Chapter 2. Understanding Economics and How it Affects Business Flashcards
Economics
how society chooses to employ resources to produce goods and services, & distribute them among various competing groups and individuals
macroeconomics
big scale;
looks at the nations operation of a nation’s economy as a whole
microeconomics
small scale;
the behavior of people and organizations in particular markets
resource development
the study of how to increase resources and to create conditions that will make better use of those resources
eg. new energy sources, new ways of growing food, nanotechnology, 3d printing
The Dismal Science
the science behind creating a wealthy economy – equal wealth so resources don’t run out
Adam Smith & The Creation of Wealth
- freedom is vital to the economy’s survival
- freedom to own land & keep profits of a business
- people will work hard if there is a reward
Invisible Hand
The process that turns self-directed gain into social and economic benefits for all
Capitalism
An economic system in which all or most of the factors of production and distribution are privately owned and operated for profit
State Capitalism
a combination of freer markets and some government control
Four Basic Rights + Roosevelt’s Four Additional Freedoms
- The right to own private property
- The right to own a business and keep all that business’s profits
- The right to freedom of competition
- The right to freedom of choice
- Freedom of speech and expression
- Freedom to worship in your own way
- Freedom from want
- Freedom from fear
Free Market
Decisions about what and how much to produce are made by the market
Supply
The quantity of products that manufacturers or owners are willing to sell at different prices at a specific time
Demand
The quantity of products that people are willing to buy at different prices at a specific time
Market Price
- equilibrium point
- the price determined by supply and demand
Perfect Competition
many sellers but none is large enough to dictate the price of a product
Monopolistic competition
Large numbers of sellers produce very similar products that buyers nevertheless perceive as different
Oligopoly
A few sellers dominate a market
Monopoly
one seller controls the total supply or a product or service, and sets the price
Socialism
An economic system based on the premise that some, if not most, basic business should be owned by the government so that profits can be more evenly distributed among the people
Brain Drain
the loss of the best and brightest people to other countries
Communism
An economic and political system in which the government makes almost all economic decisions and owns almost all the major factors of production
Free Market Economies
Economic systems in which the market largely determines what goods and services get produces, who gets them, and how the economy grows
Command Economies
Economic systems in which the government largely decides what goods and services will be produced, who will get them, and how the economy will grow
Mixed Economies
economic systems in which some allocation of resources is made by the market and some by the government
Gross Domestic Product (GDP)
the total value of final goods and services produced in a country in a given year
Gross Output (GO)
a measure of total sales volume at all stages of production
Unemployment Rate
the number of civilians at least 16 years old who are unemployed and tried to find a job within the prior four weeks
Frictional Unemployment
those who have quit because they didn’t like the job, the boss, or the working conditions and haven’t yet found a new job
Structural Unemployment
unemployment caused by restructuring of firms
Cyclical Unemployment
occurs because of a recession or a similar downturn in the business cycle
Seasonal Unemployment
when demand for labor varies over the year, as with the harvesting of crops
Inflation
A general rise in the prices of goods and services over time
Disinflation
a situation in which the price increases are slowing
deflation
a situation in which prices are declining
Consumer Price Index (CPI)
monthly stats that measure the pace of inflation or deflation
Producer Price Index (PPI)
An index that measures the change in prices at the wholesale level
Business Cycles
the periodic rises and falls that occur in economies over time
recession
two or more consecutive quarters of decline in the GDP
depression
a severe recession, usually accompanied by deflation
Fiscal Policy
the federal government’s efforts to keep the economy stable by increasing or decreasing taxes or government spending
Keynesian economic theory
theory that a givernment policy of increasing spending and cutting taxes could stimulate the economy in a recession
National debt
the sum of government deficits over time
Monetary Policy
the management of the money supply and interest rates by the Federal reserve Bank
