and costs of that action
147. Production Possibilities: the different quantities of goods that an economy can produce with a given amount of scarce resources
148. consumption funtion: a positive relationship between disposable income and consumption
149. autonomous consumption: the amount of consumption that occurs no matter the level of disposable income
150. dissaving: another way of saying that saving is zero
151. autonomous saving: the amount of saving that occurs no matter the level of disposable income
152. depression: a prolonged deep trough in the business cycle
153. the bottom of the cycle where a contraction has stopped and is about to turn up
154. recession: roughly determined by two or more consecutive quarters of falliing real GDP
155. contraction: a period where real GDP is falling
156. peak: the top of the business cycle where an expansion has ended and is about to turn down
157. expansion: a period where real gross domestic product is growing
158. business cycle: the periodic rise and fall in economic activity around its long-term growth trend
159. nominal rate of interest: the interest rate unadjusted for inflation: the opportunity cost of holding money in the money market
160. anticipated inflation: the inflation expected in a future time period; it is added to the real interest rate to compensate for lost purchasing power
161. real rate of interest: the cost of borrowing to fund an investment and equal to the nominal interest rate minus the expected rate of inflation
162. GDP price deflator: the price index that measures the average price level of the goods and services that make up GDP
163. market basket: a collection of goods and services used to represent what is consumed in the economy
164. price index: a measure of the average level of prices in a market basket for a give year, when compared to the prices in a reference (or base) year
165. Real GDP: the value of current production, but using prices from a fixed point in time
166. nominal GDP: the value of current production at the current prices
167. aggregate income: the sum of all income earned by suppliers of resources in the economy
168. aggregate spending: the sum of all spending from four sectors of the economy
169. underground economy: the unreported or illegal activity, bartering, or informal exchange of cash for goods and services that will not be reported in official tabulations of GDP
170. nonmrket transactions: household work or do-it-yourself jobs that are missed by GDP accounting
171. secondhand sales: final goods and services that are resold
172. double counting: the mistake of including the value of intermediate stages of production in GDP on top of the value of the final good
173. intermediate goods: goods that require further modification before they are ready for their final use by consumers and firms
174. final goods: goods ready for their final use by consumers or firms
175. imports: goods and services purchased from other countries
176. exports: goods and services sold to other countries
177. GDP: the market value of the final goods and services produced within a nation in a given period of time
178. aggregation: the process of summing the microeconomic activity of households and firms into a macro measure of economic activity
179 closed economy: a model that assumes there is no foreign sector (imports and exports)
180. circular flow of economic activity: this model shows how households and firms circulate resources, goods, and incomes through the economy. The basic model is expanded to include the government and the foreign sector
181. income distribution: the way in which total income is divided among the owners of the various factors of production
182. proportional tax: a tax where the proportion of income paid in taxes is constant no matter the level of income
183. regressive tax: a tax where the proportion of income paid in taxes decreases as incomme rises
184. tax bracket: a range of income on which a given marginal tax rate is applied
185. progressive tax: a tax where the proportion of income paid in taxes rises as income rises
186. average tax rate; the proportion of total income paid to taxes
187. marginal tax rate: the rate paid on the last dollar earned, calculated by taking the ration of the change in taxes divided by the change in income
188. marginal productivity theory: a citizen's share of economic resources is proportional to the marginal revenue product of his or her labor
189. egalitarianism: the philosophy that all citizens should receive an equal share of the economic resources
190. Coase Theorem: Ronald Coase proposed that even in the presence of externalities an economy can still find an efficient outcome through negotiations, so long as there are minimal transactions costs.
