Econ. Basics Flashcards
needs & wants
necessities & luxuries
economic thinking
the wise use of available resources
scarcity
the world is finite, limited. availability of sources that r in demand = scarce. main problem of economics.
opportunity cost
short/long term negative effects of a decision. value lost.
opportunity benefit
short/long term positive effects of a decision. value gained.
economic theorem
If needs & wants r unlimited & resources r limited, then the wise use of available resources = necessary for success
3 Basic Economic Q’s
What 2 Produce, How 2 Produce, & For Whom 2 Produce
What 2 Produce
use readily available resources
How 2 Produce
quality or quantity?
For Whom to Produce
demographic
4 Econ. Systems
traditional, market, command, mixed
traditional economy
bartering breeds inconsistent success
market economy
hypothetical. not influenced by gov’t, but instead by greed. demand driven by consumers.
command economy
do exist. complete & dictatorial. gov’t controls 3 Q’s
mixed economy
blend of command & market
may have gov’t interference:
to promote fair competition
to protect national security
to promote the well-being of the state
4 Factors of Production
land, labor, capital, management
land
space to produce; literal/figurative
literal land
farmers, industrial
figurative land
laboratory access, cyberspace
labor
manufactring. quantitative/qualitative
capital (4 factors)
liquidating assets; fuel 4 production
management
hiring other managers (efficient & loyal, responsible 4 success)
entrepeneur
self-starter in business
what 2 categories r combined?
4 factors of production & 4 levels of industry
4 levels of industry
raw material extraction, manufacturing, distribution, retail
raw material extraction
getting the basic material from which a product is made
manufacturing
process of taking raw material & finishing it into a product; sometimes multistage
distribution
trucks, planes, trains. refrigerated/armored trucks. allocating finished products to their retail destinations
retail
product meets consumer. retailers buy in bulk w/ discount rate & add their own cost (Costco, BJ’s, etc.)
goods & services
an action/product exchanged for value intended to satisfy your needs & wants. value determined by price determined by economic system being studied
money (currency)
medium of exchange that everyone agrees on the value of
allocation
the distribution of resources to where they need to go
assets
things of value (gives advantage in survival & social); capital/abstract
capital assets
cash or things worth cash
abstract assets
poise, charisma
expenditures
Payment of cash or cash-equivalent for goods or services
cottage industry
qualitative. can do every stage urself. master craftspeople. smaller demographic but loyal. often labor-intensive
labor-intensive
more humans than machines
mass production
quantitative. uses “specialized” workers on an assembly line. capital-intensive.
capital-intensive
low cost, high revenue. machines > humans.
Economic Styles
socialism, communism, capitalism
socialism
state can (& usually does) own industry & capital, altho private ownership allowed too.
students encouraged to get good education to get better careers.
communism
collective socialism.
“state” owns all industry & capital
“state” prohibits private property
“state” prohibits classism (gov’t is upper class)
capitalism
profit-seeking. based on private ownership. Americans have made search for profit into a moral, ethical code.
Law of Supply
microeconomic law stating that, all other factors being equal, as p of g/s increases, q offered by suppliers increases
As the price of a good increases, suppliers will attempt to maximize profits by increasing the quantity of the product sold.
law of demand
microeconomic law stating that, all other factors being equal, as price of g/s increases, consumer demand decreases
law of supply & demand
theories abt the interaction b/w supply of a g/s & demand 4 it.
equilibrium
when supply & demand r equal (when the supply & demand functions intersect). @ this point, allocation of goods is @ its most efficient cuz amount of goods being supplied = amount of goods being demanded.
results: affordability & profitability
disequilibrium
excess supply or excess demand
quantity supply is not equal to quantity demand
excess supply
if p too high, ppl don’t want it. surplus.
excess demand
p too low, too many ppl want it & not enough supply. deficiit.
