Economics

Perfect competition- The conditions that allow for the equilibrium price of equal consumer
surplus to producer surplus where a large amount of producers all produce identical products that
just cover their total cost to make the unit.
Near Perfect competition- When the conditions for perfect competition are close to being met
where usually prices are close to the equilibrium price and many sellers all sell fairly similar
products
Rent Controls- Used to protect tenants from landlords raising the rent if they complain about
defects or hidden faults that do not comply with building standards. Especially effective in giving
more money to tenants so they can add on to their apartments, and they can participate in tax
benefits. New York and Santa Monica are two cities that continue to have their rent control. This
can cause a Demand/ Supply issue as the quantity demanded will not be met at a certain price, but
landlords will either budge and sell cheaper or do something else.
Minimum Wage Laws- The concept behind minimum wage laws were a protection for the
unskilled workers of America. By setting the Price of labor, the government can easily modify
the amount of workers in an economy.
Real Balance Effect- Know that when unemployment rises, wages drop, causing $$ personal
income to drop which moves supply right, making a new, cheaper Eq point
For-ex Purchasing Power Parity- Purchasing Price in one currency/ Price in another currency
For-ex changes from: GDP, retail sales, exports to imports, status of country in relation to war,
famine, etc., and consumer price index
Originally, after WWII America was a super power production industrial giant with a huge bank
and for every $35 circulating in the economy, there was an ounce of gold to back it up.
o With the Nixon Shock, this ended because Nixon believed that it was not Americas
place to be the key currency, so floating foreign exchange became the system used today
from Nixons decision for price and dollar control.
Countries interactions with forex often effect the standing of that currency. An example of this
historically is when Asian currencies fell into a crisis in 1997, where large amounts of US dollars
were purchased for other currencies. This caused the US economy to increase its GDP and the
resulting increase in financial debt being purchased allowed interest rates to stay low in America.
o In the long run, the different currencies all must work to remain as stable as possible,
because if a key-currency was to fall into a similar crisis, the global capitalist economy
that we enjoy today would likely fall apart or separate into two major key currencies.
Factors affecting the forex rateso Inflation in USA
o If I/Y rates increase in US, more financial products are purchased, thus appreciating $
o Political Impact
o US labor
o US economy, if its doing well interest rates, etc.
Bretton-Woods Agreemento The agreement after WWII where America became the key currency of the world, mainly
due to the booming post-WWII economy that was influenced by the massive industrial
increase to fuel the war.
o Was considered the first economic monetary system of controls

Took advantage of US Gold Standard so that when countries needed to have the gold
standard, they could rely on the integrity of the US $. This ended on August 15 th 1971,
when the Bretton woods agreement was ended by the Nixon shock
Problem with BWA was that with Swap agreements, dollars were exchanged for
Francs to which more Dollars went to Swiss banks. Swiss take dollars and buy a
bunch of gold with dollar value of $35. US fed was pumping out gold at $35 an
ounce and although the $ appreciated, the Swiss now had a more tangible
currency reserve
How to move curves of USA Demand for Swiss goods and Swiss supply to US of goods
o Increase Tarriffs, which results in practically a halt of international trade
o US economy recesses- P goes down of US goods, increased Swiss demand
o Government Interferes with Forex- prevent dollar dumping and fights inflation
o Raise interest rates in America causes a premature recession
o Devaluing the dollar, meaning that the dollar was kept at the price the market required of
it
By devaluing the dollar, exports of American goods that are cheaper, is
encouraged while national imports are discouraged. This can be seen with
Chinas regulated currency
The main side effect is that countries see this as a sign of a weak economy, so
sometimes dollar dumping, or domino devaluing occurs
o Pure Float- With classical economic conditions (laizzes- faire & near-perfect
competition)
Interest rates in US are extremely sensitive- auto industry, construction, small business and many
other markets are affected by how much it costs to borrow money.
Fixed currencies require political action to change the value of the currency
Floating currencies are affected by market forces that manipulate the fluctuation of value
European Monetary Union- the coalition of European countries to attempt to create a standard
monetary unit for the 18 eurozone countries and the 10 countries that are nonEuro but members.
Only after meeting the Copenhagen criteria, and showing for a number of years stability and
consistency to a stated rate, in comparison with the rate of the Euro, a country may adopt the
Euro as its national currency, in compliance with the EMU.
The J curve- the phenomenon when policy changes that initially is met with a large deficit (shortrun), but that is quickly forgotten after the tremendous increase in profit following the loss.
Usually occurs with devaluation.
Anti-Trust Actso Sherman Antitrust- outlaws any contract, combination or conspiracy in restraint of trade
& monopolization.
o Federal Trade Commission Act bans- unfair methods of competition or deceptive
practices
o Clayton Act- Prevents mergers where the effect is essentially lessening competition or
making monopolization easier
Hart-Scott Rodino Antitrust Improvements Act- tells large companies with big
mergers to notify the government of their plans in advance
Firms Maximize Profit by producing the units that make MC= MR
o