Economics

Kanban (enterprise service planning)

-a scheduling system for lean manufacturing and just-in-time manufacturing (JIT) -Toyota -developed to improve manufacturing efficiency/ limit the buildup of excess inventory at any point in production -system takes its name from the cards that track production within a factory -establishes h an upper limit to work in process inventory to avoid overcapacity -CONWIP (similar)

Goal of economic policy

-economic growth -full employment -price stability (inflation)

Partnerships

-formal arrangement in which two or more parties cooperate to manage and operate a business (governments, businesses, individuals, etc.) -there can be "silent partners" (usually in LPs) -partnerships enjoy favorable tax treatment relative to corporations -usually terms are written down -general partnership: all parties share the legal and financial liability of the partnership equally; profits also shared equally (in principle) -LLP (limited liability partnership): common for professional firms; this arrangement limits partners' personal liability -LP (limited partnership): hybrid of general partnerships and limited liability partnerships where at least one partner must be a general partner, with full personal liability for the partnership's debts, while at least one partner's liability must be limited to the amount she's invested in the partnership -each state has own laws about partnerships; most have adopted Uniform Partnership Act, which defines the partnership as a separate legal entity from its partners -no federal statute on how to tax partners, but according to the Internal Revenue Code partnerships don't pay income tax (it passes through the partners), partners aren't considered employees, individuals may receive better tax treatment than corporations; corporate profits and dividends are taxed, but partnerships' profits are not double taxed like this

Bretton Woods

Bretton Woods Conference, formally United Nations Monetary and Financial Conference, meeting at Bretton Woods, New Hampshire (July 1-22, 1944), during World War II to make financial arrangements for the postwar world after the expected defeat of Germany and Japan. The conference was attended by experts noncommittally representing 44 states or governments, including the Soviet Union. It drew up a project for the International Bank for Reconstruction and Development (IBRD) to make long-term capital available to states urgently needing such foreign aid, and a project for the International Monetary Fund (IMF) to finance short-term imbalances in international payments in order to stabilize exchange rates. Although the conference recognized that exchange control and discriminatory tariffs would probably be necessary for some time after the war, it prescribed that such measures should be ended as soon as possible. After governmental ratifications the IBRD was constituted late in 1945 and the IMF in 1946, to become operative, respectively, in the two following years.

Cartel theory of oligopoly

The possibility of collusive behavior is captured in the alternative theory known as the cartel theory of oligopoly. A cartel is defined as a group of firms that gets together to make output and price decisions. The conditions that give rise to an oligopolistic market are also conducive to the formation of a cartel; in particular, cartels tend to arise in markets where there are few firms and each firm has a significant share of the market. In the U.S., cartels are illegal; however, internationally, there are no restrictions on cartel formation. Example: OPEC.

Elasticity

The responsiveness of demand or supply to changes in prices or incomes is measured by the elasticity of demand or supply. elastic=responsive to price changes

Market economic system

In a free market economy, firms and households act in self-interest to determine how resources get allocated, what goods get produced and who buys the goods. There is no government intervention in a pure market economy ("laissez faire") No truly free market economy exists in the world. For example, while America is a capitalist nation, our government still regulates (or attempts to regulate) fair trade, government programs, moral business, monopolies, etc. In a capitalist system, the government protects services not provided by the market (according to State).

S corporation

In an S corporation, the profits are passed on to the shareholders, and are taxed based on personal returns. This is done under subchapter S of the Internal Revenue Code.

Conditions for oligopolistic market

Oligopoly has no single, unified theory and is least understood, but there are 3 conditions: 1. An oligopolistic market has only a few large firms. This condition distinguishes oligopoly from monopoly, in which there is just one firm. 2. An oligopolistic market has high barriers to entry. This condition distinguishes oligopoly from perfect competition and monopolistic competition in which there are no barriers to entry. 3. Oligopolistic firms may produce either differentiated or homogeneous products. Examples of oligopolistic firms include automobile manufacturers, oil producers, steel manufacturers, and passenger airlines.

Tertiary

Service industries

Final good

An item that is bought by its final user during a specified time period.

Intermediate good

An item that is produced by one firm, bought by another firm, and used as a component of a final good or service.

Fixed costs

are spread out over a greater number of units as production volume increases. If fixed costs are spread out over 1001 goods, it costs less per good than if they are spread over 1000 goods. Ex. rent and machinery.

Price-taking behavior

cannot control the price of the good it sells; it simply takes the market price as given (perfect market)

NCRB

certifies

Monetary policy

interest rates

Law of diminishing returns

says that as successive units of a variable factor of production are combined with fixed factors of production, the marginal product of the variable factor of production will eventually decline. The law of diminishing returns is illustrated in Table . As more and more workers are combined with the firm's fixed amount of capital, the marginal product of labor eventually starts to decline. Note that diminishing returns is a short‐run phenomenon that will persist only as long as there are fixed factors of production; in the long‐run, it will be possible to vary the amount of the fixed factor capital so as to eliminate the problem of diminishing returns.

Demand

says that the quantity of a good demanded falls as the price rises, and vice versa.

Law of diminishing marginal utility

states that the marginal utility that one receives from consuming successive units of the same good or service will eventually decrease as the number of units consumed increases

Equilibrium price

the price at which supply and demand are equal. If the price goes up, fewer people will want the good and there will be a surplus. If the price goes down, more people will want it and there will be a shortage.

Cross-price elasticity of demand

the ratio of the percentage change in the quantity demanded of some good X to a percentage change in the price of some other good Y. The cross‐price elasticity of demand is given by the formula:

Microeconomics

the study of economics at an individual, group or company level. Microeconomics focuses on issues that affect individuals and companies. This could mean studying the supply and demand for a specific product, the production that an individual or business is capable of, or the effects of regulations on a business.

Coupon rate

the yield paid by a fixed-income security; a fixed-income security's coupon rate is simply just the annual coupon payments paid by the issuer relative to the bond's face or par value. The coupon rate is the yield the bond paid on its issue date. This yield changes as the value of the bond changes, thus giving the bond's yield to maturity.

Economic profits

total revenues minus explicit and implicit costs. The difference between economic profits and accounting profits is that economic profits include the firm's implicit costs and accounting profits do not.

Monopsony

A market situation in which there is only one buyer.

Costs of monopoly

A monopolist produces less output and sells it at a higher price than a perfectly competitive firm. The monopolist's behavior is costly to the consumers who demand the monopolist's output.

Progressive taxes

A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate. *A progressive tax is one that charges a higher tax rate for people who earn a higher income. (Ex. income tax) *The opposite of a progressive tax, a regressive tax, takes a larger percentage of income from low-wage earners than from high-wage earners. (Ex. sales tax)

Capitalist goods vs. consumer goods

Capital goods create value, while consumer goods do not. Capital goods and consumer goods differ mainly in their use. A car bought to travel around town is a consumer good; a car employed as a taxi is a capital good.

Money

-any good that is widely used and accepted in transactions involving the transfer of goods and services from one person to another. -commodity money (a good whose value serves as the value of money, ex. gold coins) -fiat money (a good, the value of which is less than the value it represents as money, ex. dollars) -bank money (book credit that banks extend to their depositors)

Reasons for change in demand/shift in demand curve

-changes in the price of related goods (substitutes/complements) -changes in income -changes in preferences -changes in expectations

Reasons for change in supply/shift of supply curve

-changes in the prices of other goods -changes in the prices of inputs -changes in technology

Functions of money

-medium of exchange -store of value -unit of account

Bullwhip effect

-occurs when distorted product-demand information ripples from one partner to the next throughout the supply chain -a distribution channel phenomenon in which forecasts yield supply chain inefficiencies. It refers to increasing swings in inventory in response to shifts in customer demand as one moves further up the supply chain -aka Forester effect

Barriers to entry

-patents -large start‐up costs -limited access to resources (ex. diamonds, oil)

GDP growth rates

-positive: economy is expanding (boom) -negative: economy is contracting (recession)

Corporate governance

-the system of rules, practices and processes by which a firm is directed and controlled -involves balancing the interests of a company's many stakeholders

US tax revenues

18% (between 14-20% according to Hauser's Law)

C corporation

A C corporation is owned by shareholders, who must elect a board of directors that make business decisions and oversee policies. In most cases, a C corporation is required to report its financial operations to the state attorney general. Because a corporation is treated as an independent entity, a C corporation does not cease to exist when its owners or shareholders change or die. Another major advantage of a C corporation is that its owners have limited liability. Thus, they do not stand personally liable for debts incurred by the corporation.

Shift of the demand/supply curve

A change in supply or demand is represented by a shift in the supply or demand curve.

Complements

A complement to good X is any good that is consumed in some proportion to good X. For example, if good X is a pair of shoelaces, then a complement good Y might be a pair of shoes. When two goods X and Y are complements, then as the price of the complementary good Y rises, the demand for good X decreases and the demand curve for good X shifts to the left. Conversely, as the price of the complementary good Y falls, the demand for good X increases and the demand curve for good X shifts to the right.

Normal profits

A firm is said to make normal profits when its economic profits are zero. The fact that economic profits are zero implies that the firm's reserves are enough to cover the firm's explicit costs and all of its implicit costs, such as the rent that could be earned on the firm's building or the salary the owner of the firm could earn elsewhere. These implicit costs add up to the profits the firm would normally receive if it were properly compensated for the use of its own resources.

Inferior good

A good for which demand decreases as income increases.

Normal good

A good for which demand increases as income increases.

Time-series graph

A graph that measures time on the x-axis and the variable or variables of interest on the y-axis.

Substitutes

A substitute for good X is any good Y that satisfies most of the same needs as good X. For example, if good X is butter, a substitute good Y might be margarine. When two goods X and Y are substitutes, then as the price of the substitute good Y rises, the demand for good X increases and the demand curve for good X shifts to the right, as in Figure (b). Conversely, as the price of the substitute good Y falls, the demand for good X decreases and the demand curve for good X shifts to the left.

When the buyer has a low profit margin, what happens to the seller's bargaining power?

A. It decreases. B. It increases. C. It stays the same. D. The seller's bargaining power is not affected by the buyer's profit margin. A - The seller's bargaining power decreases. If the buyer has a low profit margin, it is easy for him or her to walk away from a deal. It is much harder to walk away from a deal that is lucrative.

Which of the following conditions is not necessary for a perfect market?

