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ELAC ECON 2 MID TERM

ECON 2 MID TERM #1

TermDefinition
Economy A system for coordinating society's productive activities.
Economics The social science that studies the production, distribution, and consumption of goods and services.
Market economy A economy in which decisions about productions and consumption are made by individual producers and consumers.
Invisible hand The way in which the individual pursuit of self-interest can lead to good results for society as a whole.
Microeconomics The branch of economics that studies how people make decisions and how these decisions interact.
Market failure When the individual pursuit of self-interest leads to bad results for society as a whole.
Recession A downturn in the economy.
Macroeconomics The branch of economics that is concerned with overall ups and downs in the economy.
Economic growth The growing ability of the economy to produce goods and services.
Scarce Not enough of the resources are available to satisfy all the various ways a society wants to use them. Principle #1 Choices are necessary because resources are scarce.
Opportunity Cost what you must give up in order to get to it. Principle #2 The True cost of something is its opportunity cost.
Trade-off when you compare the costs with benefits of doing something.
Marginal decisions Decisions about whether to do a bit more or a bit less of an activity.
Marginal Analysis The study of decisions about whether to do a bit more or a bit less of an activity.
Incentive Anything that offers rewards to people who change their behavior.
Trade To provide goods and services to others and receive goods and services in return.
Gains from trade People get more though trade to become more self-sufficient.
Specialization Each person specializes in the task that he or she is good at performing.
Equilibrium When no individual would be better off doing something different.
Individual choice is the decision by an individual of what to do , which necessarily involves a decision of what not to do. Principle #1 Choices are necessary because resources are scarce
Resources Anything that can be used to produce something else. Principle #7 Resources should be used efficiently to achieve society's goals
Efficient When a market takes all opportunities to make some people better off without making other people worse off. Principle #8 Markets usually lead to efficiency, because people exploit gains from trade, markets usually lead to efficiency.
Equity Everyone gets his or her fair share. Since people can disagree about what's "fair," equity isn't as well defined a concept as efficiency.
Market An industry or an opportunity to make a profit. Principle # 9 When markets don't achieve efficiency, government intervention can improve society's welfare.
Principle #10 One person's spending is another person's income
Principle #11 Overall spending sometimes gets out of line with the economy's productive capacity.
Principle #12 Government policies can change spending
Model A simplified representation of a real situation that is used to better understand real-life situations.
Other things equal assumption ceteris paribus or hold all things constant for this situation to work
Production possibility frontier The trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given quantity produced of the other.
Efficiency on the PPF When the point meets on the line of the PPF and moves along the line.
Increasing opportunity cost of the PPF The opportunity cost for goods increase as one item increases, therefore the other good will have fewer production.
Economic Growth on the PPF Only when the line of the PPF shifts to the right creating a new PPF line.
Factors of production Resources that are used to produce goods and services.
Technology Technology is the technical means for producing goods and services.
Comparative advantage In a country where producing a good or service if its opportunity cost of producting the good or service is lower than other countries'. Likewise a company can do the same.
Absolute advantage In a country where producing a good or service if the country can produce more output per worker than other countries. likewise in company can do the same.
Barter When people directly exchange goods or services that they have for goods or services that they want.
Circular-flow diagram This diagram represents the basic transactions in a economy by flows around a circle.
Firm A organization that produces goods and services for sale.
Markets for goods and services Firms sell goods and services that they produce to households in markets for goods and services.
Factor Markets Firms buy the resources they need to produce goods and services.
Income distribution An economy's income distribution is the way in which total income is divided among the owners of the various factors of production.
Positive economics The branch of economic analysis that describes the way the economy actually works.
Normative economics Economics makes prescriptions about the way the economy should work.
Forecast A simple prediction of the future.
Variable A quantity that can take on more than one value.
Causal relationship It exists between two variables when the value taken by one variable directly influences or determines the value taken by the other variable.
Independent variable In a causal relationship, this is the determining variable.
Dependent variable This is the variable that Independent variable determines.
Positive relationship When a increase in value of one variable increases the other variable on the graph. Sloping upwards from left to right.
Negative relationship This happens when one variable rises and the other falls. Sloping downwards from left to right.
Nonlinear curve The slope is not the same between every pair of points.
Absolute value A negative number represented on a graph without putting a negative sign.
Tangent line The linear line that touches a nonlinear curve to measure slope.
Truncated When some of the values on the axis are omitted to save space.
Competitive market A market in which there are many buyers and sellers of the same good or service, none of them can influence price at which the good or service is sold.
Quantity demanded The actual amount of a good or service consumers are willing to buy at some specific price.
Law of demand Say that a higher price for a good or service, while everything held constant leads people to demand smaller quantity of that good or service.
Shift of the demand curve A change in the quantity demanded at any given price, represented by the change of the orignal demand curve to a new position, denoted by a new curve. Right positive and left is negative.
