Economics Flashcards
the study of how people use limited resources to meet unlimited wants
Economics
limited quantities of resources to meet unlimited wants
Scarcity
Factors of production
land, labor, and capital; the three groups of resources that are used to make all goods and services
all human-made goods that are used to produce other goods and services, tools, and buildings
Physical capital
the skills and knowledge gained by a worker through education and experience
Human capital
the most desirable alternative given up as the result of a decision
Opportunity cost
an alternative that we sacrifice when we make a decision
Trade-offs
deciding whether to do or use one additional unit of some resource
Thinking at the margin
a line connecting data points on a graph that shows the combinations of the production of products
Production possibilities frontier
using resources in such a way as to maximize the production of goods and services
Efficiency
a phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods
Guns or butter
the method used by a society to produce and distribute goods and services
Economic system
the income people receive for supplying factors of production, such as land, labor, or capital
Factor payments
Economic goals
economic efficiency, growth, freedom, security, and equity
government programs that protect people experiencing unfavorable economic conditions
Safety net
economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services
Traditional economy
economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets
Market economy
economic system in which the central government makes all decisions on the production and consumption of goods and services
Centrally planned economy
market-based economic system with limited government involvement
Mixed economy
the concentration of the productive efforts of individuals and firms on a limited number of activities
Specialization
shows interactions of households and firms in the free market
Circular flow of market economy
self interest and competition work together to create a self-regulating market
Self-regulation of market economy
term economists use to describe the self-regulating nature of the marketplace
Invisible hand
a political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government
Communism
an economic system characterized by private or corporate ownership of capital goods; investments that are determined by private decision rather than by state control; and determined in a free market
Free enterprise
the concerns of the public as a whole
Public interest
protects private ownership and encourages entrepreneurship to stimulate efficiency
Purpose of free enterprise
laws requiring companies to provide full information about their products
Public disclosure laws
enforced laws by the federal trade commission
Consumer protection laws
an income level below that which is needed to support families or households
Poverty threshold
government aid to the poor
Welfare
provides direct cash transfers of retirement income to the nation’s elderly
Social security
provides money to eligible workers who have lost their jobs
Unemployment insurance
form of insurance providing wage replacement for workers injured on the job
Workers compensation
a shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers
Public good
someone who would not choose to pay for a certain good or service, but who would get the benefits of it anyway if it were provided as a public good
Free rider
paid work, trade or profession
Employment
increasing in size
Growth
the state of being stable
Stabilility
consumers buy more of a good when its price decreases and less when its price increases
Law of demand
when consumers react to an increase in a good’s price by consuming less of that good and more of other goods
Substitution effect
the change in consumption resulting from a change in real income
Income effect
a graphic representation of a demand schedule
Demand curve
a Latin phrase that means “all other things held constant”
Ceteris paribus
a good that consumers demand more of when their income increases
Normal good
a good that consumers demand less of when their incomes increase
Inferior good
Factors that shift demand
income, related goods price, expectations of future prices, number of buyers, tastes
two goods that are bought together
Complements
foods used in place of one another
Substitutes
a measure of how consumers react to a change in price
Elasticity of demand
Elasticity of demand calculation
the percentage change in demand of a good divided by the percentage change in the price of the good
Determinants of elasticity
availability of substitutes, importance, need vs. want
tendency of suppliers to offer more of a good at a higher price
Law of supply
a measure of the way quantity supplied reacts to a change in price
Elasticity of supply
a graph of the quantity supplied of a good at different prices
Supply curve
describes when suppliers have altered production output
Shifts in supply
Factors that shift supply
technology, taxes, subsidies, regulations
a cost that does not change, no matter how much of a good is produced
Fixed costs
a cost that rises or falls depending on how much is produced
Variable costs
the cost of producing one more unit of a good
Marginal costs
Governments influence on supply
the government can place taxes, subsidies, and regulations
a government payment that supports a business or market
Subsidies
a required payment to a local state, or national government
Taxes
government intervention in a market that affects the production of a good
Regulations
a tax on the production or sale of a good
Excise taxes
the additional income from selling one more unit of a good; sometimes equal to price
Marginal revenue
the point at which quantity demanded and quantity supplied are equal
Equilibrium
describes any price or quantity not at equilibrium; when quantity supplied is not equal to quantity demanded in a market
Disequilibrium
