Economics Flashcards
1
Q
What is capitalism?
A
A structure of economic configuration which allocates private individuals with the authority to privately own the means of production and operate businesses for a profit. Capitalism relies upon the laws of supply and demand to adjudicate prices and believes that market competition is responsible for achieving innovation and the efficient production of the most qualitative goods for the lowest possible cost.
2
Q
What is a market?
A
any structure that allows buyers and sellers to exchange any type of goods, services and information
3
Q
What are market participants?
A
all the buyers and sellers of a good who influence its price, which is a major topic of study of economics and has given rise to several theories and models concerning the basic market forces of supply and demand.
4
Q
What is competition?
A
when more than one producer is trying to sell the same or similar products to the same buyers. Adherents of the capitalist theory believe that competition leads to innovation and more affordable prices.
5
Q
What is wage labor?
A
paid work or paid labor, refers to the socioeconomic relationship that exists between a worker and an employer in which the worker sells their labor power under a formal or informal employment contract. These transactions usually occur in a labor market where wages or salaries are determined by the market. A wage laborer is a person whose primary means of income is from the selling of their labor in this way.
6
Q
What is the profit motive?
A
the incentive or explanation for a large majority of activity in a capitalist economy. most activity from the supply side of the equation (business establishment and investment) is explicated by the motivation to extract profit.
7
Q
What is private property?
A
the legal designation for the ownership of property by non-governmental legal entities. Private property is seen to be a foundational characteristic of capitalistic societies.
8
Q
What is the capitalist mode of production?
A
the private ownership of the means of production, extraction of surplus value by the owning class for the purpose of capital accumulation, wage-based labor and, at least as far as commodities are concerned, being market-based.
9
Q
What are the means of production
A
the facilities and resources effectuated in order to product a product, good or service. land, labor and capital are the primary means of production.
10
Q
What is supply and demand?
A
the two primary axiomatic variables and factors that establish an adjudication and determination of the price of a commodity or product. supply representing the quantity of products available and demand representing the desire for the consumers to purchase the product.
11
Q
What is the market equilibrium?
A
a state where the quantity demanded and the quantity supplied are equal.
12
Q
What is deficit spending?
A
the act of spending government outlays that surpasses the quantity of revenue collected from taxation.
13
Q
What is fiscal policy?
A
any use of the government deficit to steer the macroeconomy. the utilization of spending and taxation to influence the economy.
14
Q
What is fiat money?
A
a government issued currency that is not backed by a physical commodity, such as silver or gold, but rather by the government that issued it.
15
Q
What is interest?
A
a payment from a borrower or some alternative financial institution to a lender or depositor of an amount above repayment of the principal sum, at a particular rate.
16
Q
What is a recession?
A
the reduction and attenuation of economic activity as a ramification of the depreciation of the GDP over two consecutive quarters.
17
Q
Causes of recessions
A
1.) the reduction in consumer confidence; this results in spending patterns experiencing an alteration and people only consuming necessities. 2.) High levels of unemployment. These contribute to the reduction of consumption which in turn leads to a drop in sales. Employers are hence forced to cut costs; some positions may become redundant, only resulting in the amplification of unemployment. 3.) High interest rates limit liquidity, lowering the number of investments in an economy. (Investments add to the stock of capital, granting businesses and corporations accessibility to a larger array of financial resources to increase the quantity of productivity.) High interest rates contribute to the expansion of the motivation for the business owner and consumer to cut back on spending, contributing to stock prices attenuation. 4.) A deduction in housing prices and sales; homeowners are forced to cut back on spending as a consequence of lost equity. 5.) Some government regulations may lead to recessions.
18
Q
What is inflation?
A
the increase and expansionism in the prices of goods and services over time in an economy, usually occurring as a reverberation of demand overpowering supply. inflation is measured by CPI (Consumer Price Index)
19
Q
Causes of inflation.
A
1.) Demand-pull inflation; this is inflation caused by an enlargement of demand for products and services higher than an economy can produce, hence creating a demand-supply gap. 2.) Cost-push inflation; this is inflation that is the manifestation and culmination of the appreciation of the cost of production causing a price increase in the final products.
20
Q
What are investments?
A
the allocation of your monetary capital towards a particular entity with the hopes of achieving a profitable return of capital that’s higher than the amount initially invested.
