AS THE PRICE FALLS, QUANTITY OFFERED FOR SALE DECREASES, PRICE RISES QS INCREASES.

MAIN FACTORS AFFECT THE SUPPLY:

NUMBER OF PRODUCERS

PRICES OF RELATED PRODUCTS

TECHNOLOGY

EXPECTATIONS

COST OF INPUTS

Substitutes in production- goods that are produces as alternatives to each other(lettuce and tomatoes( a farmer can produce one of the other on the same land), and lather bags and belts(same type of resources)

Complements in production of joint products- gods such that the production of one implies the production of the other.(beef and hides are a classical example)

THE FACTORS THAT SHIFT SUPPLY CURVE(SUPPLY SHIFTERS)

RIGHT:

Number of sellers increases, technology increases, favorable weather, lower interest cost.

LEFT:

Price of Joint product falls, Price rice expected, unfavorable weather, higher wages.

Market condition- the relationship between QD and QS

Qd>Qs= shortage exists

Qd<Qs= surplus exists

Qd=Qs – the market is in equilibrium.

Equilibrium quantity- the quantity traded at the equilibrium price.

WHENEVER A SURPLUS EXISTS IN THE MARKET. IT WILL EXERT DOWNWARD PRESSURE ON THE PRICE.

SHORTAGE EXISTS, IT WILL AN UPWARD PRESSURE ON THE PRICE.

An increase in demand causes shortage that rices the price.

A decreases in demand causes a surplus that lowers the price.

An increase in supply causes surplus that lowers the price

An increase in demand and an increase in supply of the same size leave the price unchanged but increase the quantity.

A decrease in demand and decrease in supply= price unchanged but reduce the quantity.

A relatively large increase in demand and relarively small increase in supply rice both price and quantity.

The increase in supply is greater that the increase in demand= price falls but quantity increases.

Demand UP and supply DOWN equally= Price UP but quantity remains.

Demand Down and supply Up equally= price DOWN but quantity remains.

CH4

Invisible hand- the term used by Adam Smith to describe the market mechanism.

Great Depression- a period of severe economic slump lasting 10 years from 1929 to 1939.

Classical economic models- pre- Keynesian economic model that emphasized the market forces of demand and supply. It predicts that unemployment would cause wages to fall. The fall in wages would be an incentive for employers to hire more workers until the unemployment workers were all hired.

Fiscal policy- the use of government spending and taxes to regulate economic activity.

Keynesian economics- economics based on the premise that total output is determined by total spending. It emphasizes the demand side of the economy.

Stagflation- the simultaneous occurrence of high rates of inflation and high rates of unemployment.

Supply side- the production of cost side of the economy.

New classical economists- economists who emphasize wage and price flexibility and believe in rapid macroeconomic adjustment.

New Keynesian economists- economists who emphasize wage and price inflexibility and believe that markets can fail to adjust.

Macroeconomic policy- deliberate government action taken to achieve economic objectives.

Monetary policy- action taken by the central bank to change the money supply and interest rates to achieve economic objectives.

Income policies- actions taken by the government to control wages and prices to achieve economic objectives.

Transfer payments- payments that do not represent compensation for goods or services.

Consumer price index(CPI)- an index that measures the level of the prices of consumer goods and services.

CH5

National income accounting- the process of collecting, measuring, and recording data on the economy’s output.

Statistic Canada- the special federal government agency responsible for collecting and publishing national economic and social statistic.

Double counting counting an item more than once when measuring GDP.

Value added- the difference between the value of the output and the cost of the inputs.

Intermediate product- the outputs of one firm of industry that are used as inputs by other firms of industries.

Private transfer payments- transfers of purchasing power from one individual or group to another for which no gods and services are produced. (grants student, parents give to child)

Government transfer payments- payments made by the fovernment that do not represent payment for productive services(employment insurance payments, welfare payments, old age security payments.)

Income approach- a method of calculating GDP that involves measuring the total income generated in the process of producing the economy’s good and services.

Expenditure approach- a method of calculating GDP that involves measuring the total amount spent on the economy’s good and services.

TOTAL EXPENDITURE=TOTAL INCOME

Disposable income- aftertax income that an individual can spend of save.