A. No barrier to entry or exit B. All actors have total information about the market. C. Equal access to technology D. The absence of regulation D. A perfect market does not necessarily require the absence of regulation. A perfect market is not the same as a free market. A perfect market is a market that is perfectly competitive. Regulation makes a market imperfect only if it favors one actor over another.

Opportunity cost of production

AKA alternative cost. The value (not a benefit) of the choice of a best alternative cost while making a decision. It's "the loss of potential gain from other alternatives when one alternative is chosen." It expresses "the basic relationship between scarcity and choice."

Elastic good

An elastic good is one whose demand changes in proportion to the price. Demand for inelastic goods does not change when the price changes. Necessities, such as grocery staples tend to be inelastic goods, since people have to eat, while luxuries, such as restaurant meals are more elastic because people can eat out less when their budgets are tighter.

Federal Reserve

Established December 23, 1913 (104 years ago) Powell Reserve requirements 0 to 10% Bank rate 2.25% Interest rate target 1.50% to 1.75% Interest on reserves 1.75% Interest paid on excess reserves? Yes The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics (particularly the panic of 1907) led to the desire for central control of the monetary system in order to alleviate financial crises.[list 1] Over the years, events such as the Great Depression in the 1930s and the Great Recession during the 2000s have led to the expansion of the roles and responsibilities of the Federal Reserve System.[4][9][10] The U.S. Congress established three key objectives for monetary policy in the Federal Reserve Act: maximizing employment, stabilizing prices, and moderating long-term interest rates.[11] The first two objectives are sometimes referred to as the Federal Reserve's dual mandate.[12] Its duties have expanded over the years, and currently also include supervising and regulating banks, maintaining the stability of the financial system, and providing financial services to depository institutions, the U.S. government, and foreign official institutions.[13] The Fed conducts research into the economy and provides numerous publications, such as the Beige Book and the FRED database. The Federal Reserve System is composed of several layers. It is governed by the presidentially appointed Board of Governors or Federal Reserve Board (FRB). Twelve regional Federal Reserve Banks, located in cities throughout the nation, regulate and oversee privately owned commercial banks.[14][15][16] Nationally chartered commercial banks are required to hold stock in, and can elect some of the board members of, the Federal Reserve Bank of their region. The Federal Open Market Committee (FOMC) sets monetary policy. It consists of all seven members of the Board of Governors and the twelve regional Federal Reserve Bank presidents, though only five bank presidents vote at a time (the president of the New York Fed and four others who rotate through one-year voting terms). There are also various advisory councils. Thus, the Federal Reserve System has both public and private components.[list 2] It has a structure unique among central banks, and is also unusual in that the United States Department of the Treasury, an entity outside of the central bank, prints the currency used.[21] The federal government sets the salaries of the board's seven governors. The federal government receives all the system's annual profits, after a statutory dividend of 6% on member banks' capital investment is paid, and an account surplus is maintained. In 2015, the Federal Reserve made a profit of $100.2 billion and transferred $97.7 billion to the U.S. Treasury.[22] Although an instrument of the US Government, the Federal Reserve System considers itself "an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms."[23]

Economic order quantity

In inventory management, economic order quantity (EOQ) is the order quantity that minimizes the total holding costs and ordering costs. It is one of the oldest classical production scheduling models.

Real GDP

In order to abstract from changes in the overall price level, another measure of GDP called real GDP is often used. Real GDP is GDP evaluated at the market prices of some base year. For example, if 1990 were chosen as the base year, then real GDP for 1995 is calculated by taking the quantities of all goods and services purchased in 1995 and multiplying them by their 1990 prices.

Monopoly in the long run

In the long‐run, all input factors are assumed to be variable, making it possible for firms to enter and exit the market. The consequence of this entry and exit of firms was that each firm's economic profits were reduced to zero in the long‐run. The distinction between the short‐run and the long‐run is not as important in the case of a monopolistic market structure. The existence of high barriers to entry prevents firms from entering the market even in the long‐run. Therefore, it is possible for the monopolist to avoid competition and continue making positive economic profits in the long‐run.

Quaternary

Industry that involves information and research

Secondary

Industry that uses raw materials to make a product

Keynesian theory

Keynes's theory of the determination of equilibrium real GDP, employment, and prices focuses on the relationship between aggregate income and expenditure. Keynes used his income‐expenditure model to argue that the economy's equilibrium level of output or real GDP may not corresPond to the natural level of real GDP. In the income‐expenditure model, the equilibrium level of real GDP is the level of real GDP that is consistent with the current level of aggregate expenditure. If the current level of aggregate expenditure is not sufficient to purchase all of the real GDP supplied, output will be cut back until the level of real GDP is equal to the level of aggregate expenditure. Hence, if the current level of aggregate expenditure is not sufficient to purchase the natural level of real GDP, then the equilibrium level of real GDP will lie somewhere below the natural level.

Sticky prices

Keynesians believe that prices and wages are not so flexible. They believe that prices and wages are sticky, especially downward. The stickiness of prices and wages in the downward direction prevents the economy's resources from being fully employed and thereby prevents the economy from returning to the natural level of real GDP. Thus, the Keynesian theory is a rejection of Say's Law and the notion that the economy is self‐regulating.

What do Keynesians think the government should do during a recession?

Keynesians think the government should increase spending during a recession. The idea is that artificially increasing demand stimulates the economy to meet that demand.

Excise tax

Most states have a sales tax which is levied on goods and services purchased within the state. Excise taxes are levied on specific items like gasoline, tobacco, and alcohol.

Nominal vs. real GDP

Nominal GDP includes both prices and growth, while real GDP is pure growth. It's what nominal GDP would have been if there were no price changes from the base year. As a result, nominal GDP is higher.

Consumer price index (CPI)

The GDP deflator is not the only index measure of the price level. Among the many other price indices, the consumer price index (CPI) is the most frequently cited. The CPI differs from the GDP deflator in two important ways. First, the CPI measures only the change in the prices of a "basket" of goods consumed by a typical household. Second, the CPI uses base year quantities rather than current year quantities in calculating the price level index value.

Money multiplier

The amount by which bank deposits expand in response to an increase in excess reserves is found through the use of the money multiplier.

Expenditure approach to measuring GDP

The expenditure approach is to add up the market value of all domestic expenditures (consumption expenditures, investment expenditures, government expenditures, net exports) made on final goods and services in a single year. Intermediate goods and services, which are used in the production of final goods and services, are not included in the expenditure approach to GDP.

Marginal cost and total cost

The firm's marginal cost is the per unit change in total cost that results from a change in total product. The firm's total cost of production is the sum of all its variable and fixed costs.

Classical theory

The fundamental principle of the classical theory is that the economy is self‐regulating. Classical economists maintain that the economy is always capable of achieving the natural level of real GDP or output, which is the level of real GDP that is obtained when the economy's resources are fully employed. While circumstances arise from time to time that cause the economy to fall below or to exceed the natural level of real GDP, self‐adjustment mechanisms exist within the market system that work to bring the economy back to the natural level of real GDP. The classical doctrine—that the economy is always at or near the natural level of real GDP—is based on two firmly held beliefs: Say's Law and the belief that prices, wages, and interest rates are flexible.

Equilibrium in a monopsony

The monopsonist firm—like any profit‐maximizing firm—determines the equilibrium number of workers to hire by equating its marginal revenue product of labor with its marginal cost of labor.

Present value and investment decisions

The present value of future income is the value of having the future income today. In determining whether to purchase new capital the firm will take into account the price of the new equipment, the revenue that the new equipment will generate for the firm over time, and the scrap value of the new equipment. The firm will also take into account the interest rate, which represents the firm's opportunity cost of investing in the new equipment. It will use the interest rate to calculate the present value of the future net income that it expects to earn from its purchase of the new capital equipment. If the present value is positive, the firm will choose to purchase the new equipment. If the present value is negative, it is better off forgoing the investment in new equipment.

Primary

The type of industry that harvests and mines raw materials

Depreciation expenditures

There are two types of expenditures that are included in the expenditure approach to GDP measurement but do not provide households or firms with any form of income: depreciation expenditures (which replace existing but deteriorated investment goods) and indirect business taxes (sales taxes and other excise taxes that firms collect but that are not regarded as a part of firms' incomes).

If government regulations impose price controls on wheat, and if the production cost of wheat then exceeds that price, what is the most likely result?

There will most likely be a wheat shortage as wheat sellers lose less money by not selling wheat. This is exactly what happened in the US in the 1970s with oil. OPEC raised the cost of crude oil while the US government imposed controls on the price of gasoline. Since retailers couldn't make money buying from OPEC and selling to the American people, there was a massive gas shortage.

Equilibrium

When the demand for good X equals the supply of good X, the market for good X is said to be in equilibrium.

Depreciation

a flow measurement; it measures the reduction in market value of a firm's or household's capital stock per unit of time. Depreciation of the capital stock is caused by normal wear and tear and by the obsolescence of capital goods over time. When depreciation over a period of time exceeds investment over the same period of time, the capital stock decreases; otherwise, the capital stock increases or remains the same.

Yield curve

a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is also used to predict changes in economic output and growth. It's a predictor of recessions.

Gini index

a measure of statistical dispersion intended to represent the income or wealth distribution of a nation's residents, and is the most commonly used measurement of inequality

Gold standard

a monetary system in which a currency is backed by a certain amount of gold, and in which paper currency can be exchanged for gold. The US used a gold standard until 1971.

Short-run aggregate supply (SAS)

considered a valid description of the supply schedule of the economy only in the short‐run. The short‐run is the period that begins immediately after an increase in the price level and that ends when input prices have increased in the same proportion to the increase in the price level.

Aggregate supply (AS) curve

depicts the quantity of real GDP that is supplied by the economy at different price levels.

Individual demand market demand

determines the quantity of each good the individual consumer will demand

Arbitrage

making a profit by manipulating discrepancies between multiple markets. For example, if one shop is buying apples for a dollar a bag and another is selling apples for fifty cents a bag, buying from one and selling to the other gains fifty cents of profit per bag in arbitrage. Arbitrage is temporary; the two markets equilibrate as more people take advantage of the discrepancy between them.

Most favored nation

means the country which is the recipient of this treatment must nominally receive equal trade advantages as the "most favored nation" by the country granting such treatment. The members of the World Trade Organization (WTO) agree to accord MFN status to each other. Exceptions allow for preferential treatment of developing countries, regional free trade areas and customs unions. Together with the principle of national treatment, MFN is one of the cornerstones of WTO trade law.

