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| How society employs scarce resources to produce goods/services and distribute them among competing groups for consumption |
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| How to increase resources and make better use of them, businesses can contribute to the economy this way |
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| Pro radical population control |
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| The invisible hand, create more resources then everyone gets more wealthy, freedom and incentive to work are essential |
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| The process of people working for self directed gain turning into social/economic benefits for all (create jobs, etc), assumes reaching out to less fortunate to some degree |
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| All or most factors of production and distribution are privately owned, operated for profit, gov does some regulation |
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| 4 Basic Rights of Free Market Capitalism |
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Definition
1. To own private property
2. To own a business and keep profits
3. Freedom of competition
4. Freedom of choice |
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| How much and what to produce is determined by buyers/sellers (the market) negotiating. Price tells producers how much to make |
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| Quantity of products that manufacturers or owners are willing to sell at different prices at a specific time. Prices up, supply down |
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| Quantity of products that people are willing to buy at different prices at a specific time. Price down, demand up |
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| When supply and demand curves cross, becomes the market price that the market trends toward |
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Definition
1. Perfect Competition
2. Monopolistic Competition
3. Oligopoly
4. Monopoly |
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| Many sellers, none of which dictate the price, sell same product |
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| Large numbers of sellers, same products, but consumers perceive the products as different |
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| Few sellers dominate the market, similar prices |
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| One seller sets price and controls the supply |
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| What determines supply and demand in a free market? |
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| Basic businesses owned by the government so profits are evenly distributed. Benefits are social equality, free health care and education. Negatives are lost business incentive, high taxes, brain drain from people moving to capitalist countries |
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| Gov owns almost all major factors of production and makes almost all economic decisions. Gov has to guess what people need, no price indications from free market supply and demand |
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Command economies
Mixed economies
Free market economies |
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| Market (price) determines supply, demand, and growth |
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| Gov decides on supply, demand, growth |
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| Some allocation of resources by the market, some by gov, common in countries like US due to globalization |
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| 3 Major Indicators of Economy Conditions |
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Definition
1. GDP - total value of goods and services produce by a country in a year
2. Unemployment Rate (tried to find job in last 4 weeks)
3. Price Indexes and inflation |
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Term
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Definition
1. Frictional - People who quit or just entered workforce
2. Structural - Mismatch between skills and jobs available
3. Cyclical - recession
4. Seasonal - demand varies over the year |
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Definition
| Too much money for too few goods. General rise in prices, decline in purchasing power of money from increase in available currency beyond proportion of goods and services |
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| Too little money with too many goods. Prices increase slowly, people can't afford so many goods |
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| Economy slows but prices go up anyways |
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| Consumer Price Index - monthly statistics that measure the pace inflation/deflation |
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Definition
| CPI minus food/energy costs |
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| Takes into account consumer decisions |
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| Producer Price Index - measures prices at whole sale level |
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| 4 Phases of Long Term Business Cycles |
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Definition
1. Economic boom
2. Recession (2+ quarters of GDP decline)
3. Depression (severe recession +deflation)
4. Recovery |
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Term
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| The federal gov's efforts to keep the economy stable by regulating taxes and gov spending |
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| $ spent by gov beyond its income in taxes |
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| Sum of gov's deficits over time |
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| Theory that a gov policy of increasing gov spending and cutting taxes could stimulate the economy in a recession towards stabilization, then can return to free market |
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| Management of money supply and interest rates by Federal Reserve Bank. Raise interest rates when economy up so more expensive to borrow. Increase the money supply and economy grows |
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| Movement of goods and serves among nations w/out political or economic barriers because countries can't be self sufficient. |
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| Comparative advantage theory |
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Definition
David Ricardo 19th century
A country should sell what it produces best and buy from other countries what it can't produce effectively |
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| Exists when a country has a monopoly on producing a specific product or can produce it more efficiently than all other countries |
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| The total value of a nation's exports compared to its imports over a particular period |
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| Difference between money entering and leaving a country |
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| 2 Tools for Measuring Global Trade |
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Definition
| Balance of Trade and Balance of Payments |
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Term
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Definition
| Selling products in a country at lower prices than those charged in producing company = illegal |
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| Strategies for Reaching Global Markets |
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Definition
| Licensing, Exporting, Franchising, Contract Manufacturing, International Join Ventures, Strategic Alliance, Foreign Direct Investment |
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Definition
| A firm (licensor) allows a foreign company (licensee) to produce its product in exchange for a fee (royalty) |
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| Selling rights to use business name and sell a product in a given territory in a specific manner |
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| A foreign country's production of private label goods to which a domestic company then attaches its brand name |
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| International Joint Ventures |
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| A partnership in which 2+ companies join to undertake a major project |
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Definition
| A long term partnership between companies established to help build competitive market advantages for both |
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| Foreign Direct Investment (3 Kinds) |
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Definition
Buying of permanent property and businesses in foreign nations
1. Foreign subsidary - parent company owns a company in another country
2. Multinational companies-makes products in different countries and has multinational stock
3. Sovereign Wealth Funds - Investment funds controlled by gov holding large stakes in foreign companies |
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| Forces Affecting Trading in Global Markets |
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Definition
| Sociocultural, Economic and Financial (exchange rates), Physical and Environmental, Legal and Regulatory |
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Term
| 4 Types of Trade Protectionism |
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Definition
1. Tariffs - tax on imports
2. Import quota - limit on imports
3. Embargo - ban on an export or import, or on trading with a country
4. Nontariff barriers |
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Definition
| General Agreement on Tariffs and Trade 1948 - global forum for reducing trade restrictions |
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| A trading block like the European Union, a regional group of countries with common external tariff, no internal tarrifs, coordinate laws to facilitate exchange. |
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| North American Free Trade Agreement - created free trade area among US, Canada, Mexico |
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