Ch. 4-Markets, Prices and U.S. Economy Flashcards
Division of Labor
As an economy grows and as business firms become larger, the process by which factors of production tend to become ever more specialized, performing highly specific tasks associated with only one small part of the production process
Industry
The collection of all firms producing the same procucts
Economies of Scale
A characteristic of production in which production costs rise proportionally less than output as production increases, so that costs per unit of output fall
Comparative advantage
The principle that a country should specialize its production in those goods that it can produce with lower opportunity costs than can other countries and trade for those goods that other countries can produce with lower opportunity costs
Barter
An exchange of goods directly for other goods
Circular Flow of Economic Activity
The flow of goods and services and factors of production through the product and the factor markets of the economy that results from the interaction of individuals and business firms; the flow is circular because firms sell products to individuals in the product markets and individuals sell factors of production to firms in the factor markets
Circular Flow Diagram
A graphical representation of the circular flow of economic activity through the nation’s product and factor markets
National Product
The total dollar value of the flow of economic activity through the product markets of the nation
National Income
The total dollar value of the flow of economic activity through the factor markets of a nation
Imports
Goods and services, and factors of production, purchased from foreign individuals and business firms for domestic use
Exports
Domestically produced goods and services, and factors of production, sold to foreign individuals, businesses, and governments
Household Sector
The sector of the economy that consists of individuals in their dual roles as consumers of final goods and services and as suppliers of the primary factors of production to business firms
Consumer Durables
Manufactured goods that typically last more than one year
Consumer nondurables
Manufactured goods that typically last less than one year
Services
Purchases by consumers that are not manufactured, but that provide them with something useful
Wealth
For a household, the accumulation of all savings over time; also called net worth
Business Sector
The sector of the economy that consists of all the private business firms and is the major producer of final goods and services
Single Proprietorship
A form of business in which a single owner has total control over the operation of the business and has complete freedom to transfer funds into and out of the business
Partnership
A form of business with two or more owners who have total control over the operation of the business and who jointly determine how to transfer funds into and out of the business
Corporation
A form of business that is recognized legal entity distinct from the owners of the firm, allows owners to transfer their shares of stock, allows owners to delegate authority and responsibility to a group of managers, has a potentially unlimited life, and has limited liability for business losses
Government Sector
In the United States, the economic activities of the federal government, the state governments and all local governments
Transfer Payment
The redistribution of existing income from one economic agent to another
Budget Surplus
A situation in which a government’s revenues exceed its expenditures
Budget Deficit
A situation in which a government’s expenditures exceed its revenues
Rest-of-World Sector
The sector of an economy that consists of a country’s economic relations with foreign countries
Median Income
The income of the family in the middle of the income distribution (half the families have incomes higher than the median and half have incomes lower than the median)
