Term
| Characteristics of capitalism (Market Economy) |
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Definition
1. private property 2. freedom of enterprise and choice, 3. competition, 4. self-interest, 6. reliance on prices and the market system, 5. limited govt
**modern-day: 1. reliance on technology and capital goods, 2. use of specialization, 3. division of labor, 4. use of money |
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Term
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Definition
| a large number of buyers and sellers interacting in markets, regulated by Govt. **It is a regulatory mechanism of capitalist economy. |
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Definition
| market system, the coordinating mechanism of capitalist economy |
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Definition
| serves as a medium of exchange, facilitates production |
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Term
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Definition
| constrctuion and use of capital goods to aid in the production of consumer goods |
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Term
| 1. What goods and Services will be produced? ***2. How will these G&S be produced ***3. Who will get the G*S? ***4. How will the system accomodate change? |
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Definition
| four fundamental questions |
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Term
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Definition
| payments that must be made to secure and maintain the needed amount of the four types of resources. (costs of production = wages, rent, interest, and normal profit). Part of WHAT Q. (Explicit/implicit) |
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Definition
| payment for the contributions of the entrepreneur. Also, compensation necessary to obtain/maintain entrepreneurship. ***Only condition necessary for production to occur |
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Definition
| 1. accounting costs, 2. payments to non-owners |
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Term
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Definition
| 1. opportunity costs of resources used, 2. a normal profit is this |
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Term
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Definition
occurs when total revenues are greater than total costs. Not necessary for production to occur, not an economic cost.
***3 possibilities: TR > TC (profit), TR < TC (loss), and TR = TC (normal profit) |
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Term
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Definition
| possibility: firms leave industry, supply decreases, prices increase, firms end up earning normal profit |
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Term
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Definition
| possibility: attracts new firms, causes supply increase, prices decrease, firms end up earning normal profit |
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Term
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Definition
| determination by consumers of what goods and services will be produced when they cast their dollar votes (also applies to resource mkt because of derived demand) |
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Term
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Definition
the demand for the resource depends on the demand for the product bc the resource is used to produce it. (If consumers don't want it, the resources wont be allocated)
**part of WHAT Q |
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Term
| A: should be allocated to ones producing what consumers want |
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Definition
| Q: How should resources be allocated among specific industries? (PART OF HOW WILL G&S BE PRODUCED?) |
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Term
| A: the ones that are profitable (which will be the ones producing goods people want) |
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Definition
| Q: What specific firms should do the producing in each industry? (PART OF HOW WILL G&S BE PRODUCED?) |
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Term
| A: one that will maximize profits...so use competition and use the combo of resources and technology that will cost the least. |
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Definition
| Q: What combo of resources and technology should each firm employ? (PART OF HOW WILL G&S BE PRODUCED?) |
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Term
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Definition
| cash and in-kind payments made by govt to individuals for which govt receives nothing in return (ex: SS, medicare, military pension) |
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Term
| A: Income and transfer payments |
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Definition
| Q: What is consumer's ability to pay based on? |
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Term
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Definition
| suggested by adam smith (father of capitalism)...reflects the tendency of firms and resource suppliers, seeking to further their own interests in competitive markets, to also promote the interests of society as a whole (PART OF Q OF HOW WILL THE SYSTEM PROMOTE CHANGE?) |
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Term
| guiding function of prices |
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Definition
| the ability of price changes to bring about changes in the qtys of products and resources demanded and supplied. The dynamic nature of a capitalist economy brings this about. (PART OF Q OF HOW WILL THE SYSTEM PROMOTE CHANGE?) |
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Term
| basic virtues of a market system |
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Definition
| characteristics of this: efficiency, incentives, and freedom |
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Term
| private sector of U.S. economy |
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Definition
| sector composed of Households and businesses. |
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Term
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Definition
| sector composed of government, both federal and state |
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Term
| foreign (international) sector |
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Definition
| sector composed of both imports and exports |
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Term
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Definition
| one or more persons living together, major spenders (about 70% of G&S); major income receivers; major element of its sector; owners of factors of production |
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Term
| functional distribution of income |
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Definition
| the manner in which total earned money income is divided among the wages, rents, interst, and profits (that is, according to the function performed by the income receiver). ***biggest portion of this goes to wages and salaries (about 72%). |
