Economics 1301 #1

Description:	Economics 1301 #1
Category:	Finance
Created by:	bianca.venezia09 on 2009-10-06

Question	Answer	Question	Answer
Three Fundamental Policies every society must resolve	1. What to Produce2. How to Produce3. How to Allocate Output Amongst Members of Society	Saving	The part of income not spent on consumption
The Keynesian Theory of Effective Demand	The level of economic activity depends on the total amount of demand in the system	Equilibrium of Profit	When there are no barriers to the movement of resources, profit rates will tend to equalize across different lines of production
Model	Simplified picture of reality that identifies and explains principle mechanisms at work in the economy	Natural Price of a Good	A price that is just sufficient to cover the cost of production. This includes a normal rate of return on the capitol invested.
Tools Used to Construct a Model	Economists perception of cost, and abstractions	Market Price of a Good	The actual price the buyer pays for a good (fluctuates around and gravitates towards natural price)
Economists Perception of Cost	real cost/opportunity cost	Equilibrium	A position which, if left undisturbed, will not change.
Abstraction	Assuming away of irrelevant and distracting details	Comparitive statics	Trying to understand reality by comparing the equilibrum statistics before and after a change in circumstances.
Economic Growth Depends on...	1. Accumulation of resources (labor and capitol)2. Technological Progress	Marxian School of Economic Thought	Economic processes and outcomes are regulated by the opposition of class interests.
Interdisciplinary School of Economic Thought	To be a good economist, you need to incorporate insights from sociology, history, political science, anthropology, and psychology	John Kenneth Galbraith	Famous interdisciplinary economist
Supply and Demand explains...	Prices of goods and services, outputs of goods and services, income distribution, how much of the factors of production are used	Two Relationships that Depict the Behavoior of Economic Agents	Supply and Demand functions
Demand Function	Describes the behavior of buyers	Supply Function	Describes the behavior of sellers
Quantity Demanded Depends On...	Price of the good, tastes and preferences, incomes, and prices of other goods	Ceterus Parabis	Supposing ______ is fixed
Quantity of Demand	if the variables change, the curve shifts on the graph	Demand Curve	How much of a good buyers will purchase at alternative prices
Increase in Demand	Price goes up, quantity goes down	Decrease in Demand	Prices goes down, quantity goes down
Increase in Supply	Price goes down, quantity goes up	Decrease in Supply	Prices goes up, quantity goes down
Increase in Demand, Decrease in Supply	Price goes up, quantity is ambiguous	Decrease in Demand, Decrease in Supply	Price is ambiguous, quantity goes down
Decrease in Demand, Increase in Supply	Price goes down, quantity is ambiguous	Externalities	Social costs or benefits that are not reflected by supply and demand curves. When externalities are present, the market doesn't allocate resources efficiently.
Price ceiling	an upper limit on prices (set by the government)	Price floor	a lower limit on prices (set by the government)
Red Diaper Baby	Child of eastern or southern European immigrants born in the 1920's through the 1940's to committed socialist parents
Capitol Goods	Produced means of production (buildings, equipment, etc.)	Post Keynesian School of Economic Thought	Markets are frequently dysfunctional, especially labor markets and financial markets. Under natural circumstances, markets won't generate full employment or high growth rate.
Austrian School of Economic Thought	like to talk about the law of unintended consequences	Intitutionalist School of Economic Thought	Reject the idea of equilibrium (reject the comparitive static method)