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Exports
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Goods made here and sold to other countries
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International trade
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Trade between individuals/firms of different countries
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Imports
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Goods made in other countries and bought here
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Terms of trade
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Rate units of one product must be exchanged for units of another product
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Productivity
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How many good can be produced per labor unit
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Market Power
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Single individual can change market price (Price Maker)
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Trust
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Monopoly
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The Sherman Act
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(1890) Worked well but was too vaguely worded (was unreasonable)
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The Clayton Act
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(1914) made to reinforce the problems of the Sherman act.
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The Clayton Act outlawed...
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...price discrimination (predatory pricing), interlocking stockholding, interlocking directorates, tying contracts, exclusive dealing contracts.
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Interlocking stockholding
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(Clayton Act) buying of one firm's stock by another firm in the same industry.
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Interlocking directorates
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(Clayton act) individuals functioning as members of the boards of directors for two firms in the same industry.
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Tying contracts
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(Clayton act)Selling one product only on the condition that another product must also be purchased
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Exclusive dealing contracts
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(Clayton act)Restrict store from selling the produce of a opponent firm.
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Predatory pricing
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(Clayton act) Lowering price by dominant player to drive weaker opponents out of the market.
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The Federal Trade Commission (FTC) ACT
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(1914)created the FTC which appointed a team to govern the presence of monopolies
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Foreign exchange rate
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Price of one countries currency in another countries currency
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Currency Appreciation
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Fewer dollars are needed to buy the same unit of alternate currency
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Currency depreciation
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More dollars are needed to buy the same unit of alternate currency
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External costs
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(Over allocation of resources) Cost not to firms but rather to third parties resulting from firms actions. (I.e. Pollution)
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External benefits
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(Under allocation of resources) Benefits not to firms but rather to third parties resulting from firms actions (i.e. Education)
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Public goods
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Market system cannot allocate any resources to the production of a particular product. I.e parks
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Horizontal merger
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Two or more firms in same stages same industry (table top) (grocery+grocery)
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Conglomerate merger
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Completely unrelated firms from different industries. (Grocery+hardware)
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Vertical merger
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Two or more firms in different stages of the same industry (table legs) (grocery+dairy)
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Derived demand
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Demand for resource depends on the demand for what the resource will produce. (Demand for carpenters relies on the demand for wooden goods)
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Marginal Revenue Product of Labor (MRP) =
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Marginal Product x Price of Output
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What increases productivity?
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Increases in technology & training
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Nominal tax rate
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Tax paid / taxable income
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Marginal tax rate
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Percentage of the next dollar of income paid in tax
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Savings
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Money after tax income not spent in current consumption
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Saving
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Holding funds rather than spending them
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Wealth
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Market value of assets
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Income
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Flow of annual funds earned by owners of economic resources
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Progressive tax
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Tax rates rise as income level rise. (Bills gates gets taxed more because he's got money)
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Regressive tax
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Tax rates fall as income level rises (same tax all around but less percentage to large income individuals)
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Effective tax rate
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Tax paid / total income
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Sales tax =
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Regressive
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Nominal interest rate
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Sum of real rate interest, inflation rate, and financial risk
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Real interest rate
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(Risk free return rate)rate of interest charged when there is absolutely no risk of default
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Inflation rate
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How fast money loses value over time
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Financial risk
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(Risk premium) chance that the borrower will default on the transaction
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Tariff
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A tax on each imported good
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Quota
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A restriction on the number of goods which can be imported
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Trade deficit
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Imports exceed exports
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Trade surplus
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Exports exceed imports
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"Real"
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Adjustment for inflation
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International trade works because of...
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Comparative advantage
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Comparative advantage
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Country A can produce a good for less cost than country B.
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Arguments against Free Trade
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National defense argument, anti dumping campaign
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National defense argument
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You do not want to purchase weapons/ technology from your enemies
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Dumping
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Selling a good/service below the price charged in the home market. (Driving other firms out of an industry)
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Subsidy
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Payments by government based on production
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Effect of an increase in the minimum wage on the quantity of labor?
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Changes how many people can be employed
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Effect of an increase in productivity on the "real wage" level?
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Produce more per hour, you can pay employees more
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Public goods have to follow which criteria?
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Non rivalrous and non excludability
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Public goods are not public goods if?
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You charge for them
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Conglomerate Mergers help-
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Balance industries
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Influence demand-
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Price of final good produced
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Price of the resource (influence on demand)-
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Marginal cost price increases, cannot hire as many
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Price of the other resource (influence on demand)-
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Comparing your value with others
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The amount of people that can be employed depends if Marginal Revenue Product is _____ to the Cost of the Resource
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Less than or equal to
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Real Wage Level
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what you can actually buy
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Financial Risk
answer
credit score
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If the Nomial Interest Rate is 10%, Real Rate of Interest is 2%, and Inflation Rate is 2%, what is the Risk premium?
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6%
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Foreign Competition fear-
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loss of jobs and sales
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