INTRO TO ECONOMICS
INTRO TO ECONOMICS ECON 224
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This 5 page Class Notes was uploaded by Neil Hane on Monday October 26, 2015. The Class Notes belongs to ECON 224 at University of South Carolina - Columbia taught by H. Chappell in Fall. Since its upload, it has received 17 views. For similar materials see /class/229645/econ-224-university-of-south-carolina-columbia in Economcs at University of South Carolina - Columbia.
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Date Created: 10/26/15
tend to grow more rapidly than Counr absolute advantage the ability to A d 39 inpu than another producer ac counting pro fit total revenue minus total explicit cost aggregatedemand curve a curve that shows the quantity of goods and 39 firm th government and customers abroad central bank quot to oversee the banking system and 39 L l 39 in money in the economy circularflow diagram a visual dollars flow through markets among I aggregatesupply curve a curve L L L a classical dichotomy the theo r t a services that firms choose to produce and sell at each price level automatic stabilizers changes in fiscal policy 39 39 39 demand when the economy goes into a recession without policymakers have ing to take any deliberate action average fixed cost fixed cost divided by the quantity of output average revenue total revenue divided by the quantity sold average total cost total cost divided by the quantity of output average variable cost variable cost divided by the quantity of output bond a certificate of indebtedness budget deficit ashortfall of tax revs enue from government spen ing budget surplus an excess of tax reve enue over government spending business cycle fluctuations in eco n i a ti itv 39 39 and production variables Coase theorem the proposition that 6 cost ei 39 of they can solve the problem of exterr nalities on their own collective bargaining the process by which 39 1 39 the terms of employment commodity money money that takes the form of a commodity with intrinsic value common resources goods that are rival in consumption but not excludable comparative advantage the ability to nrndllr ea mdata n 39 cost than another producer competitive market a market with many buyers and sellers trading idenr tical products so that each buyer and seller is a price taker complements two goods for which an increase in the price of one leads to 39 the other compounding the accumulation of a sum of money in say a bank account where the interest earned remains in L a a i catchup effect the property 1 soozwulousosmamoo sea in the future Glossary constant returns to scale the prop erty whereby longrrun average total i r output changes A a measure of the overall cost of the goods and services bought by a typical consumer consumer surplus the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it consumption spending by house holds on goods and services with L housing corrective tax a tax designed to induce private decision makers to take account of the social costs that arise r cost the value of everything a seller must give up to produce a good costebenefit analysis a study that res the costs and benefits to society of providing a public good crossprice elasticity of demand a sure of how much the quantity change in the price of another good computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good crowding out ecrease in invest ment that results from government borrowing crowdingout effect aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment s 39 the offset in Bus08 81036 PM 570 GLOSSARY currency the paper bills and coins in the hands of the public cyclical unemployment the devia7 tion of unemployment from its natural rate deadweight loss the fall in total surplus that results from a market distortion such as a tax demand curve a graph of the rela7 tionship between the price of a good and the quantity demanded demand deposits balances in bank accounts that depositors can access on demand by writing a check demand schedule a table that shows the relationship between the price of a good and the quantity demanded depression a severe recession diminishing marginal product the property whereby the marginal prod uct of an input declines as the quantity of the input increases diminishing returns the property whereby the benefit from an extra unit of an input declines as the quantity of the input increases discount rate the interest rate on the loans that the Fed makes to banks discouraged workers individuals who would like to work but have given up looking for a job diseconomies of scale the prop erty whereby longirun average total cost rises as the quantity of output increases diversification the reduction of risk achieved by replacing a single risk with a large number of smaller unrei lated risks economic profit total revenue minus total cost including both explicit and implicit costs economics the study of how society manages its scarce resources economies of scale the property whereby longirun average total cost falls as the quantity of output increases 9002473879l037p5697573 mdd 570 efficiency the property of society getting the most it can from its scarce resources efficiencywages aboveiequilibrium wages paid by firms to increase worker productivity efficient markets hypothesis the theory that asset prices re ect all pub licly available information about the value of an asset efficient scale the quantity of output that minimizes average total cost elasticity a measure of the responi siveness of quantity demanded or quantity supplied to one of its determinants equality the property of distributing economic prosperity uniformly among the members of society equilibrium a situation in which the market price has reached the level at which quantity supplied equals quan7 tity demanded equilibrium price the price that bale ances quantity supplied and quantity demanded equilibrium quantity the quantity supplied and the quantity demanded at the equilibrium price excludability the property of a good whereby a person can be prevented from using it explicit costs input costs that require an outlay of money by the firm exports goods produced domestii cally and sold abroa externality the uncompensated impact of one person s actions on the wellibeing of a bystander federal funds rate the interest rate at which banks make overnight loans to one another Federal Reserve Fed the central bank of the United States fiat money money without intrinsic value that is used as money because of government decree finance the field that studies how people make decisions regarding the allocation of resources over time and the handling of risk