surplus
the amount of an asset/resource tht exceeds the portion that is used
demand < supply
deficit
the amount by which expenses exceed income/costs outstrip revenues
supply < demand
profit
occurs when the amount of revenue gained from a business activity exceeds the expenses, costs, & taxes needed
liquidate
to convert assets in2 cash/equivalents by selling them in the open market
standard of living
the level of wlth, comfort, material goods, & necessities available 2 a certain socioeconomic class in a certain geographic area
inflation
a rise in the average price of goods and services in the macroeconomy
deflation
reduction of the general level of prices in an economy
gross domestic product (GDP)
the total dollar value of all final products (g/s) [avoids double-counting] produced in 1 country in 1 year. measures spending to measure well-being.
nominal GDP
literal count
real GDP
deflated & more realistic since previous year’s inflation factored out
GDP per capita
average amount produced per person in a country (GDP/population). used 2 measure well-being per person.
GDP categories (expenditure approaches)
personal consumption, business invenstment, trade (imports/exports), gov’t expenditures
personal consumption
largest categories in most market & mixed economies; US has largest
business investment/expenditures
growth spending; buying land/rights
measures the improvement costs encountered by companies in a nation in a year
trade (imports/exports)
I > Ex = deficit
I < Ex = surplus
US has had trade deficit since early 1970s
gov’t expenditures
most of all the gov’ts income is generated by tax revenue. 40% of world’s defense spending. mostly Health & Human Services and Social Security –> socialist stuff in capitalist country.
2nd largest GDP category
GDP flaws
can’t always accurately measure standard of living w/ GDP/capita.
doesn’t consider built-in quality of products(cottage industry stuff), GDP/capita, leisure time (time not working - can be therapeutic or just bad), houshold work (organization must be regular or ability to work will be affected), how goods r distributed
not all countries can pay for their own census or count
economy of scale
the greater the quantity of a good produced, the lower the per-unit fixed cost because these costs are shared over a larger number of goods.
vertical monopoly
dominates 2 or more levels of industry
horizontal monopoly
dominates 1 level of industry
price elasticity of demand
a measure of the responsiveness of the quantity demanded of a good to a change in its price. the range/margin of fluctation of price for a product before demand is affected. % change in demand/% change in price. <1 = inelastic. >1 = elastic.
price ceiling
the point where demand starts to fall (when price too high)
price floor
the point where price can go no lower before no profit
marginal utility
The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important economic concept because economists use it to determine how much of an item a consumer will buy. Positive marginal utility is when the consumption of an additional item increases the total utility. Negative marginal utility is when the consumption of an additional item decreases the total utility.
diminished marginal utility
as a person increases consumption of a product - while keeping consumption of other products constant - there is a decline in the marginal utility that person derives from consuming each additional unit of that product.
microeconomics
individual (persons/businesses/entities).
macroeconomics
whole economies. all microeconomies interact - whole of microec interactions
price gouging
when someone raises the price of a g/s cuz they know it’s othrwise limited/nonexistent
staple products
consumers tend to buy these necessities regardless of signficant price changes
grocery - milk, bread, meats
household - gas, water, energy
gourmet food
often inelastic. may require p increase/decrease 50% to create any perceptible changes in consumers’ behavior. these types of consumers not as value-concious as regular shoppers.
unitary elasticity
in economics, situation where a change in 1 factor causes an equal/proportional change in another factor.
determinants of demand
income, substitute products, complementary products, time period (attitude), limited liability, unlimited liability
income (determinants of demand)
limits or expands ur purchase power
substitute products
uncommonly purchased products are on sale or commonly purchased ones are out of stock
replaces a predictable purchase with a more fortuitous one
complementary products
accompanies (at least in thought) the purchase of another
demand for these may fall if associated products are out of stock or discontinued
Ex: pb & j, mac & cheese, french fries & ketchup
time period (attitude)
1) yearly traditions - holidays & vacations
2) unplanned events - recession, convict escape
rationalizes the unique or ideal nature of the moment or occasion
limited liability
concept that shareholders of a business r responsible only 4 its debts up 2 the amount they invest in the business. if corporation goes bankrupt/sued, the stockholders’ other assets can’t be used 2 pay the debts of the business
unlimited liability
the ocncept that a stockholder’s personal assets can be used 2 pay bills of the business
disparity
the exaggerated difference between 2 levels of income & society
poverty
income < needs
income can’t meet threshold of needs
wealth
an abundance of income after obligations
net worth
income after obligations
income
Money that an individual or business receives in exchange for providing a good or service or through investing capital.
debts
An amount of money borrowed by one party from another.A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.
demographics
Studies of a population based on factors such as age, race, sex, etc.
