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122 Cards in this Set
- Front
- Back
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Scarcity
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basic economic problem that results from a combination of limited resources and unlimited wants
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Factors of Production
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resources of land, labor, capital and entrpreneurship used to produce goods and services.
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Economics
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the study of how people make choices about ways to use limited resources to fulfill their wants
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Production possibilities curve
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graph showing the maximum combinationsof goods and services that can be produced from a fixed amount of resources in a given period of time.
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Opportunity cost
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value of the next best alternative given up for the alternative that was chosen
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Three basic questions
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1. what should be produced
2. how should it be produced3. For whom should it be produced |
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Traditional Economy
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system in which economic decisions are based on customs and beliefs that have been handed down from generation to generation.
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Command Ecomony
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system in which the government controls the factors of production and makes all decisions about their use.
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Economic System
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A way in which a nation uses its resources to satisfy its peoples need and wants
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Market Economy
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system in which individuals own the factors of production and make economic decisions through free interactions.
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Circular flow model of Income and Output
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economic model that pictures income as flowing continously between business and consumers.
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Mixed Economy
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system combining characteristics of more than one type of economy
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Laissez Faire
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economic system in which the government minimizes its interference with the economy
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Socialism
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a system in which the government owns the major factors of production and attempts to manage output and the distribution of goods.
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Demand Supply
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the amount of a good or service that consumers are able and willing to buy at various prices.
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Supply
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the amount of a good or service that producers are able and willing to sell at various prices.
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Law of Demand
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economic rule stating that the quantity demanded and price move in opposite directions.
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Real Income Effect
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economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same.
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Substitution Effect
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economic rule stating that if two items satisfy the same need and the price of one rises people will buy more of the other.
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Marginal utility
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an additional amount of satisfaction
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Supply
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the amount of a good or service that producers are able and willing to sell at various prices.
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Law of Demand
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economic rule stating that the quantity demanded and price move in opposite directions.
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Real Income Effect
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economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same.
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Substitution Effect
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economic rule stating that if two items satisfy the same need and the price of one rises people will buy more of the other.
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Marginal utility
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an additional amount of satisfaction
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Law of diminishing marginal utility
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additional satisfaction a consumer gets from purchasing one more unit of a product will lessen with each additional unit purchased.
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Determinants of Demand (5)
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1. changes in population
2.changes in income 3. changes in tasts and preferences 4. substitutes 5. complimentary goods |
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Elasticity of Demand
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in a given rise of fall in products price greatly affects the amount that people are willing to buy.
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Inelasticity of Demand
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products price change has little impact on the quantity demanded by consumers.
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Law of Diminishing Returns
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rule that says as more units of a factor of production are added to other factors of production after some point total output continues to increase but at a diminishing rate.
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Determinants of Supply (4)
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1. price of inputs
2. number of firms in the industry 3. taxes 4. technology |
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Shortage
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the quanitity demanded is greater than the quantity supplied at the current price
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Price Ceiling
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a legal maximum price that may be charged for a particular good or service
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Sole Proprietorship
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business owned and operated by on person
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Partnership
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business that 2 or more individuals own and operate.
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Limited Partnership
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1 or more partners have limited liability but no voice in management.
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Corporation
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owned by many people but treated by law as though it were a person.
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Franchise
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one business seels to another business the right to use the franchisors name and sell its products.
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Limited Liability
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owners responsibility for a companys debt is limited to the size of the owners investment in the firm.
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Unlimited liability
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owner is personally and fully responsible for all losses and debts for a business.
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market structure
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the extent to which competition prevails in particular markets
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Perfect comopetition
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market situation in which there are numerous buyers and sellers an dno single buyer or seller can affect price
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monopoly
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market situation in which a single supplier makes up an entire industry for a good or service with no close substitutes
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Oligopoly
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industry dominated by a few suppliers who exercise some control over price
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Monopolistic competition
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market situation in which a large number of sellers offer similar but slightly different products and in which each has some control over price.
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antitrust legislation
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federal and state laws passed to prevent new monopolies from forming and to break up those that already exist.
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horizontal merger
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when the corporations that merge are in the same business.
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conglomerate
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large corporation made up of smaller corporations dealing in unrelated businesses.
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maerchanization
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combined labor of people and machines
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Division of Labor
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the breaking down of a job into small tasks performed by different workers
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Automation
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production process in which machines do the work and people oversee them.
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Robotics
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sophisticated, computer-controlled machinery that operates an assembly line.
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Labor Union
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association of workers organized to improve wages and working conditions for its members
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Craft union
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union made up of skilled workers in a specific trade or industry
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Industrial Union
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union made up of all the workers in an industry regardless of job or skill level
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Collective bargaining
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process by which unions and employers negotiate the conditions of employment
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Mediation
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a neutral person tries to get both sides to reach an agreement during negotioations.
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Arbitration
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union and management submit the issues they cannot agree on to a third party for a final decision
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Strike
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deliberate work stoppage by workers to force an employer to give in to their demands.
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Gross domestic product
GDP |
total dollar value of all final goods and services produced in a nation in a single year
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Net domestic product
NDP |
value of the nations total output minus the total value lost through depreciation of equipment
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National Income
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total income earned by everyone in the economy
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Personal income
PI |
total income that individuals receive before personal taxes are paid
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Disposable Personal Income
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income remaining for people to spend or save after all taxes have been paid
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Inflation
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prolonged rise in the general price level of final goods and services.
