ECN 150: Exam Study Guide
ECN 150: Exam Study Guide ECN 150
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This 5 page Study Guide was uploaded by Alexis Ibarra on Tuesday March 15, 2016. The Study Guide belongs to ECN 150 at La Salle University taught by Francis Thomas Mallon in Summer 2015. Since its upload, it has received 44 views. For similar materials see Macroeconomics in Economcs at La Salle University.
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Date Created: 03/15/16
Econ150 Study highlight sheet first exam Limited resources and unlimited wants and desires o Society has limitations (time, resources, etc.) Society methods to coordinate allocation of scarce resources (Capitalism vs Socialism) o Capitalism The market determines flow of economy and business decisions/jobs o Socialism Government determines business decisions/jobs/economy (predetermined) Society’s resources – factors of production o Land Natural resources not created by humans o Capital Includes tools, equipment, factories, etc. o Labor Includes people and all their efforts and abilities o Entrepreneurship Ability to start a business and bring product to market Production Possibilities analysis o The curve which signifies the maximum efficiency of production of goods and services Utilization and Efficiency of resources o Maximizing the supply of money, materials, staff, and other assets that can be drawn on by a person or organization in order to function effectively, with minimum wasted effort or expense Growth potential of an economy given allocation of productive resources Unemployment and Underemployment in a Production Possibilities analysis o Unemployment Someone who is not working and looking for work o Underemployment Someone who has taken a job that requires far less responsibility than the worker is capable of Ex.- a brain surgeon working at McDonalds o Graphically this point is seen underneath the production possibilities curve which means we are producing less than our maximum amount Invisible Hand o Resources will flow to the production of the goods most highly demanded by the society as if ordained by an invisible hand Adam Smith o In reality it is the selfish pursuit of profit on the part of entrepreneurs that directs economy Fundamental questions answered by the system of markets and prices in a capitalistic system o Goals of our economy Satisfying increasing value of GDP Full employment Value of our money is stable Circular Flow model o Definition of Demand o Quantity willingly demanded at each potential market price while all other variables capable of influencing demand are held constant Law of Downward Sloping Demand o Price and quantity demanded always have an inverse relationship o When price goes up demand goes down and vice versa “all other variables remaining constant” o If there is no change in an outside variable it is a movement along the same curve o If there is a change in an outside variable the entire curve shifts Income effect o As price of goods decline, the purchasing power one has with a certain amount of income increases, it’s as if they had an increase in income Substitution effect o Individuals predisposed on purchasing a good may shift their preference to the good with a falling price Change in Quantity demanded o Price of the good under consideration changes while all other variables capable of influencing demand are held constant o Graphically this is a movement from one point on the demand curve to another point on the same curve Change in demand o Change in an outside variable which has an impact on the demand for the good under consideration. o Graphically this is seen as a shift of the entire curve Definition of Supply o Quantity willingly supplied at each potential market price while all other variables capable of influencing demand are held constant Other variables capable of influencing supply (effect of variables impacting cost of production) o Price, cost of production, natural conditions, technology, transport conditions, government policies, price of related goods, etc. Direct relationship of Price and Quantity leading to upward sloping Supply o When price goes up so does supply and vice versa Change in Quantity Supplied o Change in the price of the good under consideration while all other variables capable of influencing the supply for the good are held constant o Graphically this is seen as a movement along an existing curve Change in Supply o Change in an outside variable capable of influencing the supply of the good under consideration o Graphically this is seen as a shift of the entire curve Shift downward to the right is an increase in supply Shift upward to the left is a decrease in supply Equilibrium in the system of markets and prices Surplus when price is set above equilibrium Shortage when price is set below equilibrium Market adjustments when either a surplus or shortage exists Impact on equilibrium of changes in Demand and/or Supply Equilibrium efficient but perhaps less than socially optimal Price Floors and Price Ceilings o Price floor Government imposed minimum price of product or service Always above equilibrium Example=minimum wage o Price ceiling Government imposed maximum price of a product or service Always below equilibrium Public Goods and external consumption effects o Public goods=those goods that have external consumption effects Something that is purchased by the government for the public Ex.- roads, defense, etc. Externalities and actions to incorporate cost of these externalities into market price Mixed Capitalism o Through marked mechanism, but with an acknowledgement of the government’s involvement o Free flow of the market determines the state of the economy with some government intervention GDP definition o Measures final value of all goods and services produced using domestic resources o Method of calculating GDP is derived by looking all of the spending that takes place purchasing domestically produces goods o Consumption + Investment + Government + Net exports Consumption spending Spending of households (households=citizens of the given nation) Income o equals spending money plus saved money Marginal propensity to consume o Change in consumption spending money over change in income Marginal propensity to save o Change in saved money over change in income Investment spending Spending of business Purchases of new machinery and equipment by businesses plus changes in business inventories Inventory o All product that has been made but has not been sold yet Change in inventory o Current/new inventory minus initial inventory Government spending Spending of government Net exports International spending Exports minus imports Nominal vs real GDP o Nominal GDP The value of the years GDP in terms of current year prices o Real GDP The value of the GDP in base year prices Actual vs planned investment o Planned The projected investment o Actual What actually happened Unemployment Rate calculation o percentage of population over the age of 16 who are desirous of finding employment but cannot find work o individuals call households (65,000) and ask questions, unemployment rate for the nation is based on those answered questions by Americans Labor Force identified composition Types of Unemployment o Cyclical unemployment Jobs lost due to the natural cycle of the economy o Frictional unemployment Occurs because of normal turnover in labor market and the time it takes for workers to find new jobs When workers change jobs it takes time to match up potential workers with employers (interviewed and hired) o Structural unemployment Occurs because of an absence in demand for a certain type of worker Typically happens when there is a mismatch between the skills employers want and the skills workers have Major advances in technology, finding lower costs of labor overseas, etc. Discouraged Worker effect on unemployment rate o Worker cannot find work and become discouraged enough to stop seeking a job o Does not count towards national unemployment rate Unemployment rate requires you to be seeking a job Inflation definition o Time of generally rising prices Effects of inflation on society o Decreases buying power of consumers (you need more money to purchase the same product) o Generally, inflation results in lower standard of living for consumers and possibly unemployment
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