PF Intro to Business Ch2 Vocab Flashcards
Economics
study of how society chooses to employ resources (5 factors of production) to produce goods and services and distribute them for consumption among various competing groups and individuals
Two types of economic study
macroeconomics & microeconomics
Macroeconomics
study of the operation of a nation’s economy as a whole
looks at how many jobs exist in the whole economy
Microeconomics
study of the behavior of people and organizations in particular markets
looks at how many people will be hired in a particular industry or region of a country
Resource Development
study of how to increase resources and to create the conditions that will make better use of those resources
Economic Theorists
Thomas Malthus, Adam Smith
Thomas Malthus
theorized that there are too many people in the world and that the solution to poverty is birth control, which includes measures as limits on the number of children people can have
Adam Smith
one of the first people to imagine a system of creating wealth and improving the lives of everyone
Invisible Hand
theory developed by Adam Smith that says self-directed gain turns into social and economic benefits for all
Supply
- refers to qty of products that manufacturers or owners are willing to sell at different prices at a specific time
- amount will increase as the price increases because sellers can make more money with a higher price
Demand
- refers to qty of products that people are willing and able to buy at different prices at a specific time
- qty demanded will increase as the price decreases - or as price increases the demand for the product decreases
if the does not go up and the demand is still high, the process will then increase because there isn’t enough of the product to meet the need of the customers
oil industry is an example of supply and demand - more and more people purchase cars there is a greater need for fuel - because demand has increased gas prices continue to rise
Equilibrium Point
place where qty demanded and supplied meet…market price will tend toward this
ideal economic situation is amount of goods sought by buyers is equal to the amount of goods produced by suppliers
Business Cycle
denotes a common pattern where there is a period of rapid growth (recovery & prosperity) in the economy when supply and demand stimulate each other - alternating with a period of decline with diminishing demand and supply - also called economic cycle
Free Market
where decisions about what to produce and in what quantities are made by the market, by buyers and sellers negotiating prices for goods and services
4 Types of Competition
Perfect Competition, Monopolistic Competition, Oligopoly, Monopoly
Perfect Competition
xists when there are many sellers in a market, no seller is larger enough to dictate the price of a product, and the products are similar
no true examples of perfect competition
Monopolistic Competition
exists when a large number of sellers product products that are very similar but are perceived by buyers as different
Oligopoly
a form of competition where just a few sellers dominate the market
Monopoly
occurs when there is only one seller for a product or service
Socialism
an economic system based on the premise that some, if not most, basic businesses such as steel mills, coal mines, and utilities should be owned by the government so that profits can be evenly distributed among all the people.
socialist countries charge a value-added tax - like a sales tax on most goods purchased
socialists acknowledge the major benefit of capitalism - wealth creation
Benefits of Socialism
- Social equality because income is taken from the wealthier people in the form of taxes and redistributed to the poorer members of the population through various government programs
- Workers in socialist countries usually get longer vacations than those in capitalist countries
- Tend to work fewer hours per week
- More employee benefits - such as sick leave
Negative Consequences of Socialism
- takes away from businesspeople’s incentives and enthusiasm to start work early and leave late
- takes away incentives to start new businesses or market new ideas
- often many leave socialist countries for more capitalistic ones with lower taxes
- generally discourages the best from working as hard as they can
Brain Drain
loss of best and brightest people to other countries
Communism
an economic and political system in which the state (government) makes almost all economic decision and owns almost all the major factors of production
Karl Marx - wrote the communist manifesto, founder of communism
Negative of communism is that the gov’t has no way of knowing what to produce because prices don’t reflect supply and demand as they do in free markets. Gov’t must guess what the economic needs of the people are.
Mixed Economics
Nations of the world are divided between those that have followed concepts of capitalism and those that have followed or adopted concepts of communism or socialism
economies where some allocation of resources is made by the market and some by the government
US is a mixed economy
Free Market Economies
market largely determines what goods and services get produced who gets them and how the economy grows
Command Economies
government largely decides what goods and services get produced, who gets them and how the economy grow
Economic Indicators (3 major indicators)
- gross domestic product (GDP)
- unemployment rate
- price indexes
Gross Domestic Product (GDP)
total value of final goods and services produced in a country in a given year
either a foreign or domestic may produce the goods and services included in the GDP as long as the companies are located within the country’s boundaries
one way to measure GDP is per capita - GDP number divided by population
Gross National Product (GNP)
similar to GDP, but only counts americans producing products in the country not other foreign nationals
major influence on growth of GDP is how productive the workforce is - how much output workers create with a given amount of input
Unemployment Rate
number of civilians at least 16 years old who are unemployed and who have tried to find a ob within the prior four weeks
Types of unemployment
frictional
structural
cyclical
season
frictional unemployment
occurs when people are between jobs
structural unemployment
something within industries has changed that results in unemployment
cyclical unemployment
not enough jobs for people who want to work and is usually a result of political or economic forces
seasonal unemployment
might occur in construction jobs for example
Price Indexes
indexes of the changes in goods and prices of goods and services based on the prices of the same goods and services from a previous period
they help to measure the health of the economy by measuring the levels of inflation, deflation and stagflation
Consumer Price Index (CPI)
measures the prices of products from month to month so economists can measure inflation
measures price change from the purchaser’s perspective
Inflation
refers to general rise in prices of goods and services over time
Hyperinflation
phenomenon where the cost of goods is rising so quickly that it renders the currency virtually worthless
many believe that inflation of over 50% is hyperinflation
Stagflation
occurs when both inflation and unemployment are high and occurring at the same time
cause may be misguided fiscal and monetary policy
harmful to a country because it means prices are rising while people are losing their jobs or don’t have jobs
Deflation
prices are actually declining
occurs when countries produce so many goods that people cannot afford to buy them all - means that demand and supply are out of balance
Producer Price Index (PPI)
measures prices at the wholesale level
measures price change from the perspective of the seller
Fiscal Policy
federal gov’t efforts to keep the economy stable by increasing or decreasing taxes or gov’t spending
- first half of fiscal policy involves taxation
high taxation tends to slow economy because it draws money away from the private sector and puts it into the gov’t - second half of fiscal policy involves gov’t spending
National Debt
sum of gov’t deficits over time
Recession
when GDP falls for two consecutive quarters
prices fall, people purchase fewer products and businesses fail
Depression
is a severe recession
A depression usually occurs during times of deflation and A depression usually occurs during times of deflation and unemployment and is extremely serious.
Recovery
occurs when the economy stabilizes and starts to grow again
Monetary Policy
ultimately what adds or subtracts money from the economy
is the management of the money supply and interest rates and this is what helps control the growth or slowing of the economy
Monetary policy is controlled by the federal Reserve system
most obvious role of the federal Reserve is the raising and lowering of interest rates.
When the economy is booming, the fed tends to raise interest rates, which makes money more expensive to borrow.
The opposite is true when the fed lowers interest rates. Businesses tend to borrow more, and the economy takes off