21
Q
Types of investments
A
stocks, bonds, mutual funds, ETFs
22
Q
What is a stock?
A
a partial share of a publicly traded company. purchasing a stock grants you partial ownership of the company. the worth of a stock is determined by the laws of supply and demand.
23
Q
What is a bond?
A
bonds are a debt instrument that represents a loan given by an investor to a company, government or individual. when you purchase a bond, you allow the bond issuer to issue you a fixed rate in exchange for using your capital. examples of bonds include treasury bills, municipal bonds, corporate bonds, government securities etc
24
Q
What are ETFs (Exchange Traded Funds)?
A
a collection of investments such as shares, bonds, money-market instruments, etc that track an underlying index.
25
What is real estate investment?
purchasing and investing in commercial or residential properties is the act of buying property with the desire of experiencing an appreciation of equity that characterizes the property that you have invested in.
26
What is liquidity?
the capability of an individual or firm quickly purchasing or selling an asset without causing a drastic change in the asset's price.
27
What is insurance?
a type of investment that is oriented towards accumulating protection against a possible eventuality. examples of insurance would be health insurance, car insurance, life insurance, etc.
28
What is the business cycle?
an alteration of phases of the economy through expansions and contractions. business cycles are intervals of expansion followed by recession in economic activity.
29
What is demand side economics?
the belief that most market failures are the culmination of problems that reside within the demand side of the supply-demand equation. keynesian economics, aka demand side economics, advertise the distribution of wealth towards individuals and business to stimulate the economy
30
What is supply side economics?
the belief that market failures usually occur from problems from the supply side of the supply-demand equation. proponents advocate for the reductionism of taxation, government intervention and the promotion of free trade to eradicate the impediments placed upon productivity.
31
What is the federal budget?
the financial, government arrangement that determines the quantity of federal expenditures that shall be spent annually.
32
What is the budgetary process?
the procedure that is oriented towards establish a discretionary adjudication to determine what the budget shall be and what programs and operations shall be designated.
33
What is productivity?
is the calculation of how productive a labor market is by performing a mathematical calculation that divides the output (products, goods and services) against that of the input (the quantity of labor it requires to produce the goods). In other words, it’s the rate of output per unit of input.
34
What is a budget surplus?
A budget surplus occurs when income exceeds expenditures. The term often refers to a government's financial state, as individuals have "savings" rather than a "budget surplus." A surplus is an indication that a government's finances are being effectively managed.
35
What are some forms of government intervention in the economy?
Minimum wage laws, fiscal policy, antitrust laws, taxes, tariffs, trade union legislation, legislation governing hiring and firing, environmental protection, construction regulation, FDA necessitating enumeration of ingredients for drugs and food, FHA insuring mortgages
36
What are some forms of government intervention in the economy?
Minimum wage laws, fiscal policy, antitrust laws, taxes, tariffs, trade union legislation, legislation governing hiring and firing, environmental protection, construction regulation, FDA necessitating enumeration of ingredients for drugs and food, FHA insuring mortgages
37
What are some forms of government intervention in the economy?
Minimum wage laws, fiscal policy, antitrust laws, taxes, tariffs, trade union legislation, legislation governing hiring and firing, environmental protection, construction regulation, FDA necessitating enumeration of ingredients for drugs and food, FHA insuring mortgages
38
What are antitrust laws?
Antitrust laws are regulations that encourage competition by limiting the market power of any particular firm. This often involves ensuring that mergers and acquisitions don't overly concentrate market power or form monopolies, as well as breaking up firms that have become monopolies.
39
What is market power?
Market power refers to a company's relative ability to manipulate the price of an item in the marketplace by manipulating the level of supply, demand or both.
A company with substantial market power has the ability to manipulate the market price and thereby control its profit margin, and possibly the ability to increase obstacles to potential new entrants into the market. Firms that have market power are often described as "price makers" because they can establish or adjust the marketplace price of an item without relinquishing market share.
40
What is market power?
Market power refers to a company's relative ability to manipulate the price of an item in the marketplace by manipulating the level of supply, demand or both.
