ECON 202 test #1

  1. Scarcity
    A situation in which the ingredients for producing the things that people desire are insufficient to satisfy all wants at a zero price.  Scarcity is the most basic concept in all economics...inability to fulfill our unlimited wants because of our limited resouces
  2. Production
    Any activity that results in the conversion of resources into products that can be used in consumption
  3. Land
    The natural resources that are available from nature.  Land as a resources includes location, original fertility and mineral deposits, topography, climate, water, and vegetation
  4. physical capital
    all manufactured resources, including buildings, equipment, machines, and improvements to land that are used for production
  5. human capital
    the accumulated training and education of workers
  6. GOODS
    All things from which individuals derive satisfaction or happiness
  7. services
    mental or physical labor or help purchased by consumers.  Examples are the assistance of physicians, lawyers, dentists, repair personnel, housecleaners, educators, retailers, and wholesalers; items purchased or used by consumers that do not have physical characteristics
  8. opportunity cost
    the highest-valued, next-best alternative that must be sacrificed to obtain something or to satisfy a want
  9. Production possibilities curve (PPC)
    • a curve representing all possible combinations of maximum outputs that could be produced assuming a fixed amount of productive resources of a given quality
    • -Economic growth shifts outward
  10. specialization
    The organization of economic activity so that what each person (or region) consumes is not identical to what that person (or region) produces.  An individual may specialize, for example, in law or medicine.  A nation may specialize in the production of coffee, e-book readers, or digital cameras
  11. comparative advantage
    the ability to produce a good or service at a lower opportunity cost compared to the other producers
  12. division of labor
    the segregation of resources into different specific tasks; for example, one automobile worker puts on bumpers, another door, and so on
  13. Market
    All of the arrangements that individuals have for exchanging with one another.  Thus, for example, we can speak of the labor market, the automobile market, and the credit market
  14. LaW oF DeMaNd
    • the observation that there is a negative, or inverse, relationship between the price of any good or service and the quantity demanded, holding other factors constant
    • -the determinants of demands are:
    • income
    • prices of related goods (substitutes and complements)
    • expectations
    • market size (number of potential buyers)
  15. normal goods
    goods for which demand rises as income rises.  Most goods are normal goods
  16. inferior goods
    goods for which demand falls as income rises
  17. Substitutes
    Two goods are substitutes when a change in the price of one causes a shift in demand for the other in the same direction as the price change
  18. complements
    two goods are complements when a change in the price of one causes an opposite shift in the demand for the other
  19. law of supply
    the observation that the higher the price of a good, the more of that good sellers will make available over a specified time period, other things being equal
  20. market clearing or equilibrium price
    the price that clears the market, at which quantity demanded equals supplied; the price where the demand curve intersects the supple curve
  21. equilibrium
    the situation where quantity supplied equals quantity demanded at a particular price
  22. shortage
    a situation in which quantity demanded is greater than quantity supplied at a price below the market clearing price
  23. surplus
    a situation in which quantity supplied is greater than quantity demanded at a price above the market clearing price
  24. Price system
    • an economic system in which relative prices are constantly changing to reflect changes in supply and demand for different commodities.  The prices of those commodities are signals to everyone within the system as to what is relatively scarce and what is relatively abundant
    • it is the answer to the three basic economic questions:
    • -what and how much will be produced-how will items be produced-for whom will items be produced
  25. Unemployment
    The total number of adults (aged 16 years or older) who are willing and able to work and who are actively looking for work but have not found a job
  26. Labor force
    Individual aged 16 years or older who either have jobs or who are looking and available for jobs; the number of employed plus the number of unemployed
  27. Frictional unemployment
    Unemployment due to the fact that workers must search for appropriate job offers, this activity takes times, and so they remain temporarily unemployed
  28. Structural unemployment
    Unemployment resulting from a poor match of workers’ abilities with current requirements of employers
  29. Cyclical unemployment
    Unemployment resulting from business recessions that occur when aggregate (total) demand is insufficient to create full employment
  30. Seasonal unemployment
    Unemployment resulting from the seasonal pattern of work in specific industries.  It is usually due to seasonal fluctuations in demand or to changing weather conditions that render work difficult, if not impossible, as in the agriculture, construction, and tourist industries
  31. Natural rate of unemployment
    The rate of unemployment that is estimated to prevail in long-run macroeconomic equilibrium, when all workers and employers have fully adjusted to any changes in the economy
  32. Inflation
    A sustained increase in the average of all prices of goods and services in an economy
  33. Deflation
    A sustained decrease in the average of all prices of goods and services in an economy
  34. Purchasing power
    The value of money for buying goods and services.  If your money income stays the same but the price of one good that you are buying goes up, your effective purchasing power falls, and vice versa
  35. Consumer price index (CPI)
    A statistical measure of a weighted average of price of a specified set of goods and services purchased by typical consumers in urban areas
  36. Anticipated inflation
    The inflation rate that we believe will occur; when it does, we are in a situation of fully anticipated inflation
  37. Unanticipated inflation
    Inflation at a rate that comes as a surprise, either higher or lower than the rate anticipated
  38. Nominal rate of interest
    The market rate of interest observed on contracts expressed in today’s dollars
  39. Real rate of interest
    The nominal rate of interest minus the anticipated rate of inflation
  40. Cost of living adjustments (COLAs)
    Clauses in contracts that allow for increases in specified nominal values to take account of changes in the cost of living
  41. Business fluctuations
    The ups and downs in business activity throughout the economy
  42. Expansion
    A business fluctuation in which the pace of national economic activity is speeding up
  43. Contraction
    A business fluctuation during which the pace of national economic activity is slowing down
  44. Recession
    A period of time during which the rate of growth of business activity is consistently less than its long-term trend or is negative
  45. Depression
    An extremely severe recession
  46. Final goods and services
    Goods and services that are at their final stage of production and will not be transformed into yet other goods or services.  For example, wheat ordinarily is not considered a final good because it is usually used to make a final good, bread.
  47. Gross domestic product (GDP)
    The total market value of all final goods and services produced during a year by factors of production located within a nation’s borders
  48. Intermediate goods
    Goods used up entirely in the production of final goods
  49. Value added
    The dollar value of an industry’s sales minus the value of intermediate goods (for example, raw materials and parts) used in production
  50. Expenditure approach (C+I+G=X)
    Computing GDP by adding up the dollar value at current market prices of all final goods and services
  51. Income approach
    Measuring GDP by adding up all components of national income, including wages, interest, rent, and profits
  52. Durable consumer goods
    Consumer goods that have a lifespan of more than three years
  53. Nondurable consumer goods
    Consumer goods that are used up within three years
  54. Services
    Mental of physical labor or help purchased by consumers.  Examples are the assistance of physicians, lawyers, dentists, repair personnel, housecleaners, educators, retailers, and wholesalers; things purchased or used by consumers that do not have physical characteristics
  55. Capital consumption allowance
    Another name for depreciation, the amount that businesses would have to save in order to take care of deteriorating machines and other equipment
  56. Indirect business taxes
    All business taxers except the tax on corporate profits.  Indirect taxes include sales and business property taxes
  57. Disposable personal income (DPI)
    Personal income after personal income taxes have been paid
  58. Nominal values
    The values of variable such as GDP and investment expressed in current dollars, also called money values; measurement in terms of the actual market prices at which goods and services are sold
  59. Real values
    Measurement of economic value after adjustments have been made for changes in the average of prices between years
  60. Foreign exchange rate
    The price of one currency in terms of another
  61. Purchasing power parity
    Adjustment in exchange rate conversions that takes into account differences in the true cost of living across countries
Card Set
ECON 202 test #1