WGU C719 Macroeconomics Study Guide

The inability to satisfy everyone's wants - Scarcity Study of individual and business choices in the economy - Microeconomics Study of the economy as a whole - Macroeconomics The full value of the best alternative that is given up or forgone. - Opportunity cost Curve showing the various output combinations of two goods or groups of goods that can be produced in an economy with the available resources. - Production possibilities curve All resources are alike and can be interchanged - Straight PPC Some resources are better suited to the production of one item over another - Curved PPC Latin for "all else being equal", test hypotheses by looking at actual experiences in markets. - Ceteris Paribus Consists of people trying to get the most of something they want out of available resources - Self-interested behavior Labor, land, capital, and entrepreneurship - Factors of production Objects that people value - Goods Tasks performed by people - Services The physical and mental work of human beings - Labor Payments labor receives for its productive services - Wages Knowledge and skills that increase labor's productivity - Human capital All natural resources that can be used as inputs to production - Land The income paid to the factor of production called land - Rent. All aids to production that are human creations rather than resources found in nature - Capital A reward for giving up present consumption in order to make resources available for the creation of more capital for future production - Interest The act of adding to capital - Investment Consists of the activities of combining the other productive resources to produce goods and services, taking risks, and introducing new methods and new products (innovation) - Entrepreneurship The reward for innovation, risk taking, and organization - Profit Any setting in which buyers and sellers meet to exchange goods, services, or productive resources - Market What goods and services will be produced and in what quantities? How will they be produced? For whom will they be produced? - Three basic economic questions The study of the different ways of organizing economic activity, or answering the three basic economic questions - Comparative economic systems Answers the basic economic questions by tradition, or custom - Traditional economy Answers the basic economic questions through central command and control - Command economy Relies on incentives and the self-interested behavior of individuals to direct production and consumption through market exchanges - Market economy The basic decision method is the market, but some economic choices are made by government - Mixed economies A good or service is not used up in consumption - Nonrival Nonpayers, or free riders, can be kept from consuming it - Excludable When people or firms consume certain goods or engage in certain activities, they pass some of the costs of production or consumption along to others - Negative externalities Include such broad negative effects as global warming, depletion of the ozone layer, and extinction of endangered species - Public bads Model providing an overview of the central concerns of both macro and microeconomics - Circular flow model Income is earned - Resource market Income is used to purchase goods and services - Product market Number of good B / Number of good A - Opportunity cost of 1 unit of good A Between the minimum amount that one partner will accept to the maximum amount the other partner will give up. - Trading Range The amount of a good or service consumers are willing and able to buy at a specific price during a certain time period - Quantity demanded The relationship between the quantities demanded of a good or service at various prices over a certain time period - Demand The quantity demanded of a good or service in a given time period is negatively related to its price - Law of demand Shows the various quantities demanded at various prices during a specified period of time - Demand schedule A graph representing a demand schedule - Demand curve Shows what quantities will be demanded by all consumers in a certain market at various prices - Market demand curve Causes the demand curve to shift to the right - Increase in demand At every price, consumers demand a smaller quantity than before - Decrease in demand A good for which demand increases as income increases, ceteris paribus - Normal good Demand falls when income rises - Inferior good When one good's demand is increased, the demand for another good also increases. - Complementary goods Rather than enhancing each other's consumption, they replace each other - Substitute goods If individuals expect anything important to change in the future, they may take action now that they would otherwise postpone. - Expectations The quantity supplied of a good or service in a given time period is generally positively related to its price, ceteris paribus - Law of supply A diagram showing the quantity supplied in a particular time and at various prices - Supply curve The sum of all of the individual supply curves - Market supply curve The price for which quantity demanded by consumers is equal to quantity supplied by producers - Market equilibrium The equilibrium price - Market-clearing price