Inelasticity

not very responsive to price changes

Market failure

occurs when the market does not allocate resources efficiently. This can happen where there are externalities, asymmetric information, monopolies, moral hazard, or public goods. One example is pollution, which is a negative externality. If one company saves money by polluting but the pollution drives another company out of business, the pollution has not been properly priced, because overall the market has lost value. Pollution can be re-priced through government regulation.

Aggregate demand (AD) curve

represents the total quantity of all goods (and services) demanded by the economy at different price levels.

Structural unemployment

results from structural changes in the economy that cause workers to lose jobs. The same structural changes also prevent these workers from obtaining new jobs. Structurally unemployed workers are not qualified for the new job openings that are available, mainly because they lack the education or training needed for the new jobs. Consequently, the structurally unemployed tend to be out of work for long periods of time, usually until they learn the skills needed for the new jobs or until they decide to relocate.

Inflation

rise in overall price level

Bullionism

states that the wealth of a nation depends on its total available capital. This theory assumes that wealth and monetary assets, such as gold, are equivalent, discounting other forms of wealth. Mercantilism has similar aspects to Bullionism but emphasizes the circulation of money and the importance of maintaining a positive trade surplus, subsidizing exports and taxing imports.

Economics

study of how society allocates scarce resources and goods, often through market system

Absolute advantage

the ability of a country, individual, company or region to produce a good or service at a lower cost per unit than another entity that produces the same good or service.

Horizontal integration

the acquisition of additional business activities that are at the same level of the value chain in similar or different industries. This can be achieved by internal expansion through a reinvestment of operating profits or by external expansion through a merger or acquisition (M&A). Since the different firms integrating are involved in the same stage of production, horizontal integration allows them to share resources at that level.

Investment

the addition of new capital goods to a firm's or household's capital stock. Investment is a flow measurement; it represents the market value of new capital purchased or produced per unit of time. For example, if a firm with $90,000 in capital at the end of last year purchases $10,000 in capital during the current year, its investment for this year is $10,000, while its capital stock at the end of the current year is $100,000.

Marginal utility

the addition to total utility that an individual receives from consuming one more unit of that good or service.

Perfect market

1. No barrier to entry or exit 2. All actors have total information about the market. 3. Equal access to technology --> regulation is OK

Conditions for monopoly

1. Only one firm operating in the market. 2. Barriers to entry (because of patents, high start-up costs, or limited access to resources) 3. No close substitutes for the good the monopoly firm produces.

Capital stock

The market value of capital goods at a given point in time, for example, at the end of a year: it is the market value of a firm's factory, equipment, and other capital goods at a given point in time. A household's capital stock is the market value of its residential structures, human capital, and other capital goods at a given point in time. Both kinds vary over time due to investment and depreciation.

Constitution

bans states from controlling trade or making own trade

Utility

describes the measurement of "useful-ness" that a consumer obtains from any good. Utility may measure how much one enjoys a movie, or the sense of security one gets from buying a deadbolt. The utility of any object or circumstance can be considered. Some examples include the utility from eating an apple, from living in a certain house, from voting for a specific candidate, from having a given wireless phone plan. In fact, every decision that an individual makes in their daily life can be viewed as a comparison between the utility gained from pursuing one option or another.

Deflation

fall in overall price level

Leahy Amendment

human rights law that prohibits the U.S. Department of State and Department of Defense from providing military assistance to foreign military units that violate human rights with impunity. It is named after its principal sponsor, Senator Patrick Leahy (D-Vermont). if a unit is found to have been credibly implicated in a serious abuse of human rights, assistance is denied until the host nation government takes effective steps to bring the responsible persons within the unit to justice

GATT

legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. For the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis." It was first discussed during the United Nations Conference on Trade and Employment and was the outcome of the failure of negotiating governments to create the International Trade Organization (ITO). GATT was signed by 23 nations in Geneva on October 30, 1947 and took effect on January 1, 1948. It remained in effect until the signature by 123 nations in Marrakesh on April 14, 1994 of the Uruguay Round Agreements, which established the World Trade Organization (WTO) on January 1, 1995. The WTO is in some ways a successor to GATT, and the original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the modifications of GATT 1994.

Fiscal policy

taxes and spending

Efficiency (macroeconomics)

the allocation of scarce resources to maximize total utility. For instance, selling a good to the highest bidder maximizes utility because the seller gets the highest price and the person who most values the object receives it.

Fallacy of consumption

the belief that if one individual or firm benefits from some action, all individuals or all firms will benefit from the same action. While this may in fact be the case, it is not necessarily so. For example, suppose an airline decides to lower the fares it charges on all of its routes. The airline expects to benefit from the fare reduction because it believes the lower fares will attract customers away from other airlines. If, however, the other airlines follow suit and lower their airfares by the same amount, then it is not necessarily true that all airlines will be better off; while more people may choose to fly, each airline will receive less money per passenger, and each airline's market share is unlikely to change. Hence, the profits of all airlines could fall.

Theory of the consumer

the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves. The theory of the consumer is used to explain the market demand for goods and services.

Insider trading

the buying or selling of a security by someone who has access to material nonpublic information about the security. Insider trading can be illegal or legal depending on when the insider makes the trade. It is illegal when the material information is still nonpublic. Legal insider trading happens when directors of the company purchase or sell shares, but they disclose their transactions legally. The Securities and Exchange Commission has rules. It includes: A. A person inside the company uses secret information to make trades. B. A person at a partner company uses secret information to make trades. C. A person with tips from a friend inside the company uses that information to make trades. D. All of the above

Risk

the chance that macroeconomic conditions like exchange rates, government regulation, or political stability will affect an investment, usually one in a foreign country. It is one reason international investing carries more risk than domestic investing. It may also add opportunity for investors. Foreign bonds, for example, allow investors to participate indirectly in the foreign exchange markets and the interest rate environments of different countries. But the foreign regulatory authorities may impose different requirements on the types, sizes, timing, credit quality, disclosures, and underwriting of bonds issued in their countries. It can be mitigated by opting for international mutual funds.

Marginal product

the change in output resulting from employing one more unit of a particular input, assuming that the quantities of other inputs are kept constant

Feudalism

the dominant social system in medieval Europe, in which the nobility held lands from the Crown in exchange for military service, and vassals were in turn tenants of the nobles, while the peasants (villeins or serfs) were obliged to live on their lord's land and give him homage, labor, and a share of the produce, notionally in exchange for military protection (peasants - knights -nobles - king)

Marginal benefit

the extra benefit of adding one unit

Accounting profits

the firm's total revenues from sales of its output, minus the firm's explicit costs. The difference between economic profits and accounting profits is that economic profits include the firm's implicit costs and accounting profits do not.

Naked shorting

the illegal practice of short selling shares that have not been affirmatively determined to exist. Ordinarily, traders must borrow a stock, or determine that it can be borrowed, before they sell it short. So naked shorting refers to short pressure on a stock that may be larger than the tradable shares in the market. Despite being made illegal after the 2008-09 financial crisis, naked shorting continues to happen because of loopholes in rules and discrepancies between paper and electronic trading systems.

Tax revenues

the income that is gained by governments through taxation. An inefficient collection of taxes is greater in countries characterized by poverty, a large agricultural sector and large amounts of foreign aid. Just as there are different types of tax, the form in which tax revenue is collected also differs; furthermore, the agency that collects the tax may not be part of central government. Tax revenues on purchases come in two forms: "tax" itself is a percentage of the price added to the purchase (such as sales tax in U.S. states, or VAT in the UK), while "duties" are a fixed amount added to the purchase price (e.g., for cigarettes). In order to calculate the total tax raised from these sales, we must work out the effective tax rate multiplied by the quantity supplied.

Bank rate

the interest rate at which a nation's central bank lends money to domestic banks, often in the form of very short-term loans.

Frictional unemployment

unemployment that results from difficulties in matching qualified workers with new jobs. Many qualified workers seeking work are not able to find new jobs right away, usually because of a lack of complete information about new job openings. While it is likely that qualified workers will soon be matched with new jobs, these workers are considered frictionally unemployed during the time that they spend searching for their new jobs.

Loanable funds

used to describe funds that are available for borrowing. Loanable funds consist of household savings and/or bank loans. Because investment in new capital goods is frequently made with loanable funds, the demand and supply of capital is often discussed in terms of the demand and supply of loanable funds.

Liabilities

valuable items that the bank owes to others and consist primarily of the bank's deposit liabilities to its depositors.

Assets

valuable items that the bank owns and consist primarily of the bank's reserves and loans.

Say's Law

when an economy produces a certain level of real GDP, it also generates the income needed to purchase that level of real GDP. In other words, the economy is always capable of demanding all of the output that its workers and firms choose to produce. Hence, the economy is always capable of achieving the natural level of real GDP.

Liquidity trap

when people who have cash won't invest because they expect prices to drop. These beliefs are often self-fulfilling because prices drop when no one is willing to buy. When there is a liquidity trap, injecting cash into the economy has no effect because people still do not want to invest

Interstate Commerce Commission (ICC)

-(1887-1996 [ICC Termination Act] -the first regulatory agency established in the United States, and a prototype for independent government regulatory bodies. -original purpose was to regulate railroads (and later trucking) to ensure fair rates, to eliminate rate discrimination, and to regulate other aspects of common carriers -Commission's five members were appointed by the President with the consent of the United States Senate. This was the first independent agency (or so-called Fourth Branch). -gradually lost power through deregulation measures in the 1970s and 1980s. The agency was abolished in 1995, and its remaining functions were transferred to the Surface Transportation Board.

Smith

-18th c -"Father of Capitalism" -father of modern economics -laissez-faire economic policies -"The Theory of Moral Sentiments": invisible hand—the tendency of free markets to regulate themselves by means of competition, supply and demand, and self-interest; argues that the division of labor and specialization produces prosperity; discusses charity and human ethics -theory of compensating wage differentials, meaning that dangerous or undesirable jobs tend to pay higher wages to attract workers to these positions -"The Wealth of Nations" -changed the import/export business, created the concept of what is now known as gross domestic product (GDP) and argued for free exchange. -highly critical of mercantilism; he argued that instead countries should be evaluated based on their levels of production and commerce. This sentiment created the basis for measuring nation's prosperity based on a metric called GDP -classical school of economics

WTO

-intergovernmental organization that regulates international trade -commenced 1 January 1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT), which commenced in 1948 (Bretton Woods). -deals with regulation of trade between participating countries by providing a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements, which are signed by representatives of member governments and ratified by their parliaments -most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986-1994). -Doha Development Round was launched in 2001 with an explicit focus on developing countries. As of June 2012, the future of the Doha Round remained uncertain bc of conflict; thus, there has been an increasing number of bilateral free trade agreements between governments

Opportunity cost

-part of PPFF -represents the benefits an individual, investor or business misses out on when choosing one alternative over another -quantifies the notion that money invested or spent now might be better spent in the future if the money were kept liquid. Although opportunity costs are frequently subjective, it is important to consider them when making investment decisions. Opportunity cost is generally measured by the best forgone alternative.

