Economics and Personal Finance- Module 1-40

Externality

A benefit or cost of a business transaction that affects a third party.

Copyrights

A bundle of legal rights that protects intellectual property.

Profit maximization

A business decides how much to sell and produce to make a maximum profit.

Monopoly

A business has no real competition. Monopolies are legal in the U.S. when acquired through superior skill and foresight but not legal if formed by collusion.

Mixed Economy

Combines characteristics of both a market economy and a command economy. The markets play the major role in economic development. Governments do not tell individuals and firms directly to produce certain goods and services, but they impose some limitations to guide production and to protect consumers and workers from unfair treatment.

Invisible hand

Commonly used metaphor to describe the self-regulating nature of the marketplace. Smith claimed that by pursuing their own interests, individuals frequently provide unintentional benefits to society more effectively than when they try to do so intentionally.

Demand inelasticity

Consumers are not very responsive to price changes.

Consumer sovereignty.

Consumers are the ultimate decision-makers because firms try to fulfill their demand.

Perfect information

Consumers know all the products being sold in the market and all the prices.

Dependency Theory

Dependency is when a country's economy is directly impacted by the development and expansion of another country's economy. Economic dependency is risky, particularly when it reduces food security.

Subsidies

Grants of money that lower the cost of a good or service to account for social benefit.

One variable graphs

Graphs involving one variable affecting another value.

Four categories of resources

Labor or human resources, land or natural resources, capital resources, and entrepreneurship, or the willingness to risk starting a business undertaking and skill to make the business successful.

The difference between a regulation and a law?

Laws in the United States are passed by Congress, a state legislature, or local governments and can be enforced directly by courts. Regulations are written by regulatory agencies and are also referred to as administrative law. Federal regulations are compiled in the Code of Federal Regulations (CFR).

Contract

Legal agreement enforceable by law.

Economic profit

The financial gain from an investment that includes opportunity cost.

Industrial organization

The study of firms and market structure.

Economics

The study of how individuals and societies make choices under the condition of scarcity.

Microeconomics

The study of how individuals, households, and businesses make choices about the production, allocation, and consumption of scarce resources. In particular, it focuses on how an individual or firm makes a decision given limited resources.

Microeconomics

The study of how individuals, households, and businesses make choices. Micro is derived from the Greek word for small. Microeconomics focuses on the behavior of the units—individuals, households, and businesses—in an economy.

Macroeconomics

The study of the economy as a whole. Macro is derived from the Greek word for large. Macroeconomics doesn't focus on the behavior of any single firm or household; rather, it examines the aggregate or total behavior.

Cost of production

The sum of the cost of the resources used to make a product.

Market supply

The supply of all the individual producers in the market.

Total product

The total quantity produced for each level of labor.

Four major types of economic systems

The traditional economy, the command economy, the market economy, and the mixed economy.

Scrap value

The value of an asset when it is fully depreciated, when it is no longer considered usable.

Fixed cost

They remain fixed no matter how many units of goods or services you produce. For example, if you rented scissors, trimmers, and other equipment from your friend at $10 per day to provide haircuts, this would be a fixed cost.

Elasticity

Refers to the response of consumers and suppliers to changes in price (responsiveness to change).It describes how much buyers and sellers change demand when price changes. It is equal to the percentage change in quantity divided by the percentage change in price. Price elasticity of demand (PED); whereas for producers it is reflected by the price elasticity of supply (PES).

Human capital

Refers to the skills and knowledge a person has acquired through experience and/or education.

Division of labor

Refers to the specialization of work based on specific activities

Market demand curve

Reflects the inverse relationship that exists between a good's price and its quantity.

Loans

Something that is burrowed and expected to be payed back with interest.

Imports

When a country buys from another country.

Exports

When a country sells to another country.

Trade surplus

When a nation exports more goods and services than it imports.

Trade deficit

When a nation imports more goods and services than it exports.

Negative externality

When a third party receives an unwarranted cost.

Free-rider problem.

When non-payers receive free goods or services.

Conglomerate mergers

When the businesses have little in common—for instance, an electronics company merging with a cable television provider.

Government failure

When the cost of solving a market failure is greater than the benefits.

International trade

When trades and exchanges occur across international borders. It is important because of its effect on nations' overall economic activities.

Horizontal mergers

When two companies that make competing products—for instance, two car companies—merge to enjoy greater economies of scale or gain more market power.