Movement along the demand curve A change in the quantity demanded of a good arising from a change in the good's price.
Substitutes If a rise in price of one of the goods leads to an increase in demand for the other good.
Complements If a rise in price of one of the goods leads to a decrease in the demand for the other good.
Normal good The situation when a rise in income increases the demand for a good.
Inferior good The situation when a rise in income decrease the demand for a good.
Quantity Supplied The actual amount of a good or service people are willing to sell at some specific price.
Supply Schedule It shows how much of a good or service would be supplied at different prices.
Supply curve Shows the relationship between quantity supplied and price.
Shift of the supply curve A change in the quantity supplied of a good or service at any given price.
Movement along the supply curve A change in the quantity supplied of a good arising from a change in the good's price.
Input A good or service that is used to produce another good or service.
Equilibrium price or Market clearing price When price has moved to a level at which the quantity of a good or service demanded equals the quantity of that good or service supplied.
Equilibrium quantity The quantity of the good or service bought and sold at a certain price.
Surplus A good or service when the quantity supplied exceeds the quantity demanded. It happens when the price is above its equilibrium level.
Shortage A good of service when the quantity demanded exceeds the quantity demanded exceeds the quantity supplied. It happens when the price is below its equilibrium level.
Self regulating economy Problems such as unemployment are resolved without government intervention, through the working of the invisible hand.
Keynesian economics Economic slumps are caused by inadequate spending, and they can be mitigated by government intervention.
Monetary policy Using changes in the quantity of money to alter interest rates and affect overall spending.
Fiscal policy Using changes in government spending and taxes to affect overall spending.
Recessions Periods of economic downturn when output and employment are falling.
Expansions Recoveries are periods of economic upturn when output and employment are rising.
Business cycle The short-run alternation between recessions and expansions.
Business-cycle peak The point at which the economy turns from expansion to recession.
Business-cycle trough The point at which the economy turns from recession to expansion.
Inflation A rising overall level of prices.
deflation A falling overall level of prices.
Price stability When the overall level of prices changes slowly or not at all.
Open economy An economy that trades goods and services with other countries.
Trade deficit When the value of goods and services from foreigners is more than the value of goods and services it sells to them.
Trade surplus When the value of goods and services bought from foreigners is less than the value of the goods and services it sells to them.
National income and product accounts or National accounts Keep track of the flows of money between different sectors of the economy.
Consumer spending Household spending on goods and services.
Stock A share in the ownership of a company held by a shareholder.
Bond A form of borrowing or IOU that pays interest.
Government transfers Payments by the government to individuals for which no good or service is provided in return.
Disposable income Income plus government transfers minus taxes, is the total amount of household income available to spend on consumption and to save.
Private savings Disposable income minus consumer spending, is disposable income that is not spent on consumption.
Financial markets The banking, stock, and bond markets, which channel private savings and foreign lending into investment spending, government borrowing, and foreign borrowing.
Government borrowing The total amount of funds borrowed by federal, state, and local governments in the financial markets.
Government purchases of goods and services Total expenditures on goods and services by federal, state, and local governments.
Exports Goods and services sold to other countries.
Imports Goods and services purchased from countries.
Inventories Stocks of goods and raw materials held to facilitate business operations.
Investment spending Spending on on productive physical capital-such as machinery and construction of buildings, and on changes to inventories.
Final goods and services Goods and services sold to the final or end users.
Intermediate goods and services Goods and services-bought from one firm by another firm-that are inputs for production of final goods and services.
Gross domestic product or GDP The total value of all final goods and services produced in the economy during a given year.
Aggregate spending The sum of consumer spending, investment spending, government purchases of goods and services and exports minus imports, is the total spending on domestically produced final goods and services in the economy.
Value added For a producer, the value of it's sale minus the value of it's purchase of intermediate goods and services.
Net exports The difference between the value of exports and the value of imports.
Aggregate output The economy's total quantity of output of final goods and services.
Real GDP The tota value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year.
Nominal GDP The value of all final goods and services produced in the economy during a given year, calculated using the prices current in the year in which the output is produced.
Chained dollars The method of calculating changes in the real GDP using the average between the growth rate calculated using an early base year and the growth rate calculated using a late base year.
GDP per capita GDP divided by the size of the population; it is equivalent to the average GDP per person.
Aggregate Price level A measure of the overall level of prices in the economy.
Market basket A hypothetical ser of consumer purchases of goods and services.
Price index A measure of the cost of purchasing a given market basket in a given year, where that cost is normalized so that it is equal to 100 in the selected base year.
Inflation rate The percent change per year in a price index-typically the consumer price index.
Consumer price index or CPI Measures the cost of the market basket of a typical urban American family.
Producer price index or PPI Measures changes in the prices of goods purchased by producers.
GDP deflator For a given year, the ratio of nominal GDP is 100 times to real GDP.
Created by: bclee1127
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