Bonds

A bond is a debt investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities. Owners of bonds are debtholders, or creditors, of the issuer. Thus a bond is a form of loan or IOU: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest. Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in a company (i.e., they are owners), whereas bondholders have a creditor stake in the company (i.e., they are lenders). Being a creditor, bondholders have priority over stockholders. This means they will be repaid in advance of stockholders, but will rank behind secured creditors in the event of bankruptcy.

Demand pull inflation

Demand-pull inflation is asserted to arise when aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve. This is commonly described as "too much money chasing too few goods."

Environment

FSC: The Forest Stewardship Council (FSC) is an international non-profit, multi-stakeholder organization established in 1993 to promote responsible management of the world's forests. The FSC does this by setting standards on forest products, along with certifying and labeling them as eco-friendly. ISO 14001: ISO 14001 is the international standard that specifies requirements for an effective environmental management system (EMS). It provides a framework that an organization can follow, rather than establishing environmental performance requirements. PEFC: The Programme for the Endorsement of Forest Certification (PEFC) is an international, non-profit, non-governmental organization which promotes sustainable forest management through independent third party certification. It is considered the certification system of choice for small forest owners. SFI: The Sustainable Forestry Initiative (SFI) is a North American 'forest certification standard' and program of SFI Inc., a non-profit organization. The Sustainable Forestry Initiative is the world's largest single forest certification standard by area. The SFI is headquartered in Ottawa, Ontario Canada and Washington D.C. USA. In 2005, the Programme for the Endorsement of Forest Certification (PEFC), which itself is the world's largest forest certifications system, recognized the SFI standard.

Just-in-time

Just-in-time (JIT) is an inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs. This method requires producers to forecast demand accurately. This inventory supply system represents a shift away from the older just-in-case strategy, in which producers carried large inventories in case higher demand had to be met.

Laissez-faire economics

Laissez faire is the belief that economies and businesses function best when there is no interference by the government. It comes from the French, meaning to leave alone or to allow to do. It is one of the guiding principles of capitalism and a free market economy. Keynes was a prominent critic of laissez-faire economics, and he argued that the question of market solution versus government intervention needed to be decided on a case-by-case basis. Only in 20th century did US start regulation. Adam Smith, David Ricardo.

Material requirements planning

Material requirements planning (MRP) is a production planning, scheduling, and inventory control system used to manage manufacturing processes. Most MRP systems are software-based, but it is possible to conduct MRP by hand as well. An MRP system is intended to simultaneously meet three objectives: 1. Ensure materials are available for production and products are available for delivery to customers. 2. Maintain the lowest possible material and product levels in store. 3. Plan manufacturing activities, delivery schedules and purchasing activities.

Euroequity

Newly public companies that want to raise more money tend to issue this type of stock. Euroequity is a term used to describe an initial public offer occurring simultaneously in two different countries. The company's shares are listed in various countries rather than where the company is based. This method differs from cross-listing where company shares are listed in the home market and then listed in a different country. Euroequities are sometimes European securities sold on several national markets.

Amortization

Paying off a debt over a fixed period of time...to "kill it off" (kill off the loan) with specified payments and interest rates.

Hamilton

President Washington's Secretary of the Treasury and was an ardent nationalist who believed a strong federal government could solve many of the new country's financial ills. Alexander Hamilton was President Washington's Secretary of the Treasury and an ardent nationalist who believed that a strong federal government could solve many of the new country's financial ills. Hamilton published a series of essays with James Madison and John Jay known as the Federalist Papers, through which Hamilton supported the ratification of the Constitution and defended its separation of powers. In the aftermath of ratification, Hamilton continued to expand on his interpretations of the Constitution to defend his proposed economic policies as Secretary of the Treasury. Credited today with creating the foundation for the U.S. financial system, Hamilton wrote three reports addressing public credit, banking, and raising revenue. In addition to the National Bank, Alexander Hamilton founded the U.S. Mint, created a system to levy taxes on luxury products (such as whiskey), and outlined an aggressive plan for the development of internal manufacturing. Hamilton's political vision remained consistently at odds with the Democratic- Republican belief in strict interpretations of the Constitution and limited power of a centralized government.

Organizational planning

Process of identifying an organization's immediate and long-term objectives, and formulating and monitoring specific strategies to achieve them. It also entails staffing and resource allocation, and is one of the most important responsibilities of a management team.

Foreign Trade Act (1974)

The Trade Act of 1974, enacted January 3, 1975, was passed to help industry in the United States become more competitive or phase workers into other industries or occupations.

ITC

The United States International Trade Commission (USITC, sometimes I.T.C.) is an independent, bipartisan, quasi-judicial, federal agency of the United States that provides trade expertise to both the legislative and executive branches. Furthermore, the agency determines the impact of imports on U.S. industries and directs actions against unfair trade practices, such as subsidies, dumping, patent, trademark, and copyright infringement.

Byrd Amendment

The act is American legislation closely associated with its chief sponsor, Democratic Senator Robert Byrd. The act changed the disposition of funds raised from duties on imports that the US government has determined to be subsidized or otherwise unfairly priced. In short, this meant that non-US firms which sell below cost price in the US can be fined, and the money given to the US companies who made the complaint in the first place. WTO declared it in violation bc dumping duties collected on US imports would be distributed to injured companies. )anti-dumping)

Ceteris paribus assumption

The assumption of ceteris paribus, which is Latin for "all else held constant," is frequently invoked in economic analysis. The phrase ceteris paribus conveys the assumption that only one of many factors is being examined. For example, if an increase in tuition led to a decrease in college enrollment taking into account all other factors such as changes in student incomes or in the market value of a college degree, one could summarize this finding with the statement: an increase in tuition reduces college enrollment, ceteris paribus.

Trade Promotion Authority

The fast track authority for brokering trade agreements is the authority of the President of the United States to negotiate international agreements that Congress can approve or deny but cannot amend or filibuster. Renamed the trade promotion authority (TPA) in 2002, fast track negotiating authority is an impermanent power granted by Congress to the President. Fast track authority remained in effect from 1975 to 1994, pursuant to the Trade Act of 1974, and from 2002 to 2007 by the Trade Act of 2002. Although it technically expired in July 2007, it remained in effect for agreements that were already under negotiation until their passage in 2011. The following year, the Obama administration sought renewal of TPA, and in June 2015, it passed Congress and was signed into law by the President. Known as the Trade Preferences Extension Act of 2015, the legislation conferred on the Obama administration "enhanced power to negotiate major trade agreements with Asia and Europe."

Highest valued alternative

The opportunity cost of a decision or choice that one makes is the value of the highest valued alternative that could have been chosen but was instead forgone. For example, suppose that one is faced with several ways of spending an evening at home. The choice made is to study economics (perhaps because there is an economics test tomorrow). The opportunity cost of this choice is the value of the highest valued alternative to the time spent studying economics. While there may be many alternatives to studying economics—watching television, reading a novel, talking on the telephone—there is only one alternative that has highest value. In this example, the alternative with highest value depends on one's own preferences. The value of the highest valued alternative—say, for example, reading a novel—would be considered the opportunity cost of studying economics.

Trade and Development Act

This bipartisan legislation includes the Africa Growth and Opportunity Act (AGOA) and the U.S.-Caribbean Basin Trade Partnership Act (CBTPA), and other important provisions. This package advances U.S. economic and security interests by strengthening our relationship with regions of the world that are making significant strides in terms of economic development and political reform. It will expand two-way trade and create incentives for the countries of sub-Saharan Africa (SSA) and the Caribbean Basin to continue reforming their economies and increase their participation in the benefits of the global economy. And, it will contribute to the continuation of our own strong economic performance by encouraging the opening of markets and the reduction of poverty in countries with hundreds of millions of potential consumers of American exports.

Supplier/Vendor-managed inventory

a family of business models in which the buyer of a product provides certain information to a supplier (vendor) of that product and the supplier takes full responsibility for maintaining an agreed inventory of the material, usually at the buyer's consumption location (usually a store). Symbiotic/shared risk.

Supply

states that the quantity of a good supplied (i.e., the amount owners or producers offer for sale) rises as the market price rises, and falls as the price falls.

Normative economics

subjective and value- based. For example, the statement, "government should provide basic healthcare to all citizens" is a normative economic statement. Most disagreements about public policy center on normative statements.

Corporations

-legal entity that is separate and distinct from its owners - "legal person"--has all the same rights and responsibilities as an individual ( right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes) -limited liability: shareholders have the right to participate in the profits, through dividends and/or the appreciation of stock, but are not held personally liable for the company's debts -corporation is created when incorporated by a group of shareholders with ownership of corporation (stock) -in the US, the most common type is a "C corporation" -shareholders elect a board of directors to oversee day-to-day activities and bear responsibility for executing corporation's business plan -can be ended with liquidation

Board of Governors

-several-member group that oversees or manages the running of an institution -best known board of governors is that of the Fed -7 members and 1800 staff -appointed by president and confirmed by senate -14 year terms (staggered) -appointments supposed to consist of a "fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country" but are usually academics and banking professionals -board of governors has 7 of the 12 seats on the Federal Open Market Committee, which determines U.S. monetary policy -the board alone has authority over changes in reserve requirements, and it must approve any change in the discount rate initiated by a Federal Reserve Bank -members testify before congressional committees on the economy, monetary policy, banking supervision and regulation, consumer credit protection and financial markets -they are responsible for supervising the work of the regional Fed banks, including approving budgets and appointing directors -members sit on the Federal Open Market Committee (FOMC), the body responsible for setting out U.S. monetary policy -the remaining membership of the FOMC is comprised of the presidents of five of the 12 regional reserve banks -the Chair of the Fed's board of governors is responsible for chairing the FOMC -Yellen, Bernanke, Greenspan

Helms-Burton

-strengthened and continued the United States embargo against Cuba -extended the territorial application of the initial embargo to apply to foreign companies trading with Cuba, and penalized foreign companies allegedly "trafficking" in property formerly owned by U.S. citizens but confiscated by Cuba after the Cuban revolution -made illegal investments in Cuban nationalized property -covers property formerly owned by Cubans who have since become U.S. citizens. -illegal because it called for secondary boycott

Board of Directors

A board of directors (B of D) is a group of individuals, elected to represent shareholders. A board's mandate is to establish policies for corporate management and oversight, making decisions on major company issues. Every public company must have a board of directors. Some private and nonprofit organizations also have a board of directors. -the board makes decisions as a fiduciary on behalf of sha​reholders -responsible for hiring and firing of senior executives; as well as dividend policies, options policies, and executive compensation, helping a corporation set broad goals, supporting executive duties, and ensuring the company has adequate, well-managed resources at its disposal -usually between 3-31 people -should represent both management and shareholder interests -should have both internal and external members -inside director: member who has interest of shareholders, officers, employees in mind and who adds value -independent/outside director: not involved in day-to day. reimbursed and get pay for meetings; brings objective view to goal setting -firing: not likely bc of parachute clause (bonus upon being let go), but can happen if you don't follow the rules

Variable and fixed factors of production

A factor of production that can be varied in the short‐run is called a variable factor of production. In the short‐run, a firm can increase its production of goods and services only by increasing its use of variable factors of production. A factor of production that cannot be varied in the short‐run is called a fixed factor of production.