when quantity demanded is more than the required amounts
Excess demand
when quantity supplied is more than quantity demanded
Excess supply
a maximum price that can be legally charged for a good or service
Price ceiling
a price ceiling placed on rent
Rent control
a minimum price that can be legally charged for a good or service
Price floor
a minimum price that an employer can pay a worker for an hour of labor
Minimum wage
Problems with ceilings
ceilings cause shortages
Problems with floors
floors cause surpluses
increase in supply and constant demand will result in decreased equilibrium quantity
Shifts in supply, demand, equilibrium
a situation in which a good or service is unavailable, or a situation in which the quantity demanded is greater than the quantity supplied, also known as excess demand
Shortage
the financial and opportunity costs consumers pay when searching for a good or service
Search costs
the market gives producers an incentive to produce goods that consumers want
Advantages of prices
an expectation that encourages people to behave in a certain way
Incentives
costs of production that affect people who have no control over how much of a good is produced
Spillover costs
constantly subjected to both factors resulting in supply shifts and factors resulting in demand shifts
Shifts in equilibrium
the market in which households purchase the goods and services that firms produce
Product markets
a market that has a broad range of competitors who are selling the same product
Pure competition
a market structure in which many companies sell products that are similar but not identical
Monopolistic competition
a market structure in which a few large firms dominate a market
Oligopoly
a market dominated by a single seller
Monopoly
the governments regulate markets to protect the interests of consumers
Monopoly regulation
in theories, these are barriers that make it hard to enter a certain market
Barriers to entry
a market that runs most efficiently when one large firm supplies all of the output
Natural monopolies
the cost advantages that enterprises obtain due to size, output, or scale of operation with cost per unit of output generally decreasing with increasing scales as fixed costs are spread out over more units of output
Economies of scale
the process of distinguishing a product or service from others, to make it more attractive to a particular target market. This involves differentiating it from competitors’ products as well as a firm’s own products
Product differentiation
the act of redirecting resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit
Investment
the system that allows the transfer of money between savers and borrowers
Financial system
claim on the property or income of a borrower
Financial assets
a person who acts as a link between people in order to try to bring an agreement
Intermediaries
fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets
Mutual funds
spreading out investments to reduce risk
Diversification
a collection of financial assets
Portfolio
a formal contract to repay borrowed money with interest at fixed intervals
Bonds
the interest rate that a bond issuer will pay to a bondholder
Coupon rate
the amount that an investor pays to purchase a bond that will be repaid to investor at maturity
Par value
the annual rate of return on a bond if the bond were held to maturity
Yield
are expressed as letters ranging from ‘AAA’, which is the highest grade, to ‘C’
Bond ratings
Types of bonds
corporate, treasury, municipal, mortgage, investment, junk
a certificate of ownership in a corporation
Stocks
the portion of corporate profits paid out to stockholders
Dividend
getting more back than what you paid for it
Capital gain
getting back less than what you paid for
Capital loss
index that shows how stocks of 30 companies in various industries have changed in value
Dow Jones Industrial Average
a steady rise in the stock market over a period of time
Bull market
a steady drop in the stock market over a period of time
Bear market
Crash of 1929 (causes)
- borrowing money (credit)
- over-speculation (high-risk investments with borrowed money in hoped of getting a big return)
- lack of regulation
an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. Both earnings on the account and withdrawals after age 59½ are tax-free
Roth IRA
real GDP divided by the total population
GDP per capita
calculates GDP by adding up all the incomes in the economy
Income approach
totals annual expenditures on four categories of final goods and services (consumer, business or investment, government, net exports or imports)
Expenditure approach
a period of macroeconomic expansion followed by a period of contraction
Business cycle
Business cycle phases
- Expansion (a period of economic growth as measured by a rise in real GDP)
- Peak (the height of an economic expansion, when real GDP stops rising)
- Contraction (a period of economic decline marked by falling real GDP)
- Trough (the lowest point in an economic contraction, when real GDP stops falling)
the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding
Interest rates
a tax in which the percentage of income paid in taxes increases as income increases
Progressive tax
a tax for which the percentage of income paid in taxes remains the same for all income levels
Proportional tax
a tax for which the percentage of income paid in taxes decreases as income increases
Regressive tax
Federal expenditures (Top 3)
- mandatory spending
- interest on federal debt
- discretionary spending
taxes that fund Social Security and Medicare
FICA
the analysis of the effect of a particular tax on the distribution of economic welfare
Tax incidence
any commodity which is produced and subsequently consumed by the consumer, to satisfy its current wants or needs
Final goods
goods used in the production on final goods
Intermediate goods
GDP expressed in constant, or unchanging, prices
Real GDP
GDP measured in current prices
Nominal GDP
