Term
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Definition
| study of choices people make to satisfy their wants and needs |
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Term
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Definition
Who makes the decisions?
Consumers and Produces
How do they decide?
Based on wants and needs (Goods and Services) |
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Term
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Definition
| physical objects that can be purchased |
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Term
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Definition
| actions or activities that are performed for a fee |
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Term
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Definition
| study of choices made by economic actors such as households, companies, and individual markets |
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Term
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Definition
| Examines behavior of entire economies i.e. unemployment |
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Term
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Definition
Basic Economic problem.
combination of limited resources and unlimited wants and needs |
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Term
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Definition
What to produce?
How to produce?
For whome to produce for? |
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Term
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Definition
| one good is sacrificed for another |
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Term
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Definition
| value of next best alternative that is given up to obtain the preferred item |
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Term
| Traditional Economic System |
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Definition
| based on a society's customs, values, and traditions |
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Term
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Definition
| relies on government officials to answer the 3 basic economic questions |
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Term
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Definition
| individuals answer the three basic economic questions |
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Term
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Definition
| combines elements of traditional, command, and market economies to answer the 3 basic questions |
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Term
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Definition
| equal to communism, the government owns or controls nearly all factors of production |
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Term
| Features of Free Enterprise system |
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Definition
1. Owning private property.
Purchase as much as you can afford
2. Individual choice
individual decides how property is used
Pursue Job opportunities
Buy goods and services to meet needs
3. Competition
encourages improvement to existing products and development of new products
Benefits consumers: more choice, better quality, lower prices
4. Self-interested decisions
Producers and consumers make choices for their own benefit
5. Limited government involvement
Government regulates safety laws, protects employees, banking practices |
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Term
U.S. Economic Goal
Freedom |
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Definition
Consumers decide how to spend money
Workers choose occupations
savers and investors decide when, where, and how to save or invest |
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Term
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Definition
economic justice
deals with questions of fairness right vs. wrong |
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Term
U.S. Economic Goal
Security |
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Definition
Protect member from property
Protect economic well being of citizens
FDIC- Protect up to $250,000 per bank customer |
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Term
U.S. Economic Goal
Stability |
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Definition
Full employment
Price stability;control inflation |
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Term
U.S. Economic Goal
Stability |
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Definition
Increase the amount of goods and services produced by each worker
Standard of living
Minimum level of things accessible
Improves when production from each worker increases faster than the population |
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Term
U.S. Economic Goal
Efficiency |
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Definition
most output with the least input
making best use of available resources |
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Term
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Definition
| amount of a good or service that a consumer is willing and able to buy at various possible prices during a given time period |
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Term
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Definition
| amount of a good or service that a consumer is willing to buy at a each possible price |
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Term
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Definition
Inverse relationship with price
If the price of an item goes up the demand will go down
If the price of an object goes down the demand will go up |
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Term
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Definition
| any increase or decrease in a consumers purchasing power |
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Term
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Definition
| substitute a more expensive good with a similar good that is lower priced |
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Term
| Diminishing Marginal Utility |
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Definition
| natural decrease in the utility of a good or service as more units of it are consumed |
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Term
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Definition
| table that shows the level of demand for a particular item at various prices |
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Term
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Definition
| relationship between price and quantity demanded during given period |
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Term
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Definition
Consumer tastes and preferences
Market size
Income
Prices of related goods
Consumer expectations |
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Term
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Definition
| small change in price causes a large change in demand |
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Term
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Definition
| change in price has little impact on quantity demanded |
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Term
| Characteristics of Elastic Demand |
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Definition
1. Product is not a necesity
2. Readily available substitutes
3. Product's cost is a large portion of consumers' income
Example: butter vs. margarine |
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Term
| 3 Characterisitcs of Inelastic Demand |
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Definition
1. Product is a necesity
2. Few or no readily available resources
3. Cost is a small portion of consumers' income
Example: insulin |
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Term
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Definition
| quantity of goods and services that producers are willing and able to offer at various possible prices during a given time period |
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Term
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Definition
| amount of a good or service a producer is will to sell at each particular price |
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Term
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Definition
Direct relationship with price
If the price of a good or service goes up the supply will go up
Producers supply more goods and services when they can sell at higher prices |
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Term
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Definition
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Term
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Definition
| lists eacch quantity of a product that producers are willing to supply at various market prices |
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Term
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Definition
| plots the information from a supply schedule on a graph |
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Term
| Characteristics of Elastic Supply |
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Definition
Products can be made
1. Quickly
2. Inexpensively
3. Using few readily available resources |
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Term
| Characteristics of Inelastic Supply |
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Definition
Products require a great deal of:
1. Time
2. Money
3. Resources used to produce are not readily available |
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Term
| Non-price Determinants of Supply |
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Definition
1.Prices of resources: rent
2. Government tools: taxes
3. Technology
4. Competition: increases supply
5. Prices of related goods
6. Producer expectations |
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Term
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Definition
