econ final Flashcards
scarcity
the demand for a good or service is greater than the availability of the good or service
opportunity cost
money or benefits lost by not selecting a particular option during the decision-making process
utility
the usefulness or enjoyment a consumer can get from a service or good
factors of production
the resources people use to produce goods and services
capital goods
physical assets a company uses to produce goods and services for consumers
3 questions all economies should answer
what will be produced, how will it be produced, and how will the output society produces be distributed?
triditional economy strengths/weaknesses
strengths
-hand made
-quality>quantity
-environmental/ healthy
-unique/not mass produced
-needs>wants
-You have a job (family pass down)
-skilled labor
weaknesses
-less sanitary
-no luxury
-no expansion
-takes time and energy
-expensive
-pressure for role
-little to no education
-isolationism
market economy strengths/weakness
strengths
-more innovation
-incentivized system
-purchase for wants/needs
-accumulation of wealth
-job flexibility
-self-reliance
-globalization
-prices change
-education
weaknesses
-unemployment
-monopolies
-low wages
-prices high at any time
-economy is cynical
-inequality/individualism (trapped)
externalities (positive)
positive: occurs when a benefit spills over
ex: when a company tears down an abandoned building and constructs a new office or apartment building that enhances the surrounding community
externalities (negative)
negative: occurs when a transaction has a cost that neither the buyer nor the seller are forced to pay
ex: air pollution
public goods
a commodity or service that is made available to all members of society paid for by governments and paid by tax
What is economics?
the branch of knowledge concerned with the production, consumption, and transfer of wealth
4 factors of production
land, labor, capital, and entrepreneurship
Sole Proprietorship (Advantage)
advantages:
easy to open or close
few regulations
freedom and control,
owner keeps the profits
Sole Proprietorship (Disadvantage)
Unlimited liability.
Lack of continuity.
Lack of money.
Limited management skills.
Difficulty in hiring employees
partnership (advantage)
Easy to establish
There is an increased ability to raise funds when there is more than one owner
Wider pool of knowledge, skills, and contacts
Improved management with more than one owner
Easier to attract investors because limited partners have limited liability to the business debts
partnership (disadvantage)
unlimited liability
have to share profits between owners
less control of business
disputes over workload/roles
problems if partners disagree over direction of business
partnership ends when one of the partners die
any decisions one partner makes is legally binding on the others even bad ones
corporation (advantage)
Corporation can raise more money than a proprietorship or partnership
A corporation has a continuous life
The transfer of a corporate ownership is easy
There is no mutual agency among the stockholders and the corporation
Stockholders have limited liability
Ownership and management are often separated.
corporation (disadvantage)
Initial cost. Incorporations may cost thousands of dollars and require expensive lawyers and accountants
Extensive paperwork
Double taxation
Two tax returns
Size
Difficulty of termination
Possible conflict with stockholders and board of directors
nonprofit organization
a group organized for purposes other than generating profit and in which no part of the organization’s income is distributed to its members, directors, or officers
multinational
conduct business in two or more countries
conglomerate
a corporation made up of several different, independent businesses
horizontal merger
a merger or business consolidation that occurs between firms that operate in the same industry.
vertical merger
occurs when two companies previously selling to or buying from each other combine under one ownership
Securities Exchange Commission (SEC)
a U.S. government oversight agency responsible for regulating the securities markets and protecting investors
command economy strengths
low levels of inequality and unemployment, and the common good replacing profit as the primary incentive of production
command economy weaknesses
The price mechanism is unable to operate leading to. an inefficient allocation of resources e.g. shortages, excess supply.
A lack of competition leads to. inefficiency and low productivity.
Less choice. of products and jobs for workers.