A company with substantial market power has the ability to manipulate the market price and thereby control its profit margin, and possibly the ability to increase obstacles to potential new entrants into the market. Firms that have market power are often described as "price makers" because they can establish or adjust the marketplace price of an item without relinquishing market share.
41
What is a flat tax rate?
a tax system that applies a single tax rate to all levels of income.
42
What is a progressive tax system?
A progressive tax is a tax system that increases rates as the taxable income goes up.
43
What is socialism?
A mode of economic organization which calls for the collective ownership of the means of production, the eradication of the profit motive, the termination of markets and the abolition of the commodity form.
44
What is socialism?
A mode of economic organization which calls for the collective ownership of the means of production, the eradication of the profit motive, the termination of markets and the abolition of the commodity form.
45
What is communism?
Communism is an economic ideology that advocates for a classless society in which all property and wealth are communally-owned, instead of by individuals.
46
What is the labor theory of value?
The labor theory of value is a theory of value that argues that the economic value of a good or service is determined by the total amount of "socially necessary labor" required to produce it.
47
What is socialized medicine?
Socialized medicine is, by definition, a healthcare system in which the government owns and operates healthcare facilities and employs the healthcare professionals, thus also paying for all healthcare services.
48
What is single-payer healthcare?
What is Single Payer? Single payer—or Medicare for All—is simply a streamlined financing mechanism where one entity administers the health care funding and payments. It expands the cost-effective and administratively efficient Medicare program to cover everyone in the United States.
49
What is single-payer healthcare?
What is Single Payer? Single payer—or Medicare for All—is simply a streamlined financing mechanism where one entity administers the health care funding and payments. It expands the cost-effective and administratively efficient Medicare program to cover everyone in the United States.
50
What is universal healthcare?
Universal health coverage means that all people have access to the health services they need, when and where they need them, without financial hardship. It includes the full range of essential health services, from health promotion to prevention, treatment, rehabilitation, and palliative care.
51
What is universal healthcare?
Universal health coverage means that all people have access to the health services they need, when and where they need them, without financial hardship. It includes the full range of essential health services, from health promotion to prevention, treatment, rehabilitation, and palliative care.
52
What is a security?
The term "security" refers to a fungible, negotiable financial instrument that holds some type of monetary value.
53
What is an insurance company?
This term is used to describe a single entity that writes insurance policies, pays claims and carries all the risk associated with the policies it writes. Consequently, these entities (also called insurers) are tightly regulated by the government to ensure they have the financial resources to cover their risk.
54
How do insurance companies make money?
Most insurance companies generate revenue in two ways: Charging premiums in exchange for insurance coverage, then reinvesting those premiums into other interest-generating assets. Like all private businesses, insurance companies try to market effectively and minimize administrative costs.
55
What is a bank?
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
56
How do banks make money?
Commercial banks make money by providing and earning interest from loans such as mortgages, auto loans, business loans, and personal loans. Customer deposits provide banks with the capital to make these loans.
57
How do banks make money?
Commercial banks make money by providing and earning interest from loans such as mortgages, auto loans, business loans, and personal loans. Customer deposits provide banks with the capital to make these loans.
58
What is a hedge fund?
a limited partnership of investors that uses high risk methods, such as investing with borrowed money, in hopes of realizing large capital gains.
59
What is a hedge fund?
a limited partnership of investors that uses high risk methods, such as investing with borrowed money, in hopes of realizing large capital gains.
60
What is a stock market?
Stock markets are venues where buyers and sellers meet to exchange equity shares of public corporations. Stock markets are vital components of a free-market economy because they enable democratized access to trading and exchange of capital for investors of all kinds.
61
Why is investment important?
Investment adds to the stock of capital, and the quantity of capital available to an economy is a crucial determinant of its productivity. Investment thus contributes to economic growth.
62
What is the labor market?
the availability of employment and labor, in terms of supply and demand.
63
What are the stages of the supply chain?
The extraction of the raw materials, the administration of these commodities to a warehouse facility, the allocation of these materials to the manufacturer (i.e. factory/facility), the delivery of these produced goods to the wholesale buildings which sell the goods in bulk, the transmission of these bulked goods to retail stores and then the purchasing of the product by the consumer.
64
What was the Great Depression?
The Great Depression was a severe worldwide economic depression between 1929 and 1939 that began after a major fall in stock prices in the United States. The economic contagion began around September 4, 1929, and became known worldwide on Black Tuesday, the stock market crash of October 29, 1929.