| change in output generated by adding one more unit of input |
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Term
| Law of Diminishing Returns |
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Definition
1. Increasing Marginal returns: increaseing total product & marginal products
2. Diminishing Marginal returns: decrease in marginal product, increase of total product
3. Negative Marginal returns: decrease in total product & marginal product |
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Term
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Definition
| change as level of output changes (raw materials, wages) |
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Term
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Definition
production costs that don't change as the level of output changes
rent, taxes, salaries, interest on loans |
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Term
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Definition
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Term
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Definition
| sum of fixed and variable production costs |
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Term
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Definition
additional costs of producing one or more unit of output
look at variable costs only
additional costs divided by number of additional products produced |
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Term
| Benefits of the price System |
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Definition
Information: relative worth of goods and services provided and purchased
Incentives:
Choice:
Efficiency:
Flexibility: |
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Term
| Limitations of the Price System |
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Definition
externalities: pollution, construction zone near restaurant
Public good: police, street lights, paid for by taxes
Instability: unstable prices make it difficult to plan expenditiures |
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Term
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Definition
| quantity supplied and quantity demanded for a product are equal at the same price |
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Term
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Definition
quantity supplied exceed quantity demanded at prices offered
Quantity Supplied- Quantity Demanded = Surplus |
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Term
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Definition
Quantity demanded exceeds quantity supplied at prices offered
Quantity Demanded- Quantity Supplied= Quantity Shortage |
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Term
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Definition
government regulation that establishes a maximum price for a particular good
I.E. rent control |
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Term
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Definition
government regulation that established a minimum price for a particular good
I.E. argricultural items, minimum wage |
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Term
| Consequences of Price Ceilings |
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Definition
most economists advise against price setting
create imbalance in the market
price must be set below equilibrium to be effective
Results in shortage |
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Term
| Consequences of Price Floors |
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Definition
must be set over equilibrium to be effective
results in surplus |
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Term
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Definition
| ideal market structure in which buyers and sellers each compete directly and fully |
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Term
| 4 Conditions of Perfect Competition |
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Definition
1. Many buyers and sellers act independently: promotes competition, only account of small share of overall purchases
2. Identical products are offered: buyers choose primarily on price
3. Informed buyers
4. Easy market entry and exit: sellers enter profitable markets & exit unprofitable markets easily |
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Term
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Definition
sellers offer different, rather than identical, products
Differentiate their products |
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Term
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Definition
| market structure in which a few large sellers control most of the production of a good or service |
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Term
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Definition
| feature a single large seller that produces a good or service most efficiently |
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Term
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Definition
| market whose geographic area is so limited that a single seller can control and items manufacture, sale, distribution, or price |
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Term
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Definition
| market is dominated by a single producer because of new technology it has developed |
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Term
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Definition
| market in which a government is the sole producer or seller of a product |
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Term
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Definition
| economic systems prosper when the government does not interfere with the market in any way |
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Term
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Definition
| acts designed to monitor and regulate big business, prevent monopolies from forming and dismantle existing monopolies |
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Term
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Definition
| business owned and controlled by one person |
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Term
| Advantages of Sole Proprietorship |
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Definition
1. Ease of start-up: small amount of money required, few legal considerations, county licenses
2. Full Control: quickly able to make decisions or take advantages of opportunites
3. Exclusive rights to profits: owner keeps all profits |
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Term
| disadvantages of Sole Proprietorships |
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Definition
1. Unlimited Liability: owner is responsible for all debt even if you have to sell personal goods
2. Sole responsibility: responsible for all facets of business skills required in many areas
3. Limited growth potential: lenders may require collateral for loan
4. Lack of longevity: length of time business operates |
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Term
| advantages of partnerships |
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Definition
1. Ease of start-up: partnership contract
2. Specialization: partners assigned responsibilities based upon skills
3. Shared decision making: minimize mistakes, shared business losses |
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Term
| Disadvantages of Partnerships |
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Definition
1. Unlimited liability: personal assets are not protected
2. Potential conflict: disagreement or conflict may arise
3. Lack of longevity: life of business dependent on willingness and ability of partners to continues working together |
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Term
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Definition
| legally distinct from their owners and treated like individuals |
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Term
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Definition
| made up of people from inside or outside of the company key decision making body |
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Term
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Definition
| represents ownership of firm, used to raise funds |
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Term
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Definition
| portion of owners interest in a business |
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Term
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Definition
| profit paid to shareholders |
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Term
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Definition
| gives shareholders a voice in how the company is run and a share in any potential dividends |
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Term
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Definition
| guaranteed dividends but no voice |
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Term
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Definition
| certificate issued by a corporation in exchange for money borrowed from an investor |
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Term
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Definition
| actual amount of money borrowed |
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Term
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Definition
| amount that the borrower must pay for the use of those funds |
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Term
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Definition
1. major purchases
2. pay large annual or semiannual bills
3. Unexpected expenses
4. Major long-term expenses
5. Amass wealth or leave and inheritance |
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Term
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Definition
require saver to leave money in the account for a specific amount of time
1. Certificate of deposit: maturity date, less liquidity,, may be penalized for withdrawing money before maturity date