Trade-offs

When you give up something to gain something else.

Social programs

(ex. Social Security and Medicare)

Weights and measures

(ex. when they pay for ten gallons of gas, they are getting exactly ten gallons. This promotes fairness between buyers and sellers.)

Three basic economic questions

1) What should I produce? 2) How should I produce it? 3) Who will buy the goods or services?

Partnership

A business owned jointly by two or more people. Three types: General partnerships, limited partnerships and joint ventures. Partnerships are relatively easy and inexpensive to form. Owners share commitment, decision-making, profits, and responsibilities; however, each partner can contribute a unique set of skills and expertise to the success of the business. The incentive of becoming a partnership may attract highly motivated and qualified employees. The tax advantage of a partnership over a corporation is that the owners are taxed only once—on their personal tax returns. As with sole proprietorships, business decisions can be made efficiently, without involving shareholders, officers, and directors. Laws concerning partnerships vary among states; however, the Uniform Partnership Act has been adopted in every state except Louisiana, which means partnership laws are generally uniform across the country. Acquisition of capital can be easier in a partnership than in a corporation since individuals often receive better loan terms. Banks perceive loans to individuals to be less risky since personal assets can be used to secure a loan. In addition, limited partnerships allow investors to avoid the personal liabilities of general partners. Costs Owners face unlimited liabilities, not only for their own actions but also for the actions of their partners. There is no "chain of command" in decision-making, which creates the potential for conflicts among partners. By law, a partnership is dissolved whenever any partner retires, resigns (known as withdrawing), or dies. However, this situation can be avoided by drawing up a partnership agreement that stipulates how a business can continue if a partner retires, withdraws, or dies. According to the Uniform Partnership Act, the existence of a partnership is dependent upon the owners. Ownership (partnership) cannot be transferred unless all other owners agree.

Pie Chart

A circular graph divided into slices, where each slice represents a percentage.

Indifferent

A consumer who equally prefers two different products.

Limited liability company

A cross between the limited liability feature of a corporation and the taxation and operational features of a partnership. Benefits Liability for business losses or actions of the LLC do not apply to the personal assets of individual members of the LLC. Exceptions apply, such as tort actions by employees due to accidents. Tort is any wrongdoing not involving breach of contract for which a legal action for damages may be filed. Perhaps the most significant benefit is the minimal amount of start-up expense and recordkeeping required. There are few restrictions on profit sharing in contrast to partnerships, where profits must be evenly distributed. Taxation is "passed-through" to individual members' returns, rather than the double taxation of C corporations, where both the corporation and shareholders are taxed. Costs The lifetime of an LLC may be limited to the participation of the original members. In many states, this means the business disbands when a member leaves the LLC; however, it may be possible to prevent dissolution by creating an operating agreement that provides for the departure of a member. The entire net income of an LLC is subject to Medicare and Social Security taxes.

Derived demand

A demand for one thing based on the demand for another.

Patent

A form of intellectual property that consists of a set of exclusive rights granted by a sovereign state to an inventor for a limited period of time in exchange for the public disclosure of an invention.

Positive externality

A free benefit to a third party.

Factor market

A market for the factors of production where they are bought and sold.

Productivity

A measure of how much a worker can produce in a given amount of time, usually helped by a machine or piece of equipment.

Vertical mergers

A merger between companies that do business with each another but do not compete with each other.

Negative incentive

A penalty that discourages a certain type of behavior.

Marketability.

A person's market value based on how experienced and employable they are.

Franchise

A relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group (the franchisee) that wants to use this identity as part of a business. Benefits The franchise may provide the resources (e.g., financing assistance, training, marketing, and management expertise) necessary to assure the franchisee's success. The franchisee has exclusive rights to operate the business within a defined area. Costs The price of the franchise may be very high. There is very limited flexibility on how to run the business.

Positive incentive

A reward or other enticement that encourages a specific type of behavior.

Market failures

A scenario in which the free market does not provide necessary goods and services—such as clean air, police protection, and highways.

Indifference map

A set of indifference curves with different degrees of satisfaction on the same graph.

Budget constraint

A set of product bundles that a consumer can purchase with a limited budget.

Economic model

A simplified representation, such as a graph, of an economic environment.

Place or product distribution

A step in the production process where goods and services are transferred to those who use them.

Incentive

A thing or idea that is used to encourage or discourage people form making certain decisions.

