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Macro First Exam
Exam 1 review
| Term | Definition |
|---|---|
| Describe the central problem with economics | Scarcity - people have unlimited wants but only limited resources to satisfy those needs |
| Define economics | The study of choices individuals, businesses, and governments make due to scarcity |
| What are we going to produce with our scarce resources? | What resources are we capable of using with land, labor, physical and human capital to successfuly produce these goods or services being demanded |
| How much of each good or service should we produce? | What materials and technology do we have and how much of each can we use to produce the maximum of goods demanded |
| Who will get the goods and services that we produce? | The customers voting for that product when purchasing, knocking competitors demand lower |
| Explain why economics makes simplifying assumptions when creating and using economic models | They use their knowledge and understanding of the economy to help policy makers create policies or programs to achieve a particular outcome |
| Taxes assumption | increased on cigarettes to minimize consumption |
| Regulations | Rules implemented to prohibit misbehavior and promote good behavior |
| Subsidies | grants towards education to promote academic success |
| International Trade policies | rules and regulations implemented to allow non-banned materials in/out of the country to practice safety |
| Unemployment Insurance | Allows individuals to get housing and conitinue receiving income in case of a natural disaster or pandemic. Ensuring business production and stability |
| Opportunity Cost | The choice to give up a certain good or servicce in return for more of another good or service |
| Production Possibility Frontier | A simplified model representing real life situations. Contains a dividing line identifying the different combinations of goods and services that can be produced given the available resources and current level of technology on hand |
| 3 main categories of economic resources | Land, Labor, Capital |
| Land | renewable and nonrenewable natural resources, agriculture, produce, and land itself used to create the finished product. |
| Labor | mental and physical capacity of workers to produce goods and services |
| Capital | Physical plants, machinery, and equipment used to produce other goods and services |
| Compare and contrast combinations of goods and services located inside, on, and outside of the PPF | Inside = attainable & inefficient, On = efficient & attainable, Outside = unattainable |
| How does the PPF illustrate the concept of opportunity cost and using the PPF to calculate opportunity cost | Anything lying inside the PPF tells us we have the ability to produce more of each good or service to avoid unemployed resources since that is how scarcity is created. |
| Why does opportunity cost increase as you move in wither direction along the PPF | Opportunity cost increases no matter which way we move along the PPF because we must give up more of one good to gain less of another since resources are specialized. |
| Economic growth | the growing ability of an economy to produce goods and services |
| hoe to illustrate economic growth on the PPF | the PPF moves outwards to gain in capital |
| PHysical capital and how to causes economic growth increases the amount of goods and services produced | Physical capital is the stock of equipment and structures that are used to produce goods and services. Investments in physical capital lead to ore productivity with equipment and labor, along with technological advances |
| Investing in human capital and hoe it leads to increasing the amount of goods and services produced | Enhances the knowledge and skills of workers through education, training and experience to become more efficient |
| GDP | Gross Domestic Product is the total value of all final goods and services produced in an economy during a given year |
| GDp self definition | Gross Domestic Product is the total amoutn of goods and services produced within a given time period in a country |
| Identify teh activities/goods and services that are included in the calculation of GDP | Consumption, Investment, Government spending, and new exports |
| Identify the activities/goods and services that are excluded in GDP | illegal transactions, under the table transactions, home production, volunteer hours, things produced in a prior period, intermediate goods, and imports |
| Expenditure approach | survey and add up the total value of all final goods and services produced by households, government, forms, and other countries |
| income approach | add up aggregate spending, the sum of consumer spending, investment spending, government purchases, and exports |
| Consumption | spending by households on goods and services except new housing |
| Investment | spending on capital equipment, inventories, and buildings, including household purchases of new housing |
| Government spending | Spending on goods and services by local, state, and federal governments such as anything provided by the government for the DMV and snow plows |
| GDP expenditure approach equation | C+I+G+Nx = y |
| GDP per capita equation | Nominal GDP/GDP deflator or total income/total population |
| Nominal GDP | the value of all goods and services produced in teh economy using the prices current in the year in which the output is produced |
| Real GDP | the total value of all finished goods and services produced in the economy during a given year, calculated using prices of a selected base year |
| Why no we use nominal GDP | It holds prices constant at a point in time (base year) |
| Why is GDP per capita a poor measure of well-being and should not be used to draw conclusions about the wellbeing of individuals living is different countries | It does not take into consideration the distribution of income in a company |
| Which mechanism or tool allocates the scarce resources and finished goods and services in most economies | The price system |
| Surplus | When the quantity supplied exceed the quantity demanded and price is above the equilibrium level |
| Shortage | When the quantity demanded exceeds the quantity supplied and price is below the equilibrium level |
| Non-price factors that influence demand and predict the impact that a change in each of these has on the demand for a given good or service | Changes in taste, expectations, and number of consumers |
| Difference between a change in the quantity demanded and a change in demand | Quantity demanded - price, change in demand - income (normal or inferior) |
| Normal Goods | a good consumers want more of when income increases |
| Inferior Goods | A good consumers buy less of when income increases |
| Non-price factors that influence supply and predict the impact that a change in each of these has on the supply of a given good or service | Changes in technology, expectations, and number of producers |
| Change in quantity supplied | A change in the goods placement on the supply curve due to behavior on the producers |
| Change in supply | When anything increases or reduces cost of production |
| Impact of a change in demand of the equilibrium price and quantity of a product of service | Demand Curve – when demand for a good or service increases and the equilibrium price and quantity both increase. When demand for a good or service decreases, the equilibrium price and quantity of the good or service both fall. |
| Impact of a change in supply of the equilibrium price and quantity of a product of service | When supply of a good or service increases, the equilibrium price of the good or service falls and the equilibrium quantity of the good or service rises. Supply of a good or service decreases, the equilibrium price and equilibrium quantity falls |
| Impact of a change in simultaneous shifts of the equilibrium price and quantity of a product of service | Simultaneous shifts – Both the Quantity and Price cannot go the same direction during a simultaneous shift, so we must identify which one is strogner than the other |
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