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Deflation
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prolonged decline in the general price level of goods and services
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Consumer Price Index
CPI |
a statistical measure of the average of prices of a specified set of goods and services purchased by typical consumers in city areas.
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Producer Price Index
PPI |
measure of the change in price over time that U.S. producers charge for their goods and services
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Aggregate Supply
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real domestic output of producers based on the rise and fall of the price level.
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Aggregate demand
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the total of all planned expenditures in the entire economy
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Business cycle
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irregular changes in the level of total output measured by real GDP
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Peak/boom
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period of prosperity in a business cycle in which economic activity is at its highest point
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Recession
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part of the business cycle in which the nations output declines for at least 6 months.
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depression
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major slowdown of economic activity
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trough
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lowest part of the business cycle in which the downward spiral of the economy levels off
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economic indicators
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are statistics that measure variables in the economy such as stock prices or the dollar amount of loans to be repaid.
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Functions of Money
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1. medium of exchange
2. a unit of accounting 3. store of value |
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Types of money
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1. commodity money
2. representative money 3. fiat money 4. legal tender |
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Money Supply
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economists use M1 and M2 as idicators.
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M1
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narrowest definition of the money supply
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M2
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broader definition of the money supply, includes all of the M1 plus such near moneys as savings deposits, money market deposit accounts, and retail money market mutual fund valances.
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Federal Reserve System
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created by congress in 1913 as the nations central banking organization
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Monetary policy
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policy that involves changing the rate growth of the supply of money in circulation in order to affect the cost and availability of credit
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Functions of the Fed
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1. check clearing
2.regulating the money supply 3. acting as governements fiscal agent 4. supervising banks 5.holding reserves and setting reserve requirements 6. supplying paper currency |
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Ben S. Bernanke
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expert in monetary policy managing the countrys money supply by adjusting interest rates. His job is to help keep the economy growing while keeping inflation and unemployment low.
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Loose money policy
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monetary policy that makes credit inexpensive and abundant, possibly leading to inflation
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tight money policy
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monetary policy that makes credity expensive and in short supply in an effort to slow the economy
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reserve requirements
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regulations set by the Fed requiring banks to keep a certain percentage of their checkable deposits as cash in their own vaults or as deposits in their Federal Reserve district bank
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Discount Rate
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interest rate that the Fed charges on loans to commercial banks and other depository institutions
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Federal funds rate
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interest rate that banks charge each other on loans.
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Open Market Operations
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buying and selling of United States securities by the Fed to affect the money supply.
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Public goods
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goods or services that can be used by many individuals at the same time without reducing the benefit each person receives
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Budget deficit
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situation when the amount of government spending exceeds its receipts during the fiscal year.
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Budget surplus
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situation when the amount of government receipts is larger than its expenditures during the fiscal year.
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Budget deficit
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when the government spending exceeds its receipts during the fiscal year.
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Budget Surplus
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when the government receipts is larger than its expenditures during the fiscal year.
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Poportional tax
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tax that takes the same %
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Progressive tax
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takes a larger % of higher incomes than of lower incomes.
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Regressive tax
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tax that takes a larger percentage of lower incomes than of higher incomes.
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Stabilization policies
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attempts by the federal government to keep the economy healthy
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Fiscal Policy
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governments use of taxation and spending policies to affect overall business activity
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Monetarism
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theory that deals with the relationship between the amount of money the Fed places in circulation and the level of activity in the economy
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Monetary Rule
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monetarists' belief that the Fed should allow the money supply to grow at a smooth, consistent rate per year and not use monetary policy to stimulate or slow the economy
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Imports
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goods bought from other countries for domestic use
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Exports
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goods sold to other countries
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Absolute advantage
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ability of one country to produce more output per unit of input that can another country
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Comparative Advantage
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ability of a country to produce a product at a lower opportunity cost than another country
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Exchange Rate
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the price of one nation's currency in terms of another nation's currency
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Devaluation
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lowering a currency's value in relation to other currencies by government order
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Depreciation
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fall in the price of a currency through the action of supply and demand
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Flexible Exchange Rate
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arrangement in which the forces of supply and demand are allowed to set the price of various currencies
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Balance of Trade
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difference between the value of a nationas exports and its imports
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Tariff
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*tax placed on an imported product
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Potectionists
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*people who argue for trade restrictions to protect domestic industries.
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NAFTA
North American Free Trade Agreement |
*trade agreement designed to reduce tariff barriers between Costa Rica, El Salvador, Guatemala, honduras, Nicaragua, the Dominican Republic, and the United States
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Developed Nations
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*nations with relatively high standards of living and economies based more on industry than on agriculture
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Economic Nations
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*economists often use per capita GDP as a rough measure of nations prosperity.
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Foreign aid
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*funds, goods and services given by governments and private organizations to help other nations and their citizens
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Foreign investment
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*investors are attracted to developing countries because of their low wage rates, few regulations, and abundant raw materials.
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Global integration
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*interdependency among the countries of the world, especially within financial markets and telecommunications
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Multinationals
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*firms that do business and have offices or factories in many countries
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Telecommunications
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*long-distance communication, usually electronic, using communications satellites and fiber optic cables
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