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165 Cards in this Set
- Front
- Back
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Economics |
the study of how individuals, institutions, and society make optimal choices under conditions of scarcity
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Scarcity |
wants/needs exceed available resources |
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Wants |
goods/services that people would like to have |
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Needs |
things needed to live- food, shelter, clothing |
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Factors of Production |
productive resources |
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Land |
the earth and all resources from it. land, forests, water resources, oil |
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Labor |
efforts and abilities of humans used to produce goods. schools, teachers, janitors |
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Capital |
tools, equipment, and facilities to produce good. hammers, nails, saws |
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Entrepreneurship |
when an individual who organizes resources for production and distribution |
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WIRP |
Wages for labor. Interest for capital. Rent for land. Profit for entrepreneurship |
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Trade-Off |
Giving up one item or category for another |
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Opportunity Cost |
the item or value lost when making an economic decision |
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Marginal Benefit |
satisfaction of adding one unit in production or consumption |
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Marginal Cost |
the desired good's cost |
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Diminishing Marginal Utility |
decreasing satisfaction or usefulness as additional units of a product are acquired |
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Production Possibility Curve |
Point X- inefficient Point A,B,C- efficient Point Y- unattainable |
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Specialization |
doing a specific task in the production of goods/services |
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Division of Labor |
breaking productive tasks into smaller and more specialized act (assembly line) |
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Voluntary Exchange |
when individuals and businesses freely choose to exchange goods, services, and resource for something else of value |
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3 Basic Economic Questions |
1. What will be produced? 2. How will it be produced? 3. For whom will it be produced? |
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Market Economy |
producers and consumers make economic decisions and the factors of production are privately owned (Capitalism) |
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Consumer Sovereignty |
the idea that individuals are the best judge of their needs and what is in their best interest and that they indicate their choices by their spending decision |
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Command Economy |
the central authority or government, makes most of the economic decisions |
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Mixed Economy |
An economy which has the characteristics of a market economy with some government intervention and regulation |
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Laissez Faire |
a policy or attitude of letting things take their own course, without interfering |
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Traditional Economy |
Economic activity stems from the rituals, habits or customs |
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Public Goods |
items such as schools, defense, police and fire protection, parks roads and street lighting provided by government |
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Goods |
items that companies/individuals produce to sell (cars, toys) |
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Services |
activities/assistance provided by people (builders, chiropractors) |
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Private Goods |
a product that must be purchased to be consumed, and its consumption by one individual prevents another individual from consuming it |
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Redistribution of Income |
healthcare, social security |
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Private Property Rights |
people have the right to control their possessions as they see fit |
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Tariffs |
a tax or duty to be paid on a particular class of imports or exports |
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Subsidies |
a sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service may remain low or competitive |
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Deregulations |
taking away rules or laws on an industry such as deregulation of transportation |
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Inputs |
what is used in the production process to produce output |
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Outputs |
finished goods and services |
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Fixed Costs |
business costs, such as rent, that are constant whatever the quantity of goods or services produced |
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Variable Costs |
a cost that varies with the level of output |
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Total Costs |
total economic cost of production |
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Capital Investment |
funds invested in a firm or enterprise for the purpose of furthering its business objectives |
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Capital Goods
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goods that are used in producing other goods, rather than being bought by consumers |
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Human Capital
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the skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country |
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Standard of Living |
is the rough estimate of the quality of life that people in a country are able to afford |
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Incentive |
positive and negative rewards that encourage economic behavior such as making purchases or working to increase productivity |
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Commercial Banks |
a bank that offers services to the general public and to companies |
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Interest Charged |
interest the bank charges people or business to borrow money (personal and business loans) |
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Interest Earned |
interest the bank pays people or business for the use of their money (Money in savings accounts) |
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Credit Union |
A credit union provides services similar to a bank; the difference is that a credit union only provides these services to its members, and these members own and control the institution |
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Return vs Risk |
invested money can render higher profits only if the investor is willing to accept the possibility of losses |
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Stocks |
Types of securities representing ownership in a corporation
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Bonds |
loaning the government a sum of money in return for interest earned and the original loan |
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Mutual Funds |
A professionally managed, DIVERSIFIED investment that enable investors to pool money with other investors
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Reasons People Save and Invest |
to have money for emergencies or for retirement |
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Progressive Tax |
