| 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 |
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| 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) |