Natural monopolies

A few monopolies arise naturally, in markets where there are large economies of scale. A local telephone company, gas, electric power, and other local utilities are examples of natural monopolies. Competition will not naturally arise.

Cooperative

A financial cooperative is a financial institution that is owned and operated by its members. The goal of a financial cooperative is to act on behalf of a unified group as a traditional banking service. These institutions attempt to differentiate themselves by offering above-average service along with competitive rates in the areas of insurance, lending and investment dealings. -most popular: credit unions -size varies -focus is financial well-being of members; they sometimes educate on finance -open membership -control is democratic -owners are also customers -different kinds: healthcare, housing, grocery...

Margin call

A margin call happens when a broker demands that an investor deposits additional money or securities so that the margin account is brought up to the minimum maintenance margin. A margin call occurs when the account value falls below the broker's required minimum value. Basically, this means that one or more of the securities held in the margin account decreased in value below a certain point. The investor must either deposit more money in the account or sell some of the assets held in the account.

Monopoly

A monopoly is a market structure in which there is only one producer and seller for a product. In other words, the single business is the entire producer in the industry. Entry into such a market can be restricted due to high costs or other impediments, which may be economic, social or political that keep potential competitors out. Three conditions characterize a monopolistic market structure. First, there is only one firm operating in the market. Second, there are high barriers to entry. These barriers are so high that they prevent any other firm from entering the market. Third, there are no close substitutes for the good the monopoly firm produces. Because there are no close substitutes, the monopoly does not face any competition. In a monopolistic market, there is no difference between the firm's supply and market supply.

PPF (production possibility frontier)

A production possibility frontier (PPF) shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently employed. Opportunity Cost and the PPF. Reallocating scarce resources from one product to another involves an opportunity cost.

Sole propietorships

A sole proprietorship, also known as a sole trader or a proprietorship, is an unincorporated business with a single owner who pays personal income tax on profits earned from the business. With little government regulation, a sole proprietorship is the simplest business to set up or take apart, making sole proprietorships popular among individual self-contractors, consultants or small business owners. Many sole proprietors do business under their own names because creating a separate business or trade name isn't necessary. A sole proprietorship has no separation between the business entity and its owner. It is therefore different from corporations and limited partnerships, in that no separate legal entity is created. Consequently, the business owner of a sole proprietorship is not safe from liabilities incurred by the entity. For example, the debts of the sole proprietorship are also the debts of the owner. However, all profits flow directly to the owner of a sole proprietorship. The benefit of the sole proprietorship is the pass-through tax advantage, mentioned above. The disadvantage of a sole proprietorship is obtaining capital funding, specifically through established channels, such as issuing equity and obtaining bank loans or lines of credit. As a business grows, it often transitions to a limited liability company (LLC) or an S-corporation.

Stocks

A stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders' meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated. Also known as "shares" or "equity." A holder of stock (a shareholder) has a claim to a part of the corporation's assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company's assets.

Which famous economist is not correctly paired with his seminal work?

A. Capital - Karl Marx B. The Return of Depression Era Economics - Milton Friedman C. The Wealth of Nations - Adam Smith D. The General Theory of Employment, Interest and Money - John Maynard Keynes The Return of Depression Era Economics was written by Paul Krugman, not Milton Friedman. Unlike the other three economists listed, Friedman is not closely associated with a single publication. This hasn't hampered the Nobel laureate's influence.

If company A is better than company B at both producing T-shirts and at selling them retail, why might company A contract the first job to company B?

A. Company B has an absolute advantage at producing T-shirts. B. Company A believes it will benefit from future competition. C. There is no reason for company to contract out the work. D. Company B has a comparative advantage at producing T-shirts. D. Company A would contract the job to company B if company B has a comparative advantage. Assume that producing T-shirts is time-consuming and has a low profit margin. Company A might contract the work to company B so that it can focus on the more lucrative retail sales. Since company B is bad at both jobs, its opportunity costs are lower; these low opportunity costs are its comparative advantage.

Credit ratings and agencies

An assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money - an individual, corporation, state or provincial authority, or sovereign government. Credit assessment and evaluation for companies and governments is generally done by a credit rating agency such as Standard & Poor's, Moody's or Fitch. These rating agencies are paid by the entity that is seeking a credit rating for itself or for one of its debt issues.

Economic shock

An economic shock is an event that occurs outside of an economy, and produces a significant change within an economy.They are unexpected and unpredictable and typically dramatically impact supply or demand throughout the markets. Kinds of shocks: supply (when it is constrained), rapid devaluation of a currency, technology (when it affects productivity), inflationary (when prices go up but salaries don't), demand (when there is a sudden shift in the patterns of private spending), monetary policy (when a central bank departs from an established pattern of interest rate increase or decrease or money supply control), and fiscal (unexpected change in government spending or tax levels). These are all macroeconomic shocks, but we also see shocks at the microeconomic level, in households: health, income, consumption and taxation shocks. Changes can be positive or negative, too. Impulse response describes how the economy reacts over time to economic shocks from exogenous factors described above.

Investment resource recovery/asset recovery/resource recovery

Asset recovery, also known as investment or resource recovery, is the process of maximizing the value of unused or end-of-life assets through effective reuse or divestment. While sometimes referred to in the context of a company that is being liquidated, Asset recovery is also used to describe the process of liquidating excess inventory, refurbished items, and equipment returned at the end of a lease. Asset recovery can also refer to the task of recovery of assets that have been wrongfully taken either stolen, fraudulently misappropriated or otherwise disposed of to remove them from their rightful owner. Asset recovery has three main elements—identification, redeployment, and divestment.

Banking business

Banks perform two crucial functions. First, they receive funds from depositors and, in return, provide these depositors with a checkable source of funds or with interest payments. Second, they use the funds that they receive from depositors to make loans to borrowers; that is, they serve as intermediaries in the borrowing and lending process. When banks receive deposits, they do not keep all of these deposits on hand because they know that depositors will not demand all of these deposits at once. Instead, banks keep only a fraction of the deposits that they receive. The deposits that banks keep on hand are known as the banks' reserves. When depositors withdraw deposits, they are paid out of the banks' reserves. The reserve requirement is the fraction of deposits set aside for withdrawal purposes. The reserve requirement is determined by the nation's banking authority, a government agency known as the central bank. Deposits that banks are not required to set aside as reserves can be lent to borrowers, in the form of loans. Banks earn profits by borrowing funds from depositors at zero or low rates of interest and using these funds to make loans at higher rates of interest.

NAFTA

Canada, Mexico, and the United States; created a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada-United States Free Trade Agreement between the U.S. and Canada. two supplements: the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC). Most economic analyses indicate that NAFTA has been beneficial to the North American economies and the average citizen, but harmed a small minority of workers in industries exposed to trade competition. Economists hold that withdrawing from NAFTA or renegotiating NAFTA in a way that reestablishes trade barriers will adversely affect the U.S. economy and cost jobs. However, Mexico would be much more severely affected by job loss and reduction of economic growth in both the short term and long term.

Perfectly price elastic

Demand is perfectly price elastic if for any percentage decrease in price, no matter how small, the percentage change in quantity demanded is infinitely large—demanders demand all that they can. Supply is perfectly price elastic if for any percentage increase in price, no matter how small, the percentage change in quantity supplied is also infinitely large—suppliers supply all that they can. The other extreme case occurs when demand or supply is said to be perfectly price inelastic, or completely nonresponsive to change in prices.

Zero economic profits

If some firms are earning positive economic profits in the short‐run, in the long‐run new firms will enter the market and the increased competition will reduce all firms' economic profits to zero. A perfectly competitive market achieves long‐run equilibrium when all firms are earning zero economic profits and when the number of firms in the market is not changing.

Consumption expenditures

Part of final goods and services; together with investment expenditures, government expenditures, and net exports=GDP or GNP. Personal consumption expenditures on goods and services comprise the largest share of total expenditure. Consumption good expenditures include purchases of nondurable goods, such as food and clothing, and purchases of durable goods, such as appliances and automobiles. Consumption service expenditures include purchases of all kinds of personal services, including those provided by barbers, doctors, lawyers, and mechanics.

Eco-labeling (FSC)

Eco-labels and Green Stickers are labeling systems for food and consumer products. Ecolabels are voluntary, but green stickers are mandated by law; for example, in North America major appliances and automobiles use Energy Star. FSC (Forest Stewardship Council) chain of custody (CoC) tracks FSC certified material through the production process - from the forest to the consumer, including all successive stages of processing, transformation, manufacturing and distribution. Only FSC CoC certified operations are allowed to label products with the FSC trademarks. FSC on-product labels: 100% Products only contain material from FSC certified forest that meet the environmental and social standards of FSC. Mix Products with material from FSC certified forests, recycled material or other controlled sources. Recycled Products contain post-consumer material and may include some pre-consumer material content.

