1
Q
when is a decision rational?
A
when the benefit is greater than or equal to the opportunity cost
2
Q
a point below the PPF is…
A
inefficient and attainable
3
Q
a point on the PPF is…
A
efficient and attainable
4
Q
a point outside the PPF is…
A
unattainable
5
Q
someone has absolute advantage when they have the …
A
highest productivity per worker per hour
6
Q
someone has comparative advantage when they have the…
A
lowest opportunity cost
7
Q
opportunity cost formula
A
productivity given up/productivity get
8
Q
when is mutually beneficial trade possible?
A
when each side has separate specialities
9
Q
reservation price
A
maximum price willing and able to pay/sell
10
Q
for buyers, a change in actual price…
A
results in a decrease in quantity demanded
11
Q
for buyers, a change in anything other than actual price…
A
results in a change in demand
12
Q
for sellers, a change in actual price…
A
results in an increase in quantity supplied
13
Q
for sellers, a change in anything other than actual price…
A
results in a change in supply
14
Q
when a change in price doesn’t effect people buying something, the demand is…
A
inelastic
15
Q
something that takes up a small amount of budget has an…
A
inelastic demand
16
Q
something that requires a short decision time has an…
A
inelastic demand
17
Q
when a change in price effects people buying something, it has an…
A
elastic demand
18
Q
something that takes up a large amount of budget has an…
A
elastic demand
19
Q
something that requires a longer decision time has an…
A
elastic demand
20
Q
when cause is less than effect,
A
demand/supply is price elastic
21
Q
when cause is greater than effect,
A
demand/supply is price inelastic
22
Q
when cause is equal to effect,
A
demand/supply is unit elastic
23
Q
total revenue formula
A
price X quantity demanded
24
Q
revenues will increase if…
A
price increases and demand is price inelastic OR price decreases and demand is price elastic
25
revenues will decrease if..
price increases and demand is price elastic OR price decreases and demand is price inelastic
26
easy way to remember revenue & elasticity rules
with inelastic demands, price and revenues move together. with elastic demands, price and revenues move opposite
27
revenue remains unchanged if...
demand is unit elastic
28
cross price elasticity of demand
positive numbers are substitutes, negative numbers are complements
29
income elasticity of demand
positive numbers are normal goods, negative numbers are inferior goods
30
calculating amount of tax
price buyers pay-price sellers receive
31
percent of tax borne by buyers
[Es/(Es+Ed)] X 100
32
percent of tax borne by sellers
[Ed/(Es+Ed)] X 100
33
burden of tax falls on the side that is...
more inelastic
34
explicit cost
what comes out of pocket
35
implicit cost
income not earned
36
accounting profit formula
revenue-explicit cost
37
economic profit formula
revenue-explicit cost-implicit cost
38
if economic profit is positive...
it decreases over time
39
if economic profit is negative...
it increases over time
40
economic profit over time...
will ALWAYS equal zero
41
accounting profit over long-term...
will be greater than 0
42
accounting profit over short-term...
will be ambiguous
43
fixed cost formula
FC=TC-MC
44
in the long run, fixed cost...
will equal zero
45
in the present, fixed cost...
will be greater than zero
46
variable cost formula
VC=TC-FC
47
in the long run, variable cost...
will be equal to TC
48
marginal cost
change in total cost for doing one more of something
49
total cost formula
TC=FC+VC
50
profit formula (long)
(price-ATC)Q
51
profit formula (short)
TR-TC
52
when MC is less than the average
average goes down
53
when MC is greater than the average
average goes up
54
when MC equals the average
average stays the same
55
profit-maximizing rule
produce quantity where MR=MC
56
if price is greater than or equal to AVC...
remain in business
57
if price is less than AVC...
shut down immediately
58
perfect competition's profit-maximizing level of output
P=MR=MC
59
monopoly's profit-maximizing level of output
P>MR=MC
60
market that's better for the seller
monopoly
61
market with one and only one seller
monopoly
62
market with no distinction between firm and market
monopoly
63
market with price maker (power to set price)
monopoly
64
market with no competition
monopoly
65
market with less output and higher price
monopoly
66
market with high barriers to entry
monopoly
67
market where demand for product is inelastic
monopoly
68
market that's better for the buyer
perfect competition
69
market with multiple small buyers and sellers
perfect competition
70
market where demand for product is elastic
perfect competition
71
market where participants know what is going on and know the competition
perfect competition
72
market with price takers (charge same price as others)
perfect competition
73
market with no barriers to entry/exit
perfect competition
74
who can participate in price discrimination?
monopoly
75
price discrimination definition
charging two different prices to two different customers for same good
76
customer requirement for price discrimination
must have different elasticity demands
77
in price discrimination, when demand is more elastic...
lower the price
78
in price discrimination, when demand is less elastic...
raise the price
79
3rd degree price discrimination
based on person, not how much they buy
| student discounts, coupons
80
2nd degree price discrimination
based on amount they purchase
| bulk discounts
81
1st degree price discrimination
combination of who buys and how much
| car salesperson
82
business cycle
short term fluctuations in economic growth rates
83
economy is shrinking, growing too slow or not at all
recession
84
what defines a technical recession?