a tax that imposes a higher percentage of taxation of persons with high incomes than on those with lower incomes, hurts the rich |
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Regressive Tax |
a tax that imposes a higher percentage rate of taxation on low incomes than on higher incomes, hurts the poor |
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Proportional Tax |
the tax rate does not change with respect to changes in income |
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Credit |
borrowed money |
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Interest |
the amount of money that a lender charges a borrower in exchange for the use of their money |
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Simple Interest |
applied only to the value of the principal. interest grows slowly |
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Compound Interest |
is interest applied to both the principal and the interest. (you pay interest on interest, grows fast) |
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Principal |
amount borrowed or the amount still owed on a loan |
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Debt |
the state of owing money |
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Credit Worthiness |
valuation performed by lenders that determines the possibility a borrower may default on his debt obligations |
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Insurance |
government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium |
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Comprehensive Liability |
protects the organization from liability claims |
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Deductibles |
specified amount of money that the insured must pay before an insurance company will pay a claim |
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Premiums |
amount to be paid for an insurance policy |
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Shared Liability |
allows more than one person or party to share the risk |
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Medium of Exchange |
Anything that is generally acceptable in exchange for goods and services |
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Measure of Value |
Common measurement in which values are expressed |
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Store of Value |
an item that maintains value over time |
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Sole Proprietorships Advantages |
All decision making power belongs to owner and they are easy to start |
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Sole Proprietorships Disadvantages |
Owner faces unlimited liability(owner is responsible for loses or debt), hard to raise money and limited life(business dies with owner) |
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Partnership Advantages |
Specialization of owners |
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Partnership Disadvantages |
Partners face unlimited liability, decision making can be complex, owners share profits and costs |
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Corporation Advantages |
Owners have limited liability (not responsible for loses and debt), have long life spans, and easy to raise money for business |
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Corporation Disadvantages |
Double taxation (profits that the company make are taxed twice) and corporations are hard to start |
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Microeconomics |
The study of how economic actors (individuals and businesses) make decisions and are impacted by the allocation(distribution) resources |
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Factor Market |
where inputs such as land, labor, capital, and other resources are exchanged |
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Product Market |
where households buy finished goods and where businesses sell finished goods |
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Economic Independence |
the reliance on business/households to provide the goods and services that people consume |
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The Circular Flow Chart |
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Law of Demand |
the quantity demanded varies inversely with price. Price Increases(P↑) then Quantity Decreases(Q↓) or Price Decrease(P↓) then Quantity Increases(Q↑) |
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Change in Quantity Demanded |
movement along the demand curve due to a change in price |
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CD or Change in Demand |
when the whole curve shifts |
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CD Consumer Income |
if consumer income increases he or she can buy more of a product |
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CD Consumer Tastes |
consumers buy more products when they are advertised |
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CD Substitutes |
goods that can be purchased to replace a similar good |
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CD Compliments |
goods that are normally purchased with other goods |
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CD Change in Expectations |
The way consumers think about the future will affect the demand for a good |
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CD Number of Consumers |
As population increases, more consumers are buying more products |
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Law of Supply |
the quantity supplied varies proportionately with price.Price Increases(P↑) then Quantity Increases(Q↑) or Price Decrease(P↓) then Quantity Decreases(Q↓) |
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Change in Quantity Supplied |
movement along a supply curve; caused only by a change in a good’s own price |
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CS or Change in Supply |
a shift in the entire supply curve caused by a change in non-price determinants of supply |
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CS Input Prices |
If the cost of producing a product goes up, then the supply of the product will go down |
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CS Technology |
changes in producer’s technology can change the current supply of a product |
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CS Expectations |
what people expect |
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CS Taxes |
how much tax is on every product |
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CS Number of Sellers |
changes in the number of sellers in a market can change the current supply of product |
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Equilibrium |
the place where the quantity supplied equals the quantity demanded |
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Shortage |
Wants/Needs exceed supply |
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Surplus |
an excess of production or supply over demand |
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Elasticity |
measures the sensitivity between two economic variables |
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Price Elasticity of Demand |
a change in price has a relatively large effect on quantity demanded |
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Price Inelasticity of Demand |
a change in price has relatively little effect on quantity demanded |
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Price Ceiling |
when government creates a maximum price at which a good can be sold |
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Price Floor |
when governments set a minimum price for which a product can be sold |
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Perfect Competition |
buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers |
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Monopolostic |
Number of Firms:a large number Barriers to Enter the Market:low, easy to enter Products:products are similar, but not exactly alike. Competition: firms must remain aware of their competitor’s action, but they do have some control over their own prices Advertisement:much Example: Airline companies, blue jean companies |
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Oligopoly |
market is shared by a small number of sellers and producers |
