Economics 1301 #1
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each of the black spaces below before clicking
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| 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
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| 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
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| 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.
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| 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)
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| Economists Perception of Cost | real cost/opportunity cost | Equilibrium | A position which, if left undisturbed, will not change.
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| 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.
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| 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.
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| 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
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| 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
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| Demand Function | Describes the behavior of buyers | Supply Function | Describes the behavior of sellers
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| Quantity Demanded Depends On... | Price of the good, tastes and preferences, incomes, and prices of other goods | Ceterus Parabis | Supposing ______ is fixed
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| 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
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| Increase in Demand | Price goes up, quantity goes down | Decrease in Demand | Prices goes down, quantity goes down
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| Increase in Supply | Price goes down, quantity goes up | Decrease in Supply | Prices goes up, quantity goes down
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| Increase in Demand, Decrease in Supply | Price goes up, quantity is ambiguous | Decrease in Demand, Decrease in Supply | Price is ambiguous, quantity goes down
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| 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.
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| Price ceiling | an upper limit on prices (set by the government) | Price floor | a lower limit on prices (set by the government)
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| 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.
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| 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)
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