Personal saving- the part disposable income not spent in consumer goods and services.

Base year of base period- a year chosen as a reference point against which other years are measured.

Price indexes- numbers that measure changes in prices over time.

Nominal GDP- expressed in current dollars

Real GDP- expressed in constant dollars.

Underground economy- all economic activities that are not reported to government and on which no taxes are paid.

Human Development Index (HDI) – a composite index designed to measure human well-being in a country.

CH6

Types of unemployment:

Frictional unemployment

Seasonal unemployment

Structural unemployment

Cyclical unemployment

Frictional unemployment-people moving between jobs or entering or re-entering the labor force. (college)

Full employment- a condition that prevails when the only unemployment is frictional and structural unemployment.

Seasonal unemployment- caused by season variations.

Structural unemployment- caused by a mismatch between the types of skills that unemployed workers possess and the types of workers that employers would like to hire.

Technological unemployment- a type of structural unemployment caused by the introduction of laboursaving equipment or methods of production.

Cyclical unemployment- arises because of declines in aggregate expenditure and aggregate output such as durng recessions.

Labour Force- the sum of all employed and all unemployed people who are willing and able to work.

Capacity utilization rate- shows the degree to which firms use their factories and machinery.

Labour force participation rate- expressed as a percentage of the adult population.

Employment rate.

Underemployment- workers accept low-paying jobs or part-time jobs because they cannot find a full-time job consistent with their qualifications.

Discourage workers- who have abandoned the search for jobs because the are unable to find work.

Potential GDP or full employment output- the economy’s output at full employment.

Actual output- the level of output produced by the economy.

Output gap or income gap- the difference between the potential output and the actual output of an economy.

Okun’s law- the assertation that real output falls by 3% for every 1% increase in the unemployment rate.

Rate of inflation- is the rate of change of the average level of prices.

(CPI)Consumer price index- measures changes in the prices of consumer goods and services.

(PPI)Producer price index- measures changes in the prices of producer goods.

GDP deflator- measures changes in the average level of prices of all final goods and services.

Core rate of inflation or core GDP- prices of gasoline and some food items.

Rule of 70- a formula for determining the number of years required for a number to double for a given rate of change.

Hyperinflation or runaway inflation- an excessively high rate of inflation usually 100% or more annually.

THE WINNERS OF INFLATION (DEBTORS(BORROWERS), PRODUCERS)

THE LOSERS – CREDITIORS, PEOPLE ON FIXED INCOMES.

CH7

Fallacy of composition- the assumption that what is true of the parts must also be true of the whole.

Aggregate expenditure:

AE=C+I+G+(X-M)

Interest rate effect- the impact of changes in interest rates on consumption and investment and thus on total spending.

Foreign trade effect – changes in the price level on exports and imports and thus on the quantity of real GDP demanded.

Real wealth effect- changes in the price level on real wealth and thus on the quantity of real GDP demanded.

THE FACTORS that can shift aggregate demand curve are called AD shifters and are components of aggregate expenditure; CONSUMPTION, INVESTMENT, GOVERNMENT SPENDING, NET EXPORTS.

Consumer(consumer wealth(price remains CW increase, AD curve to the right), taxes, expectations, interest rate)

Short run- a situation in which firms can not very all their inputs or productive resources, thus, they operate with some fixed costs.

Short run aggregate supply curve- a graph that shows the various levels of real GDP that will be supplied at various price elvels in the short run.

Keynesian range- the horizontal section of the AS curve that represents high unemployment and low real GDP.

Intermediate range- the upward-sloping section of the AS curve that represents high price level.

Classical range- the vertical section of the AS curve that represents output at its maximum.

THE FACTORS that can shift Short run AS curve:

PRODUCTION COST, CHANGES IN RESOURCES, CHANGE IN TECHNOLOGY, TAX Policies, Natural Desaster.

AN INCREASE IN AS RESULTS IN INCREASE IN REAL GDP AND A FALL IN THE PRICE LEVEL.

A DECREASE IN AS RESULTS IN DECREASE IN REAL GDP AND AN INCREASE IN THE PRICE LEVEL.

Date: 2016-03-03; view: 804