191. negative externality: the existence of spilloer costs for third parties from the production of a good
192. spillover costs: additional costs to society, not captured by the market supply curve from the production of a good
193. positive externality: the existence of spillover benefits for third parties from the production of a good
194. market failure: occurs when a market fails to be efficient because externalities or public goods are present
195. marginal social cost: the cost of productio plus the marginal external cost: this curve lies above the market supply curve
196. factpr distribution of income: the division of total income among labor, land, and capital
197. unions: organizations of workers that try to raise wages and improve working conditions for their members through collective bargaining
198. monopsonist: a firm that operates in a factor market in which it has absolute market power, that is, a wage-setter
199. derived demand: demand for a resource arises from the demand for the goods produced by the resource
200. leisure: the time available for purposes other than working to earn money to buy goods and services
201. factor markets; markets in which firms buy the resources they need to produce the goods and services
202. cartel: a group of firms that agree to maximize their joint profits rather than compete
203. Strategic behavior: actions taken by a firm that attempt to influence the future behavior of other firms
204, duopoly: an oligopoly consisting of only two firms
205. dominant strategy: one that is always the best strategy to pursue, regardless of what a rival is doing
206. tacit collusion: cooperation among producers, without a formal agreement, to limit production and raise prices so as to raise one another's profits
207. market share: the fraction of the total industry output accounted for by a given firm's output
208. oligopoly: a very diverse market structure characterized by a small number of interdependent large firms, producing either a standardized or differentiated product in a market with a barrier to entry
209. subsidy: a government transfer, either to consumers or producers, of the consumption or poduction of a good
210. inefficient: a situation in which there are missed opportunities; some people could be made better off without making other people worse off
211. lump-sum tax: a tax levied on all firms or consumers
212. excise tax: a per-unit tax on a specific good or service
213. barrier to entry: something that prevents other firms from entering an industry: like those created by the government, or technological superiority, or economies of scale
214. monopoly: a market structure in which one firm is the sole producer of a good with no close substitutes in a market with entry barriers
215. economies of scale: the downward part of the long-run average total cost curve where LRATC falls as plant size increases
216. sunk cost: one that has alredy been incurred and is not recoverable
217. scarcity: the imbalance between limited productive resources and unlimited human wants
218. capital: the resourse that includes equipment, machinery, buildings, and tools
219. resources: also called factors of production:
220. total revenue: the price of a good multiplied by the quantity of that good sold
221. perfectly inelastic: Ed = 0 in this special case, the demand curve is vertical, and there is absolutely no response to a change in price
222. elasicity: measure the sensitivity, or responsiveness, of a choice to a change in an external factor
223. disequilibrium: any price where the quantity demanded does not equal the quantity supplied
224. shortage: a situation in which, at the going market price,m the quantity demanded exceeds the quantity supplied
224. determinants (shifters) of supply: the external factors that shift supply to the left or right
225. supply curve: shows the quantity of a good supplied at all prices
226. substitute goods: two goods are consumer sibstitutes if they provide essentially the same utility to the consumer
227. complementary goods: two goods that provide more utility when consumed together than when consumed separately
228. inferior goods: a good for which demand decreases with an increase in consumer income
229. allocative efficiency: production of the combination of goods and services that provides the most net benefit to society: achieved when the marginal benefit equals the marginal cost of the next unit
230. barter: the act of exchanging goods and services for other goods and services
231. demand-pull inflation: inflation that is the result of stronger aggregate demand as it continues to increase in the upward sloping range of aggregate supply
232. inflationary gap: the amount by which equilibrium real gross domestic product exceeds full employment GDP
233. recessionary gap: the amount by which full employment gross domestic product exceeds equilibrium real GDP
234: macroeconomic long run: a period of time long enough for input prices to have fully adjusted to market forces, all input and output markets are in equilibrium, and the economy is operating at full emplyment GDP
235. macroeconomic short run: a period of time during which the prices of goods and services are changing in their respective markets, but the input prices have not yet adjusted to those changes in the product markets
236. supply of loanable funds: the positive relationship between the dollars saved and the real interest rate
237. marginal propensity to save: the change in saving caused by a change in disposable income, or the slope of the saving function
238. marginal propensity to consume: the change in consumption caused by a change in disposable income, or the slope of the consumption function
239. multiplier effect: the idea that a change in any component of aggregate demand creates a larger change in gross domestic product
240. tax multiplier: the amount by which real gross domestic product changes due to a change in taxes