Monopolistic activities

Monopolistic activities are not legal; the other three (horizontal, vertical, economies of scale) are competitive strategies. A company with a monopoly is able to manipulate the market in such a way that it drives other companies out of business. Monopolies are illegal because they are bad for competition and bad for consumers. Some industries, such as rail, electricity generation and water processing have extremely high infrastructure cost, inelastic demand and large efficiencies of scale, thus causing high barriers to entry. These industries are frequently run as regulated regional monopolies because of the inefficiency of competition and to prevent the monopolistic company from taking advantage of the consumer.

Final goods and services

Final goods and services are goods and services that have been purchased for final use or goods and services that will not be resold or used in production within the year. Final goods and services produced domestically=GDP; produced nationally=GNP.

Monopolistically competitive market

First, the market has many firms, none of which is large. Second, there is free entry and exit into the market; there are no barriers to entry or exit. Third, each firm in the market produces a differentiated product. This last condition is what distinguishes monopolistic competition from perfect competition. Examples of monopolistically competitive firms include restaurants, retail clothing stores, and gasoline service stations.

GDP

Gross domestic product (GDP) is a monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly) of time. living standards between different nations. Total GDP can also be broken down into the contribution of each industry or sector of the economy. The ratio of GDP to the total population of the region is the per capita GDP and the same is called Mean Standard of Living. GDP is considered the "world's most powerful statistical indicator of national development and progress".

GNP

Gross national product (GNP) is an estimate of total value of all the final products and services turned out in a given period by the means of production owned by a country's residents. GNP is commonly calculated by taking the sum of personal consumption expenditures, private domestic investment, government expenditure, net exports and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents. Net exports represent the difference between what a country exports minus any imports of goods and services. GNP is related to another important economic measure called gross domestic product (GDP), which takes into account all output produced within a country's borders regardless of who owns the means of production. GNP starts with GDP, adds residents' investment income from overseas investments, and subtracts foreign residents' investment income earned within a country.

Oligopoly

In an oligopoly, there are only a few firms that make up an industry. This select group of firms has control over the price and, like a monopoly, an oligopoly has high barriers to entry to keep out potential competitors. The products that the oligopolistic firms produce are often nearly identical and, therefore, the companies, which are competing for market share, are interdependent as a result of market forces.

Differentiated economics

In economics and marketing, product differentiation (or simply differentiation) is 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.

BRICs

In economics, BRIC is a grouping acronym that refers to the countries of Brazil, Russia, India and China, which are all deemed to be at a similar stage of newly advanced economic development. It is typically rendered as "the BRICs" or "the BRIC countries" or "the BRIC economies" or alternatively as the "Big Four". A related acronym, BRICS, adds South Africa. There are arguments that Indonesia should be included into grouping, effectively turning it into BRIIC or BRIICS. Previously BRIC was coined by Jim O'Neill in 2001 as an acronym of 4 countries which are all deemed to be at a similar stage of newly advanced economic development, but in 2009 the leaders of BRIC countries made the first summit and in 2010 BRIC became a formal institution. South Africa began efforts to join the BRIC grouping and on December 24, 2010 South Africa was invited to join BRICS. The aim of BRIC is establishment of an equitable, democratic and multi polar world order, but later BRIC became a political organization, moreover after South Africa joined BRICS. Jim O'Neill, told the summit that South Africa, at a population of under 50 million people, was just too small as an economy to join the BRIC ranks.

Carrying inventory/carrying cost/holding cost

In marketing, carrying cost, carrying cost of inventory or holding cost refers to the total cost of holding inventory. This includes warehousing costs such as rent, utilities and salaries, financial costs such as opportunity cost, and inventory costs related to perishability, shrinkage (leakage) and insurance.

Voorhis Act

In the House of Representatives, Voorhis was a loyal supporter of the New Deal and compiled a liberal voting record. His major legislative achievement was the Voorhis Act of 1940 requiring registration of certain organizations controlled by foreign powers. After being re-elected by comfortable margins four times, he faced Nixon in 1946 in a bitter campaign in which Voorhis' supposed endorsement by groups linked to the Communist Party was made into a major issue. Nixon won the Republican-leaning district by over 15,000 votes and Voorhis refused to run against Nixon in 1948.

Long/Short-run average total cost curve (L/SATC)

In the short‐run, some factors of production are fixed. Corresponding to each different level of fixed factors, there will be a different short‐run average total cost curve (SATC). The average total cost curve is just one of many SATCs that can be obtained by varying the amount of the fixed factor, in this case, the amount of capital. In the long‐run, all factors of production are variable, and hence, all costs are variable. The long‐run average total cost curve (LATC) is found by varying the amount of all factors of production. However, because each SATC corresponds to a different level of the fixed factors of production, the LATC can be constructed by taking the "lower envelope" of all the SATCs

Command/planned economic system

In this economic system, a large part of the economic system is controlled by a centralized power; often, a federal government. A command economy is capable of creating a healthy supply of its own resources and it generally rewards its own people with affordable prices. Example: China or D.P.R.K. (North Korea).

What does not necessarily increase competition between companies?

Industry deregulation does not necessarily increase competition between companies; it depends on the specific regulations being removed. The presence of many competitors and slow industry growth both force companies to steal clients from each other in order to maintain steady growth. While high overhead costs make it difficult for new competitors to enter the market, it also makes it impossible to slow production during slow times, so existing companies must perform or go out of business entirely.

Intermediate goods and services

Intermediate goods and services, which are used in the production of final goods and services, are not included in the expenditure approach to GDP because expenditures on intermediate goods and services are included in the market value of expenditures made on final goods and services. Including expenditures on both intermediate and final goods and services would lead to double counting and an exaggeration of the true market value of GDP.

Keynes

Keynesian economics are the various theories about how in the short run, and especially during recessions, economic output is strongly influenced by aggregate demand (total spending in the economy). In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation. The General Theory of Employment, Interest and Money: Keynes contrasted his approach to the aggregate supply-focused classical economics that preceded his book. The interpretations of Keynes that followed are contentious and several schools of economic thought claim his legacy. Keynesian economists generally argue that, as aggregate demand is volatile and unstable, a market economy will often experience inefficient macroeconomic outcomes. These can be mitigated by active policy responses, in particular, monetary policy actions by the central bank and fiscal policy actions by the government, can help stabilize output over the business cycle. Keynesian economists often advocate an active role for government intervention during recessions. Keynesian economics served as the standard economic model in the developed nations during the later part of the Great Depression, World War II, and the post-war economic expansion (1945-1973), though it lost some influence following the oil shock and resulting stagflation of the 1970s.[5] The advent of the financial crisis of 2007-08 caused a resurgence in Keynesian thought, which continues as new Keynesian economics.

Nominal GDP

Nominal GDP is GDP evaluated at current market prices. Therefore, nominal GDP will include all of the changes in market prices that have occurred during the current year due to inflation or deflation. Inflation is defined as a rise in the overall price level, and deflation is defined as a fall in the overall price level.

Normal profits

Normal profits give the same return on investment as a different investment that is equally risky. Portfolio management is primarily a process of balancing risk and expected returns, so having high returns relative to risk makes a company more attractive to investors.

Government expenditures

Part of final goods and services; together with investment expenditures, consumption expenditures, and net exports=GDP or GNP. Government expenditures on consumption and investment goods and services are treated as a separate category in the expenditure approach to GDP. Examples of government expenditures include the hiring of civil servants and military personnel and the construction of roads and public buildings. Social security, welfare, and other transfer payments are not included in government expenditures. Recipients of transfer payments do not provide any current goods or services in exchanges for these payments. Hence, government expenditures on transfer payments do not involve the purchase of any new goods or services and are therefore excluded from the calculation of government expenditures.

Investment expenditures

Part of final goods and services; together with consumption expenditures, government expenditures, and net exports=GDP or GNP. Investment expenditures can be divided into two categories: expenditures on fixed investment goods and inventory investment.

Net exports

Part of final goods and services; together with consumption expenditures, investment expenditures, government expenditures=GDP or GNP. Exports are goods and services produced domestically but sold to foreigners, while imports are goods and services produced by foreigners but sold domestically. In the expenditure approach to GDP, expenditures on exports are added to total expenditures, while expenditures on imports are subtracted from total expenditures. Alternatively, one can calculate net exports, which is defined as expenditures on exports minus expenditures on imports, and add the value of net exports to the nation's total expenditures.

Purchasing power parity (PPP)

Purchasing power parity (PPP) is an economic theory that compares different countries' currencies through a "basket of goods" approach. According to this concept, two currencies are in equilibrium or at par when a basket of goods (taking into account the exchange rate) is priced the same in both countries. It is an alternative to using market exchange rates. PPP doesn't work in the short term and there is doubt that it works in the long term.

Keynes' income-expenditure model

Real GDP can be decomposed into four component parts: aggregate expenditures on consumption, investment, government, and net exports. The income‐expenditure model considers the relationship between these expenditures and current real national income. Aggregate expenditures on investment, I, government, G, and net exports, NX, are typically regarded as autonomous or independent of current income. The exception is aggregate expenditures on consumption. Keynes argues that aggregate consumption expenditures are determined primarily by current real national income.

Socialism

Socialism, social and economic doctrine that calls for public rather than private ownership or control of property and natural resources. According to the socialist view, individuals do not live or work in isolation but live in cooperation with one another. Furthermore, everything that people produce is in some sense a social product, and everyone who contributes to the production of a good is entitled to a share in it. Society as a whole, therefore, should own or at least control property for the benefit of all its members. This conviction puts socialism in opposition to capitalism, which is based on private ownership of the means of production and allows individual choices in a free market to determine how goods and services are distributed.

Revolving credit

Revolving credit is a line of credit where the customer pays a commitment fee to a financial institution to borrow money, and is then allowed to use the funds when needed. It usually is used for operating purposes and the amount drawn can fluctuate each month depending on the customer's current cash flow needs. Revolving lines of credit can be taken out by corporations or individuals

Discrepancy between long-term and short-term effects of a change in demand

Short-term and long-term effects are different because there is a cost associated with adjusting to the market. For example, if a farmer must choose between growing corn or wheat, he or she will check prices before buying seeds. But a farmer who has already bought seeds would face a large loss by throwing them out and buying seeds for a different crop.

