Economics 1 Study Guide Flashcards by Rosario Sebastian

Economic system characterized by a central authority (government) that makes most of the major economic decisions.

Command Economy

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Market economy in which privately owned businesses have the freedom to operate for profit with limited government intervention.
Also US Economy

Free Market/ Free Enterprise Economy

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Economic system in which private citizens own and use the factors of production in order to generate profits.
3 Characteristics
1. Open Competition
2. Profit Motive of Produces
3. Private ownership of Property

Capitalism

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Cost of the next best alternatives use of money, time, or resources, when one choice is made rather than another.

Opportunity Cost

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Economic a political system in which factors of production are collectively owned and directed by the state (government); a theoretically classless society in which everyone works for a common good.
- No religion
- No government
- No money
- Everyone is socially and economically equal
-Everyone has food, water, and shelter

Communism

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Risk-taking individuals who introduce new products or services in search of profits; one of the four factors of production.

Entrepreneur

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Economic system in which government own some factors of production and has a role in determining what and how goods are produced.
Government tries to make everyone socially, politically, and economically equal.

Socialism

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Metaphor, introduced by the 18th - century Scottish philosopher and economist (Adam Smith), that characterizes the mechanisms through which beneficial social economic outcomes may arise from the accumulated self-interest action of individuals, none of whom intends to bring about such outcomes.

Invisible Hand

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Economic system that has some combination of traditional command, and market economies; also see modified free enterprise economy. Also US Economy

Mixed (Market) Economy

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Fundamental economic problem facing all societies resulting from a combination of (limited) resources ad people’s virtually unlimited needs and wants.

Scarcity

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Productive resources needed to produce goods or services; the four factors are land, labor, capital, and entrepreneurship.

Factors of Production

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Something that motivates.

Incentives

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People who buy or use goods and services to satisfy their wants and needs.

consumer

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A combination of quantities that someone would be willing to buy over a range of possible prices at a given moment.

demand

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A condition or state in which economic forces are balanced.

equilibrium

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The highest legal price that can be charged for a product.

Price Ceiling

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A curtail (reduction) of the freedom of market participants or grants special privileges.

Regulation

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The lowest legal price that can be paid in the market for goods and services, labor, or financial capital.

Price Floor

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A person or organization that makes goods or provides service.

Consumer Sovereignty

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Theoretical market structure characterized by a large number of well-informed independent buyers and sellers who exchange identical products and have freedom of entry and exit.

Perfect Competition

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Market structure having all conditions of pure competition except for identical products.
- A form of imperfect competition.

Monopolistic Competition

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A person or organization that makes goods or provides service.

Producer

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Amount of a product a producer or seller would be willing to offer for sale at all possible prices in a market at a given point in time.

Supply

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A measure of responsiveness that tells us how a dependent variable, such as quantity demand or quantity supplied, responds to a change in an independent variable such as price.

Elasticity

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Money flows from producer to workers as wages, and flows back to producers as payment for products.

Circular Flow

Market structure in which a few large sellers dominate and have the ability to affect prices in the industry. - A form of imperfect competition.

Oligopoly

Market structure characterized by a single producer.

Monopoly

Systematic changes in real GDP market by alternating periods of expansion and connection

Business Cycle

Use of government spending and revenue collection measures to influence the economy. - Changes in government spending - Changes in tax rates and rules

Fiscal Policy

Sustained rise in the general level of prices of goods and services. The purchasing power of the dollar decreases. Healthy rate: 2% - 3%

Inflation

Index used to measure price changes for a market basket of frequently used consumer items.

Consumer Price Index (CPI)

Monetary value of all final goods, services, and structures produced within a country's national border during a one-year periods.

Gross Domestic Product (GDP)

Government payment to encourage or protect a certain economic activity.

Subsidy

Government spending and taxation policies suggest by John Maynard Keynesian to stimulate the economy.

Keynesian Economic Theory

Actions by the Federal Reserve System (FED) to expand or contact the money supply to affect the cost of availability of credit. - Buying/Selling government securities - Changing the reserve requirement - Changing interest

Monetary Policy

Helps to measure the health of a economy. 5% - Healthy Rate

Unemployment Rate

Privately owned, publicly controlled, central bank of the United States.

Federal Reserve System

A tax percentage of income paid in tax, rates rises as level of income rises.

Progressive Tax

A tax in which percentage of income paid in tax is the same regardless of the level of income.

Proportional Tax

A tax where percentage of income paid in tax goes down as income rises.

