Mac Econ

  1. What is Economics
    The way resources are allocated among alternative uses to safity human wants
  2. Resources
    • Anythign that can be used to produce somthing else
    • Land: our natural resources, soil, fertility, forest, water
    • Labor: human capacity for work
    • Capital: machinery and buildings used in production
  3. Scarce
    When there is not enough of resouce to safisy various ways a society wants to use it.
  4. Technology
    • Our knowledge with respect to science and industry
    • It is our practical aplication of our knowledge
    • Key ingredient
  5. Economic Models
    • Establishes a relationship between varialbes
    • Allows us to predict things
    • Also simplifies reality or abstracts from reality
  6. Empirical Model
    • 1) Develop reasonable assumpion about economic behavior
    • 2)Identiry your categories and develop variables to meause these
    • 3) We state the hypothesis regarding the relationship between variables
    • 4) Conduct and collect data to test the hypotheis
  7. Schumpter vs Gunnar
    • Joseph Schumpter: Emperical model is objective. Step 4 establishes the facts which mean value free and unbiased. Does acknowledge subjectiveity in step 1
    • Gunnar Myrdal: It is not objective in any sense because there are values int eh facts. Our opinion is what says if facts are good or bad
  8. Positive
    • Facts
    • Value Free
    • How the world works
  9. Normative
    • Good and bad
    • What is fair
    • How should work
  10. Efficency
    An economy is efficient if it takes all opportunity to make some people better off without making others worse off.
  11. Equity
    Insuring everyone gest their "fair share"
  12. Direct Relationship
    • Move in same direction
    • Slope is positive
  13. Indirect
    • Monve in oppposite direction
    • Slope is negative
  14. Opportunity cost
    What an individual must give up on order to get more of somthing esle
  15. Possibilty Production frontier (PPF)
    • Movements along cuvre if technology and resources are fixed.
    • More resouces or improvments in technology shift it outword
  16. Increasing opportunity cost
    The bigger the distance between each point represents increasing opportunity costs
  17. Neoclassical Market
    • The central economic institution in neoclasical economics is the market. It prefers 3 main functions:
    • 1) Market forces determine prices and income
    • 2)Direct the product and allocation of goods and servces
    • 3)automaticall adjust to change in circumstances
  18. Law of Demand
    • There is an inverse relationship between the price of a good and the quantity demanded of that good, all else equal
    • Income effect: Prie goes down so people buy more
    • Sustitute effect: Shere goods can replace others similar
    • These are all movements along the curve
  19. Determinents of Demand
    • These are shift perameters
    • Peoples taste and preferences
    • Peoples income: Normal good (stead) inferior (beans)
    • Prices of substitue and complimentary goods
    • Peoples ezpectaions of the future
  20. Law of Supply
    • Indicates a direct relationship between the price of a good and quantity supplied of that good, all esle equal
    • This is a movement along the supply cuve
  21. Determinents of supply
    • This is a shift of the supply curve
    • Cost of production: Price of input, Technology
    • Entry and exit of firms
  22. Equilibrium
    The price when quantity demanded equals quantity supplied
  23. Surplus
    Price will Fall because producers will compete price down
  24. Shortage
    Price will rise because consumers will compete price up
  25. Assumptions of Competive Market
    • 1)Force of demand and supply have free play (no govt)
    • 2)Many buyers an sellers
    • 3)sufficient information
    • 4)Individuals are rational: selfish
    • 5)Surplus price fall and shortage price rise
  26. Self Adjusting Market
    • In neoclassical economics the market is either in equilibrum or tending towards equilibrium
    • Demand Shift to right shortage happens
    • Suply shift to right, surplus happens
  27. Aggregate demand
    Total demand for ouput in the economy
  28. Aggregate supply
    Total production of output in the economy
  29. Equilibrium in Macroeconomy
  30. Says Law
    • Supply creates it's own demand.
    • Agregate demand can never be deficient
  31. Private Goods
    • They are excludable- suppliers can prevent people who do not pay from conuming the good
    • They are rival in consumption- one unit of good can't be consumed by more than 1 person without diminishing the benefit
  32. Public Goods
    • They are Non-excludabe-supplier can not prevent consumption from those who don't pay
    • Non-rival in consumption- additional people consuming good do not diminish benefit to others
  33. 4 categories of govenrment spending
    • National Defense
    • Education
    • Other goods and Services
    • Transfers
  34. Transfer Payments
    Transter of tax revenues from tax payers in general to specific government programs
  35. 4 Functions of Government
    • Provide public good and servies
    • Redistribution of income
    • Stabilization: maintian low unemployment and low inflation
    • Economic Regulation: Gov't provides rules of the game and enforces them
  36. Free rider problem
    Issue with public goods where self interested persons who do not pay consume good by taking free ride from people who do pay.
  37. Why do Gov't not private provide public goods?
    Public goods are less profitable, therefore private firms won't supply it
  38. Tax
    A compulsory payment to Gov't
  39. Tax Rate
    Total taxes paid realitve to tax base
  40. Income Tax
    • Personal
    • corporate income
  41. Marginal tax Rate
    The additonal tax on additional income
  42. Average tax rate
    Total taes paid divided by total income
  43. Taxes on wealth
    • Property
    • Iheritance tax
  44. Taxes on Activities
    • Sales and excise taxes: on production of goods
    • Social security: tax on activity of work
  45. Three standards for Judging a tax
    • 1) Equity: is tax fair
    • 2) Efficiency: Does the tax inhibit growth
    • 3) Is the tax enforcible: loopholes
  46. Horizontal Equity
  47. Equals treated equaly where they pay the same amount in the same braket
  48. Verticle Equity
    Unequals treaed unequal so rich pay more
  49. Benefit Principle
    If you are benefiting you should be paying taxes
  50. Ability to pay
    Fairness on those who can afford to and those who can't
  51. Progressive Tax Rate
    Tax rate increasess as income increases so this is a direct reletionship
  52. Regressive Tax rate
    Tax rate decreases as income increases. This is a inverse relationship
  53. Flat or Proportional tax rate
    The rate is the same at all levels
  54. Direct Tax
    • Incidence or burden can not be shifed to others
    • ex: income tax on households, social security, inheritance tax
  55. Indirect tax
    • The incident or burden can be shifted to others
    • ex: corporate profits, property taxes on rental unitys, sales tax, exsice tas
  56. GDP
    Gross Domestic Product: the toatal curren value of final goods and services produced in the boundries of U.S.
  57. GNP
    Gross National product: The total current value of final goods an services produced by u.s fimes at home and abroad.
  58. Measuring GDP
    • 1) National incoma nd product accounts
    • 2) The value added approach: the difference between final price of a good and the cost of intermideiate goods use to produce it.
  59. GDP as measue of wellbeing
    • What it does not measure
    • 1) Distribution of income
    • 2) Damage to the enviornment
Card Set
Mac Econ
Test 1