Definitions
What is economic profit?
Difference between revenue & the opportunity cost of production
What causes monopolies to form?
Barriers to entry
When comparing GDP Deflator and CPI, which one rises less at peaks and falls more at troughs?
GDP Deflator
What is an externality?
When the action of one party effects another, but neither pays or is paid for the effects
What is liquidity?
How easily an asset can be converted into a medium of exchange
What is a cartel?
A group of firms that collude to restrain competition (make barriers to entry)
When is a market considered imperfectly competitive?
When it has one or few suppliers
What demand curve do monopolistic competition producers face?
Downward sloping
What is rent seeking?
Using political influence to increase your own economic profits while making others worse off
What are the 3 functions of money?
-Medium of exchange
-Store of value
-Unit of account
What is Crowding out?
Tendency of government deficits to reduce private investment
What do firms that have a downward sloping demand curve (meaning if they increase supply they will receive a lower price) have?
Market power (meaning they can choose their own market prices)
What is the production possibility frontier?
A graph showing the maximum amount of a good a person can make when producing multiple goods
What is Pork Barrel Politics?
Elected officials directing money towards their own communities
What is the money multiplier?
What is deadweight loss?
Reduction in total surplus (producer + consumer surplus) that results from market distortions like taxes
When is a market considered perfectly competitive?
When the good sold is highly standardized, there are many buyers & sellers, and and all participants are well informed about the market price
What 4 factors influence the position of the supply curve?
-Prices of inputs used in production
-Technology used to produce the good
-Expectations
-Number of sellers
What is logrolling?
Elected officials trading votes
What will a central bank do to to increase the money supply?
Purchase government bonds from other banks or the public
What is Diminishing returns to scale?
Property where each additional unit of input results in less of an increase in quantity produced
What are the 3 main sources of barriers to entry?
-Ownership of a key resource
-A single firm's ability to supply the market at a lower cost (Natural monopoly)
-Rights to supply a product are given to only one company, through patents, copyright laws, etc (Government-created monopolies)
What 5 factors does the position of the demand curve depend on?
-Income
-Prices of related goods
-Tastes
-Expectations
-Amount of buyers
What is Tragedy of the Commons?
Depletion of a common resource due to overuse, arises because there are no policies in place to discourage overuse
Under what circumstances can a money multiplier NOT be calculated?
In an ample reserve system