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181 Cards in this Set
- Front
- Back
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Scarcity
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A condition that exists when wants are greater than the resources available to satisfy those wants.
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TANSTAAFL
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"There Ain't No Such Thing As A Free Lunch."
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Opportunity Cost
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The value of the next best alternative.
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Production Possibilities
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Many different combinations of goods or services can be produced with the same resources.
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Production Possibilities Curve
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A graphical representation of alternative ways to use an economy's resources.
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Substitute
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A product or service that fulfills the need of a consumer of another product or service with the same efficiency.
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Factors of Production
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Types of resources which include: Land, Labor, Capital, and Entrepreneurial Resources.
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Land Resources
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"Natural Resources" which come from nature.
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Labor Resources
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"Human Capital" which includes the skills and knowledge of humans.
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Capital Resources
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"Real Capital or Capital Goods" which are goods that are produced later to be used to produce final goods and services for consumption.
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Entrepreneurial Resources
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The decision-making skills of entrepreneurs involved in using resources to produce goods and services.
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Incentive
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The opportunity to be better off after the resources are used.
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Private Property
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Property owned by individuals or companies, not by the government or the people as a whole.
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Price Signals
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A change in any given price that indicates whether or not that there are profits to be made.
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Competition
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An incentive for producers to reduce costs or increase quality to increase sales and thereby increase profits.
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Complementary Good
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A product or service that fulfills the need of a consumer of another product or service with the same efficiency.
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Ceteris Paribus
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Latin phrase meaning "all other things being equal" or "all other things being held constant."
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Marginal Decision-Making
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The economic decision based on the difference between the costs of two alternatives or the difference between the two benefits.
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Margin
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The difference between the costs of two alternatives or the difference between the two benefits.
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Positive Economics
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Economics as science; statements are limited to objective and observable facts that can be tested and proved to be true or false.
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Normative Economics
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Strays from what is factually testable by introducing opinions and preferences; usually mared by statements of what "should be."
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Microeconomics
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The study of individual economic agents and markets.
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Macroeconomics
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The study of the economy as a whole and focuses on the aggregate behaviors of producers and consumers.
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Economic Systems
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Sets of accepted behaviors, laws, and institutions that define roles, principles and beliefs, and relationships.
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Traditional Economies
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Economies in which the fundamental economic questions are answered according to tradition.
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Planned Economies
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Economies in which the government plays a significant role; decision-making is generally autocratic in nature or confined to bureaucratic elements which are not responsible to the public for their decisions; one of the two types of planned economies; for example, North Korea.
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Market Systems
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Markets can be structured in a number of ways depending on who (or what) answers the three fundamental economic questions.
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What to Produce?
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One of the basic questions that organizes a group's decision-making for what to make.
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How to Produce?
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One of the basic questions that organizes a group's decision-making for who to make things for.
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Who Will Recieve the Benefits?
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One of the basic questions that organizes a group's decision-making for who benefits from production.
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Free Enterprise Systems
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Economies in which the government has only a very basic role in private economies; decision-making on economic matters is completely left to individual economic agents.
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Capitalism
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Economies in which the government has only a very basic role in private economies; decision-making on economic matters is completely left to individual economic agents.
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Private Enterprise Sytems
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Economies in which the government has only a very basic role in private economies; decision-making on economic matters is completely left to individual economic agents.
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Free Market Systems
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Economies in which the government has only a very basic role in private economies; decision-making on economic matters is completely left to individual economic agents.
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Command Economies
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Economies in which the government plays a significant role; decision-making is generally autocratic in nature or confined to bureaucratic elements which are not responsible to the public for their decisions; one of the two types of planned economies; for example, North Korea.
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Mixed-Market Economy
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Economy in which most economic decisions are made in free markets, but the government plays an active role in such decisions through spending or regulation; the dominant type of economy today.
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Mercantilism
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A market system featuring heavy government control and regulation of the economy and government manipulation of trade to ensure the steady inward flow of precious metals.
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Socialism
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A system in which a group voluntarily shares their resources for the good of the group.