Lack of financial incentive because. …
Under performance of command economies as
Role of government (protector)
the U.S. government makes laws such as those against false and misleading advertising, unsafe food and drugs, environmental hazards, and unsafe automobiles
Role of government (provider)
Provide goods and services that markets are unable or unwilling to provide
Role of government (regulator)
requirements the government imposes on private firms and individuals to achieve government’s purposes
Role of government (consumer)
The government buys most of its goods and services directly from private businesses
bond
issued by governments and corporations when they want to raise money
coupon rate
the rate of interest paid by bond issuers on the bond’s face value
maturity
the date on which the life of a transaction or financial instrument ends, after which it must either be renewed or it will cease to exist
principal
the money that you originally agreed to pay back
bond rating
a way to measure the creditworthiness of a bond, which corresponds to the cost of borrowing for an issuer
savings bonds
a government bond offered to its citizens to help fund federal spending, and which provides savers with a guaranteed, although modest, return
treasury bonds
long-term government securities with maturities ranging from 10 to 30 years and beyond, with fixed interest rates that pay out every six months
treasury bills
a short-term U.S. government debt obligation backed by the Treasury Department with a maturity of one year or less
treasury notes
a U.S. government debt security with a fixed interest rate and maturity between two and 10 years
municipal bonds
a type of debt security issued by local, county, and state governments
corporate bonds
debt instrument issued by a company, distinct from one issued by a government or government agency
junk bonds
low-rated bonds due to the increased risk that there will be a default on the bond
common stock v. perferred stock
preferred stock gives no voting rights to shareholders while common stock does
NYSE
a New York City-based public marketplace for trading stock
NASDAQ
a global electronic marketplace for buying and selling securities
u.s. securities and exchange commission
the U.S. government agency in charge of the nation’s securities industry
stock indexes
a group of shares that are used to give an indication of a sector, exchange or economy
conglomerate
a corporation of several different, sometimes unrelated, businesses
Nonprofit organization
how they work:
solicit donations from individuals, corporations, or government entities. Then, they use those proceeds to deploy programs to benefit their target community
what they are:
a group organized for purposes other than generating profit and in which no part of the organization’s income is distributed to its members, directors, or officers
types:
charitable organizations
educational organizations
religious organizations
scientific organizations
literary organizations
demand
an economic concept that relates to a consumer’s desire to purchase goods and services and willingness to pay a specific price for them
law of demand
at a higher price, consumers will demand a lower quantity of a good
individual demand schedule
a tabular representation of the quantities of goods that an individual demands at different prices and time, keeping all the other factors constant
individual demand curve
one that examines the price-quantity relationship for an individual consumer, or how much of a product an individual will buy given a particular price
market demand schedule
Table showing quantity demanded by all consumers at a range of prices
market demand curve
the relationship between the quantity of a product that all consumers in the market are willing to buy and its price
change in quantity demanded v. change in demand
- a movement along a fixed demand curve – that’s caused by a change in price
- a shift in the demand curve – that’s caused by one of the shifters: income, preferences, changes in the price of related goods
income effect
the resultant change in demand for a good or service caused by an increase or decrease in a consumer’s purchasing power or real income
substitution effect
the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises
Factors causing a change in demand
a shift in income levels, consumer tastes, or a different price being charged for a related product
determinant of demand elasticity
the price level, the type of good or service, the availability of a substitute, and consumer income
demand elasticity
measures how demand responds to a change in price or income
supply
the total amount of a specific good or service that is available to consumers
the law of supply
an increase in the price of goods or services results in an increase in their supply
individual supply schedule
a tabular statement of the various quantities of product that is supplied by an individual or a firm at various price levels over a period of time, with all other factors being constant
individual supply curve
shows how much output a firm in a perfectly competitive market will supply at any given price
Market Supply Schedule
shows the quantity supplied at each price level for the entire market of a particular good
Market Supply Curve
measures the relationship between total output and the common marginal cost of producing this output
Change in Quantity Supplied v Change in Supply
A change in quantity supplied is a movement along the supply curve in response to a change in price. A change in supply is a shift of the entire supply curve in response to something besides price
Factors that cause a change in supply
new technologies, such as more efficient or less expensive production processes, or a change in the number of competitors in the market
Supply Elasticity
a measure of how sensitive the quantity supplied of a good is to changes in price
Determinants of Supply Elasticity
several factors that can influence the degree to which a supplier will often change the quantity of goods provided to the market, in response to price changes
Surplus
the amount of an asset or resource that exceeds the portion that’s actively utilized
Shortage
a condition where the quantity demanded is greater than the quantity supplied at the market price
Equilibrium Price
the consumer cost assigned to some product or service such that supply and demand are equal, or close to equal
Gross Domestic Product (GDP):
the standard measure of the value added created through the production of goods and services in a country during a certain period
Real vs. Nominal GDP
Nominal GDP measures output using current prices, while real GDP measures output using constant prices
Expenditure Approach
a method of calculating gross domestic production (GDP) by summing the amount spent on final goods and services within an economy during a particular period, usually a year
Economic Growth
an increase in the size of a country’s economy over a period of time
GDP per capita
an economic metric that breaks down a country’s economic output per person
Gross National Product
an estimate of the total value of all the final products and services turned out in a given period by the means of production owned by a country’s residents
Labor Force
the sum of the employed plus the unemployed
Unemployment
the share of the labor force that is without work but available for and seeking employment
Types of Unemployment
cyclical, structural and frictional unemployment
The Unemployment Rate
measures the share of workers in the labor force who do not currently have a job but are actively looking for work
Commodity Money
money that has intrinsic value, meaning that it has value even if it is not used as money
Fiat Money
a government-issued currency that is not backed by a commodity such as gold
Specie
metallic money in all of its forms, gold or silver traditionally, but including nickel and copper as wel
Measure of Value
the function of money that enables the values of different goods and services to be compared
Store of Value
an asset, commodity, or currency that can be saved, retrieved, and exchanged in the future without deteriorating in value
Medium of Exchange
a portable instrument that is used as an intermediary to facilitate the sale and purchase of goods between parties
Federal Deposit Insurance Corporation (FDIC)
an independent agency created by Congress to maintain stability and public confidence in the nation’s financial system
Job of the Fed
setting interest rates, managing the money supply, and regulating financial markets