financial intermediaries financial institutions through which savers can indirectly provide funds to borrowers financial markets financial insti7 tutions through which savers can directly provide funds to borrowers financial system the group of institutions in the economy that help to match one person s saving with another person s investment firmspecific risk risk that affects only a single company scal policy the setting of the level of government spending and taxation by government policymakers Fisher effect the oneiforione adjust ment of the nominal interest rate to the in ation rate xed costs costs that do not vary with the quantity of output produced fractionalreserve banking a bank ing system in which banks hold only a fraction of deposits as reserves free rider a person who receives the benefit of a good but avoids paying for it frictional unemployment unemi ployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills fundamental analysis the study of a company s accounting statements and future prospects to determine its value future value the amount of money in the future that an amount of money today will yield given prevailing interest rates GDP deflator a measure of the price level calculated as the ratio of nominal GDP to real GDP times 100 government purchases spending on goods and services by local state and federal governments 81908 810 37 PM gross domestic product GDP the market value of all final goods and services produced within a country in a given period of time human capital the knowledge and skills that workers acquire through education training and experience implicit costs input costs that do not require an outlay of money by the firm im orts goods produced abroad and sold domestically incentive something that induces a person to act income elasticity of demand a measure of how much the quan7 tity demanded of a good responds to a change in consumers income computed as the percentage change in quantity demanded divided by the percentage change in income indexation the automatic correction by law or contract of a dollar amount for the effects of in ation inferior good a good for which other things equal an increase in income leads to a decrease in demand inflation an increase in the overall level of prices in the economy inflation rate the percentage change in the price index from the preceding period inflation tax the revenue the govern ment raises by creating money informational efficiency the descrip7 tion of asset prices that rationally re ect all available information internalizing the externality altering incentives so that people take account of the external effects of their actions investment spending on capital equipment inventories and struc7 tures including household purchases of new housing job search the process by which workers find appropriate jobs given their tastes and ski s 9002473879l037p5697573 mdd 571 labor force the total number of workers including both the employed and the unemployed laborforce participation rate the percentage of the adult population that is in the labor force law of demand the claim that other things equal the quantity demanded of a good fails when the price of the good rises law of supply the claim that other things equal the quantity supplied of a good rises when the price of the good rises law of supply and demand the claim that the price of any good adjusts to bring the quantity supplied and the quantity demanded for that good into balance liquidity the ease with which an asset can be converted into the economy s medium of exchange macroeconomics the study of economyiwide phenomena including in ation unemployment and eco7 nomic growth marginal changes small incremental adjustments to a plan of action marginal cost the increase in total cost that arises from an extra unit of production marginal product the increase in output that arises from an additional unit of input marginal revenue the change in total revenue from an additional unit sold market a group of buyers and sellers of a particular good or service market economy an economy that allocates resources through the deceni tralized decisions of many firms and households as they interact in markets for goods and services market failure a situation in which a market left on its own fails to allocate resources efficiently G LOSSARY 571 market for loanable funds the market in which those who want to save supply funds and those who want to borrow to invest demand fun s market power the ability of a single economic actor or small group of actors to have a substantial in uence on market prices market risk risk that affects all com panies in the stock market medium of exchange an item that buyers give to sellers when they want to purchase goods and services menu costs the costs of changing prices microeconomics the study of how households and firms make decisions and how they interact in markets model of aggregate demand and aggregate supply the model that most economists use to explain short run uctuations in economic activity around its longirun trend monetary neutrality the proposition that changes in the money supply do not affect real variables monetary policy the setting of the money supply by policymakers in the central ban money the set of assets in an econ omy that people regularly use to buy goods and services from other people money multiplier the amount of money the banking system generates with each dollar of reserves money supply the quantity of money available in the economy monopoly a firm that is the sole seller of a product without close substitutes multiplier effect the additional shifts in aggregate demand that result when expansionary fiscal policy increases income and thereby increases cone sumer spending mutual fund an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds 81908 810 37 PM 572 GLOSSARY national saving saving the total income in the economy that remains after paying for consumption and government purchases natural monopoly a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms natural rate of output the produce tion of goods and services that an economy achieves in the long run when unemployment is at its normal rate natural rate of unemployment the normal rate of unemployment around which the unemployment rate uctuates natural resources the inputs into the production of goods and services that are provided by nature such as land rivers and mineral deposits net exports spending on domestie cally produced goods by foreigners exports minus spending on foreign goods by domestic residents imports nominal GDP the production of goods and services valued at current prices nominal interest rate the