64
What caused the Great Depression?
Financial speculation, the lack of international cooperation (largely due to WWI), Federal Reserve monetary policy (high interest rates) then the radical introduction of contractionary policy that instigated the motivation to sell assets.
65
What was the dot-com bubble?
The dot-com boom, also called the dot-com bubble, was a stock market bubble in the late 1990s. It was characterized by excessive speculation in Internet-related companies. During the dot-com boom, people bought technology stocks at high prices—believing they could sell them at a higher price—until confidence was lost and a large market correction occurred.
66
What is a bubble?
A bubble is an economic cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. This fast inflation is followed by a quick decrease in value, or a contraction, that is sometimes referred to as a "crash" or a "bubble burst."
67
What are the stages of a bubble?
Displacement
This stage takes place when investors start to notice a new paradigm, like a new product or technology, or historically low interest rates. This can be basically anything that gets their attention.
Boom
Prices start to rise. Then, they get even more momentum as more investors enter the market. This sets up the stage for the boom. There is an overall sense of failing to jump in, causing even more people to start buying assets.
Euphoria
When euphoria hits and asset prices skyrocket, it could be said that caution on the part of investors is mostly thrown out the window.
Profit-Taking
Figuring out when the bubble will burst isn’t easy; once a bubble has burst, it will not inflate again. But anyone who can identify the early warning signs will make money by selling off positions.
Panic
Asset prices change course and drop (sometimes as rapidly as they rose). Investors want to liquidate them at any price. Asset prices decline as supply outshines demand.
68
What is market value?
the amount for which something can be sold on a given market.
69
What was the U.S Housing Bubble?
A real estate bubble that occurred within the late 2000s.
69
What was the U.S Housing Bubble?
A real estate bubble that occurred within the late 2000s.
70
What caused the U.S Housing bubble?
The proliferation of demand to purchase real estate property, coupled with banking institutions decreasing interest rates and the requirements necessary to be rendered eligible to receive a mortgage loan. ARMs (Adjustable-rate mortgages) were a prominent type of mortgage loan purchased, allowing the banking borrower to modify rates within 3-5 years. When the real estate market began to rise, so did the interest rates; individuals with ARMs defaulted on their mortgages and the housing market crashed.
70
What caused the U.S Housing bubble?
The proliferation of demand to purchase real estate property, coupled with banking institutions decreasing interest rates and the requirements necessary to be rendered eligible to receive a mortgage loan. ARMs (Adjustable-rate mortgages) were a prominent type of mortgage loan purchased, allowing the banking borrower to modify rates within 3-5 years. When the real estate market began to rise, so did the interest rates; individuals with ARMs defaulted on their mortgages and the housing market crashed.
71
What is aggregate demand?
In macroeconomics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time.
72
What is economic output?
Output in economics is the "quantity of goods or services produced in a given time period, by a firm, industry, or country",[1] whether consumed or used for further production.
73
What is GDP?
Gross domestic product is a monetary measure of the market value of all the final goods and services produced in a specific time period by countries.
74
What is a trade or labor union?
an organization of workers intent on "maintaining or improving the conditions of their employment". such as attaining better wages and benefits (such as vacation, health care, and retirement), improving working conditions, improving safety standards, establishing complaint procedures, developing rules governing status of employees (rules governing promotions, just-cause-conditions for termination) and protecting the integrity of their trade through the increased bargaining power wielded by solidarity among workers.
75
What is an asset?
property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.
76
What is a liability?
Liabilities are any debts your company has, whether it's bank loans, mortgages, unpaid bills, IOUs, or any other sum of money that you owe some
77
What is a public good?
In economics, a public good is a good that is both non-excludable and non-rivalrous. For such goods, users cannot be barred from accessing or using them for failing to pay for them. Also, use by one person neither prevents access of other people nor does it reduce availability to others.
78
What are the two definitions of commodity?
a raw material or primary agricultural product that can be bought and sold, such as copper or coffee. / a useful or valuable thing, such as water or time.
79
Modern Monetary Theory
Modern Monetary Theory or Modern Money Theory is a heterodox macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires.
80
How does falling stock prices influence GDP and the economy?
In a bear market, investors rush to sell stocks to prevent losses on their investments. Typically, those losses lead to a pullback in consumer spending, particularly if there's also the fear of a recession. A recession is often defined by two consecutive quarters of negative—or contracting—GDP growth
Also, businesses might find it difficult to find new sources of financing, and with less revenue coming in, existing debt can become more challenging to manage.
81
Reinvestment vs Dividends
From a shareholder perspective, a company that reinvests its income instead of pays dividends is in growth mode. While this means shareholders do not get cash distributions from their shares, they can feel more confident that the company wants to grow. Over the long run, growth in the size and profit potential of a business increases the value of its shares or the value of having an ownership role and financial stake in the business.
82
Definition of marginal
In economics, the marginal cost is the change in the total cost that arises when the quantity produced is incremented, the cost of producing additional quantity.
83
Consumerism
the protection or promotion of the interests of consumers.
84
What is a balance sheet?
A balance sheet is a financial statement that reports a company's assets, liabilities, and shareholder equity. The balance sheet is one of the three core financial statements that are used to evaluate a business. It provides a snapshot of a company's finances (what it owns and owes) as of the date of publication.
85
marginal utility of inome?
The marginal utility of income is the change in utility, or satisfaction, resulting from a change in an individual's income. In a modern economy, individuals trade away their incomes in order to satisfy their wants and remove discomforts, and they do this by buying food, clothing, shelter, entertainment, etc.
86
Union sectoral bargaining
Sectoral collective bargaining is an aim of trade unions or labor unions to reach a collective agreement that covers all workers in a sector of the economy. It contrasts to enterprise bargaining where agreements cover individual firms.
87
Collective bargaining
Collective bargaining is a process of negotiation between employers and a group of employees aimed at agreements to regulate working salaries, working conditions, benefits, and other aspects of workers' compensation and rights for workers. Wikipedia
88
GDP?
Gross Domestic Product, a representation of the monetary value of the overall produced goods and services in an economy over a particular time period, usually one fiscal year.
89
What are the 5 tenets of Perfect Competition?
Many Competing Firms.
Similar Products Sold.
Equal Market Share.
Buyers have full information.
Ease of Entry and Exit.
90
What does competition eliminate?
Inefficiencies which would otherwise yield high production costs, which are ultimately transferred to the consumers.
91
How much money is spent on administrative purposes?
The U.S. spends about 8% of its health care dollar on administrative costs
92
Definition of asymmetrical information;
Information asymmetry is an imbalance between two negotiating parties in their knowledge of relevant factors and details. Typically, that imbalance means that the side with more information enjoys a competitive advantage over the other party.
93
Competitive bidding
Competitive bidding is a formal process to identify and request products and/or services the applicants need, so that potential service providers can review those requests and submit bids for them.
94
What is a price-taker?
a company that must accept the prevailing prices in the market of its products, its own transactions being unable to affect the market price.
95
Elasticity of demand
Elasticity of demand refers to the degree in the change in demand when there is a change in another economic factor, such as price or income. If demand for a good or service remains unchanged even when the price changes, demand is said to be inelastic.
96
Moral hazard
lack of incentive to guard against risk where one is protected from its consequences, e.g. by insurance.
97
Scarcity
Scarcity refers to a basic economics problem—the gap between limited resources and theoretically limitless wants. This situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants as possible.
98
Incentives
In economics, incentives are what encourages an individual to act in a certain way. In other words, how consumers and businesses respond to market signals such as prices and financial benefits. For instance, if government provides a subsidy to make corn, then farmers have an incentive to do so.
99
Do tax cuts on the rich proliferate economic growth?
Major reforms reducing taxes on the rich lead to higher income inequality but do not have any significant effect on economic growth or unemployment, according to new research by LSE and King’s College London.
100
Nominal GDP
Nominal GDP is the total value of all goods and services produced in a given time period, usually quarterly or annually.
101
Real GDP
Real GDP is nominal GDP adjusted for inflation.
102
GDP per capita
GDP per capita measures the economic output of a nation per person. It seeks to determine the prosperity of a nation by economic growth per person in that nation.
103
Do tax cuts on lower and moderate tax payers boost economics growth?
