Economics Flashcards
The study of rational human behavior as it relates to production, consumption, and transfer of wealth
Economics
The wealth and resources of a country or region, especially in terms of the production and consumption of goods and services
Economy
A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in Gross Domestic Product (GDP) in two successive quarters
Recession
A long and severe recession in an economy or market
Depression
A venue where producers and sellers can come together to buy and sell goods
Market
The value of all the goods and services a country produces in a year
Gross Domestic Product (GDP)
An economic system where private business owners produce goods and provide services for sale in order to make a profit, not for personal consumption.
Allows economic freedom, consumer choice, and economic growth.
Capitalism
An economic system where there are no private business owners; there is a system of collective or government ownership and administration of production and distribution of goods.
The means of production, distribution, and exchange are owned or regulated by the community as a whole.
Socialism
An economic system where no private property exists and there is centralized production and distribution.
Communism
A market structure where all producers sell an identical product (homogeneous), producers cannot manipulate the price of the product, market share does not influence the price, and buyers have complete information. The opposite of a monopoly.
Perfect competition
A market structure where many companies offer competing products or services that are similar, but not perfect, substitutes
Monopolistic competition
A market structure where there is only one producer/seller. The monopoly has control over the price of its goods and services. The market is restricted due to economic, political, or social barriers.
Monopoly
A market structure where only a few producer/sellers make up the industry. It has control over prices and maintains barriers from others entering the market.
Oligopoly
The exchange of money for goods and services by private purchases- it makes up the demand side of supply and demand principles
Consumer spending
A plan for spending and saving money
Budget
A bank account where the account holder can make deposits and withdrawals, and access is unlimited
Checking account
A bank account where the account holder can make deposits and withdrawals, and the account earns interest. This type of account is commonly used to store money for longer periods of time. The money is readily accessible.
Savings account
A bank account with a higher interest rate than a savings account but with limited withdrawals per statement cycle. This type of account usually requires a minimum balance
Money Market accounts
A bank account with a higher interest rate than a money market account but from which the money cannot be withdrawn for a set period of time
Certificates of Deposit (CD)
A retirement account that offers tax advantages but cannot be withdrawn until retirement (age 59.5) without penalty
Individual Retirement Account (IRA)
A government bond that is exempt from state and local taxes and is used to fund capital projects. The bond has a fixed interest rate for a fixed period of time, usually 15-30 years. Federal taxes are applied at the time the bond matures.
U.S. Savings Bonds
Credit leads to ____ in spending, thus _____ income levels in the economy
increase; increasing
The portion of credit consumers use to buy non-investment services. One form of this is a credit card.
Consumer Credit
Advantages of consumer credit
Consumers can purchase goods and services & pay for them later over an extended period of time (borrowing basically)
Disadvantages of consumer credit
If consumers fail to repay a loan or a credit card balance, this impacts their credit scores, affects terms and conditions, and results in late fees and penalties
Short-term borrowing that ends with the borrower making one payment by the end of the credit period
Non-Installment Credit
A specific amount of money is lent to the borrower- the total purchase price of the good or service. This type of credit is typically used by car dealerships
Close-end Credit
This type of consumer credit is found with most credit cards. With this kind of credit, the lender extends credit for use by the consumer with an outside limit
Revolving Open-End Credit
Law that states: when prices increase, demand increases. Demand is centered on the consumer’s behavior. Consumers will purchase less if the price is high.
Law of Demand
Law that states: when prices increase, supply increases. Supply is centered on the supplier’s behavior. Suppliers will sell more products if the price is high.
Law of Supply
Occurs at the intersection of the demand curve and the supply curve. It is a balance between supply and demand, also called allocation efficiency
Equilibrium
This occurs when the price or the quantity are not equal to the equilibrium
Disequilibrium
The degree in which consumers change their demand and producers change their supply in response to changes in price or income
Elasticity
Formula for Elasticity
% change in quantity / & change in price
If the elasticity is _____ 1 (in relation to 1) the good or service is elastic. If the elasticity is ____ 1, the good or service is inelastic
greater than or equal to; less than
When there are simultaneous shifts in supply and demand what do we know about one of the elements?
