Economics Terms.doc

Economics TermsTit for Tat Strategy- This strategy is dependent on four conditions that have allowed it to become the most prevalent strategy for the prisoners dilemma:1. Unless provoked, the agent will always cooperate2. If provoked, the agent will retaliate3. The agent is quick to forgive4. The agent must have a good chance of competing against the opponent more than once.Scarcity- A limited amount of: land, capital, land, and any unit used to produce goods.Market- A place where buyers and sellers, buy and sell: goods, services, and resources.Equilibrium- Over time, supply and demand should balance out at a certain point. Equilibrium is stable if any temporary move away from equilibrium will be brought back to equilibrium through market forces.Demand- The cheaper something is the more we demand of it, and the more expensive something is the less we demand of it.Difference between Normal and Inferior GoodsInferior Goods- goods where a person would like to replace them with a normal good if his income rises. Example: street foodSubstitute- is a product that offers the same benefit to a customer. Example: Coffee & Tea. If the price of one goes up a consumer will purchase the other instead.Supply- The quantity of a good that a supplier is willing to sell at a certain price. The more money the good will sell for, the more of the good that the supplier will produce. In Demand: Price and Quantity have an indirect relationship. In Supply: Price and Quantity have a direct relationship.Adam Smith wrote “The Wealth of Nations” that created the theory of equilibrium, and the market mechanism or the market mechanism.Utility- The satisfaction a consumer gets from using a certain product.Total Utility- The combined utility you get from using a number of products. With each product the total utility will increase, up to a certain point.Marginal Utility- The utility received for each additional product.Saturation Point- The point where you will receive no more Marginal Utility from consuming another product.Production Function- The amount of products that can be created by a certain number of inputs (such as land and labor).Marginal Product- the change in the amount of the total products produced, by each additional input (worker).Law of Diminishing Returns- at a certain point, the increase of another input will no longer increase the amount of products made. MP=0Fixed Costs- the amount of costs a company must pay no matter how many goods they sell. Overhead. 1st part of Cost of Goods Sold.Variable Costs- additional costs for producing another good. Direct labor, direct material. 2nd part of Costs of Goods Sold.Difference between homogeneous and heterogeneousPure Monopoly- is when a single seller is the entire supply of a certain good to the market.Oligopoly- A market organization in which there are few sellers of a commodity.Cartel- is a formal organization within an Oligopoly who determines policies of all parties to increase overall revenue.Game Theory- The optimal strategy in conflict situations.1. Players- decision-makers.2. Strategies- that can be made by the players (firms).3. Payoff- Outcome or consequence. Dominant Strategy- the optimal strategy no matter what the other player does.Zero-Sum Game- a game where one player wins and the other player loses.Difference between quantitative and qualitativeGDP= Consumption + Investment + Government Spending + Net ExportsConsumption- the private consumption of durable and non-durable goods.Disposable Income- is the amount of money that a consumer has left to spend after he has purchased the necessities (food, shelter, and clothing).Income is used to consume, save, and pay taxes.Investment- business investment in equipment and land. Also includes private (non-business) investment of homes.Government Spending- the combination of all government expenditures on final goods and services.Net Exports-the sum of all exports supplied to foreign countries, subtracted by the sum off imports that are brought into the host country. GDP per Capita- the GDP of the country divided by the number of people in the country. GDP/# of people=GDP Per Capita Real GDP- the inflation adjusted GDP of a country. GDP- Inflation= Real GDPPurchasing Power Parity-“The Real Exchange Rate” takes into account: inflation, cost of living, and social standards. Uses a standard “basket of goods”.Unemployment Rate- the ratio of those who are unemployed in the “labor force”.Labor force- leaves out those too young & too old for a job; those who may be mentally unfit; and those who just have stopped looking for a job.Natural Rate of Unemployment- a small amount of unemployment is not a bad thing, because it creates competition for jobs and helps employers.Inflation- a rise in the general level of prices.Inflation Rate- the percentage change of inflation from year-to-year.Deflation Rate- negative inflation rate. A sign that the economy is going backwards.Hyperinflation- when inflation exceeds 50% per month. Examples include: Thai baht, Mexican peso, German mark, many African countries.Globalization- the integration of a national economy into the international marketplace by:1. Trade2. Foreign Direct Investment3. Migration Rates4. Technology Demand Side (Aggregate) - spending decisions by economic agents (households, firms, and government agencies).Supply Side (Aggregate) - the productive potential of the economy. The choice of hours worked by households, the productivity of their labor, and the overall efficiency.Fiscal Policy- the use of government expenditure and tax collection to influence the economy.1. Government Spending2. Taxes In Expansionary Fiscal Policy, a regime can either increase government spending, decrease taxes, or both. A Republican regime is more likely to cut taxes, and a Democratic regime is more likely to increase government spending.Fiscal Multiplier- When the government spends money, that money is spent again and again, and will be greater than the government investment.Monetary Policy- in the U.S. it is achieved three ways.1. Control the supply of money (bonds).2. Control availability of money (% of money banks can loan).3. Set interest rate (Federal Funds Rate).If the interest rate increases in the United States the yield on the dollar increases, which will make the dollar appreciate in