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a group of buyers and sellers of a particular good or service |
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Perfectly competitive market |
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1) So many buyers and sellers that they each have no effect on market price—all “price takers” 2) Homogeneous product |
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(C.P.) quantity demanded falls when the price rises. |
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a good for which (C.P.) an increase in income yields an increase in consumption |
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a good for which (C.P.) an increase in income yields a decrease in demand. |
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goods for which an increase in price of one yields an increase in demand for the other. |
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two goods for which in increase in price of one leads to a decrease in demand for another. |
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(C.P.) an increase in price leads to an increase in quantity supplied. |
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a situation where neither buyers nor sellers have reason to alter their behavior. |
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the price of any good adjusts to bring the quantity supplied and the quantity demanded for the good into balance. |
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the ability to produce a good using fewer inputs than another producer |
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whatever must be given up to obtain some item |
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the ability to produce a good at a lower opportunity cost than another producer |
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goods produced abroad and sold domestically. |
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good produced domestically and sold abroad. |
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the study of economy-wide phenomena |
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the market value of all final goods and services produced within a country over a given time period. Measures total income and total expenditure (but not at the same time) |
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spending by households on goods and services |
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spending on capital equipment, inventories, structures, and household purchases of new housing |
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government spending on goods and services |
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Definition
spending on domestically produced goods by foreigners minus spending on foreign goods by domestic residents |
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the production of goods and services valued at current prices |
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the production of goods and services valued at constant prices. |
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a measure of price level calculated by Nominal GDP/Real GDP x 100. |
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Consumer price index (CPI) |
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Definition
a measure of the overall cost of the goods and services bought by the typical consumer. |
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sustained increase in the economy-wide price level. |
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the automatic correction of a dollar amount for the effects of inflation by law or contract. |
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reported without a correction for the effects of inflation. |
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interest rate corrected for effects of inflation |
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quantity of goods and services produced from each unit of labor input |
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Things that can change the demand curve |
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Definition
(TECIB) - Income - Prices of related goods (complements and substitutes) - Tastes - Number of buyers - Expectations |
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Things that can change the supply curve |
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Definition
(SETI) - Input prices - Technology - Expectations - Number of sellers |
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Definition
(C)onsumption + (I)nvestment + (G)overnment Purchases + (N)et E(x)ports (exports minus imports) |
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Doesn’t cover: 1) Volunteerism 2) Underground economy 3) Income disparity 4) Leisure time 5) Externalities 6) Wealth |
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CPInew- CPIold/ CPIold x 100 or GDPDefnew-GDPDefold/GDPDefold x 100 |
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Definition
1) Subsitution bias 2) New goods 3) Quality changes 4) Discount stores C: CPI tends to overestimate inflation. |
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Differences between GDP Deflator and CPI |
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Definition
- Differences in goods calculated o GDP doesn’t count Volvos. o CPI counts oil harder o CPI doesn’t count military/government spending - Basket updates o CPI doesn’t count basket changes quickly enough |
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Calculate a constant income |
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Definition
Babe Ruth’s salary x (Price level today/Price level in year T) |
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Term
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Definition
real interest rate + inflation |
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Effects of unexpected inflation |
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Definition
(LWPM): 1) Hurts lenders, helps borrowers 2) Wages tend to lag behind inflation 3) Price confusion 4) Menu costs |
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How productivity is determined |
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Definition
- Physical capital per worker. Tools. - Human capital per worker. Knowledge the workers have. - Technology. Knowledge that society has. |
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What can be done to create the Big 3? |
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Definition
*1) Protect property rights. Stop "redistributive" (read "criminal") activities. People won't develop if they can't be assured control. 2) Encourage education. 3) Encourage investment. 4) Encourage foreign investment. - foreign portfolio investment - foreign direct investment 5) Research and development. - technology has positive externalities 6) Encourage international trade. |
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diminishing marginal returns |
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Definition
the benefit of an extra unit of input declines as the quantity of the input increases (capital, the reason US investment is less productive) |
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Definition
Average cost goes down as size increases. |
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Things that don't matter for productivity as much as you think |
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Definition
1) Natural resources. - the "oil curse"-- capital intensive, labor unintensive. Concentrates power in the hands of a few. - Dutch disease-- discovery of oil pushed up value of marc, price of other Dutch goods skyrockets, lose market share 2) Foreign aid. Tends to go through corrupt gov'ts-- they haven't developed property rights. 3) Population growth - Thomas Malthus. More people, DMR on people, lower productivity, people starve. Assumes constant capital and technology. |
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How do we measure technology? |
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Definition
Total factor productivity. The amount of growth that can't be explained by human and physical capital. - about 2/3 of total growth |
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What's causing the income distribution polarization? |
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Definition
1) Economics of superstars. Top 10% are better able to capitalize on globalizing markets and tech that demands higher skill workers. 2) Policy efforts. Income tax is less progressive than it used to be. |
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Term
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Definition
The incentives societies and governments create that encourage people to engage in productive and not destructive behavior |
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