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Monopoly |
market is controlled by one |
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Macroeconomics |
the study of the economics of a nation as a whole |
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Gross Domestic Product |
the market value of all goods and services produced by a country over a specific period of time, usually a year |
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Net Exports |
total amount of exports |
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GDP per Capita |
dollar amount of GDP produced on a per- person basis |
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Consumer Price Index |
takes a hypothetical basket of goods and services purchased by a typical household. It then tracks changes in the amount of money required to purchase this same basket of goods and services year after yea |
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Inflation |
rise in overall prices in an economy |
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Deflation |
fall in overall prices in an economy |
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Stagflation |
rise in overall prices and unemployment rate in an economy |
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Who benefits form inflation |
borrowers and people who barter |
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Who loses with inflation |
savers, lenders, people who live on fixed incomes, people with long-term contracts |
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Labor force |
all the members of a particular organization or population who are able to work, viewed collectively |
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Frictional Unemployment |
unemployment due to people leaving a job and looking for one that better fits their interests and abilities. |
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Structural Unemployment |
unemployment occurs when you have job skill that no one wants, or when a company wants to hire somebody but can’t find anyone who has the necessary requirements |
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Cyclical Unemployment |
people who are laid off as a result of a contracting economy |
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Seasonal Unemployment |
regular seasonal changes in unemployment |
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Natural Rate of Unemployment |
5% in the U.S. |
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National Debt |
if a government continues to operate a deficit more than 1 year |
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National Deficit |
when a country spends more money than it takes in with taxes, in a year |
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Business Cycle |
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Recession |
a decline that lasts at least 6 months |
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Depression |
he lowest point at the end of a recession and before a recovery |
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Aggregate Supply |
the supply of all goods and services within a country |
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Aggregate Demand |
the demand for all goods and services within a country |
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Monetary Policy |
:refers to changes in the money supply of a nation in order to influence its economy |
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Federal Reserve |
is the bank of banks or the bank of last resorts. |
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Reserve Requirement Ratio |
portion of depositors' balances that banks must have on hand as cash |
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Discount Rate |
the minimum interest rate set by the Federal Reserve for lending to other banks |
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Open Market Operations |
If the Fed wanted to stimulate the economy to reduce unemployment it could buy securities on the open market |
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Fiscal Policy |
the use of government expenditures (spending)and revenue collection (taxes)toinfluence the national economy, specifically GDP |
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Imports |
are those goods that a nation buys from other countries |
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Exports |
are goods that a nation sells to other countries. |
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Absolute Advantage |
when a country can produce more of a good than another country. |
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Comparative Advantage |
when a country can produce a product at a lower opportunity cost than another country. |
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Quotas |
a limited quantity of a particular product that under official controls can be produced, exported, or imported |
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Embargoes |
when government prohibits the import of a good |
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Standards |
governments employ standards to ensure the safety of imported goods and to make sure these goods comply with local laws |
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Protectionism |
when governments protects its’ country’s industries from foreign competition |
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Free-Trades |
international trade without government restrictions |
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North American Trade Agreement |
eliminates trade barriers between Canada, Mexico and the United States |
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World Trade Organization |
makes the rules for trade between nations |
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European Union |
eliminates trade barriers between European countries such as France, Germany, Spain and Italy |
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United Nations |
international organization formed in 1945 to increase political and economic cooperation among member countries. The organization works on economic and social development programs, improving human rights and reducing global conflicts |
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Association of Southeast Asian Nations |
eliminates trade barriers between Southeast Asian Countries such as Vietnam, Thailand, Singapore, Indonesia and the Philippines |
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Favorable Balance of Trade |
when country A EXPORTS more than it IMPORTS. The money flows from country B to country A, which increases country A’s GDP and decrease its unemployment rate |
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Unfavorable Balance of Trade |
When country A IMPORTS more than it EXPORTS. The money flows from country A to country B, which decreases country A’s GDP and increase its unemployment rate. |
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Balance of Payments |
covers all the economic transactions of a country; this includes the trade balance, but it also includes other things such as the transfer of capital goods and changes in country’s official reserves |
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Fixed Exchange Rate |
maintain a country's currency value within a very narrow band |
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Floating Exchange Rate |
currency's value is allowed to fluctuate in response to foreign-exchange market mechanisms |
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Currency Appreciation |
when a nations currency is stronger than another nations currency |
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Currency Depreciation |
when a nations currency is weaker than another nations currency |
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Factors that affect Exchange Rates |
Inflation rates Interest Rates Government Debt Recession |
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Purchasing Power |
the financial ability to buy products and services |
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Purchasing Power Parity |
theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries |
