Econ Unit 2 Pt 2
black market
"underground"/illegal market in which goods are traded at prices above their legal maximum prices or in which illegal goods are sold.
some ways you can decide how much to save?
-consider risks involved -consider your values -know reasons for saving -find out how much you spend on fixed expenses
startup
beginning business enterprise
sole proprietorship
business owned and operated by own person
partnership
business that two or more individuals own and operate
how does the principle of voluntary exchange operate in a market economy?
buyer and seller work out the terms of an exchange. seller sets a price on the market and the buyer agrees to the product and price by purchasing the product
treasury bills
certificates issued by the US treasury in exchange for a minimum amount of $1000 and maturing in a few days up to 26 weeks
treasury notes
certificates issued by the US treasury in exchange for minimum amounts of $1000 and maturing in 2-10 yrs
pension plans
company plans that provide retirement income for their workers
compare and contrast sole proprietorships and partnerships
compare: -easy to set up -unlimited liability -low taxes -legally dissolved/nonexistent if an individual dies sole proprietorships: -owner has complete control over company's finances and operations, does not need to consult with anyone -liable for themselves -no conflicts -automatically do not exist of the owner sells business or dies partnerships: -all partners have input regarding company's decisions -partners are liable for each other -partners may encounter conflict through disagreements -legally dissolve if a partner dies/leaves, unless partnership agreement contains proper procedures
how do stocks and bonds differ?
corporations sell stock, but are not required to issue bonds. bonds represent debt, while stocks represent ownership. stocks do not have maturity dates, while bonds do.
capital loss
decrease in value of an asset from the time it was bought to the time it was sold
if income and population increase, what tends to happen to demand curves?
demand curves shift to the right
Some advantages of owning an apartment?
-only requires security deposit and 1-2 months of rent up front -dont have to pay maintenance costs/real estate taxes -allows greater mobility
5 determinants of demand
1) changes in population 2) changes in income 3) availability and price of substitutes 4) changes in consumers' tastes and preferences 5) price of complementary goods
4 things you must do before starting a business?
1) invest your money into an inventory 2) invest into advertising 3) keep record of your expenses and income 4) balance the risks against the advantages of being in business
5 ways of investing for retirement
1) pension plans 2) IRA 3) Roth IRA 4) Buying real estate 5) Keogh Plan
4 determinants of supply
1) price of input: cost of direct material/labor devoted to the production of a good/service 2) # of industry firms: increase/decrease in firms means more/less production 3) any improvement in technology increases supply 4) if gov imposes more taxes, cost of production rises
list high to low, the five possible investments you could make w $100,000 in funds
5) treasury bills/notes/bonds 4) FDIC insured bank CDs or savings accounts for short term investments 3) AAA rated corporate bonds 2) participation in real property deeds of trust 1) preferred stock/common stock
"don't put all your eggs in one basket" is an example of?
diversification
demand curve
downward sloping line that shows in graph form the quantities demanded at each possible price
elasticity
economic concept dealing with consumers' responsiveness to an increase or decrease in the price of a product
price elasticity of demand
economic concept that deals with how much demand varies according to changes in price
law of diminishing returns
economic rule stating that as more units of a factor of production are added to the other factors of production, after some point total output continues to increase but at a diminishing rate
substitution effect
economic rule stating that if two items satisfy the same need and the price of one rises, people will buy more of the orher
real income effect
economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same
law of supply
economic rule stating that price and quantity applied move in the same direction
law of demand
economic rule stating that the quantity demanded and price move in opposite directions
over the counter market
electronic purchase and sale of stocks and bonds, often of smaller companies, which often takes place outside the organized stock exchanges
elements of business
expenses, receipts, record keeping, risks, advertising
inventory
extra supply of the items used in a business (i.e raw materials or goods for sale)
explain how shortage of tickets determines price of tickets
higher the demand, higher amount of money people are willing to pay
how do price floors/price ceilings restrict the free exchange of prices?
if price ceilings are high, producers supply more. if price floors are low, not enough supply will be produced for demand
receipts
income received from the sale of goods/services; also slips of paper documenting a purchase
capital gain
increase in value of an asset from the time it was bought to the time it was sold
two advantages of US savings bonds?
interest is not taxed until bond is turned in for cash
how is equilibrium price determined?
intersection of supply and demand
mutual fund
investment company that pools the funds of the many individuals to buy stocks, bonds, and other investments
savings bonds
issued by the federal gov as a way of borrowing money; they are purchased at half the face value and increase every 6 months until full face value is reached
price ceiling
legal maximum price that may be charged for a particular good/service
price floor
legal minimum price below which a good/service may not be sold
corporate charter
license to operate granted to a corporation by the state where it is established
difference between limited partnership and joint venture?
limited partnership is permanent but unequal. joint venue is temporary but members are equal
articles of incorporation
list basic info about a corporation that filed with the state where the corporation will be headquartered
knowing about diminishing marginal utility, how would you price your popcorn after halftime?
lower price
stock market indexes
measures of what is happening to a given set of stock prices for a specified list of companies; the most well known is the Dow Jones Industrial Average
what kind of investment company hires professionals to manage the investments of a pool of investors?
mutual fund investment company hires brokers
limited partnership
one or more partners have limited liability but no voice in management
what is the value of your time called?
opportunity cost
proprietor
owner of a business
joint venture
partnership set up for a specific purpose or a short period of time
stockholders
people who have invested in a corporation and own some of its shares of stock
broker
person who acts as a a go-between for buyers and sellers of stocks and bonds
entrepreneur
person who organizes, manages, and assumes the risk of a business in order to gain profit
equilibrium price
price at which the amount producers are willing to supply and is equal to the amount consumers are willing to buy
small-business incubator
private or gov funded agency that assists new businesses by providing advice or low rent building and supplies
individual retirement account (IRA)
private retirement plan that allows individuals or married couples to save a certain amount of untaxed earnings per year with the interest being tax deterred
Roth IRA
private retirement plan that taxes income before it is saved, but does not tax interest on that income when funds are used upon retirement
market
process of freely exchanging goods and services between buyers and sellers
complementary good
product often used with another product
what happens to quantity demanded when the price of a good goes up?
quantity demanded goes down
limited liability
requirement in which an owner's responsibility for a company's debts is limited to the side of the owner's investment in the firm
unlimited liability
requirement that an owner is personally and fully responsible for all losses and debts of a businesses
Keogh plan
retirement plan that allows self employed individuals to save a maximum of 15% of their income up to a specified amount each year + deduct that amount from their yearly taxable income
which gov agency regulates stock and bond markets?
securities and exchange commission
stock
share of ownership in a corporation that entitles the buyer to a certain part of the future profits and assists of the corporatkon
common stock
share of ownership in a corporation that give stockholders voting rights and a portion of future profits (after holders of preferred stock are paid)
elastic demand
situation in which a given rise or fall in a product's price greatly affects the amount that people are willing to but
inelastic demand
situation in which a product's price has little impact on the quantity demanded by consumers
shortage
situation in which the quantity demanded is greater than the quantity supplied at the current price
surplus
situation in which the quantity supplied is greater than quantity demanded at the current price
if you need help starting a small business, where can you look?
small business administration, small-business incubators, also can look on the Internet to gain tips
tax-exempt bonds
sold by local and state gov; interest paid on the bond is not taxed by federal gov
what is the most common form of business organization?
sole proprietorship
diversification
spreading of investments among several different types to lower overall risk
law of diminishing marginal utility
states that additional satisfaction a consumer gets from purchasing one more unit of a product will less with each additional unit purchased
what would an increase in taxes do to the position of the supply curve?
supply curve would shift to the left, indicating a decrease in supply
demand schedule
table showing quantities demanded at different possible prices
supply schedule
table showing quantities supplied at different possible prices
what terms describe the difference between the purchase price of a stock and the sale price of a stock?
tax basis/cost basis
how does the incentive of greater profits affect supply?
the higher the price of a good, the greater the incentive for a producer to produce more
when the price of a good changes, what effects tend to create the law of demand?
the inverse/opposite relationship between quantity demanded and price
voluntary exchange
transaction in which a buyer and seller exercise their economic freedom by working out their own terms of exchange
limited liability company
type of business enterprise that protects members against losing all of their personal wealth; members are taxed as if they were in a partnership
corporation
type of business organization owned by many people but greater by law as though it were an individual; it can own property, pay taxes, make contract, sue/be sued
money market fund
type of mutual fund that used investors' funds to make short term loans to businesses and banks
supply curve
upward sloping line that shows in graph form the quantities supplied at each possible price
technology
use of science to develop new products and new methods for producing and distributing goods and services
how does the elasticity of demand affect the price for a given product?
when demand is elastic, the effect of getting more money for each unit is dominated by the effect of selling fewer units, so revenue falls in reponse to a price increase when a demand is elastic
rationing
when distribution of goods/services are based on something other than price
how do shifts in equilibrium price occur?
a change in supply/demand will shift the equilibrium price
utility
ability of any good or service to satisfy the consumer wants
advantages and disadvantages of a partnership?
advantages: -more efficient -low taxes -good borrowing potential disadvantages: -decision making is slower -disagreements can lead to problems
advantages and disadvantages of a sole proprietorship?
advantages: -satisfaction from being the boss -control over the vision of the business -receive all of the profits -pay income taxes only on profits disadvantages: -time consuming and demanding -owner has unlimited liability -personal assets may be seized to pay off business debts
assets
all items to which a business or household holds legal claim
quantity demanded
amount of a good or service that a consumer is willing and able to purchase at a specific price
quantity supplied
amount of a good or service that a producer is willing to supply at a specific price
demand
amount of a good or service that consumers are able and willing to buy at various prices during a specified time period
supply
amount of a good or service that producers are able and willing to sell at various prices during a specified
marginal utility
an additional amount of satisfaction