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ECON 103 EXAM 2 Study Guide

1. Surplus (76) Excess supply

2. Shortage (76) Excess Demand

3. Markets (61) Group of economic agents who are trading good or services, and the rules and
arrangements for trading
4. Price floors ( ) Causes of surplus or excess supply, establishes the minimum acceptable price
5. Price Ceilings ( ) Causes of shortages or excess demand, establishes the maximum acceptable price
6. High Capital Stock ( )
7. Complementary goods (69) P D . The in the price of A leads to a shift in the demand curve
of B. Ex. If the price of hot dogs rises so much people will stop consuming them, which will cause a
decrease in the demand of hot dog buns.
8. Substitute goods (69) P D . The in the price of A leads to a shift in the demand curve of B.
Ex. if the price of tea goes up, the demand for coffee will go up; because the demand for tea decreases.
9. Perfectly Competitive Market Assumptions The idea that any individual buyer or seller cannot
influence the price of good or services. Sellers all sell identical good or services.
10. Closed Economy (147) an economy that does not trade with the rest of the world. No exports no
11. Open Economy (147) trades with the rest of the world
12. Real GDP (104) Total value of production using the market price from a specific base year to
determine the value of each unit. Base Year Price/Quantity
a. Nominal GDP Base Year/Quantity

Growth Rate (140) is the change in a quantity growth between two dates that are relative to the baseline.
b. Growth (t, t+1) = ( (Y t+1) (Yt) )/ Yt
i. t = baseline time (2005) , t+1 = following year to baseline time (2006)
ii. Y t+1 = GDP per capita in 2006, $43,215 , Yt = GDP per capita in 2005, $42,482
iii. EX:

ECON 103 EXAM 2 Study Guide

13. Market Equilibrium price at which quantity demanded equals quantity supplied. Neither shortage or
14. Aggregate (the process of adding up individual behaviors) production function relationship between
the aggregate GDP of a nation and the factors of production
15. Aggregate production function and factor effecting the production function Y=A x F (K,H) Stands for
Y = GDP, K = Physical capital stock of a market, H = efficiency units of labor, F = physical capital,
labor, and GDP, A = technology
16. Shifts in the Production Function (91) Capital & Labor
17. Circular Flow of Income (91)

18. Law of Demand (64) Price Demand . Negatively related where two variables move in the
opposite direction
19. Law of Supply (72) Price Supply . Positively related where two variables move in the same
direction. Willingness to accept lowest price that a seller is willing to get paid to sell an extra unit of a
20. Economic Growth (140) the increase in GDP per capita of an economy.
21. Law of Diminishing Marginal Benefit (65) the idea that the more you consume a good, your
willingness to pay (the highest price that a buyer is willing to pay for an extra unit of good) for an
additional unit declines. Ex. your 1st donut/coffee in the morning is not as good as the 2nd, 3rd, etc.
22. Public Goods Governmental services and/or goods
23. Inferior Goods (68) Income Demand or shift
24. Normal Goods (69) Income Demand or shift
25. Calculation of GDP GDP can be an excellent predictor of life satisfaction.
a. GDP deflator (Nominal GDP/Real GDP) x 100. Measurement of how prices of goods and
services produced in a country have risen since the base year

ECON 103 EXAM 2 Study Guide

26. Other things being equal, Ceteris Paribus (64) Holding all else equal. Everything in the economy is
held constant.
27. Gross National Product, GNP (102) market value of production generated by the factors of
production (Capital and Labor) possessed or owned by residents of a particular nation
28. Sustained Growth (146) Process where GDP per capita grows at a positive and relatively steady rate
for long periods of time.
a. Catch up Growth (146) a growth process whereby relatively poorer nations increase their
income by taking advantage of knowledge and technologies that other advance countries, such as
U.S.A, as created
29. Demand Curve (64) plots the quantity demand at difference prices
30. Demand Schedule (64) table that reports the quantity demand at different price.
31. Factors that shifts demand (67-69) 1. Tastes and preference 2. Income and wealth 3. Availability and
prices of related goods 4. Number and scale of buyers 5. Buyers beliefs about the future.
a. Movement along demand curve (68) a change in the price of the good itself.
32. Supply Curve (71-72) plots the quantity supplied at different prices
33. Supply Schedule (71) table that reports the quantity supplied at different prices.
34. Factors that shifts supply (73-75) 1. Price of inputs used to produce the good 2. Technology used to
produce the good 3. Number and scale of sellers 4. Sellers belief about the future
a. Movement Along the Supply Curve (75) Change in the price of good
35. Equilibrium (76) The quantity demanded equals the quantity supplied
36. Consumption (94) The market value of consumption good and consumption services that are bought
by domestic households.
37. National Accounts (89) measures the level of aggregate economic activity in a country. Expenditures
such as: consumptions (c), Investments (I), government expenditure (G), exports (X), imports (M)
a. National Income Accounting Identity Y* = C+I+G+X-M OR Y = C+I
38. Savings (98) Savings = Y* (Total market value of goods and services) - C (Consumption) - G
(government expenditure) >> S= I+X-M >> S=I

Double Counting (Online) miscalculation (double entry) of a good and/or services that has

already been recorded.