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