The Individual 1-4 (Ten key concepts)
Facing Tradeoffs
Opportunity cost
Choosing a little more or less.
The influence of incentives.
Interaction among Individuals 5-7 (Ten key concepts)
Specialization and trade
the Effectiveness of markets
The Role of Governments
Economy as a Whole and the Standard of Living 8-10 (Ten key concepts)
Production and the standard of living
Money and Inflation
Inflation-Unemployment Tradeoff
Economic perspective
viewpoint that envisions individuals and institutions making rational decisions by comparing the marginal benefits and marginal costs associated with their actions
Opportunity Costs
amount of other products that must be forgone or sacrificed to produce a unit of product
Utility
The satisfaction a person gets from consuming a good or service
Marginal Analysis
the comparison of Marginal (extra or additional) benefits and marginal costs, usually for decision making
Scientific Method
The systematic pursuit of knowledge through formulating a problem, collecting data, and formulating and testing hypotheses to obtain theories, principles, and laws
Economic Principle
a statement about economic behaviour or the economy that enables prediction of the probable effects of certain actions.
other-things-equal" Assumption
the assumption that factors other than those being considered are held constant
MicroEconomics
the part of economies concerned with such individual units as industries, firms, and households
MacroEconomics
the part of economics concerned with the economy as a whole
Aggregate
a collection of specific economic units treated as if they were one unit
Positive Economics
the analysis of fact to establish cause-and-effect relationships
Normative Economics
the part of economics involving value judgement about what the economy should be like
Economic Problem
the need to make choices b/c society's material wants for goods and services are unlimited but the resources available to satisfy these wants are limited (scarce)
Budget Line
A schedule or curve that shows various combinations of two products a consumer can purchase with a specific money income (Shows a consumers attainable/unattainable combination of goods)
Economic Resources
the land, labour, capital, and entrepreneurial ability that are used in the production of goods and services.
Land
used to produce goods and services
Labour
physical & mental talents of individuals used in producing goods and services
Capital
Human-made resources used to produce goods and services. ex) buildings, machinery, and equipment.
Investment
spending for the production and accumulation of capital
Entrepreneurial Ability
the human talents that combine the other resources to produce a product, make non-routine decisions, innovate, and bear risk
Factors of Production
Economic resources: land, labour, capital, and entrepreneurial ability.
Consumer Goods
products and services that satisfy human wants directly
Capital Goods
goods that do not directly satisfy human wants.
Production Possibilites Curve
curve showing the different combinations of goods or services that can be produced in a full-employment, full-production economy where the available supplies of resources and technology are fixed
Law of Increasing Opportunity Costs
as the production of a good increases, the opportunity cost of producing an additional unit rises
Economic Growth
and outward shift in the production possibilities curve that results from an increase in factor supplies or quality or an improvement in technology
Natural Income Accounting
the techniques used to measure the overall production of the economy and other related variables for the nation as a whole
Gross Domestic Product (GDP)
the total market value of all final goods and services produced annually within Canada. GDP includes only the market value of final goods and ignores intermediate goods altogether.
Intermediate Goods
products purchased for resale or further processing or manufacturing
Final Goods
goods and services purchased for final use and not for resale or further processing or manufacturing.
Multiple Counting
wrongly including the value of intermediate goods in the GDP.
Value Added
the value of the product sold by a firm, less the value of the products purchased and used by the firm to produce the product.
Expenditures Approach
the method to measure GDP that adds up all the expenditures made for final goods and services.
Income Approach
the method to measure GDP that adds up all the income generated by the production of final goods and services
Personal Consumption Expenditures
the expenditures of households for durable and nondurable consumer goods and services.
Gross Investment
Expenditures for newly produced capital goods (Machinery, equipment, tools, buildings) and for additions to inventories
Net Investment
(Gross investment) - (depreciation)
Includes only investment of added capital
Capital Consumption Allowance
estimate of the amount of capital worn out or used up (consumed) in producing the GDP; also called DEPRECIATION
Government Purchases
the expenditures of all governments in the economy for final goods and services.
Net Exports
Exports - imports = net exports
Indirect Taxes
sales tax, business property taxes, and customs duties, which firms treat as costs of producing a product.
Net Domestic Product (NDP)
GNP less the part of the years output needed to replace the capital goods worn out in producing the output
Net National Income (NNI)
total income earned by resource suppliers for their contribution to GDP.
Personal Income (PI)
the earned and unearned income available to resource suppliers and others before the payment of personal income taxes
Disposable Income (DI)
Personal income less personal taxes.
DI= Consumption + Savings
Nominal GDP
GDP measured in terms of the price level at the time of measurement (unadjusted for inflation).
Real GDP
Nominal GDP adjusted for inflation
Price Index
An index number that shows how the weighted average price of a "market basket" of goods and services changes through time.
GDP Deflator
an implicit price index calculated by dividing nominal GDP by real GDP and multiplying by 100.
GDP deflator= [(nominal GDP)/Real GDP] *100
Business Cycle
recurring increase and decrease in the level of economic activity over periods of years
Peak
a phase in the business cycle during which the economy is at full employment and the level of real output is at or very close to the economy's capacity
Recession
a period of decline in total output, income, and employment.
Trough
the point during a recession or depression when output and employment reach their lowest level.
"bottom out
Expansion
the phase of the business cycle during which output and employment rise toward full employment
Labour Force
persons 15 yrs of age and older who are not in institutes and who are employed, or are unemployed and seeking work
Unemployment Rate
the percentage of the labour force that is unemployed at any time
Discouraged Workers
ppl who have left the labour force b/c they have not been able to find employment
Frictional Unemployment
a type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs
Structural Unemployment
Unemployment of workers whose skills are not demanded by employers, who lack sufficient skills to obtain employment, or who cannot easily move to locations where jobs are available
Cyclical Unemployment
Unemployment caused by a decline in total spending (or by insufficient aggregate demand)
Seasonal Unemployment
Unemployment caused by seasonal factors
Natural Rate of Unemployment (NRU)
the unemployment rate that occurs when no cyclical unemployment exists and the economy is achieving its potential output
Potential GDP
the real output an economy can produce when it fully employs its available resources
GDP gap
the amount by which actual GDP falls below potential GDP
Okun's Law
the generalization that any one-percentage-point rise in the unemployment rate above the natural rate of unemployment will decrease GDP by 2 percent of the economy's potential GDP
Inflation
a continual rise in the general level of price in an economy
Consumer Price Index (CPI)
an index that measures the prices of a fixed market basket of goods and services that is bought by a typical consumer
Demand-Pull Inflation
Increases in the price level caused by an excess of total spending beyond the economy's capacity to produce
Cost-Push Inflation
increases in the price level resulting from an increase in resource costs and hence in per-unit production costs
Per-Unit Production Cost
the average production cost of a particular level of output; total input cost divided by units of output
Nominal Income
the number of current dollars received as wages, rent, interest, or profits
Real Income
the amount of goods and services nominal income can buy
Real Income= [(Nominal Income) / (Price Index)] *100
Unanticipated Inflation
increases in the price level that occur at a rate greater than expected
Anticipated Inflation
increases in the price level that occur at the expected rate
Cost-of-Living Adjustment (COLA)
an automatic increase in the income (wages) of workers when inflation occurs
Real Interest Rate
the interest rate expressed in dollars of constant value (adjusted for inflation)
Nominal Interest Rate
the interest rate expressed in terms of annual amount currently charged for interest and not adjusted for inflation
Deflation
a decline in the economy's price level
HyperInflation
a very rapid rise in the general price level