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Term
| households--70% of goods and services |
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Definition
| biggest spenders of goods and services |
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Term
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Definition
| major source of income for households |
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Term
| personal distribution of income |
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Definition
| the manner in which the economy's total income is divided among the individual households. (for example: the richest 20% of all households received 50.2% of this--highly unequal) |
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Term
| personal consumption expenditures |
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Definition
| what households spend on durable goods, non-durable goods, and services--about 84% |
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Term
| distribution of household expenditures |
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Definition
| 1. personal consumption expenditures (84%), 2. personal taxes (13%), 3. personal savings (3%) |
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Term
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Definition
| major category of personal consumption expenditures for households (60%) |
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Term
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Definition
| autos, appliaces, furniture, not clothing...shelf life of 3+ years. (30% of household's PCE) |
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Term
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Definition
| food, clothes, gas (12% of household's PCE) |
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Term
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Definition
| physical establishment (factory, farm, or store) which performs one or more functions in fabricating and distributing goods and services |
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Term
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Definition
| a business organizaton which owns and operates plants |
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Term
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Definition
| a group of firms producing the same or similar products |
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Term
| single (sole) proprietorship |
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Definition
| a business owned by one or more individual and usually managed by him **oldest form of business ownership **most widely used form of business ownership in US (73%), but only accounts for 6% of total business sales. ******unlimited liability, difficult to raise capital, limited legal life, managerial disadvantages |
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Term
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Definition
| you are personally liable for business--creditors can go after your personal assets |
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Term
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Definition
| an association of two or more people to carry on, as co-onwers, a business for a profit. Either general or limited. Account for 7% of american businesses and 4% of total business sales. ***problems: umlimited liability, limited legal life, mutual agency, divided authority, difficult to sell interest |
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Term
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Definition
| to sell interest in a partnership, you have to get approval of existing partners |
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Term
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Definition
| disadvantage of a partnership; each partner is an agent of partnership and thus can committ it to a course of action (ex: if one partner makes bad contracts, you are all screwed) |
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Term
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Definition
| all partners share unlimited liablity |
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Term
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Definition
| most partners are investors and do not have unlimited liability (unless they participate in business deals). Must have at least 1 general partner |
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Term
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Definition
artificial being, invisible, intangbible, and existing only in the eyes of the law. Economically, Most imp. form of business ownership in US, accounts for 20% of US businesses but 90% of BUSINESS SALES!!! ***owners are called stockholders, evidenced by transferable shares of stock.
***is a legal entity (you can sue the whole company) and an accounting entity
**advantages: limited liability, continuity of existence, ability to raise large sums of capital
***disadvantages: double taxation, greater regulation, separation of onwership and control |
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Term
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Definition
| problem in corporations--the taxation of both corporate net income (profits) and the DIVIDENDS paid from this net inocme when they become the personal income of househodls |
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Term
| tools for redistribution of income as necessary for equity |
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Definition
| 1. transfer payments, 2. market intervention (modifying prices--ex: minimum wage and price supports), 3. personal income tax |
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Term
| Designed to strengthen and facilitate operation of market system |
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Definition
econ functions of govt:
1. providing a social and legal framework, 2. maintaining comp |
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Term
| actions that supplement and modify operation of mkt system |
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Definition
| econ functions of govt: 3. redistributing income as necessary for equity. 4. reallocating resources, 5. stablizing the economy |
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Term
| antitrust (antimonopoly) laws |
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Definition
| deal with situations of unfair competition, attempts to monopolize. Very vague, but designed to make market stronger. Also a tool of govt to maintain competition |
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Term
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Definition
| market in which one producing firm can supply the entire market at lower cost than 2 or more firms (esp: public utilities, cable TV)--excludable, not rival. TOOL OF GOVT TO MAINTAIN COMPETITION. |
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Term
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Definition
| when a market does not bring about the allocation of resources which best satisfies the wants of societies. (externalities) |
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Term
| spill overs (exernalities) |
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Definition
| occurs when some of the costs or benefits of a good are passed on to parties other than the immediate buyer/seller. |
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Term
| spill-over costs (negative externalities) |
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Definition
| occur when production or consumption costs are shifted to a third party w/o compensation. ex: pollution, barking dogs, drunk drivers. When these occur you get an OVERALLOCATION of the production of the good or service (prouducer doesn't face the full cost of his actions), there is a larger output than what is socially desirable. ***Govt actions to regulate: legistlation (penalties), taxes, and tax incentives |
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Term
| spill-over benefits (positive externalities) |
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Definition
| occur when the production or consumption of a good or service confers benefits on third parties and/or the public at large w/o a compensating payment. (ex: education, immunization, meticulous neighbors, restored historical builidngs, reserach development). ***Results in an UNDERALLOCATION of resources, causes mkts to produce less output than is socially acceptable ***Govt actions: subsidize user (e.g, financial aid) and subsidize provider |
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Term
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Definition
| produced through the competitive market, divisible ***rival in consumption and excludable. ex: an ice cream cone |
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Term
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Definition
| what one person consumes/uses is not available to others...ex: if you are driving your car, somone else cannot use it at the same time |
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Term
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Definition
| you can prevent others from using this good. to obtain a private good, you must be willing to pay for it. |
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Term
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Definition
nonrival in consumption, non-excludable. ***Indivisible (you can't buy a share of it), subject to free rider problem. **If we left production of these to the market, there would be none or an undersupply bc there is no incentive to produce public goods unless the govt pays for it.
(ex: national defense, lighthouse, highways (?) ) |
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Term
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Definition
| goods provided by government that are or could be produced by the private sector. (ex: education, streets and highways, fire protection, libraries). BUt....w/o govt help, they would be undersupplied |
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Term
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Definition
| govt actions to maintain 1-full employment, and 2. non-inflationary economy with manageable growth. includes fiscal and monetary policy |
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Term
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Definition
| govt actions to maintain 1-full employment, and 2. non-inflationary economy with manageable growth. includes fiscal and monetary policy |
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Term
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Definition
| involves govt's ability to tax and spend, addresses inflation and unemployment. part of economic stabilization |
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Term
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Definition
| inolves money supply and interest rates, implemented by federal reserve system. part of economic stablilization |
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Term
| trade deficit.....China, Japan, and Mexico |
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Definition
| consuming more than we are able to produce. Ours is $700 billion. ****Who are these with??? |
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Term
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Definition
| if nations don't try to produce everything themselves, and instead specialize, they are able to enjoy larger amounts of goods |
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Term
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Definition
| Barrier to trade; excise tazes or duties placed on imported goods which raise price of good. ***Purpose is to protect dometic industries that can't compete on its own in world market |
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Term
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Definition
| Barrier to trade; limits on qtys or total volume of specific itmes that can come into country (ex: after 50 items, no more). **More restrictive than tariff |
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Term
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Definition
| licensing, unreasonable standards, red tape. Barrier to trade. |
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Term
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Definition
| Barrier to trade; govt makes payments to domestic producers of export goods. Reduces production costs. |
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Term
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Definition
| Discouraged trade; it's high tariffs prompted retaliation and trade fell dramatically around the world; contributed to Great Depression |
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Term
| Reciprocal Trade Agreement (1934) |
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Definition
| started downward trend of tariffs in world; 1. gave negotiating authority to president to reduce taxes (if other nations would do it too) and 2. generalized reductions (made trade reductions to countries with"most favored nation status". **Tried to move away from restrictive aspects of Smoot-Hawley |
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Term
| GATT--General Agreement on tariffs and trade (1947) |
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Definition
| at peak, membership 128 memnbers; served as a forum to negotiate reductions in trade barriers on a multilateral basis (barriers used to do it on unilateral basis) |
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Term
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Definition
| began in 1986, final agreement came in 1993. ***eliminated and reduced tariffs on thousands of products. From this came the replacement for GATT: the WTO |
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Term
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Definition
| 147 members, has judicial powers to intermediate among members and rule on disputes. ***Sets rules for global trading system and resolves disputes btw its member states |
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Term
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Definition
