Macro Exam #1

Gross Domestic Product (GDP)

The total market value of all FINAL goods and services produced within a nation's borders in a given time period

Per Capita GDP

The dollar value of GDP divided by total population; average GDP

Economic Growth

An increase in output (real GDP); an expansion of production possibilities

Factors of Production

Resource inputs used to produce goods and services, such as land, labor, capital, and entrepreneurship

Human Capital

The knowledge and skills possessed by the workforce

Capital-Intensive

Production processes that use a high ratio of capital to labor inputs

Productivity

Output per unit of input, such as output per labor-hour

Externalities

Costs or benefits of a market activity borne by a third party

Monopoly

A firm that produces the entire market supply of a particular good or service

Income Quintile

One-fifth of the population, rank-ordered by income (top fifth)

Factor Market

Any place where factors of production (land, labor, capital) are bought and sold

Product Market

Any place where finished goods and services (products) are bought and sold

Opportunity Cost

The most desired goods or services that are forgone in order to obtain something else

Supply

The ability and willingness to sell (produce) specific quantities of a good at alternative prices in a given time period, ceteris paribus

Demand

The ability and willingness to buy specific quantities of a good at alternative prices in a given time period, ceteris paribus

Demand Curve

A curve describing the quantities of a good a consumer is willing and able to buy at alternative prices in a given time period, ceteris paribus

Law of Demand

The quantity of a good demanded in a given time period increases as its price falls, ceteris paribus

Substitute Goods

Goods that substitute for each other; when the price of good x rises, the demand for good y increases, ceteris paribus

Complementary Goods

Goods frequently consumed in combination; when the price of good x rises, the demand for good y falls, ceteris paribus

Ceteris Paribus

The assumption of nothing else changing

Shift in Demand

A change in the quantity demanded at any (every) given price

Market Demand

The total quantities of a good or service people are willing and able to buy at alternative prices in a given time period; the sum of individual demands

Market Supply

The total quantities of a good that sellers are willing and able to sell at alternative prices in a given time period, ceteris paribus

Law of Supply

The quantity of a good supplied in a given time period increases as its price increases, ceteris paribus

Equilibrium Price

The price at which the quantity of a good demanded in a given time period equals the quantity supplied

Market Mechanism

The use of market prices and sales to signal desired outputs (or resource allocations)

Price Floor

Lower limit set for the price of a good

Market Surplus

The amount by which the quantity supplied exceeds the quantity demanded at a given price; excess supply

Market Shortage

The amount by which the quantity demanded exceeds the quantity supplied at a given price; excess demand

Price Ceiling

Upper limit imposed on the price of a good

Optimal Mix of Output

The most desireable combination of output attainable with existing resources, technology, and social values

Market Mechanism

The use of market prices and sales to signal desired outputs (or resource allocations)

Market Failure

An imperfection in the market mechanism that prevents optimal outcomes

Private Good

A good or service whose consumption by one person excludes consumption by others

Public Good

A good or service whose consumption by one person does not exclude consumption by others

free rider

an individual who reaps direct benefits from someone elses purchase (consumption) of a public good

externalities

costs or benefits of a market activity borne by a third party; the difference between the social and private costs (benefits) of a market activity

monopoly

a firm that produces the entire market supply of a particular good or service

market power

the ability to alter the market price of a good or a service

antitrust

government intervention to alter market structure or prevent abuse of market power

natural monopoly

an industry in which one firm can achieve economies of scale over the entire range of market supply

unemployment

the inability of labor-force participants to find jobs

inflation

an increase in the average level of prices of goods and services

opportunity costs

the most desired goods or services that are forgone in order to obtain something else

government failure

government intervention that fails to improve economic outcomes

intermediate goods

goods or services purchased for use as input in the production of final goods or in services

value added

the increase in the market value of a product that takes place at each stage of the production process

nominal GDP

the value of final output produced in a given period, measured in the prices of that period (current prices)

real GDP

the value of final output produced in a given period, adjusted for changing prices

base year

the year used for comparitive analysis; the basis for indexing price changes
Real GDP in year t= nominal GDP in year t/price index

inflation

an increase in the average level of prices of goods and services

production possibilities

the alternative combinations of final goods and services that could be produced in a given time period with all available resources and technology

depreciation

the consumption of capital in the production process; the wearing out of plant and equipment

net domestic product (NDP)

GDP less depreciation

Investment

expenditures on the production of new plant, equipment, and structures (capital) in a given time period, plus changes in business inventories

gross investment

total investment expenditure in a given time period

net investment

gross investment less depreciation

exports

goods and services sold to international buyers

imports

goods and services purchased from international sources

net exports

the value of exports minus the value of imports

labor force

all persons age 16 and over who are either working for pay or actively seeking paid employment

labor force participation rate

the percentage of the working age population working or seeking employment

production possibilities

the alternative combinations of final goods and services that could be produced in a given time period with all available resources and technology

unemployment

the inability of labor force participants to find jobs

unemployment rate

the proportion of the labor force that is unemployed
unemployment rate= number of unemployed people/labor force

discouraged worker

an individual who isnt actively seeking employment but would look for or accept a job if one were available (not included in labor force)

underemployment

people seeking full-time paid employment who work only part time or are employed at jobs below their capacity

seasonal unemployment

unemployment due to seasonal changes in employment or labor supply

frictional unemployment

brief periods of unemployment experienced by people moving between jobs or into the labor market

structural unemployment

unemployment caused by a mismatch between the skills (or location) of job seekers and the requirments (or location) of available jobs

cyclical unemployment

unemployment attributable to a lack of job vacancies, that is, to an inadequate level of aggregate demand