Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
39 Cards in this Set
- Front
- Back
Deadweight Loss (AKA ..) |
(Allocative Inefficiency) Loss in consumer and producer surplus when production is not occurring at the equilibrium point
|
|
Allocative Efficiency |
A state of production where every good or service is produced to the point when marginal benefit of production (for producers) is equal to marginal benefit of consumption (for consumers). |
|
Pareto Efficiency + Conditions for Pareto Efficiency |
Outcome where no person's situation can be improved without hurting someone else. 1. Marginal benefit of the last item produced must equal its marginal cost 2. Marginal cost of production for all producers must be identical 3. Marginal benefit for all consumers must be identical A competitive market in equilibrium is always pareto efficient. |
|
Externality (Negative or Positive) |
A situation where the costs of producing or benefits of consuming a good spill over onto those not producing or consuming the good. Positive: Bees on a honey farm pollinate nearby crops Negative: Oil spills from a tanker hurt nearby ecosystems affecting other industries |
|
Private Remedy (for externality) |
A procedure that eliminates or internalizes externalities without government action other than defining property rights |
|
Public Good |
A good or service with two characteristics: 1. Non-rivalry in consmption - Increased consumption of a good by one person does not decrease the amount available for consumption by others 2. Non-excludability - No one can be excluded from consuming a good |
|
Income Effect |
The effect by which demand for a good or service changes depending on the income of the consumer. For example, for an inferior good, an increase in real income will lead to a decrease in demand for the good. |
|
Normal Good |
A good for which demand increases with income. |
|
Inferior Good |
A good for which demand decreases with income. |
|
Substitution Effect |
The effect where quantity demanded falls when price rises, exclusive of the income effect. For example, when the price of a good rises, if a similar "substitute" exists, demand will fall for the more expensive good and will increase for the substitute. This is NOT a shift in the demand curve, but a MOVE to a more expensive section of the downward-sloping demand curve. |
|
Substitution Effect (Labor Supply) |
Wage is the price of leisure - due to the substitution effect, higher wages decrease demand for leisure (due to higher price) |
|
Income Effect (Labor Supply) |
Higher wages increase real income and worker's buying power for commodities such as leisure. Due to the income effect, increasing wages may cause workers to purchase more leisure time (work less). |
|
Efficient Market Hypothesis |
Markets adjust rapidly enough to eliminate profit opportunities immediately. |
|
Coupon on a Bond |
The fixed amount a borrower agrees to pay to the bondholder each year. |
|
Coupon Rate |
The rate that a borrower pays on the initial value of the bond. If the coupon rate is 5% and the initial value of the bond is $1000, the coupon on the bond is $50 / year. |
|
Marginal Tax Rate |
(Change in Total Tax) / (Change in Total Income) OR The marginal tax rate is the rate of tax that would be applied to income over a specified amount. |
|
Consumption Function |
The consumption function describes a consumer's willingness to consume as a function of their real income. It is a positive relationship. |
|
Monetary Policy Rule |
The rule used by the fed to determine how to set interest rates relative to adjusted inflation. OR How much instruments of monetary policy respond to measures of the state of the economy. |
|
Time Inconsistency |
Situation in which policy makers have the incentive to announce one economic policy but then change that policy after citizens have acted on the initial, stated policy. |
|
Value Added |
The value of a firm's production mins the value of intermediate goods used in production. |
|
Labor Force Participation Rate |
The labor force participation rate is the percentage of working-age, able laborers who choose to work. |
|
Marginal Propensity to Consume (MPL) |
A consumer's MPL is the increase in amount consumed per unit increase in income. AND The slope of the consumption function. |
|
Open Market Operation |
The buying or selling of bonds by the federal reserve intended to set overall market interest rates. |
|
Statistical Discrepancy (in computing GDP) |
Differences in statistical calculations resulting from different methods of calculating GDP (income method, expense method) |
|
Economies / Diseconomies of Scale |
The concept of diminishing (economies) / increasing (diseconomies) marginal costs as quantity of production increases. |
|
External Economies of Scale |
Growth in an industry causes ATC for the individual firm to fall because of some factor external to the firm. Implies a downward-sloping lung-run industry supply curve. |
|
Competitive Equilibrium Model |
model that assumes utility maximization on the part of consumers and profit maximization on the part of firms, along with competitive markets and freely determined prices |
|
Competitive Market |
Individual firms have the power to affect market prices of a good |
|
Consumption Share |
Proportion of GDP used for consumption = C/Y
|
|
Discretionary Fiscal Policy |
changes in tax / spending policy requiring legislative / administrative action by president / congress |
|
First Theorem of Welfare Economics |
competitive market results in an efficient outcome |
|
Forward-Looking Consumption Model |
People anticipate future income when deciding on consumption spending today |
|
Gini Coefficient |
Between zero - one. Ratio between Lorenz curve and the perfect equality line to the area between lines of perfect equality and perfect inequality |
|
GDP Deflator |
Nominal GDP / Real GDP - measures level of prices of goods and services included in real GDP relative to a given base year |
|
Price Shock |
change in price of key commodity such as oil, that causes a shift in the inflation adjustment line - also called supply shock |
|
Progessive Tax |
amount of individual's taxes rise as proportion of income as the person's income increases |
|
Proportional Tax |
amount of individual's taxes as proportion of income is constant as income rises |
|
Quantity Equation of Money |
Q * V = P * Y Quantity * velocity = price level * GDP |
|
Definition of Money |
(1) a medium of exchange, (2) a store of value, and (3) aunit of account |