2. savings bond: low risk, guaranteed by government |
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Term
Type of investment
Financial investment |
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Definition
produces no new goods
existing stocks, bonds, and real estate
exchange of property ownership and payment between 2 groups |
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Term
Type of investment
Real investment |
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Definition
investment and economic growth
technological change
real investment enables development or purchase of new technology
increase productivity |
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Term
Type of Investment
Entrepreneurship |
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Definition
venture capital
increases amount of capital goods used by producers |
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Term
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Definition
1. Gain profit
2. Limited Risks
3. Ownership |
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Term
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Definition
1. Gain profit
2. Limited Risks
3. Ownership |
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Term
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Definition
| total value of all final goods and services produced within a country in a given year |
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Term
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Definition
C+I+G+(X-M)
C:consumer purchases
I:investment
G:government purchases
X:net exports
M:net imports |
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Term
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Definition
| value of nationsf GDP at current prices of the period being measured |
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Term
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Definition
| value of nations GDP after it had been adjusted for inflation |
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Term
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Definition
1. Final output
2.Current Year
3. Output produced within national borders |
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Term
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Definition
| set of statistics that allows economists to compare prices over time |
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Term
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Definition
| fluctuations or changes in a market systems activity |
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Term
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Definition
| anticipate direction in which the economy is headed |
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Term
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Definition
| change as the economy moves from one phase of the business cycle to another & tell economists that an upturn or downturn in the economy has arrived |
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Term
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Definition
| change months after an upturn or a downturn has begun and help economists predict the duration of economic upturns or downturns |
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Term
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Definition
| real dollar value of items produced per person for a specific period of time |
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Term
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Definition
| total amount of goods and services produced throughout the economy |
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Term
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Definition
| total amount of spending by individuals and business throughout the economy |
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Term
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Definition
worked for pay or profit one or more hours
worked without pay in a family business 15 or more hours
have jobs but didn't work as a result of illness, weather, vacations, or labor disputes |
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Term
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Definition
Didn't meet criteria of employed
actively seeking work during the past four weeks
have to be 16 or older |
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Term
| Problems with unemployment rate |
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Definition
Doesn't look at differences in how actively someone is looking for jobs
Doesn't include marginally attached workers: people who once held productive jobs but have given up on looking for work
Discouraged workers
Doesn't include underemployed |
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Term
Type of unemployment
Frictional |
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Definition
Workers are moving from one job to another
entering the workforce for the first time
normal part of a healthy economy |
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Term
Type of unemployment
Structural |
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Definition
caused by changes in technology, government policies, long-term consumer demand for certain products, population trends
Resources are used up |
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Term
type of unemloyment
seasonal |
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Definition
happens at the same time every year
regular/ predictable
based around holidays, school year, weather |
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Term
type of unemployment
Cyclical |
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Definition
resulting from recessions and economic downturns
more harmful than other types |
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Term
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Definition
| increase in average price level of all products in the economy |
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Term
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Definition
| decrease in average price level of all products in the economy |
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Term
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Definition
Demand-pull: demand continues to increase pulling prices higher
Cost-push: production costs push producers to raise prices even without and increase in demand
Price expectations: if consumers expect prices to go up they buy immediately increasing demand and prices |
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Term
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Definition
Market basket price current year/market basket price base year * 100
Measure of average change over time in price of a fixed group of products |
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Term
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Definition
Change in purchasing power of the dollar
Decreased value of real wages
Increased interest rates
Decreased saving and investing
Increased production costs |
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Term
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Definition
| poverty level, lowest income a family of a certain size or composition needs to maintain a basic standard of living |
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Term
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Definition
| percentage of individuals or families in the total population that are living in poverty |
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Term
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Definition
Owners/shareholders:who elect the
Board of Directors: that selects
Corporate Offices: who hire
Vice Presidents
Department Heads
Employees |
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Term
| Advantages of Corporations |
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Definition
Benefits for stock holders: limited liability
Benefits for corporations: seperation of ownership and management, Ease with which capital can be raised, longevity |
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Term
| Disadvantages of Corporations |
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Definition
Corporate issues: expensive to obtain corporate charter, federal and state governments regulate corporations closely, slow decision making process
Stock holder issues: far removed from actual running of business, lack control of corporation
Shared issues: corporate profits are taxed twice |
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Term
| What influences stock prices? |
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Definition
Corporate finances
Investor expectations
External forces |
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Term
| Factors influencing credit ratings |
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Definition
Ability to pay
Assets
Credit history |
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Term
| Credit can stimulate the economy |
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Definition
| by using borrowed money more goods and services are purchased and demand increases and businesses increase supply |
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Term
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Definition
Accuracy and timeline of data
Nonmarket Activities
Underground economy
Goods and Bads |
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Term
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Definition
expansion or recovery
peak
contraction or recession
trough |
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Term
| Influences on the business cycle |
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Definition
Business Investment
Money and credit: amount of money in circulation
Public Expectations
External Factors: |
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Term
| Importance of Economic Growth |
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Definition
Increase standard of living
Competing in the Global Market
Increasing Domestic Resources |
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