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Macroeconmics Unit 1
| Question | Answer |
|---|---|
| Economics | the science of scarcity |
| Scarcity | we have unlimited wants but limited resources |
| Everyone makes decisions by? | comparing marginal costs and marginal benefits. |
| Marginal | "additional", "extra", or "a change in" |
| Marginal cost | cost of one unit increase in an activity making |
| Marginal Analysis | decisions based on marginal benefit and cost |
| Marginal benefit | what you gain when you get one more unit of something |
| What is the 1st pillar of economic wisdom? | there is no such thing as a "free lunch" (in other words everything has a cost) |
| All economic systems must provide society with a means of making choices that answer what three basic questions? | What will be produced with a society's limited resources? How should these goods and services be produced? Who consumes these goods and services? |
| Graphical and mathematical tool created by economists to better understand complicated processes in economics | Models |
| Ceteris Paribus Meaning? | "all things being equal"; only look one step ahead |
| What is "ceteris paribus" used for? | economists use ceteris paribus to unscramble causes and effects |
| Rewards or punishments associated with a possible action | Incentives |
| People and businesses make decisions based on? | Incentives |
| the idea that people make choices by weighing the costs and benefits to get the best possible outcome for themselves | Rational decision making |
| Trade offs (smaller car=less space) | ALL the alternates that we give up when we make a choice. |
| Opportunity cost | most desirable alternative given up when you make a choice (in other words make a choice→ lose an opportunity) |
| Based on facts (What is). Avoids value judgments. | Positive analysis |
| Normative analysis | includes value judgements |
| The study of the total effects on the national economy and the global economy of the choices that individuals, businesses, and governments make* Looks at the beach | Macroeconomics |
| Aggregate | total |
| The study of the choices that individuals and businesses make and the way these choices interact and are influenced by governments. Looks at the sand, rocks, and shells | Microeconomics |
| Utility | Satisfaction |
| Additional | Marginal |
| Allocate | Distribute |
| Amount the buyer (or consumer) plays | Price |
| Cost | Amount the seller paid to produce the good |
| The money spent by BUSINESSES improve their production | Investment |
| Goods | physical goods that satisfy our needs and wants |
| Created for direct consumption (Example: pizza) | Consumer Goods |
| Capital Goods | created for indirect consumption. Goods use to make consumer goods. (Examples: Ovens blenders, knives, etc.) |
| Define output | goods produced |
| Define input | time/land put in to make the output |
| What is the formula for an output question? | O.G.O. (Other Goes Over) |
| What is the formula for an input question? | O.G.U. (Other Goes Under |
| The exchange of goods, services, and resources between one country and another. | International Trade |
| Absolute Advantage | A country has an absolute advantage when it is more efficient at producing a product or service than another region or country. |
| A country can produce a product or service at a lower opportunity cost than another country. | Comparative Advantage |
| When an individual or country allocates most or all of its resources toward producing the product it has a comparative advantage in. | Specialization |
| Gains from Trade | The ability of two agents to increase their consumption possibilities through specialization and trade. |
| What is the Law of Demand? | As Price ↑ → Quantity Demanded ↓ As Price ↓ → Quantity Demanded ↑ |
| Substitution Effect | When prices rise, consumers switch to cheaper alternatives. |
| Higher prices reduce consumers’ purchasing power, so they buy less. | Income Effect |
| Law of Diminishing Marginal Utility | The more of a good you consume, the less satisfaction you get from each additional unit. Therefore, you will only buy more if the price decreases. |
| The Law of Supply As Price ↑ → Quantity Supplied ↑ As Price ↓ → Quantity Supplied ↓ | As Price ↑ → Quantity Supplied ↑ As Price ↓ → Quantity Supplied ↓ |
| An upward-sloping line showing the direct relationship between price and quantity supplied. | Supply Curve |
| Why is supply upward sloping? | Higher prices encourage firms to produce more goods. |
| What changes quantity demanded and supplied? | Price(only price moves you along the demand curve) |
| Shifters of Demand (Determinants of Demand) | Tastes and Preferences, Number of Consumers, Price of Related Goods (substitutes and complements), Income, Future Expectations, Demand for a Related Good |
| Shifters of Supply (Determinants of Supply) | Prices / Availability of Inputs (resources), Number of Sellers, Technology, Government Action (taxes, subsidies, regulations), Expectations of Future Profit |
| What does not shift either curves? | Price |
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