Regressive Tax

A contract agreement in which a borrower receives a sum of money or something of value and repays the lender at a later date, generally with interest.

Credit

The efficiency or ease with which as asset or security can be converted into ready cash washout affecting its market price.

Liquidity

A risk management strategy that mixes a wide variety of investments within a portfolio.

Diversification

The original sum of money borrowed din a loan or put into an investment.

Principal

To commit money in order to earn a financial return.

Investment

A concept that states that the higher the risk of an investment the higher the possible return.

Risk v Reward

An employee benefit that commits the employer to make a regular contribution to a pool of money that is set aside in order to fund payments made to eligible employees. A defined benefit plan guarantees a set monthly payment for life or a lump sum payment at retirement. The most common form or retirement savings plan many American employers offer to employees.

401K /Pension

An employee benefit that commits the employer to make a regular contribution to a pool of money that is set aside in order to fund payments made to eligible employees.

401K/Pension

A define benefit plan guarantees a set monthly payment for life or a lump sum payment at retirement.

401K/Pension

The most common form of retirement savings plan many American employers offer to employees.

401k/Pension

A fixed-income instrument that represents a loan made by an investor to a borrower.

Bonds

The amount a lender charges a borrower and is a percentage of the principal - the amount loaned.

Interest Rate (APR)

Something, usually money, borrowed by one party from another.

Debt

A security that represents the ownership of a fraction of a corporation

Stocks

A type of financial vehicle made of a pool of money collected from any investors to invest in securities like stocks, bonds, money market instruments, and other assets. Operated by professional money managers, who allocate the fund's assets and attempt to produce income for fund's investors.

Mutual Funds

A product offered by banks and credit unions that provides an interest rate premium in exchange for the customer agreeing to leave a lump-sum deposit untouched for a predetermined period of time.

Certificate of Deposit (CD)

Interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Compound Interest

The ability to produce more of a given product, using a given amount of resources.

Absolute Advantage

The ability to produce a product most efficiently given all the other products that could be produced.

Comparative Advantage

The value of a nation's currency in relation to a foreign country.

Exchange Rate

A good or service sent to another country for sale.

Exports

A good or service brought in from another country for sale.

Imports

The lowering or elimination of protective tariffs and other trade barriers between two or more nations.

Free Trade

The increasingly tight interconnection of producers, consumers, and financial systems around the world.

Globalization

The shared need of countries for resources, goods, services, labor, and knowledge supplied by other countries.

Interdependence

The practice of contracting with another company to do a specific job that would otherwise be done by a company's own workers.

Outsourcing

The use of trade barriers to shield domestic industries from foreign competition.

Protectionism

Level of economic prosperity.

Standard Living

Taxes imported on goods. The amount of good or service that a producer is willing and able to supply at a specific price.

Tariffs/Quotas

Who is Adam Smith?

Adam Smith was an 18th-century Scottish philosopher; he is considered the father of modern economics. Smith is most famous for his 1776 book, "The Wealth of Nations." Smith's writings were studied by 20th-century philosophers, writers, and economists.

What did Adam Smith invent?

- Division of Labor - Specialization

Why do Nations trade?

Nations trade because it allows them to access goods and services they cannot efficiently produce themselves by specializing in products where they have a comparative advantage, utilizing their unique resources, and benefiting from economies of scale, ultimately leading to increased economic prosperity for all involved parties.

What are the two fundamental principles of trade among nations?

- Division of labor - Specialization

Countries can specialize in what they produce Making products for domestic and trade means that they can make the products in bulk, increasing cost benefits, benefiting the economy Increased competition, lower prices, higher purchasing power to consumers, and more consumers Fewer domestic monopolies Quality of goods and services increase Increase in employment, benefiting the economy

Advantages of Trade

Over specialization, which would hurt the economy and cause unemployment if the good or service is no longer in demand Certain industries do not get a chance to grow Local producers make suffer because of cheaper imports

Disadvantages of Trade

What is a traditional economy?

A traditional economy is an economic system where people use customary means to provide for themselves, such as hunting, fishing, gathering, or farming. In a traditional economy, customs and traditions are more important than money, and people use skills passed down from previous generations.

Who wrote the "Communist Manifesto"?

- Karl Marx & - Friedrich Engels

What type of economy does the U.S have?

- Free enterprise economy & - Mixed Economy

Factors of production?

- Capitalism - Labor - Land - Entrepreneurship