Incentive

A thing or idea used to encourage or discourage people form making certain decisions in a certain way.

Technology-based standard

A type of regulation that specifies the method that needs to be used. (ex. Instead of allowing flexibility, a government agency could adopt a regulation requiring all coal-burning power plants to install scrubbers.)

Performance-based standard

A type of standard that sets target outcomes that firms must achieve)

Bond

A written and signed promise to pay a certain amount of money on a certain date or with certain conditions.

Consumer preference

About consumers' likes and dislikes. It also helps explain how a consumer ranks any two consumption bundles.

Supply

Supply is the varying amounts of a good or service that producers are willing and able to release on the market at different prices in a particular time period.

C Corporation

According to the IRS, there are four characteristics that define a corporation: limited liability in terms of personal assets, continuity of life, centralization of management, and the ability to transfer ownership interests. If you wish to have more than two of these characteristics, you will have to incorporate your business and operate as a corporation. Benefits C corporations can raise capital by selling shares of the business to prospective shareholders in exchange for money, property, or both. The initial sale of stock is often done when the business "goes public" through an initial public offering, known as an IPO. To justify the expense of setting up and registering a corporation, the business should have enough income or potential income to reap the benefits of a large entity. Such benefits could include the following: 1) capital to make large-scale investments; 2) qualifying for bank loans and lines of credit; and 3) achieving economies of scale through large purchases. Limited liability. Corporations have limited liability, in that individual employees (including management) or shareholders are not personally liable for the actions or indebtedness of the corporation. Corporate tax treatment. Corporations usually pay lower taxes, and only on the profits of the corporation. In addition, these taxes are completely separate from the taxes paid by individual owners of the corporation. Individuals would, however, pay personal taxes on bonuses, salaries, and dividends received from the corporation. Not only is partial ownership attractive to employees, it also motivates employees to make the company successful. Another attraction—though not necessarily unique to C corporations—is employee benefits, such as health insurance and retirement plans, which are tax-deductible expenses for the corporation while adding to the employees' compensation. The corporation has a "perpetual existence," compared with employees or shareholders who may leave the corporation. Costs Corporations are double-taxed; profits are taxed at the corporate level and again when distributed to shareholders as dividends. Corporations are more expensive to establish and operate. Complex regulations consume many resources in terms of business accounting, environmental regulations, taxation, employer-employee relations, etc. The corporation is accountable to stockholders. Annual meetings are required, and major changes in the corporate structure or dividend policies require stockholder approval by vote.

Services

Action people value.

Indirect costs

Affect an entire operation rather than a specific product or service. Utilities, depreciation, office supplies, and rent are examples of indirect costs. Usually, such costs are called overhead.

Indifference curve

All bundles that are equally preferred with the same degree of satisfaction. Properties: (Indifference curves cannot cross one another and always slope downward.)

Cost

Amount of money spent on the inputs used in the production process.

Niche

An area in the market where a business feels it can compete successfully and make a profit.

Inferior goods

An decrease in demand as the income of an individual or economy increases.

The law of supply and demand

An economic model of price determination in a market.

Perfect competition

An economic model that describes a hypothetical market form in which no producer or consumer has the market power to influence prices. It involves many competitors that can enter or exit the industry with relative ease. (offers the same products.)

Traditional Economy

An economy in which the kind of work people do, the goods people produce, and the way the people use and exchange goods is all followed by tradition and custom.

Normal goods

An increase in demand as the income of an individual or economy increases.

The Quantity effect

An increase in price tends to decrease quantity demanded, whereas a decrease in price typically increases the quantity demanded.

The Price effect

An increase in price typically increases the revenue from a good.

Capital gain

An increase in the value of an incentive when it is sold at a higher price.

International Monetary Fund

An intergovernmental organization seeking to promote international economic cooperation.

Medium of exchange

An item that measures the value of exchanged goods and services in a commercial transaction.

Cooperative

An organization owned and operated by people who use its services; they are designated as members, or user-owners. Benefits Members receive reduced costs for products and/or services due to the economy of scale provided by the co-op. In addition, if there is an excess of funds at year's end, the money may be distributed to the members. The members cannot incur personal liabilities from the actions of the co-op. The democratic operation of the co-op allows all members to have an equal vote regarding how the business is run. For certain types of co-ops, funding opportunities may exist through government-sponsored grants. For an incorporated co-op, the taxation status is similar to a limited liability company (LLC) because surplus earnings are not taxed. Members pay taxes on any surplus distributions they receive. Costs Because of the democratic nature of the co-op structure, everyone likely will not be happy with all decisions made by the group and the decision-making process may be slow. It can be difficult to attract large investments since every member's vote carries equal weight regardless of the size of each member's investment.