A working paper for the National Bureau of Economic Research found that tax cuts aimed at high-income earners have less economic impact that similarly sized cuts targeted at low and moderate income tax payers.
104
Voluntary exchange
Voluntary exchange is the act of buyers and sellers freely and willingly engaging in market transactions. Voluntary exchange is a fundamental assumption in classical economics and neoclassical economics which forms the basis of contemporary mainstream economics.
105
Quantitative Easing
the introduction of new money into the money supply by a central bank.
106
Principle sum
The amount of money put into an investment
107
Deficit financing
Another way to finance the debt requirements of the government is by printing new currency. This is known as deficit financing.
108
Trade deficit
the amount by which the cost of a country's imports exceeds the value of its exports.
109
Tangible definition
perceptible by touch:
109
Credit
the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future:
110
Financial Claim
A financial claim: (a) entitles a credit or to receive a payment, or payments, from a debtor in circumstances specified in a contract between them
111
Credit Report
A credit report is a summary of how you have handled your credit accounts
Credit reports are used by potential lenders and creditors to help them decide whether to offer you credit -- and at what terms
112
What happens to debt after 7 years?
Seven years is the length of time that many negative items can be listed on your credit report, as defined by the Fair Credit Reporting Act. This includes things like late payments, debt collections, charged-off accounts, and Chapter 13 bankruptcy. Certain other negative items, like some judgments, unpaid tax liens, and Chapter 7 bankruptcy, can remain on your credit report for more than seven years.
113
Debt Discharge
A debt discharge occurs when a debtor qualifies through bankruptcy court.
When debt is discharged, a lender can no longer make attempts to collect the debt and the debtor is no longer responsible for paying it back.
114
Laffer Curve
In economics, the Laffer curve illustrates a theoretical relationship between rates of taxation and the resulting levels of the government's tax revenue. The Laffer curve assumes that no tax revenue is raised at the extreme tax rates of 0% and 100%, and that there is a tax rate between 0% and 100% that maximizes government tax revenue.
115
According to the Constitution, what is the purpose of the government?
“form a more perfect union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity
116
Market Distortion
In neoclassical economics, a market distortion is any event in which a market reaches a market clearing price for an item that is substantially different from the price that a market would achieve while operating under conditions of perfect competition and state enforcement of legal contracts and the ownership of private property. A distortion is "any departure from the ideal of perfect competition that therefore interferes with economic agents maximizing social welfare when they maximize their own".
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Negative Income Tax
A system of taxation that reverses the direction within which tax is paid below a certain threshold; in other words, earners above that level pay money to the state while earners below it receive money.
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Comparative advantage
the ability of an individual or group to carry out a particular economic activity (such as making a specific product) more efficiently than another activity.
119
Global Trade
International trade allows countries to expand their markets and access goods and services that otherwise may not have been available domestically. As a result of international trade, the market is more competitive. This ultimately results in more competitive pricing and brings a cheaper product home to the consumer.
120
Protectionism
the theory or practice of shielding a country's domestic industries from foreign competition by taxing imports.
121
Abolition of the commodity form
The termination, evisceration and eradication of the foundational motivational reasoning behind manufacturing goods and creating services. This involves the transformation from an economy which produces goods and services for the purposes of exchanging them into one that produces goods and services exclusively for their usage and consumption. This would, in essence, result in a currency-less economy. "From each according to his ability, to each according to his need."
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Primary capital markets
In a primary market, new stock or bond issues are sold to investors
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Secondary capital markets
In the secondary market, existing securities are sold and bought among investors or traders, usually on an exchange, over-the-counter, or elsewhere.
124
Follow-on offering
a type of public offering of stock that occurs subsequent to the company's initial public offering (IPO).
125
Economics of scale
Economies of scale are the advantages that can sometimes occur as a result of increasing the size of a business. For example, a business might enjoy an economy of scale concerning its bulk purchasing. By buying a large number of products at once, it could negotiate a lower price per unit than its competitors.
126
ARM (Adjustable-rate mortgages)
A variable-rate mortgage, adjustable-rate mortgage, or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets.
127
Allocational efficiency
Allocational efficiency represents an optimal distribution of goods and services to consumers in an economy and an optimal distribution of financial capital to firms or projects among investors. Under allocational efficiency, all goods, services, and capital are allotted and distributed to their very best use under allocational efficiency.
