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Economics 1301 #1

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)
Created by: bianca.venezia09