Stock exchange

An organized and regulated financial market.

Inflation

An overall increase in the price level

Private enterprise

Based upon the right to own private property, which means people may use their possessions as they choose within the limits of the law. A business operation established by private individuals for profit.

Commodities

Basic goods produced to satisfy consumer wants.

Sole proprietorship

An unincorporated business owned by a lone individual. The sole proprietor pays taxes on the business through his or her personal tax returns. 73% of all U.S. businesses are this. Independence—the owner alone is responsible for all aspects of the business. Efficiency in decision-making (no board of directors or stockholders involved). Tax reporting to the IRS is relatively simple and inexpensive. Minor children of the sole proprietor may be hired without paying payroll taxes, and, if the child earns $5000 or less, he or she pays no income taxes. Healthcare reimbursement arrangements (HRAs), also known as IRC Section 105(b) plan, are available to the employees, spouses, and families of sole proprietors. This loophole in the tax laws allows an employer plan to reimburse employees for medical costs, including medical and dental insurance, deductibles, copayments, and other healthcare expenses. If a home office is used, a portion of office expenses, property taxes, utilities, and vehicle expenses may be tax deductible. The owner keeps all the profits. The letters THE IHO could be the first letters of words representing benefits of sole proprietorships: T Taxes H Healthcare E Efficiency I Independence HO Home office Costs The owner has limited ways to raise capital. Potential investors in the business cannot buy stock (there is no stock), making investment difficult to define and document. The owner has unlimited liability and can lose personal assets along with business assets. If there are employees, their mistakes may create liabilities for the business. On the other hand, a small unincorporated business has more creditworthiness than an incorporated business of similar size since the owner's personal assets will be added to those of the company for the purposes of assessing credit. Lenders are aware, however, that business owners can shift assets back and forth between personal property and the sole proprietorship. Therefore, lenders may require the owner to guarantee the loan personally, which means he or she must put up personal property as loan collateral. There is greater difficulty in attracting skilled employees to a smaller business. Potential employees usually prefer larger companies that tend to be more stable and may offer greater benefits.

Negative relationship

As one variable increases the other one decreases.

Oligopoly

Characterized by few companies because there is an extremely large capital investment required to enter the industry. A firm in an oligopoly could have the same products (e.g., aluminum or steel) or differentiated products (e.g., automobiles or soft drinks) as its competitors. Oligopolies have more control over pricing, but with few firms each knows what all the others charge for their products and must compete with them.

Market economies

Characterized by: private ownership of resources, which provides incentives for owners to weigh the merits of using these resources in the present or conserving them for future use competition among businesses, which tends to lower prices and raise quality prices determined in the marketplace through supply and demand consumer sovereignty, the concept that consumers' "dollar votes" tell businesses what they should produce profit motive, an incentive for businesses to produce what consumers demand in an efficient manner—keeping costs down—in hopes of earning greater profit limited government that acts as a referee—protecting consumers, workers, the environment, and competition in the marketplace

Proportional tax

High-income and low-income families pay the same percentage of their income on a tax.

Price takers

Companies that must accept the prices determined by the market.

Relative cost

Compared to the next best thing (ex. relative cost of 5 corn is 3 tomatoes)

Maximise satisfaction

Consumers analyze their choices based on their expected income and determine the best combination of goods they can afford.

marginal product

The extra output or additional product produced by hiring another unit of labor.

Sunk cost

Cost that is already incurred in the production process and cannot be recovered.

Social cost

Cost to all involved parties, is sometimes greater than the private cost.

Variable costs

Costs that change with the quantity of production of the good or service. For example, the cost of shampoo will change based on the number of customers who have you wash their hair.