Segmenting a population into demographics allows companies to assess the size of a potential market and also to see whether its products and services are reaching that company’s most important consumers.
budget
An estimation of the revenue and expenses over a specified future period of time.
structural unemployment
long term. serious.
unemployment that comes from there being an absence of demand for the workers that are available
causes:
- have wrong skills
- geographically separated (can’t move)
- changes in technology: typewriter –> computer
- changes in taste: bagpipes unpopular
cyclical unemployment/demand deficiency unemployment
results from too low a level of aggregate demand
low demand for g/s –> low demand for labor –> derived demand
occurs when the unemployment rate moves in the opposite direction as the GDP growth rate. So when GDP growth is small (or negative) unemployment is high. Getting laid off due to a recession is the classic case of cyclical unemployment
seasonal unemployment
unemployment due to changes in the season - such as a lack of demand for department store Santa Clauses in January. Seasonal unemployment is a form of structural unemployment, as the structure of the economy changes from month to month.
short term & not concern.
frictional unemployment
unemployment that comes from people moving between jobs, careers, and locations.
b/w 3-5% of unmplymnt = frictional
not much of a concern.
causes:
- ppl entring workforce from school
- ppl re-entering workforce after having children
- ppl changing employrs due to quitting or getting fired
- changing careers due to changing interests
- People moving to a new city and being unemployed when they arrive.
poverty thresholds
one person under age 65 - 11,945 –> one person 65 or older - 11,011 (less cuz have free programs)
two people under age 65 with no children –> 1 child = 15,374 –> 15,825 (having a younger child costs more)
nine people or more (no children) - 50,849 –> nine ppl or more (8+ children) 44, 387 (8+ children likely to have older children = cost less)
objects used as money before metals
salt, stone, glass beads, human skulls
date & place for 1st known standard currency
7th century BCE (600’s)
Lydia, Anatolian Peninsula, Asia Minor (now Turkey)
4 characteristics of money
scarce (in demand)
easily divisible (gold = soft)
portable (goldsmiths let ppl deposit & borrow gold)
indestructable
what 2 characteristics did gold satisfy?
scarce & easily divisible
who were the first bankers?
Goldsmiths frequently used receipts to make loans and gather interest from repayment.
fractional reserve banking
A banking system in which only a fraction of bank deposits are backed by actual cash-on-hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties.
how were US dollars gradually separated from gold?
1929 - Stock Market Crash
1930’s - “Gold Reserve Act” - illegal to use gold as currency
1971 - Nixon - gold link cut for good
what is the US dollar backed by today?
bank assets & faith in gov’t’s promise of the value of our dollar
multiple expansions of bank deposits
modern version of fractional reserve banking
M1 - coins & currency + checkbook $ (basic money supply)
M2 - M1 + Savings Accounts
M3 - M2 + Large Long Term Deposits (have safety deposits so u can’t take $ out)
Current M1 = $2.2 trillion (basic money supply)
Current M2 - $11 trillion
demanders & suppliers
consumers & producers
demand schedule
this kind of chart can track the willingness and ability of consumers to purchase products at variable prices
demand curve
A mathematical curve, drawn on a graph, that represents what the demand for a commodity would be if its price ranged anywhere from zero to infinity.
supply curve
graphic representation of the relationship between product price and quantity of product that a seller is willing and able to supply.
always on the vertical axis
price
always on the horizontal axis
quantity
why does the GDP not always accurately measrue the standard of living?
If 2 countries have the same area, population, or GDP, may have drastically diff geography tht may affect their spending
aggregate demand
the total demand for final goods and services in the economy at a given time and price level
derived demand
a demand for a commodity, service, etc., that is a consequence of the demand for something else.
ex: demand for labor cuz of demand for g/s
