MIDTERMS chapter 4 & 5

• A phrase used by Adam Smith to describe how, by pursuing their own self-interests, people in a market system are “led by an invisible hand” to promote the well-being of the community.

  THE INVISIBLE HANDS
• Who is the father of modern economic analysis?'

  ADAM SMITH
• This is the number of units of a good that consumers are willing and can afford to buy over a specified period of time

  QUALITY DEMANDED
• A table showing how the quantity demanded of some product during a specified period of time changes as the price of that product changes, holding all other determinants of quantity demanded constant.

  DEMAND SCHEDULE
• As the price of an item rises, the quantity demanded normally falls. As the price falls, the quantity demanded normally rises, all other things held constant.

  THE LAW OF DEMAND
• A graphical depiction of a demand schedule. It shows how the quantity demanded of some product will change as the price of that product changes during a specified period of time, holding all other determinants of quantity demanded constant.

  THE DEMAND CURVE
• A change in the price of a good produces a movement along a fixed demand curve. By contrast, a change in any other variable that influences quantity demanded produces a shift of the entire demand curve.

  A SHIFT IN THE DEMAND CURVE
• This will lead consumers to purchase more of the good, even if the prices of those goods remain the same

  CONSUMER INCOME
• This are commodities whose quantity demanded rises when the purchaser’s real income rises, all other things remaining equal

  NORMAL GOODS
• These are commodities whose quantity demanded falls when the purchaser’s real income rises, all other things remaining equal.

  INFERIOR GOODS
• This is the number of units that sellers want to sell over a specified period of time.

  QUANTITY SUPPLIED
• As the price of any commodity rises, the quantity supplied normally rises. As the price falls, the quantity supplied normally falls.

  THE LAW OF SUPPLU
• These are tables showing how the quantity supplied of some products change as the price of those products change during a specified period of time, holding all other determinants of quantity supplied constant.

  THE SUPPLY SCHEDULE
• A graphical depiction of a supply schedule. It shows how the quantity supplied of a product will change as the price of that product changes during a specified period of time, holding all other determinants of quantity supplied constant.

  THE SUPPLY CURVE
• A change in the price of the good causes a movement along a fixed supply curve. Price is not the only influence on quantity supplied, however. If any of these other influences change, the entire supply curve shifts.

  A SHIFT IN THE SUPPLY CURVE
• This graph the supply and demand curves together. They also determine the equilibrium price and quantity.

  SUPPLY-DEMAND DIAGRAMS
• An excess of quantity demanded over quantity supplied. When there is a _____, buyers cannot purchase the quantities they desire at the current price.

  SHORTAGE
• An excess of quantity supplied over quantity demanded. When there is a _____, sellers cannot sell the quantities they desire to supply at the current price.

  SURPLUS
• A situation in which there are no inherent forces that produce change. Changes away from an equilibrium position will occur only as a result of “outside events” that disturb the status quo.

  EQUILIBRIUM
• This states that in a free market the forces of supply and demand generally push the price toward the level at which quantity supplied and quantity demanded are equal.

  THE LAW OF SUPPLY AND DEMAND
• The maximum that the prices charged for a commodity cannot legally exceed.

  PRICE CEILING
• The legal minimum below which the prices charged for a commodity are not permitted to fall.

  PRICE FLOORS
• An abstraction that people use to describe some salient

  feature of economic life.

  ECONOMIC AGGREGATE
• It means combining many individual markets into one overall market.

  AGGREGATION
• The _____ shows the quantity of domestic product that is demanded at each possible value of the price level.

  AGGREGATE DEMAND CURVE
• The _____ shows, for each possible price level, the quantity of goods and services that all the nation’s businesses are willing to produce during a specified period of time, holding all other determinants of aggregate quantity supplied constant.

  AGGREGATE SUPPLY CURVE
• This refers to a sustained increase in the general price level.

  INFLATION
• A period of time during which the total output of the economy declines.

  RECESSION
• The sum of the money values of all final goods and services produced in the domestic economy and sold on organized markets during a specified period of time, usually a year.

  GROSS DOMESTIC PRODUCT (GDP)
• (GDP) calculated by valuing all outputs at current prices.

  NOMINAL GDP
• Other term for Nominal GDP.

  GDP IN CURRENT DOLLARS
• (GDP) calculated by valuing outputs of different years at common prices. Therefore, real GDP is a far better measure than nominal GDP of changes in total production.

  REAL GDP
• Other term for Real GDP.

  GDP IN CONSTANT DOLLARS
• The media often refer Real GDP to this measure as _____.

  GDP CORRECTED FOR INFLATION
• Those that are purchased by their ultimate users. Only _____ count in the GDP.

  FINAL GOODS AND SERVICES
• A good purchased for resale or for use in producing another good.

  INTERMEDIATE GOOD
• _____ concentrates on the behavior of entire economies, no matter how small.

  MACROECONOMICS
• _____ study the overall price level, unemployment rate, and other things that we call economic aggregates.

  MACROECONOMISTS
• _____ is the ratio of real GDP divided by population.

  REAL GDP PER CAPITA
• _____ refers to a sustained decrease in the general price level.

  DEFLATION