Central banking and money supply

The Fed has control over the supply of the U.S. currency. The Fed also has control over the private bank reserves that banks entrust to the Fed. Banks hold a portion of their required reserves with the Fed because the Fed acts as a clearing house for all sorts of transactions between banks. The Fed's liabilities therefore consist of all Federal Reserve Notes in circulation plus all private bank deposits held at the Fed as reserves. On the asset side, the Fed owns a large amount of government debt in the form of U.S. government bonds. These bonds have been issued by the U.S. Treasury to pay for current and past government deficits. The Fed's total liabilities are equal to its total assets. When the Fed buys U.S. government bonds on the open market, it increases the supply of money by increasing bank reserves and inducing an expansion in the amount of deposits. Similarly, when the Fed sells some of its stock of U.S. government bonds to bondholders or private banks, the Fed compensates itself for the sale by reducing the reserves of private banks. The sale of government bonds by the Fed reduces the supply of money by reducing the reserves available to private banks and thereby decreasing the amount of deposit expansion that is possible. The Fed can also control the supply of money by its choice of the reserve requirement. Recall that the money multiplier is the reciprocal of the reserve requirement. If the Fed increases the reserve requirement, the money multiplier decreases, implying that deposit creation and the money supply are reduced. If the Fed decreases the reserve requirement, the money multiplier increases, causing both the creation of deposits and the money supply to expand further.

A plant that produces 1000 units of some item decides to make 1001 units instead. What is the cost of this additional unit called?

The cost of making one additional unit is the marginal cost (MC). Similarly, the expected income from selling one additional unit is the marginal revenue (MR). If the marginal revenue is higher than the marginal cost, then it makes sense to produce another unit. The equilibrium production quantity is where MC = MR: If marginal revenue and marginal cost are equal, the producer is indifferent between producing and not producing the additional unit.

FTC

The Federal Trade Commission (FTC) is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act. Its principal mission is the promotion of consumer protection and the elimination and prevention of anticompetitive business practices, such as coercive monopoly, fraud, etc. It was tasked with enforcing the Clayton Act, which banned monopolistic practices. The FTC continues to discourage anticompetitive behavior through the Bureau of Competition, which reviews proposed mergers together with the Department of Justice. The FTC also deals with complaints of unfair business practices such as scams and deceptive advertising. The Bureau of Consumer Protection conducts investigations into alleged abuses, carries out enforcement actions and provide educational materials to consumers. The Bureau of Consumer Protection is in charge of the U.S. National Do Not Call Registry.

Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act of 1977 (FCPA) is a United States federal law known primarily for two of its main provisions, one that addresses accounting transparency requirements under the Securities Exchange Act of 1934 and another concerning bribery of foreign officials. The act was amended in 1988 and in 1998. As of 2012 there were continued congressional concerns.

Generalized system of preferences (GSP)

The Generalized System of Preferences, or GSP, is a preferential tariff system which provides for a formal system of exemption from the more general rules of the World Trade Organization (WTO), (formerly, the General Agreement on Tariffs and Trade or GATT). Specifically, it's a system of exemption from the most favored nation principle (MFN) that obliges WTO member countries to treat the imports of all other WTO member countries no worse than they treat the imports of their "most favored" trading partner. In essence, MFN requires WTO member countries to treat imports coming from all other WTO member countries equally, that is, by imposing equal tariffs on them, etc. GSP exempts WTO member countries from MFN for the purpose of lowering tariffs for the least developed countries, without also lowering tariffs for rich countries.

IS-LM model

The IS-LM model, which stands for "investment-savings, liquidity-money," is a Keynesian macroeconomic model that shows how the market for economic goods (IS) interacts with the loanable funds market (LM) or money market. It is represented as a graph in which the IS and LM curve intersect to show the short-run equilibrium between interest rates and output. The IS-LM graph examines the relationship between real output, or GDP, and nominal interest rates. The entire economy is boiled down to just two markets, output and money, and their respective supply and demand characteristics push the economy towards an equilibrium point. This is sometimes referred to as "the Keynesian Cross."

National Monetary Commission

The National Monetary Commission was a study group created by the Aldrich-Vreeland Act of 1908. After the Panic of 1907, the Commission studied the banking laws of the United States, and the leading countries of Europe. The chairman of the Commission, Senator Nelson Aldrich, a Republican leader in the Senate, personally led a team of experts to major European capitals. They were stunned to discover how much more efficient the European financial system appeared to be and how much more important than the dollar were the pound, the franc and the mark in international trade. The Commission's reports and recommendations became one of the principal bases in the enactment of the Federal Reserve Act of 1913 which created the modern Federal Reserve system. The plan proposed by the Monetary Commission provided for the establishment of local associations of banks and the grouping of these into regional associations. These were further grouped into a national reserve association with a head office at Washington. Under certain conditions, all banks in the country were to be eligible for membership in this central institution. Its functions were to be essentially the same as those performed by the great central banks or Europe, namely, the holding and administration of the bank reserves of the country, the issue of an elastic currency based upon commercial assets, the rediscount or commercial paper for banking institutions, and the serving as depositary and disbursing agent for the Government. The commission believed that it had worked out a system of control which would prevent the domination of the association by any group of interests, political or financial.

Consumer equilibrium changes in prices

The consumer's choice of how much to consume of various goods depends on the prices of those goods. If prices change, the consumer's equilibrium choice will also change.

Consumer equilibrium

The consumer's effort to maximize total utility, subject to constraints (consumer's income, prices of goods and services), is referred to as the consumer's problem. The solution to the consumer's problem, which entails decisions about how much the consumer will consume of a number of goods and services, is referred to as consumer equilibrium.

Demand for money

The demand for money is affected by several factors. 1. transactions motive (you need money for transactions) 2. precautionary motive (you might need money for something in the future) 3. speculative motive (arises in situations where holding money is perceived to be less risky than the alternative of lending the money or investing it in some other asset)

Consumer surplus

The difference between the maximum price that consumers are willing to pay for a good and the market price that they actually pay for a good

Reserve ratio/discount rate

The federal discount rate is the interest rate set by the Federal Reserve on loans offered to eligible commercial banks or other depository institutions as a measure to reduce liquidity problems and the pressures of reserve requirements. The discount rate allows the federal reserve to control the supply of money and is used to assure stability in the financial markets. The Fed can use four tools to achieve its monetary policy goals: the discount rate, reserve requirements, open market operations, and interest on reserves. All three affect the amount of funds in the banking system.

Income approach to measuring GDP

The income approach to measuring GDP is to add up all the income earned by households and firms in a single year. The rationale behind the income approach is that total expenditures on final goods and services are eventually received by households and firms in the form of wage, profit, rent, and interest income. Therefore, by adding together wage, profit, rent, and interest income, one should obtain the same value of GDP as is obtained using the expenditure approach.

Interest rate

The interest rate is the cost of demanding or borrowing loanable funds. Alternatively, the interest rate is the rate of return from supplying or lending loanable funds. The interest rate is typically measured as an annual percentage rate. For example, a firm that borrows $20,000 in funds for one year, at an annual interest rate of 5%, will have to repay the lender $21,000 at the end of the year; this amount includes the $20,000 borrowed plus $1,000 in interest ($20,000 × .05).

Long-run aggregate supply (LAS)

The long‐run aggregate supply (LAS) curve describes the economy's supply schedule in the long‐run. The long‐run is defined as the period when input prices have completely adjusted to changes in the price level of final goods. In the long‐run, the increase in prices that sellers receive for their final goods is completely offset by the proportional increase in the prices that sellers pay for inputs. The result is that the quantity of real GDP supplied by all sellers in the economy is independent of changes in the price level. The LAS curve is a vertical line, reflecting the fact that long‐run aggregate supply is not affected by changes in the price level.

Long- and short-run costs

The main difference between long run and short run costs is that there are no fixed factors in the long run; there are both fixed and variable factors in the short run. In the long run the general price level, contractual wages, and expectations adjust fully to the state of the economy.

Labor demand and supply in a monopsony

The monopsonist faces the upward‐sloping market supply curve; it is a wage‐searcher rather than a wage‐taker. If the monopsonist wants to increase the number of workers that it hires, it must increase the wage that it pays to all of its workers, including those whom it currently employs. The monopsonist's marginal cost of hiring an additional worker, therefore, will not be equal to the wage paid to that worker because the monopsonist will have to increase the wage that it pays to all of its workers.

National debt

The public debt carried by the federal government, measured as the face value of the currently outstanding Treasury securities that have been issued by the Treasury and other federal government agencies. The terms national deficit and national surplus usually refer to the federal government budget balance from year to year, not the cumulative amount of debt. A deficit year increases the debt, while a surplus year decreases the debt as more money is received than spent. There are two components of gross national debt: debt held by the public and debt held by government accounts or intragovernmental debt. -increases as a result of government spending and decreases from tax or other receipts -(both fluctuate day-to-day) -historically debt increased during wars and recessions and later declines -recent concerns about sustainability -aggregate, gross amount that Treasury can borrow is limited by the debt ceiling

When the buyer has a low profit margin, what happens to the seller's bargaining power?

The seller's bargaining power decreases. If the buyer has a low profit margin, it is easy for him or her to walk away from a deal. It is much harder to walk away from a deal that is lucrative.

Total and marginal product

The total amount of output the firm produces, the firm's total product, depends on the quantities of factors that the firm purchases or employs. The marginal product of a factor of production is the change in the firm's total product that results from an increase in that factor by one unit, holding all other factors constant. To better understand the concepts of total and marginal product, consider a firm that produces a certain good using only labor and capital as inputs. Assume that the amount of capital the firm uses is fixed at 1 unit. When the firm combines its fixed unit of capital with different quantities of labor, it is able to vary its output or total product. The change in the firm's total product, due to a 1‐unit increase in labor input, is referred to as the marginal product of labor.

Gross investment

The total amount spent on purchases of new capital and on replacing depreciated capital.

Total utility

The utility that an individual receives from consuming a certain amount of a particular good or service

Potential GDP

The value of production when all the economy's labour, capital, land, and entrepreneurial abilities are fully employed.

Mixed economic system

This economic system is somewhere in between a market economy and command economy. In the most common types of mixed economies, the market is more or less free of government ownership except for a few key areas. It generally has policies that are socialist and capitalist.

Traditional/subsistence economic system

This economic system is the most traditional and ancient type of economy in the world. Vast portions of the world still function under a traditional economic system. These areas tend to be rural, second- or third-world, and closely tied to the land, usually through farming. In general, surplus is a rare thing. Each member of a traditional economy has a more specific and pronounced role, and these societies are often very close-knit and socially satisfied.

Price-searching behavior

Unlike a perfectly competitive firm, the monopolist does not have to simply take the market price as given. Instead, the monopolist is a price searcher; it searches the market demand curve for the profit maximizing price. The monopolist's search for the profit maximizing price involves comparing the marginal revenue and marginal cost associated with each possible price‐output combination on the market demand curve.

