Economics Flashcards
needs
things you require
want
things you would like to have
goods
tangible products that we use to satisfy our wants and needs
services
actions or activities that one person performs for another
scarcity
needs and wants are unlimited but resources are limited (this is the basic economic problem)
trade-off
having to make a decision because of scarcity
opportunity cost
what is NOT chosen in a decision
4 factors of production
land, labor, capital, and entrepreneurs
land
resources found on the earth
labor
Human effort directed toward producing goods and services
physical capital
all human-made goods that are used to produce other goods and services; tools and buildings
human capital
the skills and knowledge gained by a worker through education and experience
entrepreneurs
people who decide how to combine the other factors of production to create new goods and services
productivity
degree to which resources are used efficiently
underutilization
the condition in which economic resources are not being used to their full potential
law of diminishing return
at a point, adding more resources will decrease production
incentive
reward offered to persuade people to make certain economic decisions
fixed cost
do not change (ex. rent, mortgage, loan payment)
variable cost
changes based on production (ex. electric bills, wages, materials)
total costs
fixed + variable
marginal cost
cost to add one more unit
marginal revenue
additional revenue from one more unit
cost-benefit analysis
economic model that compares the marginal costs and marginal benefits of a decision
specialization
A focus on a particular activity or area of study
division of labor
dividing up the production process between multiple workers
assembly line
Production method that breaks down a complex job into a series of smaller tasks
technological advances
The introduction of new techniques or methods that increase output per unit of input
blue collar
a description characterizing workers who perform manual labor
white collar
a description characterizing workers and skilled laborers in technical and professional jobs
wage
hourly payment for labor
salary
yearly payment for labor
traditional economy
economy where things are done the same as they have always been done based on agriculture (farming) and barter (trade)
command economy
An economic system in which the government controls a country's economy.
market economy
a system based on private ownership, free trade, and competition
mixed economy
an economic system combining private and public enterprise.
natural resources
resources (actual and potential) supplied by nature
3 Basic Economic Questiosn
What to produce, how to produce it, for whom to produce
free enterprise
a type of economy in which people are free to buy, sell, and produce whatever they want
circular flow of economic activity
economic model that pictures income as flowing continuously between businesses and consumers
invisible hand
a term coined by Adam Smith to describe the self-regulating nature of the marketplace
supply and demand
relationship between the amount of product and the desire for the product
equilibrium price
the price that balances quantity supplied and quantity demanded
shortage
a situation in which quantity demanded is greater than quantity supplied
surplus
A situation in which quantity supplied is greater than quantity demanded
price floor
a legal minimum on the price at which a good can be sold
price ceiling
a legal maximum on the price at which a good can be sold
competition
the struggle between organisms to survive in a habitat with limited resources
profit motive
the force that encourages people and organizations to improve their material well-being
productivity
the value of a particular product compared to the amount of labor needed to make it
monopoly
A market in which there are many buyers but only one seller.
oligopoly
a market structure in which a few large firms dominate a market
monopolistic competition
a market structure in which many companies sell products that are similar but not identical
pure competition
a market situation with many sellers, each offering the same product
subsidy
a government payment to an individual, business, or group in exchange for certain actions
labor union
association of workers organized to improve wages and working conditions
Strike
To refuse to work in order to force an employer to meet certain demands
monetary policy
the management of the money supply and interest rates by the Federal Reserve
interest
A sum paid or charged for the use of money or for borrowing money
bonds
certificates of debt that carry a promise to buy back the bonds at a higher price
dividends
payments of cash from a corporation to its stockholders
horizontal merger
the combination of two or more firms competing in the same market with the same good or service
vertical merger
two or more firms involved in different stages of producing the same good or service
deflation
A situation in which prices are declining
depression
a period of recession that is long and severe, when economic activity slows and unemployment increases
recession
two or more consecutive quarters of decline in the GDP
Anti-trust laws
laws that prevent monopolies and promote competition and fairness
International Monetary Fund
an agency of the United Nations that provides loans to countries for development projects
World Bank
an international bank that offers low-interest loans, advice, and information to developing nations
business cycle
Alternating periods of economic expansion and economic recession
Peak
the height of an economic expansion, when real GDP stops rising
Expansion
A period of economic growth as measured by a rise in real GDP
Contraction
a period of economic decline marked by falling real GDP
Trough
Lowest point of economic decline, when real GDP stops falling
Gross domestic product (GDP)
the total value of all final goods and services produced in a country during one year.
Organization of Petroleum Exporting Countries (OPEC)
Group of nations that work together to regulate the price and supply of oil
Consumer Product Safety Commission (CPSC)
Enacts policies for reducing risks of harm from consumer products
Federal Trade Commission (FTC)
An agency that regulates advertising to ensure that ads are fair and accurate and enacts and enforces antitrust laws to protect consumers
Equal Employment Opportunity Commission (EEOC)
Federal agency in charge of enforcing federal laws on employment discrimination.
Occupational Safety and Health Administration (OSHA)
establishes and enforces standards that protect workers from job-related injuries and illnesses
United Nations (UN)
an organization of countries that promotes peace, security, and economic development around the world
World Trade Organization (WTO)
An international organization that oversees international trade agreements, designed to monitor and enforce trade agreements
World Health Organization (WHO)
United Nation organization designed to deal with global health issues.
Trade deficit
An imbalance in international trade in which the value of imports exceeds the value of exports.
Economic interdependence
situation in which countries rely on each other to provide goods and services
North Atlantic Free Trade Agreement (NAFTA)
Agreement that created free-trade area among the United States, Canada and Mexico.
Trade surplus
when a country exports more than it imports
John Maynard Keynes
British economist who argued that deficit spending could provide jobs and stimulate the economy.
Adam Smith
Scottish economist who wrote the Wealth of Nations and designed modern Capitalism
Karl Marx
Wrote the Communist Manifesto, considered the father of Communism
Fiscal policy
Government policy that attempts to manage the economy by controlling taxing and spending.
Corporation
Limited liability, owned by stockholders, transferable ownership, difficult to start-up
Nonprofit organization
Functions like a business but uses the money it makes to fund the cause identified in its charter
Limited Liability Corporation
Form of business ownership that provides liability protection for owners.
Sole proprietorship
unlimited liability, limited access to resources, easy start-up, sole receiver of profit
Substitute
A good that can be used in place of another good
Complimentary good
goods that are a completion of one another; ex peanut butter and jelly, body wash and a loofah
inflation
a general increase in prices and fall in the purchasing value of money.
partnership
unlimited liability, partners do not have absolute control, larger pool of assets
Federal Deposit Insurance Corporation (FDIC)
the government agency that insures customer deposits if a bank fails
Limited liability
Stockholders in a corporation can lose no more than the amount they invested in the company
Bear market
A steady drop in the stock market over a period of time
Bull market
A period of increased stock trading and rising stock prices
Shift in the supply curve
caused by changes in external factors (Right = Increase & Left = Decrease)
Elasticity of supply
A measure of how responsive producers are to price changes in the marketplace
Elastic supply
Quantity supplied responds substantially to changes in the price
Inelastic supply
exists when a change in a good's price has little impact on the quantity supplied
Shift in the demand curve
Caused by change in external factors (Right = increase & Left = decrease)
Elasticity of Demand
a measure of how consumers react to a change in price
Elastic demand
A situation in which consumer demand is sensitive to changes in price
Inelastic demand
A market situation in which price changes have little to no impact on product sales
disequilibrium
any price or quantity not at equilibrium
franchise
a business established under an authorization to sell a company's good in a particular area
conglomerate
combining companies that produce unrelated products
Right to work laws
states that forbid unions from forcing workers to join
Collective bargaining
process by which unions and workers negotiate
law of supply and demand
When demand goes up, supply goes down; when supply goes up, demand goes down.