Term
| What factors can cause the supply schedule to shift? |
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Definition
| A change in any one of the non-price determinants of supply |
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Term
| Why will a change in the price of corn cause a shift in the supply of wheat? |
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Definition
| If price of corn goes up, farmers will move resources out of wheat to corn for greater profits. |
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Term
| What factor can cause a movement along a given supply schedule? |
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Definition
| a change in the price of the product itself. This is called a change in the quantity supplied |
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Term
| Explain why future price expectations tend to be self-fulfilling in a market economy? |
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Definition
| If both buyers and sellers believe next week's prices will be higher than this week's prices, this week's demand schedule shifts to the right and the supply schedule shifts to the right, causing this week's product price to rise. |
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Term
| Explain how market demand schedules and supply schedules are derived |
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Definition
| Market demand schedule is made by horizontally adding up all of the individual demand schedules. The supply schedule is made by horizontally adding up the individual supply schedules. This is done by adding up, at each possible price, the quantities demanded and quantities supply by all households and firms |
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Term
| How is an equilibrium price determined in the market? |
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Definition
| at the point at which the market demand and market schedule intersect |
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Term
| What is the unique characteristic of an equilibrium price? |
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Definition
| its the only price that is sustainable by market forces alone. At any other price, either more or a shortage will exist. |
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Term
| Distinguish between an effective and ineffective price ceiling (or floor). |
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Definition
| An effective price ceiling or floor prevents the market from achieving an equilibrium price. Ineffective price controls such as a price ceiling set above the equilibrium price or a price floor set below the equilibrium because they still allow an equilibrium price to be achieved |
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Term
| Explain the impact on equilibrium price and quantity of combinations of rightward and leftward shifts of the demand and supply schedules |
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Definition
| Whenever a non-price determinent of demand changes, it causes the demand schedule to shift right or left. Likewise for supply shedule and non-price determinents of supply. The newly created shortage or surplus will cause equilibrium market quantity and quantity to change. |
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Term
| Explain the concept of positive and negative externalities? How do they impact the efficiency of resource allocation? |
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Definition
| externalities affect the well-being of third parties (those not involved in selling or buying the product) either positively or negatively. Positive would be vaccinations and education, negative would be pollution |
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Term
| Explain how government could improve allocative efficiency by levying taxes or subsidies on firms in response to the presence of externalities |
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Definition
| The government can tax the production of goods that produce negative externalities and subsidies the production of goods that lead to positive externalities |
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Term
| What are public goods, and why will they not be produced in appropriate quantities by private markets? Through what mechanism are they provided? |
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Definition
| Public goods differ from private goods in that they are consumed in equal amounts by everyone. Private markets won't produce them because people will want to mooch off of it. Example of public good is national defense |
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Term
| Why does monopoly power cause resources to be allocated ineffeciently? |
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Definition
| the monopolist charges too high a price and produces too little of the product from society's point of view |
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Term
| Calculate GDP from upper loop and lower loops |
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Definition
Upper loop: C+I+G+X-M
Lower loop: Employee Compensation+Net Interest+Rents+Total corporate Profits+Proprietor's Income +Indirect Business |
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Term
| calculate incomes earned by resource owners from GDP |
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Definition
| GDP-depreciation-indirect business taxes=Incomes Earned |
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Term
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Definition
| GDP-depreciation-indirect business taxes-Corporate Income Taxes-Corporate Retained Earnings-Social security Taxes paid by employers-personal taxes+transfer payments by government to households |
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Term
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Definition
| amount of money households actually have to spend |
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Term
| Calculate real GDP from nominal GDP using price index (PI) |
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Definition
| Nominal GDP/price index*100 |
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Term
| calculate price index if nominal and real GDP for a given year are known |
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Definition
| Price index=Nominal GDP/real GDP *100 |
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Term
| Which sectors of the economy buy: (a) only final products (b) both final and intermediate goods? How do final and intermediate goods differ? |
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Definition
| households, governemnt, and the rest of the world can only buy final products. The business sector is the only one who can purchase both intermediate goods and final products |
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Term
| Are changes in nominal GDP values from year to year a good measure of changes in economic well-being? |
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Definition
| No. Nominal GDP can rise simply because of a higher average price level. It is not a reliable indicator of changes in overall well-being |
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Term
| What is the difference between GNP and GDP? |
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Definition
| GDP is what a national company produces in factories located in that nation. GNP is what a national company produces in factories located either within or outside of that nation |
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Term
| Why must saving and dissaving in the economy sum to zero? |
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Definition
| The total amount of final output in our economy each year gives rise to an equal amount of total income. If households do not spend all of their disposable incomes, then they can loan money to businesses or governments so that these sectors can spend more than their annual receipts allow |
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Term
| Why are imports subtracted from the total of consumption, gross investment, government spending and exports in calculating the upper loop estimate of GDP? |
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Definition
| because imports that are sold weren't produced in the US so you have to subtract that from all products sold to see how much US product was sold |
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Term
| What adjustments must be made to the production possibilities schedule to reflect that resource owners might not be willing to commit all their resources to the production process? |
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Definition
| You have to take into account that people like full time students, retirees, etc might not want to spend their money, so you have to produce less |
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Term
| calculate the value of the civilian unemployment rate |
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Definition
| civilian unemployment rate is the percentage of the current labor force (E+U) that is unemployed (U). So U/(U+E) |
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Term
| Calculate the labor force participation rate |
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Definition
| is the percentage of the potential civilian laabor force that is currently in the labor force |
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Term
| What are the basic categories of unemployment? Which of these will be emphasized in this course? |
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Definition
| frictional, structural, seasonal and cyclical unemployment. Cyclical is emphasized |
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Term
| What does a 6% unemployment rate mean? |
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Definition
| 6% of the current or actual labor force is unemployed |
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Term
| What is meant by "full" employment? Does it mean a zero unemployment rate? |
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Definition
| full employment is when there is no cyclical employment. At full employment we are still likely to have frictional, structural, and some seasonal unemployment |
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Term
| What are the costs of unemployment to individuals and to society? |
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Definition
| Individuals: loss of income and loss of skills. Society: fewer goods and services being produced and lower average living standards |
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Term
| Explain how the employed labor force and the unemployed are measured in the Current Population Survey? What factors cause an individual to be classified as (a) a member of the potential civilian labor force; (b) a member of the current labor force; (c) unemployed; (d) employed; (e) a discouraged worker; (f) out of the labor force? |
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Definition
| (d) work at least one hour for pay, family busines for 15 hours a week for no pay, or has a job but is not at work prior to the survey. (c) member of potential labor force but is not classified as employed but has looked for work during 4 weeks prior to survey. (e) not employed but has given up job searching. (f) member of potential labor force but is not classified as either employed or unemployed |
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Term
| What are the four stages of a business cycle? What are leading economic indicators? How do they differ from "coincident" and "lagging" indicators? Why is the unemployment rate a "lagging" indicator? |
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Definition
| Four stages are recovery, peak, recession, and trough. Leading economic indicators have turning points that occur in advance of the turning points in the movement of real GDP. coincident economic indicators are data series that have turning points in the same calendar quarter as the turning points of real GDP. Lagging indicators have turning points after the turning points in the movement of real GDP are observed. Unemployment is a lagging indicator because businesses are hesitant to fire/hire until they know the changes in sales are likely to continue |
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