The document contains definitions and diagrams related to concepts in microeconomics, macroeconomics, and economic growth. It includes definitions of cost theory, revenue theory, profit theory, and other microeconomic concepts. It also defines macroeconomic terms like GDP, GNP, aggregate demand, aggregate supply, and business cycles. Finally, it outlines different economic perspectives like neoclassical and Keynesian and includes diagrams to illustrate macroeconomic concepts such as the multiplier effect, crowding-out effect, and the Phillips curve.
2. Definitions Cost Theory: the theory that the price of an object or condition is determined by the sum of the cost of the resources that went into making it Revenue Theory: the change in total revenue earned by a firm that results from employing one more unit of labor Profit Theory: The positive gain from an investment or business operation after subtracting from all expenses Marginal Cost: Increase in total cost of producing an extr unit of output
3. Total Costs: Total cost to produce a certain output TC=TFC+TVC Total Variable Cost: Total cost of the variable assets that a firm uses in a given period of time Total Fixed Costs: Total cost of fixed assets used in a given time period Price Discrimination: When firms actively adjust prices according to the willingness/ ability of different consumers to pay Macroeconomics: The Study of a national economy GDP: Gross Domestic Product= Total value of all spending in an economy
4. GNP: Gross National Product= Total income earned by a nation’s factors of production regardless of where the assets are located Real GDP: Nominal GDP adjusted for inflation Economic Development: A multidimensional concept that includes poverty reduction, provision of education, health care and law and order, civil liberties and civic participation Aggregate Demand: The aggregate (total) spending on goods and service in a period of time at a given price level Aggregate Supply: The amount of goods and services that all industries will produce at a given price level Fluctuations in the growth of real output, consisting of periods of expansion and contraction called business cycles or trade cycles
5. Recession: When the economy experiences two consecutive quarters of falling GDP Neoclassical Perspective: Price mechanism regulates markets, full employment achieved without intervention, economy is an harmonious system, perfect competitive equilibrium is the benchmark Keynesian Perspective: Price mechanism fails as wages are “downward sticky”, reaching full employment requires intervention, the economy is inherently unstable, the economy can get stuck in the SR Fiscal Policy: Increase government spending, decrease personal and/or business taxes, combination of both policies Monetary Policy: Increase money supply, lower interest rates (easy money)
6. The Multiplier Effect: Any change in consumption, investment, government spending, and net exports. Prices induced expenditures, a chain reaction of further expenditures Crowding-out Effect: Governments borrow to finance fiscal policy, interest rates rise, private investment fails Unemployment: Number of adults who are not working but actively look for a job Underemployment: Number of adults who are working part-time but looking for full time work or people who are not fully using their skills Unemployment Rate: Number of unemployed as a percentage of the labor force
7. Inflation: A continuing increase in the general price level of goods and service within the economy Deflation: A continuing decrease in the general price level of goods and service within the economy CPI (Consumer Price Index): Compares the value of a basket of goods and services in one year with a same basket in the base year