interest rate as usually reported without a core rection for the effects of in ation nominal variables variables mea sured in monetary uni s normal good a good for which other things equal an increase in income leads to an increase in demand normative statements claims that attempt to prescribe how the world should be openmarket operations the pure chase and sale of US government bonds by the Fed opportunity cost whatever must be given up to obtain some i em physical capital the stock of equip ment and structures that are used to produce goods and services 9002473879l037p5697573 mdd 572 positive statements claims that attempt to describe the world as it is present value the amount of money today that would be needed using prevailing interest rates to produce a given future amount of money price ceiling a legal maximum on the price at which a good can be sold price discrimination the business practice of selling the same good at different prices to different customers price elasticity of demand a measure of how much the quantity demanded of a good responds to a change in the price of that good computed as the percentage change in quantity demanded divided by the percentage change in price price elasticity of supply a measure of how much the quantity supplied of a good responds to a change in the price of that good computed as the percentage change in quantity supplied divided by the percentage change in price price oor a legal minimum on the price at which a good can be sold private goods goods that are both excludable and rival in consumption private saving the income that households have left after paying for taxes and consumption producer price index a measure of the cost of a basket of goods and services bought by firms producer surplus the amount a seller is paid for a good minus the seller s cost of providing it production function the relation ship between quantity of inputs used to make a good and the quantity of output of that good production possibilities frontier a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available produce tion technology productivity the quantity of goods and services produced from each unit of labor input profit total revenue minus total cost property rights the ability of an individual to own and exercise control over scarce resources public goods goods that are neither excludable nor rival in consumption public saving the tax revenue that the government has left after paying for its spending quantity demanded the amount of a good that buyers are willing and able to purchase quantity equation the equation M X V P X Y relates the quantity of money the velocity of money and the dollar value of the economy s output of goods and services quantity supplied the amount of a good that sellers are willing and able to sell quantity theory of money a theory asserting that the quantity of money available determines the price level and that the growth rate in the quane tity of money available determines the in ation rate random walk the path of a varie able whose changes are impossible to predict rational people people who system aticaily and purposefully do the best they can to achieve their objectives real GDP the production of goods and services valued at constant prices real interest rate the interest rate cor rected for the effects of in ation real variables variables measured in physical units recession a period of declining real incomes and rising unemployment reserve ratio the fraction of deposits that banks hold as reserves reserve requirements regulations on e minimum amount of reserves that banks must hold against deposits reserves deposits that banks have received but have not loaned out 81908 810 37 PM risk avelsion a dislike of uncertainty rivalry in consumption the property of a good whereby one person s use diminishes other people s use scarcity the limited nature of society s resources shoeleather costs the resources wasted when in ation encourages people to reduce their money holdings shortage a situation in which quane tity demanded is greater than quantity supplied stag ation a period of falling output and rising prices stock a claim to partial ownership in a firm store of value an item that people can use to transfer purchasing power from the present to the future strike the organized withdrawal of labor from a firm by a union structural unemployment uneme ployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one substitutes two goods for which an increase in the price of one leads to an increase in the demand for the other sunk cost a cost that has already been committed and cannot be recovered 9002473879l037p5697573 mdd 573 supply curve a graph of the relation ship between the price of a good and the quantity supplied supply schedule a table that shows the relationship between the price of a good and the quantity supplied surplus a situation in which quane tity supplied is greater than quantity demanded tariff a tax on goods produced abroad and sold domestically tax incidence the manner in which the burden of a tax is shared among participants in a market technological knowledge society s understanding of the best ways to produce goods and services theory of liquidity preference Keynes s theory that the interest rate adjusts to bring money supply and money demand into balance total cost the market value of the inputs a firm uses in production total revenue for firm the amount a firm receives for the sale of its output total revenue in a market the amount paid by buyers and received by sellers of a good computed as the price of the good times the quantity sold Tragedy of the Commons a parable that illustrates why common resources are used more than is desirable from the standpoint of society as a whole GLOSSARY 573 transaction costs the costs that par ties incur in the process of agreeing to and following through on a bargain unemployment insurance a goveme ment program that partially protects workers incomes when they become unemployed unemployment rate the percentage of the labor force that is unemployed union a worker association that bargains with employers over wages benefits and working conditions unit of account the yardstick people use to post prices and record debts variable costs costs that vary with the quantity of output produced velocity of money the rate at which money changes hands welfare economics the stud how the allocation of resources affects economic wellebeing willingness to pay the maximum amount that a buyer will pay for a good world price the price of a good that prevails in the world market for that good 81908 810 37 PM
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