Term
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Definition
| A legally determined maximum price that sellers may charge. |
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Term
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Definition
| A legally determined minimum price that sellers may receive. |
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Term
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Definition
| The difference between the highest price a consumer is willing to pay for a good or service and the price the consumer actually pays. |
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Definition
| The additional benefit to a consumer from consuming one more unit of a good or service. |
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Term
| When the government imposes a price ceiling or a price floor... |
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Definition
| the amount of economic surplus in a market is reduced. |
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Term
| What are the three types of firms? |
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Definition
| Sole proprietorship, partnership, and corporation |
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Term
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Definition
| A firm owned by a single individual and not organized as a corporation. It also has unlimited liability. |
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Definition
| A firm owned jointly by two or more persons and not organized as a corporation. Also has unlimited liability. |
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Definition
| A legal form of business that provides owners with protection from losing more than their investment should the business fail. A disadvantage is the possible doube taxation of income. (Ex. Google which has limited liability) |
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Definition
| Anything of value owned by a person or firm. |
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Definition
| There is no legal distinction between the personal assets of the owners of the firm and the assets of the firm. |
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Definition
| The legal provision enacted by the general incorporation laws (allowing firms to be organized as corporations) that shields owners of a corporation from losing more than they have invested in the firm. |
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Definition
| The way in which a corporation is structured and the effect a corporation's structure has on the firm's behavior. |
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Definition
| The owners of the corporation's stock who legally own parts of a corporation, elect a board of directors to represent their interests, which then appoint a chief executive officer. |
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Term
| Separation of Ownership From Control |
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Definition
| A situation in a corporation in which the top management, rather than the shareholders, control day-to-day operations. |
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Term
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Definition
| A problem caused by an agent pursuing his own interests rather than the interests of the principal who hired him. (AKA conflict of interest between the shareholders and top management) |
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Term
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Definition
| A flow of funds from savers to borrowers through financial intermediaries such as banks. Intermediaries raise funds from savers to lend to firms (and other borrowers). |
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Term
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Definition
| A flow of funds from savers to firms through financial markets, such as the New York Stock Exchange. |
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Definition
| A financial security that represents a promise to repay a fixed amount of funds. |
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Definition
| An interest payment on a bond. |
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Term
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Definition
| The cost of borrowing funds, usually expressed as a percentage of the amount borrowed. |
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Definition
| A financial security that represents partial ownership of a firm. |
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Definition
| Payments by a corporation to its shareholders. |
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Definition
| Anything owed by a person or a firm. |
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Term
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Definition
| A financial statement that sums up a firm's revenues, costs, and profit over a period of time. |
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Term
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Definition
| A firm's net income, measured by revenue minus operating expenses and taxes paid. |
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Term
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Definition
| The highest-valued alternative that must be given up to engage in an activity. |
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Term
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Definition
| A cost that involves spending money. |
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Term
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Definition
| A nonmonetary opportunity cost. |
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Term
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Definition
| A firm's revenues minus all of its implicit and explicit costs. |
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Term
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Definition
| A financial statement that sums up a firms financial position on a particular day, usually the end of a quarter or year. |
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Definition
| The additional cost to a firm of producing one more unit of a good or service. |
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Term
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Definition
| The difference between the lowest price a firm would be willing to accept for a good or service and the price it actually receives. |
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Term
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Definition
| The sum of consumer surplus and producer surplus. |
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Term
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Definition
| The reduction in economic surplus resulting from a market not beig in competitive equilibrium. |
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Term
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Definition
| A market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production and in which the sum of consumer surplus and producer surplus is at a maximum. |
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Term
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Definition
| A market in which buying and selling take place at prices that violate government price regulations. |
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Term
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Definition
| The actual division of the burden of a tax between buyers and sellers in a market. |
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Term
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Definition
| A tax imposed by a government on imports. |
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Term
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Definition
| Goods and services bought domestically but produced in other countries. |
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Term
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Definition
| Goods and services produced domestically but sold in other countries. |
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Term
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Definition
| The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors. |
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Term
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Definition
| The highest-valued alternative that must be given up to engage in an activity. |
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Term
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Definition
| The ability to produce more of a good or service than competitors when using the same amount of resources. |
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Term
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Definition
| A situation in which a country does not trade with other countries. |
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Term
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Definition
| The ratio at which a country can trade its exports for imports from other countries. |
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Term
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Definition
| Reductions in a firm's costs that result from an incease in size of an industry. |
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Term
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Definition
| Trade between countries that is without government restrictions. |
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Term
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Definition
| A numerical limit imposed by a government on the quantity of a good that can be imported into the country. |
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Term
| Voluntary Export Restraint (VER) |
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Definition
| An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country. |
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Term
| World Trade Organization (WTO) |
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Definition
| An international organization that oversses international trade agreements. |
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Term
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Definition
| The process of countries becoming more open to foreign trade and investment. |
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Term
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Definition
| The use of trade barriers to shield domestic firms from foreign competition. |
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Term
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Definition
| Selling a product for a price below its cost of production. |
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Term
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Definition
| The study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices. |
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Term
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Definition
| The study of the economy as a whole, including topics such as inflation, unemployment, and economic growth. |
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Term
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Definition
| Alternating periods of economic expansion and economic recession. |
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Term
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Definition
| The period of a business cycle during which total production and total employment are increasing. |
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Term
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Definition
| The period of a business cycle during which total production and total employment are decreasing. |
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Term
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Definition
| The ability of an economy to produce increasing quantities of goods and services. |
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Term
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Definition
| The percentage increase in the price level from one year to the next. |
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Term
| Gross Domestic Product (GDP) |
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Definition
| The market value of all final goods and services produced in a country during a period of time, typically one year. |
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Term
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Definition
| A good or service purchased by a final user. (Ex. A hamburger by a consumer or a computer by a business). |
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Term
| Intermediate Good or Service |
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Definition
| A good or service that is an input into another good or service (Ex. a tire on a truck) |
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Term
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Definition
| Payments by the government to individuals for which the government does not receive a new good or service in return. |
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Term
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Definition
| Spending by households on goods and services, not including spending on new houses. |
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Term
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Definition
| Spending by firms on new factories, office buildings, machinery, and additions to inventories, plus spending by households and firms on new houses. (AKA Gross Private Domestic Investment) |
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Term
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Definition
| Spending by federal, state, and local governments on goods and services. |
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Term
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Definition
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Term
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Definition
| GDP = Consumption + Investment + Government Purchases + Net Exports |
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Term
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Definition
| The market value a firm adds to a product. |
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Term
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Definition
| Buying and selling of goods and services that is concealed from the government to avoid taxes or regulations or because the goods and services are illegal. |
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Term
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Definition
| The value of final goods and services evaluated at current-year prices. |
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Term
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Definition
| The value of final goods and services evaluated at base-year prices. |
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Term
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Definition
| A measure of the average prices of goods and services in the economy. |
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Term
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Definition
| A measure of the price level, calculated by dividing nominal GDP by real GDP and multiplying by 100. |
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Term
| Gross National Product (GNP) |
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Definition
| The value of final goods and services produced by residents of the United States, even if the production takes place outside the United States. |
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Term
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Definition
| The sum of employed and unempolyed workers in the economy. |
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Term
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Definition
| The percentage of the labor force that is unempolyed. |
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Term
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Definition
| People who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them. |
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Term
| Labor Force Participation Rate |
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Definition
| The percentage of the working age population in the labor force. |
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Term
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Definition
| Short-term unemployment that arises from the process of matching workers iwth jobs. |
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Term
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Definition
| Unemployment arising from a persistent mismatch between the skills and attributes of workers and the requirements of jobs. |
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Term
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Definition
| Unemployment caused by a business cycle recession. |
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Term
| Natural Rate of Unemployment |
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Definition
| The normal rate of unemployment, consisting of frictional unemployment plus structural unemployment. |
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Term
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Definition
| A higher-than-market wage that a firm pays to increase worker productivity. |
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Term
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Definition
| A measure of the average prices of goods and services in the economy. |
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Term
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Definition
| The percentage increase in the price level from one year to the next. |
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Term
| Consumer Price Index (CPI) |
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Definition
| An average of the prices of the goods and services purchased by the typical urban family of four. |
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Term
| Producer Price Index (PPI) |
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Definition
| An average of the prices received by producers of goods and services at all stages of the production process. |
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Term
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Definition
| The stated interest rate on a loan. |
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Term
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Definition
| The nominal interest rate minus the inflation rate. |
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Term
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Definition
| A decline in the price level. |
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Term
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Definition
| The costs to firms of changing prices. |
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Term
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Definition
| Profits that are reinvested in a firm rather than taken out of a firm and paid to the firm's earnings. |
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Term
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Definition
| Raise funds by recruiting additional owners to invest in the firm (ex. Mark Zuckerberg sold part ownership of Facebook to venture capital firms). |
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Term
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Definition
| How the performance of the US stock market is measured. (Ex. The Dow Jones Industrial Average, S&P 500, and NASDAQ [National Association of Securities Dealers Auotmated Quotations]) |
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Term
| Why does the government grant limited liability to the owners of corporations? |
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Definition
| Limited liability guarantees that the personal assets of the owners of the firm are not affected by the failure of the firm and it makes it possible for corporations to raise $$ by issuing shares of stock to large numbers of investors. |
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Term
| What does separation of ownership from control in large corporations mean? |
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Definition
| Top management (which do not own the entire firm) of a firm controls the firm's day-to-day operations, but they may decrease the profits by spending money on purchasing private jets or scheduling luxurious meetings. |
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Term
| How is the separation of ownership from control related to the principal-agent problem? |
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Definition
| They are related because the problem is created when the agents (or a firm's top management) pursue their own interests rather than the interests of the principal who hired them (the shareholders). |
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Term
| What is the difference between direct finance and indirect finance? If you borrow money from a bank to buy a new car, are you using direct finance or indirect finance? |
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Definition
| A direct finance is directly through financial markets such as the New York Stock Exchange which gives the lender a financial security (a document); whereas, an indirect finance relies on financial intermediaries such as banks. By borrowing money from a bank, you would be using an indirect finance. |
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Term
| Why is a bond considered to be a loan but a share of stock is not? Why do corporations issue both bonds and shares of stock? |
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Definition
| When you buy a bond, the firm promises to pay the purchaser of the bond an interest payment each year for the term of the bond, as well as a final payment of the amount of the loan (the principal) at the end of the term. However, stock is part ownership of a firm and you rise and fall with your firm. Stock and bonds provide different information about the value of a firm. |
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Term
| What is the difference between a firm's assets and its liabilities? Give an example of an asset and of a liability. |
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Definition
| A firm's asset is anything of value owned by the firm; whereas, a firm's liability is anything owed (i.e. debt). |
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Term
| What is the difference between a firm's balance sheet and a firm's income statement? |
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Definition
| A firm's balance sheet sums up its financial position on a particular day, usually the end of a quarter or year and records a firm's assets and liabilities. A firm's income statement sums up its revenue, costs, and profit over a period of time. |
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Term
| What is the Sarbanes-Oxley Act? Why was it passed? |
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Definition
| Enacted in 2002, it required CEOs to personally certify the accuracy of financial statements, that financial analysts and auditors disclose potential conflicts of interest, and overall increased confidence in the US corporate governance system. |
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Term
| What is the source of the problems encountered by many financial firms during the late 2000s? |
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Definition
| Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation) allowed "subprime" and "Alt-A" buyers to put down on mortgage payments despite the fact that they were highly more likely to default on loans. |
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Term
| Are the value of US exports typically larger or smaller than the value of US imports? |
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Definition
| Since the 1990's, imports have greatly exceeded that of exports. |
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Term
| True or False. International trade is more important to the US economy than to most other economies. |
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Definition
| True, the United States is the largest exporter in the world. |
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Term
| A WTO publication calls comparative advantage "arguably the single most powerful insight in economics". What is comparative advantage and why is it such a powerful insight? |
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Definition
| Comparative advantage is the ability of an individual, firm, or country to produce a good/service at a lower opportunity cost than competitors. |
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Term
| What is the difference between absolute advantage and comparative advantage? |
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Definition
| Absolute advantage is producing more of a good or service than competitors while using the same amount of resources, while comparative advantage is at a lower opportunity cost. |
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Term
| Explain how international trade increases a country's consumption. |
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Definition
| By utilizing international trade, you can retain more of a product than possible without trade. In other words, countries gain from specializing in producing goods in which they have a comparative advantage and trading for goods in which other countries have a comparative advantage. |
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Term
| What is meant by a country specializing in the production of a good? Is it typical for countries to be completely specialized? |
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Definition
| A country which has a comparative advantage in the production of a good and utilizes it by only producing said good, specialized it. Complete specialization in the real world does not exist. |
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Term
| What are the main sources of comparative advantage? |
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Definition
| Climate and natural resources, relative abundance of labor and capital, technology, and external economies. |
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Term
| What is a tariff? What is a quota? Give an example of a non-tariff barrier to trade. |
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Definition
| Tariffs are taxes imposed by a government on goods imported into a country. Quota is a numeric limit on the quantity of a good that can be imported. A VER (Voluntary export restraint) would be a non-tariff barrier to trade that limits the quantity of a good that can be imported from one country to another. |
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Term
| Who gains and who loses when a country imposes a tariff or quota on imports of a good? |
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Definition
| Inevitably, it will help producers but hurt consumer and the efficiency of the overall economy. |
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Term
| What events led to the General Agreement on Tariffs and Trade? Why did the WTO eventually replace GATT? |
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Definition
| The US and Europe wanted to reduce tariffs and revive international trade after WWII and founded GATT where they agreed not to impose new tariffs or import quotas however did not cover goods or intellectual property leading to the replacement by the WTO. |
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Term
| What is globalization? Why are some people opposed to globalization? |
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Definition
| The process of becoming more open to foreign trade and investment. Opposition is due to the efforts to protect domestic firms from foreign competition and that high-income countries abuse low-income countries. |
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Term
| What is protectionism? Who benefits and who loses from its policies? What are it's justifications? |
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Definition
| The use of trade barriers to shield domestic firms from foreign competition. Domestic firms win because it has the potential to save jobs, protect high wages, protect infant industries, and national security. |
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Term
| What is dumping? What problems arise when anti-dumping laws are implemented? |
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Definition
| Dumping is the act of selling a product for a price below its cost of production. There are so many variables in determining whether or not there actually is a financial loss that anti-dumping laws are rarely used. |
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Term
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Definition
| The value of final goods and services evaluated at current-year prices. |
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Term
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Definition
| The value of final goods and services evaluated at base-year prices - by keeping prices constant, we know that changes in real GDP represent changes in the quantity of goods and services produced in the economy. |
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Term
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Definition
| A benefit or cost that affects someone who is not directly involved in the production or consumption of a good or service. |
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Term
| Pigovian Taxes and Subsidies |
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Definition
| Government taxes and subsidies intended to bring about an efficient level of output in the presence of externalities. |
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