| formerly the "common market", now has 27 members. Represents a free trade agreement; attempts to integrate 25 western european natins; has a single currency used by 12 members; establishes common mktplace among 27 members, allows free movement of labor and capital; and common trade, agriculture, and monetary policy. |
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Term
| North American Free Trade Agreement (NAFTA) |
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Definition
| formed in 1993 by Canada, MExico, and US....established a free trade zone with about the same output as EU, but with a bigger geographic area. ***will eliminate tariffs and other trade barriers over a 15 yr period. |
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Term
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Definition
| total market value of all final G&S produced w/i a country in one year. ***most comprehensive measure of an aggregate output, **measure of output produced IN country, regardless of who owns resources |
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Term
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Definition
| output produced BY a country's citizens and institutions anywhere in world. Prior to 1992, we measured this. |
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Term
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Definition
1. measure of production of newly created G&S. 2. Monetary measure. 3. includes final goods and services only
4. flow variable |
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Term
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Definition
| G&S purchased for final use by purchaser and not intended for resale, further processing, or manufacturing. **This is what we buy as consumers, GDP is a measure of this |
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Term
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Definition
| G&S produced for further processing, manufacturing, or resale. Not counted in GDP (that would be double counting). |
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Term
| problem of double counting |
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Definition
| mistake of including value of intermediate goods, plus the value of final goods in GDP. Counts the value of the same good more than once. (Therefore, business sales > GDP |
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Term
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Definition
| measures a variable at a point in time (ex: a person's wealth) |
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Term
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Definition
| measures production over a period of time (ex: income, annual GDP) |
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Term
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Definition
| 1. output produced abroad by domestically owned factors of production 2. nonmkt production (transactions--things people do for self that could be hired out) 3. purely financial transactions (public and private transfer payments and security transactions like stocks and bonds) 4. second hand used good sales 5. underground economy (illegal/legal) |
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Term
| GDP is a measure of output produced only IN the country, regardless of who owns resources (like a Japanese factory in US), and GNP is a measure of output prouced BY a country's citizens and institutions anywhere in the world. |
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Definition
| difference btw GDP and GNP |
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Term
| two ways to measure GDP....Their relationship = the amount spent to purchase output should be = to the money income derived from producing output |
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Definition
| expenditure approach and income approach |
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Term
| $13, 458 T--largest in world |
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Definition
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Term
| categories of aggregate expenditure approach |
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Definition
| 1. personal consumption by household, 2. gross private domestic investment (GDPI), 3. govt purchases of goods and services, 4. net exports *****equation: Y = C + Ig + G +Nx |
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Term
| perosnal consumption expenditures (70%, services is largest of this)..durable goods, non durable goods, services |
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Definition
| largest category of aggregate expenditure |
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Term
| Gross private domestic investment (GDPI) |
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Definition
| includes a) investment in physical assets (plant and equipment) and b) spending on residential construction and c) changes in business inventories (small component of I but most volastile) |
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Term
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Definition
| unconsumed output. In year produced, counted in that year's GDP, whether or not it is consumed. |
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Term
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Definition
| imports minus exports; balance of trade |
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Term
| Gross investment (gross private domestic investment) |
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Definition
| investment in capital goods by businesses. In producing a given yr's output, you use up some capital stock (wear out machinery, tools, etc) |
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Term
| net investment (net private domestic investment) |
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Definition
| takes into consideration capital stock used up in producing a given year's output. (capital goods = manmade aids to production) |
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Term
| net investment (net private domestic investment) |
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Definition
| takes into consideration capital stock used up in producing a given year's output. (capital goods = manmade aids to production) |
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Term
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Definition
| the total available capital in a country |
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Term
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Definition
| man-made aids to production; human made resources (bldgs, machinery, equipment) used to proudce goods and services; goods that do not directly satisfy human wants, |
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Term
| capital consumption allowance (depreciation) |
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Definition
| estimate of capital stock used up to produce a given year's output |
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Term
| production capacity increasing, capital stock increasing, NDPI is positive |
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Definition
| if GDPI > capital consumption allowance (depreciation) |
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Term
| stationary (static) production capacity, no incrase/decrease in capital stock; exactly replacing the amt of capital stock you used up to produce that year's goods. NDPI = O |
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Definition
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Term
| Declining production capacity; disinvesting, decrease in capital stock |
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Definition
| if GDPI < CCA (depreciation) |
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Term
| Declining production capacity; disinvesting, capital stock decreasing |
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Definition
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Term
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Definition
| this approach sums the income arising from production. Value added approach; views GDP in terms of the income derived to produce GDP. ***includes national income plus adjustments for indirect business taxes, depreciation (consumption of fixed capital), and net foreign factor income) |
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Term
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Definition
| the income earned by resource suppliers over a period of time. it should = aggregate expenditures |
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Term
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Definition
| firms treat these as a cost of production. ex: sales taxes, excise taxes, property taxes....they arise from presence of govt. ***part of adjustments to Income approach |
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Term
| consumption of fixed capital (depreciation) |
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Definition
| annual estimate of the capital goods used up in producing the year's GDP. ***portion of GDP that must be set aside to replace the capital goods used up to proudce the annual GDP. (a cost of production that is not anyone's income |
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Term
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Definition
| what americans have earned here and abroad |
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Term
| net foreign factor income |
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Definition
| difference btw what Americans have earned aborad and what foreigners have earned in US. (whether we add or subtract depends on who has earned more) |
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Term
| net domestic product (NDP) |
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Definition
GDP MINUS Consumption of Fixed Capital (Depreciation). ****Reflects the total output which the entire economy can consume without impairing its capacity to produce in future years
o (You have made allowance for depreciation) |
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Term
| net domestic product (NDP) |
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Definition
GDP MINUS Consumption of Fixed Capital (Depreciation). ****Reflects the total output which the entire economy can consume without impairing its capacity to produce in future years
o (You have made allowance for depreciation) |
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Term
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Definition
| reflects the income earned by resource suppliers for their contributions to GDP (= to Net Domestic Product MINUS foreign factor income MINUS indirect Business Taxes) |
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Term
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Definition
| includes all income received, whether earned or unearned (National income MINUS social security contribution MINUS corporate profits MINUS undistributed corporate profits (retained earnings: earnings kept in business PLUS transfer payments) |
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Term
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Definition
the amt of income that households have to spend and save.
(= to Consumption + Savings (C + S))
****also = to Personal income MINUS personal taxes |
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Term
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Definition
| 1. nominal terms (current dollars) and 2) real terms (constant dollars) |
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Term
| Nominal terms (current dollars) |
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Definition
o GDP based on the prices prevailing at the time of the transaction.
o GDP measured in the actual prices in the year it was produced |
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Term
| real terms (constant dollars) |
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Definition
--**most meaningful way to express GDP
o GDP adjusted for changes in the price level
o “inflation adjusted” GDP |
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Term
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Definition
| converting the GDP from a nominal (current dollar) to a real (constant) dollar. To do this we use the GDP price index...****Go back to Base year (take out effects of inflation). Currently base year is 2000. |
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Term
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Definition
comprehensive price index of all goods and services included in GDP
o Measures the average level of prices of all goods and services included in GDP |
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Term
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Definition
When we compare nations, we look at this.
o Total GDP divided by the population
o Reflects the standard of living |
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Term
| economic growth--and relationship btw GDP and national standard of living |
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Definition
| represents an increase in Real GDP and therefore a higher standard of living |
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Term
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Definition
| determining GDP by adding up all the spending on final goods and services that have taken place throughout the year |
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Term
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Definition
| estimate of how much the capital is being used up each year |
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Term
| pensions and security income |
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Definition
| biggest federal govt expenditure |
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Term
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Definition
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Term
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Definition
| biggest state expedniture |
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Term
| sales excise tazes, then personal income tax |
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Definition
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Term
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Definition
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Term
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Definition
| biggest local govt revenue |
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