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Communism
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An economic and political system in which the government owns and controls almost all of the means of production.
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Laissez-faire
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Literally "leave [businesses] alone" or "hands off"
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Market
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Exists wherever and whenever two or more parties wish to make an exchange.
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Prices
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Provide a common language that makes the comparison of two or more abstract values easier.
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Supply
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The quantity of a good or service that a producer is willing and able to produce at any given price.
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Demand
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The willingness and ability of consumers to purchase a specific good or service at any given price.
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Law of Supply
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As the price of a good or service increases, the quantity supplied of that good or service increases.
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Supply Schedule
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A table listing the quantity supplied at various prices.
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Supply Curve
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The quantity supplied of a good or service at all prices presented as a graph; price is on the vertical axis; quantity supplied is on the horizontal axis.
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Costs of Production
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This refers to the sum of the cost of raw materials, components and other inputs used in the production of goods, including an appropriate allocation for general administrative and selling expenses.
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Law of Demand
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As the price of a good or service increases, the quantity demanded of that good or service decreases (and vice versa).
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Demand Schedule
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A table presenting the quantity demanded at various prices.
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Demand Curve
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The quantity demanded at all prices as presented on a graph; quantity is on the horizontal axis while price is on the vertical axis.
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Tastes and Preferences
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People's wants for goods and services.
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Utiliy
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The satisfaction or pleasure that one recieves from consuming a good or service or performing a certain activity.
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Budget Constraint
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The combinations of goods and services that a consumer can purchase given current prices and their income.
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Substitutes
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Other goods or services that satisfy the same want.
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Complementary Goods
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Goods which are consumed together, such as hamburgers and buns; as the price of a good increases, demand for its complement will decrease; have a negative crooss-price elasticity coefficient.
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Marginal Utility
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Amount of benefit derived from consuming one additional unit of a product or service.
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Diminishing Marginal Utility
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As individuals consume greater amounts of a single good or service, each additional unit consumed will bring the consumer less utility.
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Inelastic Demand
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A change in price may not result in any change in the quantity demanded.
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Elasticity
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The relationship between two variables, usually expressed as the proportion of change in one variable to change in another variable.
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Price Elasticity of Demand
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The percentage of change in the quantity demanded divided by the percentage change in price.
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Elastic
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A small percentage change in price results in a greater percentage change in the quantity demanded.
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Inelastic
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The percentage change in quantity demanded is less than the percentage change in price.
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Cross-Price Elasticity
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Examines the effect that a change in price of one good or service has on the quantity demanded of another good or sevice.
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Movement Along The Curve
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A change in the quantity demanded due to a change in the price with the curve representing the possible prices and quantity combinations.
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Profit Maximization
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The goal all producers seek.
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Fixed Cost
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The costs of fixed inputs such as factories; cannot change over the short run.
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Variable Costs
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The costs that change with the level of production.
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Marginal Revenue
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The additional revenue a firm gains by selling one more unit of a good or service.
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Marginal Cost
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The cost of consuming or producing one additional unit of a good or service.
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Diminishing Returns
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A level of output when the addition of variable factors will result in smaller and smaller increments of additional output.
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Perfect Competition
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A market with many buyers and sellers.
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Price Takers
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All producers; at the equilibrium price.
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Monopolies
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Noncompetitive markets in which production or price is controlled by a single producer.
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Patent
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A license that gives the inventor of a new product the exclusive right to sell it for a certain period of time.
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Copyright
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A legal device that provides the owner the right to control how a creative work is used.
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Economy of Scale
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Reduction in cost per unit resulting from increased production, realized through operational efficiencies; can be accomplished because as production increases, the cost of producing each additional unit falls.
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Barriers to Entry
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Circumstances particular to a given industry that create disadvantages for new competitors attempting to enter the market. These may include government regulations, economic factors, and marketing conditions.
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Regulated Monopolies
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Monopolies that operate with strict price controls and universal service requirements.
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Monopolistic Competitive Market
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A market structure characterized by many firms supplying similar, but differentiated, products and competing over both price and non-price factors; there are some barriers to entry because of product differentiation.