S Corporation

Designated based on Subchapter S of Chapter 1 of the Internal Revenue Code. Filing as an S corp allows a business to avoid double taxation—once on the corporation profits and again on the shareholders. Benefits Lower taxation of the business owner is a significant feature of the S Corporation. The shareholder, who also is an employee, pays taxes on wages but also receives a dividend from the corporation for his stock, which is usually taxed at a lower rate. The corporation itself is not taxed because they "pass through" to the owners' income taxes. The shareholders/employees can write off business expenses. The shareholders are protected from liabilities incurred by the corporation. Since up to 100 shareholders are permitted, there are more opportunities to raise capital. Accounting rules can be simpler, compared to C corporations. Costs S corps are required to operate under strict processes, such as holding board of directors' and shareholders' meetings and keeping detailed records—similar to the demands on C corporations. Compensation requirements include a careful accounting for the wages and distributions of shareholder employees. A shareholder is required to receive reasonable compensation for services rendered to the corporation, even if the corporation is not making a profit. Shareholders will be taxed for income the corporation makes, even if they do not receive any of that income. Also, an S corporation can issue only one class of stock.

Marginal decisions

Doing a little more or less of something.

Maximizing satisfaction choices

Economists divide these choices into two main categories: (1) consuming goods and services and (2) earning income.

Elasticity chart

Elasticity Description Price Change Quantity Change Total Revenue Change E = 0 Perfectly Inelastic Increase Constant Increases E < 1 Inelastic Increase Small change Increase E = 1 Unit Elastic Increase Decrease Constant E > 1 Elastic Increase Decrease Decreases

Factor demands

Entrepreneur's demand for scarce factors of production used by businesses, such as natural resources, human resources, and capital resources.

Capital

Equipment, structures, and tools used in the production of goods and services.

Law of supply

Everything else being equal, as the price of a good or service increases, the quantity supplied of that good or service also increases.

Factors that determine elasticity of supply

Excess capacity (ex. Machines not in use), factor substitution (interchange production resources), length of production process (The longer it takes to produce a good the less elastic it is).

Involuntary exchanges

Exchanges made where both parties do not participate willingly or do not stand to gain from the exchange.

Intended consequences

Expected consequences

Determinants of supply

Factors other than price—that can cause a shift in supply.

Determinants

Factors other then the price of the good or the service that influence supply and demand.

Exogenous factors

Factors that affect a business from the outside.

Determinants of demand

Factors that determine changes in individual demand and market demand. Income, tastes/ preferences are determinants, prices of related goods and services, consumer expectation, and number of buyers.

Firms

Firms are business entities such as partnerships, corporations, and limited liability companies.

Collusion

Firms make a secret agreement to control a market.

Financial capital

Funds used to buy or rent tangible assets.

Exchange

Goods or services are received for equivalent goods or services.

Private goods

Goods that are excludable and rival.

Club goods "local public goods"

Goods that are excludable, but not rival.

Public goods "pure public goods"

Goods that are non- excludable and not rival.

Common-pool resources "common public goods"

Goods that are non-excludable, but rival.

Homogenous goods

Goods that compete against each other with little or no differences in product.

Capital goods

Goods that help produce other goods, and are used over and over for that purpose, rather than incorporated into the products.

Substitute goods

Goods that may replace each other in terms of consumption.

PACED decision Model

Helps people choose among various options. PACED (Problem, alternative, criteria, evaluate alternative, decisions)

Production

How goods and services are generated.

Factors that affect consumer surplus

How much the consumer values the good, the consumer's income, and the existence of substitutes.

Consumer demand

How people use their limited resources to make purposeful choices.

Time series graph

Illustrates how the value of a variable changes over time. (like a line graph)

Cost and benefits differences in different fields

In business, retail, and accounting, a cost is the value of money that has been used to produce something—afterward, this money is not available for use anymore. Generally speaking, a benefit is something of value or usefulness. In economics, a cost is an alternative that is given up as a result of a decision. In economics, a benefit is a quantifiable amount of money, such as revenue, net cash flow, or net income.

Micro and macro, long and short runs

In microeconomics, the long run is the time period in which there are no fixed factors of production that change the output level. In the short run, some factors are fixed and entry or exit from an industry is constrained. In macroeconomics, the long run is a time period when the general price level, contractual wage rates, and expectations adjust fully to the state of the economy—in contrast to the short run, when these may not fully adjust.

Land or natural resources

Includes all types of natural resources—physical land, timber, water, oil, minerals, and plants.

Capital resources

Includes equipment, machines, tools, and infrastructure. Examples of capital include factories, computers, copy machines, forklifts, heavy equipment, and trucks.

Revenue

Income generated by the sale of goods and services.

Market Economy

Individuals and firms can determine what they want to produce, how much they want to produce, and who will receive the goods and services produced.

Private ownership

Individuals are allowed to own property and use it in any legal way they see fit.

Entrepreneurs

Individuals who take calculated risks, bring resources together, develop new products, and start new businesses. They recognize opportunities, such as working for themselves. Entrepreneurs accept risks in organizing resources because they expect to earn a profit.

Average product/ "labor productivity."

It can be expressed mathematically as the total product divided by the number of laborers, which is the average amount produced by a single laborer:

Production function

It demonstrates how inputs can be combined to produce outputs. It is the mix among three factors of production (natural, human, and capital resources) and the resulting output. It refers to producing the greatest quantity of a product with the available factors of production and current technology.

The short run of the production function

It explains how much production is possible if only one factor of production is increased or decreased, while the other factors remain the same.

The long run of the production function

It explains the amount of any resource can be increased or decreased, which changes the production function. It is a period of time long enough for a company to adjust its outputs based on every variable it can manipulate.

equilibrium point and price

It is where supply meets demand either in prices or on a chart.

Cost-benefit analysis

It looks at a potential or proposed project to see if it is practical or if it could potentially yield higher benefits compared to costs.

Cost and profit analysis

It looks at the costs and profits of an existing business venture. This analysis helps a business find ways to increase revenue and maximize profits.

Price

It shows that sellers are willing to part with a good or service in exchange for a set price

Direct costs

Linked directly to a product or service, such as the raw materials or labor required to produce the product or service. Direct materials and direct labor are the most common direct costs.

Regressive

Low-income families pay a higher percentage then high-income families.

Perfectly competitive market

Main characteristics of a perfectly competitive market: 1) A product sold by multiple firms is essentially the same. 2) There are enough businesses and consumers in the market so that none can individually influence the market. 3) There are few or no barriers for businesses entering the market. 4) Each firm is a price taker, meaning that the price they charge is determined by the market. 5) Consumers and firms have perfect information, meaning that they are aware of all other products and firms in the market.

Serendipity

Making fortunate discoveries by accident.

Gross Domestic Product (GDP)

Measures the value of all the goods and services that a country produces during a specific year. Often used to measure standard of living.

Leakage

Money escapes from the circular flow of the economy. An example is savings.

Injection

Money that is added to the circular flow of the economy. An example is investments.

Trusts

Monopolistic groups of corporations that work together to reduce competition and control prices throughout a business or an industry.

Inelastic

Not very responsive to change in price.

Liability rules

Obligations based on law and are accompanied by possible punishments (such as fines). For example, you have a liability to follow the rules of a legal contract you have signed.

negative unintended consequence

Occurs when an action causes unexpected harm or has unexpected costs.

positive unintended consequence

Occurs when an action has unexpected benefits. "the invisible hand?" coined by Smith references this term.

Specialization

Occurs when an individual, business, or country focuses on producing a few goods or services to trade for other goods and services.

Asymmetric information

Occurs when someone in the market knows more than others in the market. For instance, a cereal manufacturer may know the nutritional value of its product, but the consumers do not.

Market failure

Occurs when the market forces of supply and demand do not lead to an outcome society desires.

Shift in a demand curve

Occurs when the quantity demanded changes even though price remains the same.

Consumer Market

Refers to households purchasing and selling goods and services for their own use.

Statutory law

Refers to legislation passed by Congress.

Physical capital

Refers to man-made goods, such as tools, machines, and buildings.

Positive relationship

One variable increases, the other one increases.

Income redistribution

Other government social programs attempt to redistribute income from wealthier to poorer families.

Private sector

Part of the economy that is privately run.

Public sector

Part of the economy that is run by the local, state, or national governments.

Economies of scale

Refers to the cost advantages that an enterprise obtains due to expansion.

Product market

Refers to the market where products are sold.

Four types of business competition in decreasing order

Perfect competition, monopolistic competition, oligopoly, and monopoly.

Incentives

Positive rewards that encourage a behavior or they can be negative penalties that discourage a behavior.

Complimentary goods

Products that depend on each other in such a way that an increase demand of one product will cause a decrease in demand of the other product.

Capital goods

Products used to make other goods as well as make production easier, faster, better, or more efficient.

Accounting profits

Profits that do not account for opportunity cost in their calculation are called accounting profits.

Entitlements

Programs such as Medicare and Social Security that have eligibility requirements.

Shortage

Quantity demanded of a good or service is greater than the quantity supplied.

The difference between quantity demanded and demand

Quantity demanded relates price and quantity when all other factors are equal and demand is the amount of a good or service someone is willing and able to buy at different prices in a specific time period.

Surplus

Quantity supplied of a good or service is greater than the quantity demanded.

Variable

Quantity that can assume different values.

Bar Graph

Rectangles proportional to the values they represent.

Capital resource

Refer to anything that makes work more productive.

Movement

Refers to a change along a curve.

Antitrust

Refers to a variety of government actions intended to promote competition and to break up firms that may have too much market power to set prices.

The main determinants of Supply

Resource prices, conditions of production, price of related goods, producers expectations, and number of suppliers.

Classifying of goods

Rival (ex. if one consumer is using a hammer another consumer can't user the same hammer) or non-rival and excludable or non-excludable (ex. pay to use a good).

Regulations

Rules or laws.

Circular flow model

Shows how resources, goods, services, and money move around an economy. It demonstrates how the world's economy functions, how money changes hands, and how money can transition from being one person's expense to another person's income.

Production possibilities curve

Shows the maximum combination of two goods that can be produced when using all the available resources and the best technologies.

Calculating slope in a budget constraint graph

Slope = −(PB/PC)

Law of demand

States that as the price of a good or service decreases, quantity demanded of that good or service increases.

Law of Diminishing Returns

States that by adding units of one resource, such as labor, there will be a point where adding additional units of that resource will add less to the output—or even reduce the total output.

SWOT analysis

Strengths, weaknesses, opportunities, threats

Goods

Tangible objects that an individual may want or need.

Factors of a business organization

Taxation, profitability, liability, ownership

Payroll taxes

Taxes that support programs such as Social Security and Medicare. Most federal government spending goes toward: social programs, including Medicare, Medicaid, and Social Security (55%) national defense (20%) interest payments on the national debt (6%) Most state and local government revenues come from sales taxes, federal government grants, state personal income taxes, and property taxes. Most state and local government revenues go toward: public education public welfare road construction and repair public safety

Absolute advantage

The ability of a country, person, or company to produce 1) more of a good or service with the same amount of resources. 2) the same amount of a good or service with fewer resources.

Comparative advantage

The ability of a country, person, or company to produce a certain good at a lower relative opportunity cost than its trading partners.

Voluntary exchange / transaction

The act of buyers and sellers freely engaging in market transactions.

Marginal benefit

The additional benefit resulting from an action.

Marginal cost

The additional cost resulting from an action.

Utility

The advantage, or fulfillment, a person obtains from consuming a good or service.

Interest rate

The amount charged or paid for the use of money.

Labor supply

The amount of hours workers are willing to work at a given wage.

Price

The amount of money that consumers pay for a good (like the lemonade) or a service (such as babysitting) in the market.

Factor supply

The availability and willingness of factors to supply their labor or their tools or their raw materials to a business at various prices.

Factors that determine elasticity of demand

The availability of one or more substitute goods, necessity or luxury good, time, portion of income, brand loyalty, and payer (ex. gift cards).

Average cost

The average amount of money spent on producing each unit of the product.

Average revenue

The average amount of money that is gained from selling each unit of a product.

The Wealth of Nations

The book written by Smith in reaction to mercantilism and excessive government control of markets.that effectively established economics as a discipline.

Adam Smith

The father of modern economics, and in 1776, he published an economics book called the Wealth of Nations.

Patent

The federal government allows an inventor or developer to exclude all others from making, using, or selling his or her invention. The government will grant a patent if the innovation is judged to be new and useful, not an obvious variation of an existing product. Often, a patent has a specific time limit.

Consumption bundle

The collection of goods or services a consumer chooses.

Optimal choice

The combination of a budget constraint and consumer preferences.

Merger

The combination of two or more companies, whether through the creation of a new entity or by one concern absorbing another.

Scarcity

The condition that exists when there are not enough resources to satisfy all of the competing uses.

Private cost

The cost of producing a good or service, without considering any of the external costs.

Marginal cost

The cost of producing one more unit of the good.

Unit cost of capital

The cost of the physical capital used in production divided by the number of units produced.

Price elasticity of supply

The degree of the producers' reaction to a price change. If supply is elastic, the quantity supplied can be increased without an increase in costs or in the time required for the production of the good. (PES = % Change in Quantity Supplied / % Change in Price)

Capital demand

The demand for physical capital.

Consumer surplus

The difference between a buyer's willingness to pay and the market price.

Profit

The difference between the total revenue generated from production of a good or service and the total cost of production of that good.

Capital gain

The difference between what you pay for an investment and how much you sell it for.

Market price

The economic price for which a good or service is offered in the marketplace.

Mercantilism

The economic system of the major trading nations during the 16th, 17th, and 18th centuries, based on the premise that national wealth and power are best served by increasing exports and collecting precious metals in return.

Command Economy

The government makes all or most of the economic decisions. These governments say their choices are not driven by self-interest but are oriented toward improving the well-being of their citizens.

Price ceilings

The highest allowed price for a good or service. Used to protect consumers from high prices. (below the equilibrium)

Revenue

The income generated by the sale of goods and services.

Economic growth

The increase in GDP per capita over time.

Price floors

The lowest price at which a good or service can be purchased. To protect businesses and workers from prices and wages dropping too low. They are also used to promote the development of important products or technologies. (above the equilibrium)

Total productivity

The measure of the total product divided by the total inputs or, in this case, the number of laborers.

Quantity supplied

The number of goods or services the company releases at a given price when all other variables remain the same.

Macroeconomics

The other hand, is the study of the economy as a whole. It includes national, regional, or global economies. As opposed to studying specific decision-making factors, macroeconomics examines total output, total employment, total income, aggregate expenditures, and general price levels to analyze various economic problems.

Households

The people or group of people that live together and make economic decisions for private use.

Labor or human resources

The physical and mental capabilities of individuals used in the production of goods and services.

Vertical intercept

The point at which the intersects the vertical axis.

Equilibrium price

The price at which quantity supplied equals quantity demanded.

Consumption

The process by which people use goods or services to satisfy their wants and needs.

Equilibrium quantity

The quantity at the intersection point of quantity supplied and quantity demanded.

Price elasticity of demand

The ratio of the percentage change in quantity to the percentage change in price.

Market structure

The relationship between buyers and sellers.

Interdependence

The relationship between two or more economies.

Marginal revenue

The revenue that was gained from the sale of one more unit of a good.

Property rights

The rights to use one's possessions in any way they choose within the legal limits.

Economics

The social science that studies the a) production, b) distribution, and c) consumption of goods and services.

Opportunity Cost

The value of the next best alternative other than the choice that was made.

Labor demand

The willingness and ability to acquire specific quantities of human resources at various wages in a specific time period, all other things being equal.

Supply

The willingness and ability to bring to market (produce and/or sell) specific amounts of a good or service at different prices in a specific time period, considering all things remain the same.

Demand

The willingness and ability to buy specific quantities of a good or service.

Entrepreneurship

The willingness to risk starting a business plus the imagination and ability to make the business successful.

Competition

This describes a rivalry in which two or more individuals or entities strive for a similar goal. In business, the goal is profitability.

Capital

This encompasses assets in the form of money or property that are available for the entrepreneur to use. The entrepreneur attempts to use capital more efficiently than the competition in order to make better goods or services less expensively.

Calculating income taxes

This means that if your taxable income was under $8,500, you would pay 10% of your taxable income in taxes. If your income was between $8,500 and $34,500, you would pay 10% of your income up to $8,500 in taxes and then 15% of your taxable income over $8,500. Here is how this works.

Federal income tax revenue

Three main sources: personal income taxes, corporate income taxes, and payroll taxes.

State and local income tax revenue

Three main sources: sales taxes, excise taxes (taxes on goods or services deemed non-essential), and property taxes.

Average cost

Total cost / number of units produced.

Paternalistic

Type of behavior by a government over its citizens that resembles an overbearing parent.

Unintended consequences

Unexpected results. Occurs when an individual makes a decision without knowing the full consequences. This is not uncertainty, they are different.

Shares

Units of a company.

Monopolistic competition

a large number of firms with similar products that are differentiated by consumers. Consumers may distinguish between products based on features that are real or simply the result of advertising.

Determining elasticity for both supply and demand

elasticity < 1 Inelastic; changes in price cause little or no changes in the quantity demanded elasticity = 1 Unit Elastic; Changes in price create equal changes in quantity demanded elasticity > 1 Elastic; The quantity demanded is very sensitive to price changes elasticity = 0 Perfectly inelastic; price changes have no impact on the quantity demanded elasticity = ∞ Perfectly elastic; the price remains the same at all quantities demanded

Progressive tax

high-income families pay a higher percentage then low-income families.