One of the elements cannot be determined
What happens to the equilibrium price and quantity when both supply and demand are reduced?
price is indeterminate; quantity decreases
What happens to the equilibrium price and quantity when both supply and demand increase?
price cannot be determined, quantity increases
What happens to the equilibrium price and quantity when supply increases and demand decreases?
price decreases, quantity cannot be determined
What happens to the equilibrium price and quantity when demand increases and supply decreases?
price increases, quantity cannot be determined
Refers to a limited availability of goods and services. It occurs when people cannot obtain much of something they need. Often involves a trade-off because people must sacrifice resources/goods in order to obtain more of the scarce resources what they need or want
Cost scarcity
The loss of potential gain from other alternatives when one alternative is chosen
Opportunity Cost
The action or process of investing money for profit or material result
Investment
The circumstances that make a person want to leave (their country/state)
Push factors
The advantages a country has that make a person want to live there
Pull factors
A crisis that started with a natural event that infected potato crops. The situation was further exacerbated by the government’s laissez-faire economic policies and its continuation of exporting of food to Great Britain. Resulted in Irish immigrants coming to the US, causing a large increase in the Irish population in US cities
The Great Famile of Ireland/Potato Famine
An official ban on trade or other commercial activity with a particular country
Embargo
The right of a government or its agent to seize private property for public use, with payment of compensation
Eminent domain
A threatened penalty for disobeying a law or rule
Sanction
Monitoring including government regulation of unfair methods of competition and unfair or deceptive business acts/practices
Trade regulation
The central banking system of the United States. Lends money to smaller banks and determines interest rates.
The Federal Reserve
When the economy grows too fast, the Federal Reserve ______ interest rates
increases; in order to counteract borrowing
When the economy slows down, the Federal Reserve ______ interest rates
lowers; in order to encourage borrowing
What are the primary functions of the Federal Reserve?
To promote the health and stability of the US economy & financial system
To conduct monetary policy
expansionary= to stimulate economy
contractionary= to abate the economy
To supervise and regulate financial institutions and activities
To promote a safe, efficient, and accessible settlement system for transactions
To promote consumer protection and community development
This department manages federal finances by collecting taxes, paying bills, and managing currency, govt. accounts, and public debt. It also enforces finance and tax laws.
The Department of the Treasury
A tax or duty to be paid on a particular class of imports or exports
Tariff
An official ban on trade with a specific country or commodity
Embargo
When a country produces a good or service for a lower opportunity cost than other countries.
Comparative advantage
When a country produces greater quantity of a good, product, or service than competitors using the same amount of resources.
Absolute advantage
The original economic system in which traditions, customs, and beliefs shape the goods and services the economy produces
Traditional Economic System
Economic system where the government determines what goods should be produced, how much to produce, and the price. This is also referred to as Communism. Example: North Korea.
Command Economic System
Economic system where decisions regarding investment, production, and distribution are based on market, supply, and demand. Prices of goods are determined in a free price system. Example: Singapore.
(Free) Market Economic System
Features characteristics of both socialist and capitalist economic systems
Mixed Economic System
A branch of economics dealing with the performance, structure, behavior, and decision-making of regional, national, and global economics
Macroeconomics
The total value of a country’s output of all new goods and services produces in a year, both domestically and internationally.
National Income
The value of the goods and services produced domestically in a year (in a country)
Gross Domestic Product (GDP)
The amount of physical, mental, and social efffort used to produce goods and services in an economy
Labor
A stable rate of unemployment- 1 to 2 percent of the total workforce
Full employment
When skilled workers are working fewer hours than they would like to work or when the workers take lower paying jobs that do not require the skills or education the workers hold
Underemployment
When people who are actively seeking work cannot find employment
Unemployment
What are the three types of unemployment?
Frictional, Cyclical, and Structural
Refers to difficulty in matching qualified workers with jobs
Frictional unemployment
Refers to unemployment that is a product of the business cycle (i.e. tourist season ending)
Cyclical unemployment
Refers to unemployment that occurs when workers are not qualified for the jobs that are available/skills workers possess become obsolete
Structural unemployment
Indicates the economy’s price level does not fluctuate much over a period of time, and there are no long periods of inflation or deflation
Price stability
A rise in the general price level of goods and services in an economy over time, resulting in a decline in the value of money and purchasing power. Caused by the amount of dollars increasing relative to the number of goods and services.
Inflation
A decrease in the general price level of goods and services over a longer period of time. Caused by the number of dollars falling relative to the number of goods and services.
Deflation
The rate at which one currency will be exchanged for another. Also regarded as the value of one country’s currency in relation to another country’s currency.
Exchange Rate
