Economics Flashcards
Economics
The science that studies the choices of people trying to satisfy their wants in a world characterized by scarcity
Scarcity
Wants greater than resources
Opportunity Cost
What you give up to do what you are doing
Zero Opportunity Cost
Exists when someone doesn’t give up anything in choosing to do something else
Macroeconomics
The big picture
Satisfaction
Utility
Choice
A consequence of scarcity
Zero Price
No dollars or cents are charged for a good
Free Rider
Receives the benefits but does not pay anything
Private Good
Benefits of the good can be denied to a person
Public Good
Benefits of the good cannot be denied to anyone
Contract
An agreement between two or more people to do something
Total Revenue
Price times number of units sold
Incentive
Encourages or motivates a person toward action
Law of Demand
Price and quantity demanded move in opposite directions
Law of Diminishing Marginal Utility
Eventually the utility of additional unit decreases
Quantity Supplied
Specific number of units of a good produced and offered for sale at a specific price
Unit Elastic
Percentage change in quantity demanded equals percentage change in price
Increase in Resource Prices
Will end up shifting supply curve to the left
Normal Good
Income rises, demand for good rises
Substitutes
Price of good A moves in the same direction as demand for good B
Shortage
Exists when quantity demanded is greater than quantity supplied
Surplus
Exists when quantity supplied is greater than quantity demanded
Equilibrium Price
The price that exists in the market when the quantity supplied of a good equals the quantity demanded
Equilibrium
The market setting in which the quantity supplied of a good equals the quantity demanded
Brute Force
A rationing device that is not commonly used today in the United States
Price
A commonly used rationing device in the United States
Fixed Cost
Does not change as business firm produces more units of a good
Board of Directors
Chosen by the stockholders of the firm
Corporation
Form of business organization in which owners have unlimited liability
Marginal Revenue
Additional revenue gained from selling an additional unit of a good
Partnership
Form of business organization in which owners have unlimited liability
Stockholder
One of the owners of the corporation
Total Cost
Fixed cost plus variable cost
Government Monopoly
Legally protected from competition
Copyright
Like a patent, but for authors or publishers
Perfect Competition
A market in which firms have no control over price
Monopolist
Single seller of a good
Monopolistic Competition
Many sellers and slightly differentiated products
Oligopoly
Few sellers and identical or slightly differentiated products
Patent
Effective for 17 years
Equilibrium Wage Rate
The wage rate at which the quantity of labor supplied equals the quantity demanded
Right-To-Work-Law
Law that makes it illegal for employers to requre union membership as a condition of employment
Minimum Wage
A wage rate determined by Congress
Unemployment Rate
The number of persons unemployed divided by the number of persons in the civilian labor force
Closed Shop
An organization that hires only union members
Union Shop
An organization that does not require individuals to be union members in order to be hired but does require them to join the union within a certain period
A Retired Person
An example of a person not in the labor force
A Person on Strike
An example of an employed person
Positive Balance of Trade
Exports greater than imports
Negative Balance of Trade
Exports less than imports
Comparative Advantage
Producing at lower opportunity cost
Tariff
A tax on imported goods
Quota
A legal limit on the amount of a good that may be imported
Infant-Industry Argument
Idea that new industries have to be given time to develop
Dumping
Selling below cost and below the price domestic residents are asked to pay
Appreciation Occurs
When a nation’s currency fetches more of some other nation’s currency
Cooperative
A business that provides services to its members and is not run for profit
Sole Proprietorship
A business that is owned by one individual who makes all business decisions, receives all the profits or takes all the losses of the firm, and is legally responsible for the debts of the firm
Limited Partner
In a limited partnership, a partner who cannot participate in the management of the firm and who has limited liability.
General Partner
In a limited partnership, a partner who is responsible for the management of the firm and who has unlimited liability
Dividend
A share of the profits of a corporation distributed to stockholders
Asset
Anything of value to which the firm has legal claim
Bond
A statement of debt issued by a corporation. The corporation promises to pay a certain sum of money at maturity and also to pay periodic fixed sums until that date
Franchise
A contract by which a firm (usually a corporation) lets a person or group use its name and sell its goods in exchange for certain payments being made and certain requirements being met
Marginal Costs
The change in total cost that results from producing an additional unit of output
Variable Costs
Cost, or expense that changes with the number of units of a good produced
Profit
The amount of money left over after all the costs of production have been paid. Profit exists whenever total revenue is greater than total costs.
Wage Rate
The price of labor
Minimum Wage Law
A federal law that specifies the lowest hourly wage rate that can be paid to workers, this law is established by Congress
Labor Union
An organization that seeks to increase the wages and improve the working conditions of its members
Taft-Harley Act
An act, passed in 1947 by the U.S. Congress, which gave states the right to pass right-to-work laws. These right-to-work laws prohibit employers from establishing union membership as a condition of employment
Downsizing
Restructuring a firm and decreasing its size so that it is a less costly, more productive, more efficient operation
Global Competition
Competition from all over the world. American business firms and workers today are said to be faced with global competition.
Technology
The body of skills and knowledge concerning the use of resources in production
Barter Economy
An economy in which trades are made in goods and services instead of money
Double Coincidence of Wants
The situation in which each of two parties to an exchange has what the other wants
Money
A good that is widely accepted for the purposes of exchange
Face Value
The stated denomination on paper money or coins
Checking Account
A deposit that is withdrawable on demand and transferable by means of a check. It is also known as a demand deposit and is the largest component of the money supply
Near Money
Assets, such as non checking savings accounts, that can be easily and quickly turned into money
Debit Card
A card that can be used to withdraw funds at automated teller machines and to pay for purchases by electronically transferring funds from one account to another
Money Supply
The total supply of money in circulation, composed of currency, checking accounts, and traveler’s checks.
Reserve Requirement
A regulation which requires a bank to keep a certain percentage of each dollar deposited in the bank in its reserve account at the Fed or in its vault (as vault cash)
Open Market Operations
Buy and selling of government securities by the Fed
Discount Rate
The interest rate the Fed charges a member bank for a loan
Federal Funds Rate
The interest rate one bank charges another bank for a loan
Demand-Side Inflation
An increase in the price level that originates on the demand side of the economy
Supply-Side Inflation
An increase in the price level that originates on the supply side of the economy
Deflation
A decrease in the price level
Full Employment
The situation that exists when the official unemployment rate equals the natural unemployment rate
Frictional Unemployment
Refers to workers who have lost their jobs because of changing market (demand) conditions and who have transferable skills
Structural Unemployment
Refers to workers who have lost their jobs because of changing market (demand) conditions and whose skills do not match the requirements of available jobs
Specialize
To do only one thing. For example, when a country specializes in the production of a good, it produces only that good.
Comparative Advantage
The situation in which a country can produce a good at a lower opportunity cost than another country
Economic Integration
When nations combine to form either a common market or a free-trade area
NAFTA (North American Free Trade Agreement)
Created a free trade area for Canada, the United States, and Mexico