128
Diminishing Returns
The law of diminishing returns is an economic theory that states that surpassing the optimal level of capacity, adding one factor of production will yield smaller increases in output.
129
What is an example of diminishing returns?
A worker may produce 100 units of output per hour for 40 hours. On the 41st hour, the output may decrease to 90 units per hour.
130
What is marginal cost?
In economics, the marginal cost is the change in total production cost that comes from making or producing one additional unit.
131
What are the two variables included in marginal costs?
Fixed costs and variable costs; i.e. fixed = machinery / industrial plant. variable = labor / raw materials.
132
What is profit maximization?
When marginal costs is equivalent to marginal revenue.
133
What is marginal revenue?
Marginal revenue is the increase in revenue that results from the sale of one additional unit of output. While marginal revenue can remain constant over a certain level of output, it follows from the law of diminishing returns and will eventually slow down as the output level increases. In economic theory, perfectly competitive firms continue producing output until marginal revenue equals marginal cost.
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Compound interest
Compound interest is the addition of interest to the principal sum of a loan or deposit, or in other words, interest on principal plus interest.
135
Simple Interest
Simple interest is the cost of borrowing money without accounting for the effects of compounding. In other words, simple interest only applies to the principal amount.
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Research & Development
the set of innovative activities undertaken by corporations or governments in developing new services or products, and improving existing ones. Research and development constitutes the first stage of development of a potential new service or the production process.
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Learning Curve
The slope of the learning curve represents the rate in which learning translates into cost savings for a company.
138
What is wrong with price controls?
The negative effects of price controls are many. By creating shortages, they often cause people to wait in line, they often cause the quality of products whose prices are controlled to fall, and they can lead to favoritism by suppliers. All those effects remain until the price controls are ended.
This may also lead to underinvestment in the industry that is the inheritor of the price controls because of the reductionism in it's marginal rate of profit.
139
How does deficit spending adversely influence the economy?
The clear, initial impact of government borrowing is that it reduces the pool of available funds to be lent to or invested in other businesses. This is necessarily true: an individual who lends $5,000 to the government cannot use that same $5,000 to purchase the stocks or bonds of a private company.
Additionally, the sale of government securities as a way to finance the deficit has a direct impact on interest rates. Government bonds are considered to be extremely safe investments, so the interest rate paid on loans to the government represent risk-free investments against which nearly all other financial instruments must compete.
If the government bonds are paying 2% interest, other types of financial assets must pay a high enough rate to entice buyers away from government bonds. This function is used by the Federal Reserve when it engages in open market operations to adjust interest rates within the confines of monetary policy.
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How does a corporation tax influence prices
Corporations experience a financial incentivization to undergo the application of modification of prices as a consequential ramification of their recipience of taxes to materialize a monetary compensation for the reductionism in the attenuation of marginal profits.
141
What is an profitable way of investing in real estate property?
Renting the house and effectuating the revenue accumulated as a reverberation of the collection of revenue to finance the mortgage payments.
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Mutual Consent
Under the mutual consent rule, buyers can never lose from an encounter with a seller. They can always withhold consent and avoid a losing prospect.
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Economic Rent
Economic rent is an amount of money earned that exceeds that which is economically or socially necessary. This can occur, for example, when a buyer working to attain a good or service that is considered exclusive makes an offer prior to hearing what a seller considers an acceptable price. Market imperfections thus lead to the rise of economic rent; it would not exist if markets were perfect, since competitive pressures would drive down prices.
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Optimal Tax Theory
Optimal taxation theory attempts to derive the system of taxation that will achieve the desired revenue and income distribution with the least inefficiency—that is, that interferes least with market participants making Pareto optimal exchanges—economic transactions that make both parties better off.
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Deadweight loss
A deadweight loss is a cost to society created by market inefficiency, which occurs when supply and demand are out of equilibrium. Mainly used in economics, deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
146
How do mortgage rates influence rental rates?
The proliferation of the interest rates paid on mortgages results in the diminishment of the demand for said property and instead the staying in the rental markets; the augmentation of individuals in rental markets as a correspondant ramification of the erosion of the incentivization to purchase a home with a mortgage explains the association between these two variables.
