Section I
Microeconomics vs. Macroeconomics?
Microeconomics concentrates on individual behavior and the operation of particular markets.
Macroeconomics concentrates on the overall performance of the national economy.
What does a market consist of?
What are Net Exports?
Net Exports are the difference between the value of domestically produced goods sold to foreigners (exports) and the value of foreign-produced goods purchased by domestic buyers (imports)
Net Exports = Total Exports - Total Imports
Negative vs. Positive Externalities?
Negative Externalities - when a cost spills over (imposed) to a third party
Positive Externality - when a benefit spills over (given) to a third party
Capital
One of the three factors of production; in classical economics, capital refers to money or physical assets
What does S.T.O.R.G stand for?
Scarcity, Trade-Offs, Opportunity Costs, Rationality, and Gains from Trade.
What is Elasticity?
Elasticity provides a measure of the responsiveness of supply and demand to price changes that is independent of the units used to measure price and quantity
What is GDP equal to?
GDP = C + I + G + NX
Gross Domestic Product = Consumption + Investment + Government Spending + Net Exports
What is a reciprocal externality?
Reciprocal Externality - when two parties both affect each other; a situation where all parties using a resource cause external costs for each other
EX: Pollution (Emitter and the receiver are partly responsible for pollution)
Price Discrimination
when a business sells the same product to different buyers at different prices
What is opportunity cost? State an example
The cost of what you choose is what you have to give up to get it.
Ex: Free basketball game ticket
- Opportunity cost is the value of what you would have been doing during that time if you had not gone to the game (mowing lawns for money)
Factors that affect the position of the supply curve?
Prices of Inputs, Technology, Expectations, Number of sellers
How does the U.S Bureau of Labor Statistics measure inflation?
Calculates the Consumer Price Index (CPI) of each month
CPI - measures the cost of purchasing a market basket of goods and services intended to be representative of the consumption of a typical consumer
What is a nested public good?
Nested public good - a public good that is part of a nested structure, where there are multiple public goods
Cyclical Unemployment
Unemployment caused by deviations of output from its potential level
What is Pareto efficiency?
Pareto efficiency - if there is no way to improve at least one person's well-being without reducing the well-being of someone else
Factors that affect the position of the demand curve?
Income, prices of related goods, tastes, expectations, and the number of buyers
Frictional vs structural unemployment?
Frictional Unemployment is typically temporary; a natural result of people changing jobs
Structural Unemployment can last for years; long-term shifts in the economy
Present Value Equation?
Present value = [1/(1+r)^t] x Future Value
r = rate of return
t = time (number of periods)
Production Possibility Frontier (PPF)
A graphical depiction of the combinations of output that can be produced by an economy
Positive vs. Normative Economics? What is each based on?
Positive Economics - uses the tools of economic analysis to describe and explain economic phenomena and to make predictions about what will happen under particular circumstances (how the world is) (based on facts and evidence)
Normative Economics - use of economic analysis to guide decisions about what should be as opposed to what is the case (how the world ought to be) (based on opinions and values)
The equations for the price elasticity of demand and the price elasticity of supply? Equation for Total Revenue?
Price elasticity of demand = (Percentage change in quantity demanded)/(Percentage change in price)
Price elasticity of supply = (Percentage change in quantity supplied)/(Percentage change in price)
Total Revenue = P x Q (equilibrium price x equilibrium quantity)
Equation for Nominal GDP? Equation for GDP Deflator? Equation for Real GDP?
Nominal GDP =[ (GDP Deflator) x (Real GDP) ]/100 OR (C+I+G+(X-M))
GDP Deflator = (Nominal GDP)/(Real GDP) x 100
Real GDP = (Nominal GDP)/(Deflator)
What is the Social Cost of Carbon (SCC)?
SCC - an estimate of the cost, in dollars, of the damage done by each additional ton of carbon emissions and the corresponding benefit of actions taken to reduce them. Analysts disagree about which SCC estimate is correct.
Keynesian Model
a model of short-run aggregate economic fluctuations inspired by the analysis of British economist John Maynard Keynes, which attributes short-run deviations in output from potential to variations in the level of aggregate demand or aggregate supply