UPMSP Intermediate Economics - Code 136 flashcards
UPMSP Intermediate Economics - Code 136 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Opportunity Cost
- The value of the next best alternative forgone when a resource is used to produce one good rather than another. It is measured in real terms, not in money.
- Production Possibility Frontier
- A curve showing all combinations of two goods an economy can produce with given resources and technology when resources are fully and efficiently used. It is concave because marginal opportunity cost rises.
- Positive vs Normative Economics
- Positive economics deals with verifiable statements about what is, such as an actual unemployment rate. Normative economics deals with value judgements about what ought to be, such as whether the poor should be subsidised.
- Marginal Utility
- The addition to total utility from consuming one more unit of a good. It diminishes as consumption rises and becomes negative beyond the point where total utility is maximum.
- Law of Demand
- Other things remaining constant, quantity demanded of a good falls when its price rises and rises when its price falls. Income and substitution effects explain this inverse relationship.
- Price Elasticity of Demand
- The percentage change in quantity demanded divided by the percentage change in price. Demand is elastic when the value exceeds one, inelastic when below one and unitary when equal to one.
- Indifference Curve
- A curve showing combinations of two goods that give the consumer equal satisfaction. It slopes downward, is convex to the origin and higher curves represent higher satisfaction.
- Budget Line
- A line showing all combinations of two goods a consumer can buy with a given income at given prices. Its slope equals the negative ratio of the two prices.
- Law of Variable Proportions
- In the short run, as more units of a variable input are added to fixed inputs, marginal product first rises, then falls, and finally becomes negative.
- Marginal Cost
- The addition to total cost from producing one more unit of output. The marginal cost curve cuts both the average cost and average variable cost curves at their minimum points.
- Law of Supply
- Other things remaining constant, quantity supplied of a commodity rises with its price and falls when its price falls. A change in own price causes movement along the supply curve.
- Producer Equilibrium
- The output level at which marginal revenue equals marginal cost and marginal cost is rising. Under perfect competition this condition becomes price equals marginal cost.
- Perfect Competition
- A market with many buyers and sellers, a homogeneous product, free entry and exit and perfect knowledge, so that each firm is a price taker facing a horizontal demand curve.
- Monopoly
- A market with a single seller, no close substitutes and strong barriers to entry. The firm is a price maker and can restrict output to charge a higher price.
- Monopolistic Competition
- A market with many sellers of differentiated products, free entry and exit, and heavy selling costs. Each firm faces a downward-sloping but fairly elastic demand curve.
- Oligopoly
- A market dominated by a few large firms whose decisions are mutually interdependent. Price rigidity and the kinked demand curve are common features of such markets.
- Gross Domestic Product
- The market value of all final goods and services produced within the domestic territory of a country during a year, before deducting depreciation.
- National Income
- Net national product at factor cost, obtained by adding net factor income from abroad to domestic product and deducting depreciation. It is the sum of factor incomes earned by normal residents.
- Value Added Method
- A method of measuring national income by summing gross value added at market price across sectors, where value added equals value of output minus intermediate consumption. It avoids double counting.
- GDP Deflator
- The ratio of nominal GDP to real GDP multiplied by one hundred. It measures the average change in prices of all goods and services included in GDP.
- Credit Creation
- The process by which commercial banks create deposits several times the size of initial deposits, limited by the cash reserve ratio. The multiplier equals one divided by the reserve ratio.
- Cash Reserve Ratio
- The fraction of a bank's net demand and time liabilities that must be held as cash reserves with the central bank. It is a quantitative instrument of monetary policy.
- Repo Rate
- The rate at which the central bank lends short-term funds to commercial banks against government securities. Raising it reduces liquidity and is used to control inflation.
- Money Supply M1
- Currency held by the public plus demand deposits with banks plus other deposits with the central bank. It is the most liquid measure of the money stock.
- Investment Multiplier
- The ratio of the change in equilibrium income to the change in autonomous investment. It equals one divided by one minus the marginal propensity to consume.
- Marginal Propensity to Consume
- The fraction of an additional unit of income spent on consumption. It lies between zero and one, and the marginal propensity to save equals one minus it.
- Deflationary Gap
- The shortfall of aggregate demand below the level needed for full employment equilibrium. It causes unemployment and is corrected by raising government spending or cutting taxes.
- Fiscal Deficit
- Total government expenditure minus total receipts other than borrowings. It indicates the total borrowing requirement of the government during a financial year.
- Revenue Deficit
- Revenue expenditure minus revenue receipts. It shows the excess of government's current, non-asset-creating spending over its current, non-debt-creating income.
- Balance of Payments
- A systematic record of all economic transactions between normal residents of a country and the rest of the world during a year. It always balances in accounting terms.
- Depreciation of Currency
- A market-determined fall in the value of a currency in terms of another under a flexible exchange rate. It makes exports cheaper and imports more expensive.
- Green Revolution
- A strategy using high-yielding variety seeds, irrigation, fertilisers and credit that sharply raised foodgrain output in India, especially wheat and rice, from the late 1960s.