ECON EXAM #1

Term Definition
Economics the study of how people make choices/decisions b/c of limited resources
Macroeconomics study of ECON as a whole
Microeconomics study of ECON with firms and individuals
Scarcity our wants are unlimited but our needs are limited
opportunity cost of a choice is the value of the opportunities lost

-weighing the trade-offs between costs and benefits

-based on your own opinion
Marginal Decision Making (Sunk Cost) have been paid and can't be recovered
Incentive loses something that causes a change in the opportunity cost that people face
Positive Incentive lower the opportunity cost people are more likely to do something
Negative Incentive raises the opportunity cost people are less likely to do something
Efficiency resources are used to produce something with the best or greatest economic value
Circular Flow Diagram
GDP(Gross Domestic Product) -Location the sum of the market value of all final goods and services produced within a country within a certain amount of time
Market Value a common unit
Final Goods and Services Goods and Services used to produce something(MUST BE NEW)
Period yearly, monthly, quartly
GNP Citizenship
GDP Equation C + I +G + NX
Consumption (C) What we buy, MUST BE NEW, G&S consumed by private individuals and household
Investment (I) spending on productive inputs factories, machinery, buildings, inventory
Government purchase government spending (all levels of government)
Net Exports (NX) Exports-Imports
Inventory goods produced now but not sold immediately
Nominal GDP G&S value @ current price
Real GDP G&S value @ constant price
GDP Deflator measures overall change in prices of economy

(Nominal/Real)x100

GDP Growth Rates t= this year

t-1=last year

(GDP(t)-GDP(t-1))/(GDP(t-1)) x100
Market Basket A list of specific G&S in fixed quanities
Consumer Price Index(CPI) measure tracking changes in the cost of a basket of G&S purchased by a typical household
CPI Equation (cost of basket current year/cost of basket base year)x100
Inflation increased price rate
inflation rate (CPI year2-CPIyear1/CPIyear1) X100
PPP Adjustment PPI-Adjusted GDP=Nominal $(countryA) x 1/(1-price level adjustment(countrya)
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