Foundational Concepts
To say that people make decisions at the margin suggests what?
They weigh the additional costs and benefits of various activities before they make a purchase.
What are some determinantes of demand?
income, tastes, the price of related goods
This is the largest component of GDP.
Consumption
Describe the beliefs of Adam Smith
Unregulated competition in the marketplace, little to no government intervention, market will fix itself
This is a tax on imported goods.
A tariff
What does a linear PPC signify?
The shape of the PPC signifies that the resources needed to produce the two goods are interchangeable.
Other things being equal, when the price of a good rises, the quantity supplied of the good also rises. This is known as?
The Law of Supply
Who is included in the labor force?
People who are 16 an older and employed or unemployed but looking for work
Who is responsible for creating maximum employment, stable prices, and moderate long-term interest rates
The Federal Reserve
Why does the government set a quota on imports?
To increase sales of domestic goods.
What does a point on the PPC mean? What does a point inside the PPC suggest? What does a point outside of the PPC suggest?
Point on-means efficiency
Point inside-means inefficiency
Point outside-means impossible
Suppose a decrease in the price of Good X results in less of Good Y sold. This means X and Y are this type of good.
Substitute goods
Burgin works part-time serving bubble tea while looking for a full-time job as a lumberjack. What best describes his employment situation.
Underemployed
This includes a combination of tax and spending policy.
Fiscal Policy
How does contractionary fiscal policy effect aggregate demand?
It decreases aggregate demand
Define economics
How society manages its scarce resources.
Define equilibrium
At the current price, quantity supplied equals quantity demanded.
What is demand-pull inflation? How can it be stopped?
There's too much money chasing too few goods, meaning the overall demand for products and services outpaces the economy's ability to supply them, causing prices to rise as consumers compete for limited items. Limit spending
This is a benefit or cost experienced by someone who is not a producer or consumer of a good or service.
An externality
What is comparative advantage and how does it impact exports?
Comparative advantage means a country produces goods/services at a lower opportunity cost than others, driving specialization and boosting overall global output, leading to more exports of those efficient goods
This concept means a person or country is able to produce more of a good or service than another given the same resources.
Absolute Advantage
What would cause a rightward shift in the supply curve?
Primarily lower production costs (cheaper labor/materials/tech) or an increase in the number of sellers/firms, also helped by better technology, favorable conditions (like good weather for crops)
How do we calculate GDP?
GDP = C + I + G + (X - M)
Compare and contrast Keynesian economics and Classical economics
Classical economics focuses on self-regulating markets, flexible prices/wages, aggregate supply, minimal government, and long-term growth (full employment), while Keynesian economics, born from the Depression, emphasizes sticky prices, aggregate demand, active government (fiscal/monetary policy) to manage short-term cycles, and accepts potential long-term unemployment
Describe monopolistic competition
Monopolistic competition is a market structure where many firms sell similar, but not identical, products. Key features include a large number of sellers, freedom of entry and exit, and product differentiation through branding, quality, or style. While each firm has some market power, competition is high, leading to similarities in products and price points, but also inefficiencies like excess capacity and costs from advertising.