GDP deflator

Using the statistics on real GDP and nominal GDP, one can calculate an implicit index of the price level for the year. The GDP deflator can be viewed as a conversion factor that transforms real GDP into nominal GDP. Note that in the base year, real GDP is by definition equal to nominal GDP so that the GDP deflator in the base year is always equal to 100.

Is it possible for per capita income to go up while median income is going down?

When per capita income goes up and median income goes down, you can conclude that inequality has increased. Consider the following example: Ten people each make $50,000. If nine of those people find their salaries reduced to $25,000 but one person gets a raise to $500,000, the average income has gone from $50,000 to nearly $75,000 while the median has gone down from $50,000 to $25,000. Per capita income is the mean per person income in a population.

Liquidation

When the corporation has reached its objectives, its legal life can be terminated using a process called liquidation or winding up. Essentially, a liquidator is appointed, the corporation's assets are sold, the creditors are paid, and any remaining assets are given to the shareholders. It can be voluntary or involuntary (usually triggered by creditors of an insolvent corporation, leading to its bankruptcy).

Excess capacity

When the firm produces below its minimum efficient scale, it is under‐utilizing its available resources. In this situation, the firm is said to have excess capacity because it can easily accommodate an increase in production. This excess capacity is the major social cost of a monopolistically competitive market structure.

Labor demand and supply in a perfectly competitive market

While each labor market is different, the equilibrium market wage rate and the equilibrium number of workers employed in every perfectly competitive labor market is determined in the same manner: by equating the market demand for labor with the market supply of labor.

Measures of capital

While labor is measured in terms of the number of workers hired or the number of hours worked, it is difficult to measure capital in terms of physical units because there are so many different types of capital goods. Capital goods, therefore, are simply measured in terms of their market or dollar value.

Budgeting system

Zero Based budgeting This method of budgeting has a principle that the budget of each cost Centre should be justified from scratch. Every item of expenditure worthwhile must be justified in its entirety. It assumes that this year's activity will not continue in the same way for next year. Therefore every item of expenditure must be justified before it can be included in next year's budget. Rolling Budget These are budget that are updated continuously by adding a further period (one month, one quarter) and deducting the earliest period. The budget will be prepared for the year but only the first month will be the fully prepared budget while the other months or quarters will be prepared in skeletal manner. Towards the end of implementation of the 1st month or quarter budget, the subsequent months or quarter budget will be prepared based on the experience of the previous month or quarter. Incremental Budget The budget for the next period or year is based on the current year's result plus an extra amount for estimated growth or inflation in the coming year Activity Based Budgeting Identifies the activities carried out in an organization. It will then establish the cost drivers and prepare the budget based on the activities and the cost drivers.

FDIC

a United States government corporation providing deposit insurance to depositors in US ban -created by the 1933 Banking Act during the Great Depression to restore trust in the American banking system; more than one-third of banks failed in the years before the FDIC's creation, and bank runs were common -the insurance limit was initially US$2,500 per ownership category. Since the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2011, the FDIC insures deposits in member banks up to US $250,000 per ownership category. -not funded by public funds; member banks' insurance dues are the FDIC's primary source of funding. The FDIC also has a US$100 billion line of credit with the United States Department of the Treasury. Only banks are insured by the FDIC; credit unions are insured up to the same insurance limit by the National Credit Union Administration, which is also a government agency. -as of May 1, 2017, the FDIC provided deposit insurance at 5,844 institutions. The FDIC also examines and supervises certain financial institutions for safety and soundness, performs certain consumer-protection functions, and manages receiverships of failed banks.

Dumping

a kind of predatory pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price below the normal price. The objective of dumping is to increase market share in a foreign market by driving out competition and thereby create a monopoly situation where the exporter will be able to unilaterally dictate price and quality of the product.

Theory of the firm

a number of economic theories that explain and predict the nature of the firm, company, or corporation, including its existence, behavior, structure, and relationship to the market. It assumes that the firm's primary objective is to maximize profits. In maximizing profits, firms are subject to two constraints: the consumers' demand for their product and the costs of production.

Communism

a political theory derived from Karl Marx, advocating class war and leading to a society in which all property is publicly owned and each person works and is paid according to their abilities and needs

Vertical integration

a strategy where a firm acquires business operations within the same production vertical. It can be forward or backward in nature. Vertical integration can help companies reduce costs and improve efficiencies by decreasing transportation expenses and reducing turnaround time, among other advantages. However, sometimes it is more effective for a company to rely on the established expertise and economies of scale of other vendors rather than trying to become vertically integrated.

Demand/supply schedule

a table of the quantity demanded of a good at different price levels. Given the price level, it is easy to determine the expected quantity demanded. This demand schedule can be graphed as a continuous demand curve on a chart where the Y-axis represents price and the X-axis represents quantity.

Regressive taxes

a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, so that the average tax rate exceeds the marginal tax rate.

Proportional taxes

a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases. The amount of the tax is in proportion to the amount subject to taxation. ... As a result, such a flat marginal rate is consistent with a progressive average tax rate.

Explicit costs

all explicit payments to the factors of production the firm uses. Wages paid to workers, payments to suppliers of raw materials, and fees paid to bankers and lawyers are all included among the firm's explicit costs.

Comparative advantage

an economic term that refers to an economy's ability to produce goods and services at a lower opportunity cost than trade partners. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins. From Ricardo's "Principles of Political Economy and Taxation."

Firm

any organization of individuals that purchases factors of production (labor, capital, and raw materials) in order to produce goods and services that are sold to consumers, governments, or other firm.

Kinked-demand theory of oligopoly

applies to oligopolistic markets where each firm sells a differentiated product. According to the kinked‐demand theory, each firm will face two market demand curves for its product. At high prices, the firm faces the relatively elastic market demand curve.

Supply-side economics (Reaganomics)

argues economic growth can be most effectively created by investing in capital and by lowering barriers on the production of goods and services. It was started by economist Robert Mundell during the Ronald Reagan administration. According to supply-side economics, consumers will then benefit from a greater supply of goods and services at lower prices; furthermore, the investment and expansion of businesses will increase the demand for employees and therefore create jobs. Typical policy recommendations of supply-side economists are lower marginal tax rates and less government regulation. The Laffer curve is one of the main theoretical constructs of supply-side economics. Economists are divided on whether lowering tax rates is a viable model, and critics typically charge either (1) that there has never been a time when a tax-rate cut caused economic growth or (2) that "now" is not such a time.

Conditions for perfect competition

characterized by many buyers and sellers, many products that are similar in nature and, as a result, many substitutes. Perfect competition means there are few, if any, barriers to entry for new companies, and prices are determined by supply and demand. Thus, producers in a perfectly competitive market are subject to the prices determined by the market and do not have any leverage.

National Security Act

major restructuring of the United States government's military and intelligence agencies following World War II. Forrestal. The Act merged the Department of War (renamed as the Department of the Army) and the Department of the Navy into the National Military Establishment (NME), headed by the Secretary of Defense. It also created the Department of the Air Force and the United States Air Force, which separated the Army Air Forces into its own service. It also protected the Marine Corps as an independent service, under the Department of the Navy. Aside from the military reorganization, the act established the National Security Council and the Central Intelligence Agency, the U.S.'s first peacetime non-military intelligence agency.

Positive economics

objective and fact-based. The statement, "government-provided healthcare increases public expenditures" is a positive economic statement, as it can be proved or disproved by examining healthcare spending data.

False-cause fallacy

often arises in economic analysis of two correlated actions or events. When one observes that two actions or events seem to be correlated, it is often tempting to conclude that one event has caused the other. But by doing so, one may be committing the false‐cause fallacy, which is the simple fact that correlation does not imply causation.

Laffer curve

one of the main theoretical constructs of supply-side economics. It is the idea that lowering tax rates may generate more government revenue than would otherwise be expected at the lower tax rate because moving off of a prohibitively high tax system could generate more economic activity, which would lead to increased opportunities for tax revenues.

Economies of scale

reduced costs per unit that arise from increased total output of a product. For example, a larger factory will produce power hand tools at a lower unit price, and a larger medical system will reduce cost per medical procedure.

McCarran Act

required Communist organizations to register with the United States Attorney General and established the Subversive Activities Control Board to investigate persons suspected of engaging in subversive activities or otherwise promoting the establishment of a "totalitarian dictatorship," either fascist or communist. Also contained an emergency detention statute, giving the President the authority to apprehend and detain people. It tightened alien exclusion and deportation laws and allowed for the detention of dangerous, disloyal, or subversive persons in times of war or "internal security emergency."

Balance sheet

summarizes the bank's assets and liabilities. Assets are valuable items that the bank owns and consist primarily of the bank's reserves and loans. Liabilities are valuable items that the bank owes to others and consist primarily of the bank's deposit liabilities to its depositors. A banking firm's assets must always equal its liabilities.

Mercantilism

the main economic system of trade utilized from the 16th to 18th century. Mercantilist theorists believed that the amount of wealth in the world was static. Thus, European nations took several strides to ensure their nations accumulated as much of this wealth as possible. The goal was to increase a nation's wealth by imposing government regulation that oversaw all of the nation's commercial interests. It was believed national strength could be maximized by limiting imports via tariffs and maximizing exports.

Price mechanism

the manner in which the prices of goods or services affect the supply and demand of goods and services, principally by the price elasticity of demand. A price mechanism affects both buyers and sellers who negotiate prices. A price mechanism, part of a market mechanism, comprises various ways to match up buyers and sellers. An example of a price mechanism uses announced bid and ask prices. Generally speaking, when two parties wish to engage in trade, the purchaser will announce a price he is willing to pay (the bid price) and seller will announce a price he is willing to accept (the ask price). The primary advantage of such a method is that conditions are laid out in advance and transactions can proceed with no further permission or authorization from any participant. When any bid and ask pair are compatible, a transaction occurs, in most cases automatically.

Implicit costs

the opportunity costs of using the firm's own resources without receiving any explicit compensation for those resources. For example, a firm that uses its own building for production purposes forgoes the income that it might receive from renting the building out.

Macroeconomics

the study of a national economy as a whole. Macroeconomics focuses on issues that affect the economy as a whole. Some of the most common focuses of macroeconomics include unemployment rates, the gross domestic product of an economy, and the effects of exports and imports.

Inventory

the term for the goods available for sale and raw materials used to produce goods available for sale. Inventory represents one of the most important assets of a business because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders