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Economics Terms
For Economics
60
Economics
12th Grade
01/09/2013

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Term
Command Economy
Definition
an economy in which the government makes all economic decisions about how the factors of production are used.
Term
Market Economy
Definition
The forces of supply and demand determine how economic questions should be answered.
Term
Traditional Economy
Definition
An economy in which all economic decisions are made by tradition.
Term
Factors of Production
Definition
land, labor, capital, entrepreneurial ability. (resources)
Term
Resources
Definition
land, labor, capital, entrepreneurial ability. (factors of production)
Term
Scarcity
Definition
When there are not enough resources to satisfy our unlimited needs and wants.
Term
Opportunity cost
Definition
the value of the next best alternative
Term
Production possibilities curve/frontier
Definition
A graphic representation of the production relationship between two goods
Term
Capital and consumer goods
Definition
Capital goods are those used in production while consumer goods are those that people use in their everyday lives.
Term
Absolute Advantage
Definition
Able to produce a good or service efficiently or by using fewer resources.
Term
Comparative Advantage
Definition
Able to produce a good or service at a lower opportunity cost than another producer.
Term
demand
Definition
how much of a good or service consumers are willing and able to purchase at every price level.
Term
quantity demanded
Definition
how much of a good or service consumers are willing and able to purchase at one price level.
Term
law of demand
Definition
there is an inverse relationship between price and quantity demanded
Term
income effect
Definition
the price of a good affects the amount of a good or service a consumer is willing and able to purchase
Term
TRIBE
Definition
Tastes and preferences
Related goods and services
Income
Buyers, quantity of
Expectations of price
Term
supply
Definition
How much of a good producers are able and willing ot supply or produce at every price level.
Term
quantity supply
Definition
how much of a good or service producers are able or willing to produce at a certan price level.
Term
Law of supply
Definition
There is a direct connection between the price and quantit supplied.
Term
ROTTEN
Definition
Resource:cost and availablility
Opportunities: cost of alternative production
Taxes: government regulation and subsidies
Technology (productivity)
Expectations of the producer
Number of firms in the industry
Term
Equillibrium
Definition
The intersection of two economic lines such as supply and demand, where quatity supplied and demanded are equal at a specific price
Term
Shortage
Definition
When quantity demanded is greater than quantity supplied
Term
Surplus
Definition
When quantity supplied is greater than quantity demanded
Term
Price ceiling
Definition
When government sets a price below equilibrium
Term
price floor
Definition
when government sets a price above equilibrium
Term
circular flow
Definition
shows the connection between markets, government firms, and households in the economy.
Term
factor market
Definition
resource market where households sell resources and businesses buy them.
Term
resource market
Definition
factor market where households sell resources and businesses buy them
Term
financial market
Definition
the banking, stock, and bond markets through which private savings and foreign lending flow to become investment, government, and foreign borrowing
Term
GDP: Gross domestic product
Definition
The total dollar value of all final goods and services produced in one year.
Term
GNP: Gross National Product
Definition
The final value of all goods and services that the nation's citizens produced during one time period.
Term
Business Cycle
Definition
Portrays the highs and lows of an economy as people buy and sell goods and services
Term
inflation
Definition
a sustained increase in price level over time
Term
consumer price index
Definition
measures the change in prices of goods in a specific market basket that consumers purchase
Term
GDP Deflator
Definition
this index looks at the change in the average price level of goods and services produced in an economy without looking at imports.
Term
Unemployment
Definition
people in the labor force who are actively looking for jobs
Term
natural rate of employment
Definition
structional and frictional unemployment that is always in an economy
Term
Classical Economics
Definition
A theory stated by Adam Smith which states that the government has no place to interfere with the economy.
Term
Say's Law
Definition
A concept that states that supply creates it's own demand. Was created by John-Baptiste Say in the early 1800s
Term
short-run aggregate supply
Definition
the total amount of goods and services that all firms are able willing and able to produce in the economy.
Term
long-run aggregate supply
Definition
a time period where al production factors have time to adjust to full employment. This curve is vertical at the natural rate of employment.
Term
RAPP - how the Aggregate supply changes due to these factors
Definition
R- Resource Prices: changes in input prices, raw materials, or other factors that affect inputs.
A- Actions by the government- Changes in business taxes, subsidies, and regulations
P- Political or environmental phenomena, changes in worker expectations, producer confidence, wars, natural disasters, or other political or environmental phenomena
P- Productivity: Changes in technology, worker education, or other factors that affect productivity.
Term
aggregate demand
Definition
the total amount of goods and services the populus is willing and able to purchase in the economy.
Term
net export effect
Definition
as interest rates in the U.S. fall, investors tend to put more money into foreign investments. This drives foreign prices up an dlowers U.S. prices, which then leads to a better exhange rate. When American-made goods are cheaper compared to foreign goods, more goods are exported than imported, leading to a better net export rate.
Term
interest rate effect
Definition
as price levels fall, consumers' demand for money increases. This causes interest rates ( which are the price of money) to rise. Higher interest rates cause investment and other interest-sensitive components of aggregate demand to decrease.
Term
wealth effect
Definition
When prices rise in an economy, the real value of household income declines, and so consumer spending drops. The drop results in a decrease in real GDP. If price levels drop, the value of money and other financial assets is higher, and consumers will spend more.
Term
What affects consumer spending:
Definition
consumer wealth: greater income means more consumer spending, while less income means less consumer spending in the economy.
consumer expectations: if consumers expect the economy to do well they will spend more money than if they don't think the economy is going to do well.
consumer indebtedness: if consumers hold more debt, they won't spend as much new money as they would if their debt was low.
Taxes and transfer payments: lower taxes give consumers more money to spend, while higher taxes decrease spending ability. An increase in transfer payments gives consumers more income to save and spend, while a decrease works in the opposite manner.
Term
Marginal propensity to consume
Definition
how much of every extra dollar would be consumed.
Term
Marginal propensity to save
Definition
how much of every extra dollar would be saved
Term
expenditure multiplier
Definition
aids in calculating the GDP when expenditures change
1/ 1- MPC
Term
tax multiplier
Definition
aids in calculating the GDP when taxes change
Calculated by MPC/MPS
Term
equilibrium
Definition
when the agregate supply is equal to the aggregate demand
Term
Fiscal policy
Definition
The government's use of taxing and spending policies to battle issues of the economy
Term
imports
Definition
When goods and services are brought into a country. c
Term
exports
Definition
when goods and services are sold to there nations.
Term
Terms of trade
Definition
an agreement regarding the amount of each product in regards to the other product being traded.
Term
balance of payments
Definition
a system in which a nation tracks all interactions between nations. This is made up of two accounts; current and capital. The sum of these two accounts must always be zero.
Term
current account
Definition
the record of all goods and services exhanged between nations
Term
financial account
Definition
record of trade involving financial assets including stocks, bonds, and real estate; sometimes called the capital account
Term
labor force
Definition
all nonmilitary personell who are employed or unemployed
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