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Oligopoly
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A market dominated by a small number of participants who are able to collectively exert control over supply and market prices.
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Price Ceiling
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A maximum price for a good or service imposed by the government; when set below market equilibrium, a shortage will result as consumers demand more than producers are willing to supply.
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Shortage
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Results when more goods or services are demanded than are supplied; can result from a price ceiling.
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Surplus
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Results when more goods or services are supplied than consumers demand.
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Explicit Costs
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The monetary cost of an item, production, or any other activity; also known as "out-of-pocket expense" and "accounting cost"
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Implicit Costs
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The cost of the next best alternative to a chosen good, service, or activity; also known as "opportunity cost."
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Total Product
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A variable factor of production identifies what outputs are possible using various levels of the variable input.
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Average Product
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the total product divided by the number of units of variable input employed.
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Marginal Product
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The increase in output gained by adding one more unit of a given factor of production.
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Diminishing Marginal Product
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Fall in the rate-of-increase in output of a process as the amount of an input is increased, while the amount of other inputs is held constant. For example, it is usually possible to increase the output of a farm by adding more labor, fertilizers, or water-but only up to a certain extent. If it were otherwise, any one farm could feed the entire world.
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Returns to Scale
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Reduction in cost per unit resulting from increased production, realized through operational efficiencies. Economies of scale can be accomplished because as production increases, the cost of producing each additional unit falls. also called economy of scale.
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Productivity
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The amount of output per unit of input (labor, equipment, and capital). There are many different ways of measuring productivity. For example, in a factory productivity might be measured based on the number of hours it takes to produce a good, while in the service sector productivity might be measured based on the revenue generated by an employee divided by his/her salary.
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Labor Productivity
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A measure of labor resource efficiency.
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Macroeconomics
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The study of entire economies or societies, as well as the global economy.
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Aggregate
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Total.
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Output
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The total value of all of the goods and services produced in an entity's economy.
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Employment
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Everyone willing to work at the going wage rate is able to get a job.
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Circular Flow Model
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Shows the links between households, firms, the government, financial institutions, and foreign nationals as money and output flow through the economy; shows how the different sectors of the economy are interdependent.
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Household Sector
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A point on the circular flow model where all resources are owned by individuals.
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Business Sector
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A point on the circular flow model where all production takes place.
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Resource Markets
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A point on the circular flow model that is often referred to as factors of production.
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Product Markets
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A point on the circular flow model which involves the exchange of goods and services.
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Consumer Sovereignty
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The supreme importance of consumers in determining what goods and services an economy produces.
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Supply-Side Economic Theory
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Economic focusing in changes in supply as the main determinant of total output; proposes that the best way to promote overall welfare is to increase aggregate supply.
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Aggregate Demand
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The total demand in the economy at all price levels, which is reflective of the total expenditures of the economy; total expenditures can be determined by adding all consumer, government and investment spending to net exports; is graphed much like the market demand curve, except the price level is on the vertical axis and the total level of output is on the horizontal axis.
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Aggregate supply (short-run)
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The potential supply of all goods and services at all price levels; is upward-sloping until capacity constraints, after which the curve is vertical since producers cannot produce more even if they wanted to.
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Aggregate supply (long-run)
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Perfectly vertical; supply is independent of price level (thus it is perfectly inelastic); shifts inward and outward with long-term changes in technology and productivity.
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Equilibrium Price Level
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The point at which the aggregate demand and aggregate supply curves intersect.
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Leading Economic Indicators
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Can indicate the direction that the economy will take in the future.
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Concurrent Economic Indicators
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Provide a sense of current economic activity; examples: employment, income, production output, or sales.
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Lagging Economic Indicators
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Confirm past levels of economic activity; examples: length of unemployment, unit labor costs, or consumer debt.
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Index of Leading Economic Indicators
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A weighted index of twelve crucial measurement that generally indicate the direction of the economy; shows the change of the composite measurement over a period of time from a base year.
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Growth of Output
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Steady growth in the productive capacity of the economy.
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Full Employment
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The state of a country's economy in which everyone available for work has a job.
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Price Stability
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A situation in which prices in an economy don't change much over time. Price stability would mean that an economy would not experience inflation or deflation.
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Interest Rates
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A tool that is used to stimulate or slow growth, stimulate or slow job creation, and moderate price increases.
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Money Supply
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The total supply of money in circulation in a given country's economy at a given time. There are several measures for the money supply, such as M1, M2, and M3. The money supply is considered an important instrument for controlling inflation by those economists who say that growth in money supply will only lead to inflation if money demand is stable. In order to control the money supply, regulators have to decide which particular measure of the money supply to target. The broader the targeted measure, the more difficult it will be to control that particular target. However, targeting an unsuitable narrow money supply measure may lead to a situation where the total money supply in the country is not adequately controlled.
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Externalities
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A term that refers to the external and unintended benefits or costs of an economic activity that are not borne by the producer or consumer; can be either negative or positive.
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Nominal GDP
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GDP in current prices.
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Per capita GDP
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GDP divided by the population; yields the level of national income per person, which is often used as a measurement of economic development and well-being.
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Real GDP
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GDP expressed in constant prices, which allows for comparisons over time.
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Real GDP growth rate
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A measure of economic growth after adjusting for inflation.
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CPI
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(Consumer Price Index) a measure of inflation which compares the changing price of a fixed basket of goods over time.
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Producer Price index
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Measures whole sale price levels in the economy.
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GDP Price Deflator
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Used to adjust nominal GDP to yield real GDP; a measure of inflation which takes into account all economic activity.
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Cost-Push Inflation
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Increased factor prices result in increased cost for producers; higher production costs decrease supply (sift to the left), resulting in higher prices and inflation.
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Demand-Pull Inflation
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The result of increased demand for goods and serviced when suppliers are unable to keep up; consumers “bid up” the prices of goods and services, which creates inflation; also referred to as “too many dollars chasing too few goods.”
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Deflation
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A sustained decrease in prices over time.
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Labor Force
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The total number of persons aged 16 and over who are either working or actively seeking employment (excluding those who are incarcerated or in the military).
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Unemployment Rate
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The percentage of unemployed persons in the labor force (who, by definition, are actively searching for a job).
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Recession
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A contraction that lasts two quarters (six months) or more.
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Depression
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A downturn that lasts 3 quarters (nine months) or more.
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Expansion
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A period of the business cycle when economic activity is increasing; also known as “upturn.”
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Business cycle
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A cycle between periods of growth and periods of decline; includes expansion, peak, downturn, trough.
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Rational Expectations
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A relatively new theory of economic behavior; states that people expectations of the future can actually guide economic decisions.
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Index of Consumer Confidence
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A survey of 5,000 households that tracks the confidence in the economy; reflects the future economic decisions of households.
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Medium of Exchange
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Anything which acts as means of exchanging goods or services; eliminates the need for barter by providing an intermediary for exchange that can later be trades for other goods or services; most common example is money.
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Unit of Account
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A function of money which allows us to compare the value of different items by looking at their prices.
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Store of Value
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A function of money: money that is earned today retains its spending power in the future; inflation undermines this ability.
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Demand Deposits
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A form of money which is stored at banks that can be withdrawn at any time; examples include most checking accounts; include M1.
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Inflation
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The general rise in prices over time.
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Interest Rates
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The cost of using money or credit.
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Diminishing Returns
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An economic law that states that as variable factors of production are added to a fixed factor of production, the result will be eventually smaller increases in output.
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Monetary Policy
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Management of the economy through the Federal Reserve System, which changes the money supply.
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Federal Reserve System (Fed)
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A system that implements monetary policies in the United States.
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Quantity Theory of Money
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The expression for the relationship between the supply of money and the of output in the economy.
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Equation of Exchange
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MV=QP; the amount of money in circulation multiplied by the velocity of money (how many times a dollar is spent in a year) is equal to the total output of the economy multiplied by the current price level; V and Q are generally fixed, so any change in M will result in a change in P; also known as “Fisher Equation.”