two or more consecutive quarters of negative economic growth
85
when does a technical recession occur?
when the unemployment rate is constantly increasing
86
economy is growing at or above the short run rate
expansion
87
when does an expansion occur?
when the unemployment rate is constantly decreasing
88
how do unemployment rates move?
counter-cyclically
89
unemployment rate definition
the number unemployed as a percent of the labor force
90
four types of unemployment
1. frictional (search)
2. structural
3. cyclical
4. seasonal
91
frictional (search) unemployment
there is a job opening, the person has the skills to do it, lives in the area, BUT they are not aware of the specific job opening
92
structural unemployment
there is a job opening BUT the person either doesn't have the skills or isn't in the geographic region
93
cyclical unemployment
worst of all types, recession, no jobs open due to economic factors
94
seasonal unemployment
no jobs open due to cultural/atmospheric factors
95
U.S. unemployment rate
3.7%
96
person working part-time, wants to be full-time, but can't find full-time job
underemployment
97
not employed, available for immediate work, haven't looked for a job within 4 weeks, given up hope
discouraged workers
98
when is someone counted as employed?
- did any work as paid employees during the reference week
- worked in own business, profession, or farm
- worked without pay at least 15 hours in a family business or farm
- temporarily absent from job because of illness, bad weather, vacation, labor-management disputes, or personal reasons
99
when is someone counted as unemployed?
- had no employment during the reference week
- were available for work at that time
- made specific effort to find employment during the 4-week period ending with the reference week
- were laid off from a job, expecting recall, and not looking for a job
100
who is NOT included in the civilian non-institutional population?
- military
- people in jail
- people in long-term care facilities
- people under the age of 16
101
who is in the civilian labor force?
employed and unemployed persons
102
most common price index
consumer price index (CPI)
103
price index that focuses on average customer
consumer price index (CPI)
104
change in inflation is equal to...
change in consumer price index (CPI)
105
what is the producer price index (PPI)?
the aggregate price level of wholesale prices
106
real rate formula
nominal rate - (expected) rate of inflation
107
(expected) rate of inflation formula
nominal rate - real rate
108
nominal rate formula
real rate + (expected) rate of inflation
109
total inflation rate includes...
all the goods
110
core inflation rate takes out...
food and energy prices from total
111
when is it best for people to borrow money?
when interest rates are low
112
when is it best for people to lend/save money?
when interest rates are high
113
what formula do you use to decide if you should lend/save or borrow?
R=N-I
114
Fisher effect
tendency for nominal interest rates to be low when the inflation rate is low
115
GDP can NOT be...
negative
116
total market value of all final goods produced by an economy in one year
GDP
117
what is NOT included in GDP?
stocks and bonds
118
what kind of variable is GDP?
flow variable
119
what is real GDP equal to?
economic growth rate
120
GDP formula
C+I+G+X-IM
121
consumption component of GDP
individuals: anything you buy for yourself
122
investment component of GDP
businesses: anything bought for business or leftover inventory
123
government spending component of GDP
stuff a public institution or the government spends money on
124
export component of GDP
anything we send to a foreign country
125
import component of GDP
- anything a foreign country sends to us
| - subtracted from GDP
126
net export formula
X-IM
127
5 functions of money
1. means of payment
2. unit of account
3. standard of value
4. store of value
5. standard of deferred payment
128
two types of means of payment
medium of exchange and means of unilateral payment
129
medium of exchange
back and forth transaction at the same time
130
means of unilateral payment
- one-way payment
- get no good in return
- gifts, donations, IRS payments
131
unit of account
- using it in a written record to record transaction
| - what's used to put a price on something
132
standard of value
- mental concept of worth
| - currency you use to value an item
133
store of value
- to keep/hold on to value over time
| - money does not lose its value over time
134
standard of deferred payment
- exchange NOT done at the same time
- pay for it after transaction
- credit, borrowing, lending
- swiping credit card, buying a house/car
135
stock variables
- can be measured at a specific point in time
| - money and wealth
136
flow variables
- measured over a period of time
| - income and profit
137
what is included in the M1 component of money supply?
- currency and coin in circulation
- demand deposit account balances
- other checkable account balances
- travelers checks
138
what is included in the M2 component of money supply?
- everything in M1
- savings account balance
- small-denomination time deposit
- money market account balances
- non-institutional money market mutual fund shares
139
what is included in the money supply?
currency in circulation + checking account deposits
140
what is included in the monetary base?
currency in circulation + bank reserves
141
what is included in the bank reserves?
vault cash + deposits at federal reserves
142
"model" for money supply
MS=MB X money multiplier
143
when does the monetary base change?
when the federal bank takes action
144
if banks are making loans, money supply is...
increasing
145
money supply is always as large as...
the bank reserve
146
money supply cannot be less than...
the monetary base
147
what increases/decreases as the bank makes more/less loans?
money supply and money multiplier
148
what are bank reserves?
a commercial bank's holdings of deposits
149
what does the bank reserve do when you deposit money?
increases
