ECON
Terms
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- surplus
- government spends less money than it collected
- marginal revenue
- change in a firm's total revenue that occurs when the firm increases output and sales by one unit
- demand is more elastic
- good substitutes exist; product accounts for larger share of the budget of the typical customer; longer period of time is allowed for consumers to adjust to the price change
- monetary policy
- determination of the nation's money supply; controlled by the central bank
- burden of a tax
- buyers bear this when demand is less elastic; suppliers bear this when supply is less elastic
- negative externalities
- too much of a good is produced/consumed
- competition is a regulator
- tends to reduce profits to normal level; works best in markets where entry is free
- profit is a motivator
- makes people want to provide goods and service that people want
- depression
- severe economic slowdown
- economic rent
- part of payment for a factor of production that exceeds the owner's reservation price
- rate of inflation
- rate at which prices in general are increasing over time
- market power
- the ability of a seller to raise its price relative to its rivals without losing all of its sales; has considerable influence over the market
- structural policy
- government policies aimed at changing the underlying structure, or institutions, of the nation's economy
- unemployment rate
- fraction of people who would like to be employed but can't find work
- nominal GDP
- (price x quantity) for each good/service and add them up; measured in CURRENT dollars
- elasticity
- change in quantity/change in price
- aggregate demand
- inversely related to the real rate of interest; consumption falls, investment spending falls, net exports fall WHEN the real rate rises
- sources of market power
- exclusive control over inputs, patents and copyrights, government licenses and franchises, economies of scale, network economies
- real rate of interest
- the nominal interest rate minus the rate of inflation expected over the coming year; measures the expected change in purchasing power of a financial asset over the coming year
- positive externalities
- too little of a good is produced/consumed
- macroeconomics
- the study of the performance of the national economy as well as the policies used to improve that performance
- surplus
- difference between a consumer's reservation price and the actual price paid
- investment
- capital formation; firms acquire new capital only when the expected benefit of new capital exceed the expected costs; the real rate of interest is a cost of this
- aggregation
- the adding up of individual economic variables to obtain economy wide totals
- Consumer Price Index
- measures the cost of a standard basket of goods and services relative to the cost of the same basket of goods and service in a fixed year, called the base year
- deficit
- government spends more money than it collected
- normal profit
- opportunity cost of resources supplied by owners of the firm--includes the opportunity cost of their time
- dead weight loss
- reduction in total economic surplus that results from the adoption of a policy
- average labor productivity
- output per employed worker
- trade winners
- consumers of imported goods; producers of exported goods
- trade surplus
- exports are higher than imports
- GDP
- measures how much an economy produces in a given period; avoids double counting by only counting the value of final goods and services
- elasticity of demand
- percentage change in quantity demanded that occurs as the result of a one percent change in price
- growth in the US
- growth in labor productivity accounts for most growth in output per capita
- trade losers
- consumers of exported goods; producers of imported goods
- marginal benefit
- increase in total benefit that results from carrying out one additional unit of activity
- economic growth
- process of steady increase in the quantity and quality of the goods and services the economy can produce
- booms
- strong expansions
- saving
- a flow; measured in dollars per unit time; source of funds for capital formation
- price index
- an average of prices of different goods and services
- reservation price
- highest amount a consumer would pay to obtain a good or service
- inflation
- (CPI t-CPI t-1)/CPI t-1
- components of GDP
- consumption, investment, government spending, net exports
- perfect competition
- price is determined by supply and demand, no seller can influence price, no buyers can influence price
- recession
- slowdown in economic growth; jobs harder to find, wage increases less likely, profits are lower, companies go out of business
- accounting profit
- total revenue-explicit costs
- expansion
- unusually rapid economic growth; jobs easier to find, people get raises/promotions, businesses thrive
- nominal rate of interest
- annual percentage increase in the nominal value of a financial asset
- socially optimal amount
- point when the private marginal benefit is higher than the social marginal cost
- efficient market allocation
- when the value placed by buyers on the last unit of the good bought just equals the marginal cost of producing the good
- fiscal policy
- decisions that determine the government's budget, includes the amount and composition of government expenditures and government revenues
- real GDP
- measured in CONSTANT dollars; an inflation proof number; (quantity x price at base year)
- profit maximizing rule
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profits are at max level when marginal revenue=marginal cost; increase output when MR>MC; decrease output when MR
- marginal cost
- increase in total cost that results form carrying out one additional unit of an activity
- comparative advantage
- when nations specialize in the production of goods for which they have a comparative advantage and trade, they enjoy a higher national product than when they do not
- efficient
- no change is possible that will help some people without harming others
- externalities
- costs and benefits that are experienced by people other than the producers and consumers of goods, generally negative
- trade deficit
- imports are higher than exports
- determinants of the growth rate
- real GDP=Y, number of workers=N, population=POP; Y/POP=Y/N x N/POP
- potential output
- output level associated with full employment of labor and capital
- wealth
- a stock; measured in dollars
- economic profit
- total revenue-explicit costs-normal profit
- profit
- total revenue-explicit costs-implicit costs
- GDP deflator
- P=NGDP/RGDP ; is a weighted average of prices in the economy with weights given by the relative importance of each component of GDP