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M1
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A definition of the money supply that includes all currency, demand deposits, traveler’s checks and other deposits against which checks can be written; the most liquid definition of the money supply.
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M2
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Includes all of M1 plus savings accounts, time deposits under $100,000, and balances in retail money market funds; often considered the “best” definition of the money supply.
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Open Market Operations
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The buying and selling of government securities on the open market by the FOMC to manipulate the money supply; buying securities increases the money supply; selling securities deceases the money supply.
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Discount Rate
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The rate of interest the Federal Reserve charges private banks for loans; lowering it usually increases private lending, which increases the money supply; increasing it usually decreases private lending, which restricts the money supply.
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Reserve Requirements
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The percentage of deposits which banks must keep on had at any given time by law; also known as “reserve ratio.”
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FOMC
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(Federal Open Market Committee) trades government securities, or debt, on the open market as a way of conducting day-to-day monetary policy; consists of the Federal Reserve Board plus the President of the New York District Bank and the presidents of four other district banks.
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Federal Funds Rate
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The rate private banks charge each other on over night loans; the Federal Reserve does not have direct control over this rate, but instead aims to influence it through open-market operations.
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Wealth Effect
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One reason why aggregate demand is downturn sloping: as the price level decreases, the real income of consumers increases, thus allowing them to purchase more goods and services.
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Real Interest Rate
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The rate of interest which factors in inflation; calculated by subtracting the current rate of inflation from the nominal interest rate; can even be a negative number (due to inflation).
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Fiscal Policy
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Government actions which are designed to increase or decrease aggregate demand; is enabled by the government’s ability to directly impact aggregate demand by increasing or decreasing its spending.
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Public Goods
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Goods which are held by a society at large; non-rival and non-excludable.
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Budget Deficits
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When the government spends more money than it has.
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Budget Surplus
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When the government takes more tax revenues than it spends.
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National Debt
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The amount of money owed by the government; equal to the sum of all surpluses and deficits in a nation’s history.
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Public Debt
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“National Debt.”
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Expansionary Policy
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The policy designed to expand the economy through either an increase in government spending (fiscal policy) or an increase in the money supply (monetary policy).
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Contractionary Policy
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The policy designed to shrink the economy by reducing either federal spending or the money supply.
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Smoot-Hawley Act
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A case that brought about high tariffs in the 1940s.
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Phillips Curve
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The theoretical trade-off between inflation and unemployment.
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Stagflation
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Occurs whenever economic stagnation and inflation take place at the same time, such as throughout much of the 1970s.
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Developed Economies
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An economy that is developed; determined by per capita GDP.
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Developing Economies
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An economy that is developing; determined by per capita GDP.
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Less Developed Economies
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A less developed economy; determined by per capita GDP.
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Comparative Advantage
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An individual economic agent’s comparative advantage is whatever good or service it can produce at eh lowest relative price (lowest opportunity cost).
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Absolute Advantage
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An economic agent’s ability to produce a good or service more efficiently than another agent.
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Exchange Rates
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The price of one nation’s currency in terms of another nation’s currency.
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Tariffs
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A tax on imports.
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Quotas
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A limit on the quantity or value of a good that can be imported or exported.
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GATT
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(General Agreement on Tariffs and Trade) consisted of a series of agreements which resulted in the gradual lowering of tariffs and other barriers to trade; replaced by the more institutional World Trade Organization in 1994.
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WTO
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(World Trade Organization) created in 1994; incorporated the GATT and Trade-Related Aspects of Intellectual Property Rights agreements; contains a dispute resolution mechanism which allows the body to mediate trade disputes between member states.
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NAFTA
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(North American Free Trade Agreement) an agreement among the United States, Mexico, and Canada; designed to eventually eliminate all barriers to trade between these three countries; is a free trade area only, and does not include a customs union agreement.
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Free Trade Zone
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A zone established by NAFTA that aims to create free trade among North America (includes Mexico, the United States and Canada).
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European Union
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(EU) created following the Maastrict Treaty; is a customs union and free trade area which also features supranational government and a common currency (the euro).
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Euro
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The common currency of the European Union.
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