Econ Unit 2 Pt 2

black market

"underground"/illegal market in which goods are traded at prices above their legal maximum prices or in which illegal goods are sold.

some ways you can decide how much to save?

-consider risks involved -consider your values -know reasons for saving -find out how much you spend on fixed expenses

startup

beginning business enterprise

sole proprietorship

business owned and operated by own person

partnership

business that two or more individuals own and operate

how does the principle of voluntary exchange operate in a market economy?

buyer and seller work out the terms of an exchange. seller sets a price on the market and the buyer agrees to the product and price by purchasing the product

treasury bills

certificates issued by the US treasury in exchange for a minimum amount of $1000 and maturing in a few days up to 26 weeks

treasury notes

certificates issued by the US treasury in exchange for minimum amounts of $1000 and maturing in 2-10 yrs

pension plans

company plans that provide retirement income for their workers

compare and contrast sole proprietorships and partnerships

compare: -easy to set up -unlimited liability -low taxes -legally dissolved/nonexistent if an individual dies sole proprietorships: -owner has complete control over company's finances and operations, does not need to consult with anyone -liable for themselves -no conflicts -automatically do not exist of the owner sells business or dies partnerships: -all partners have input regarding company's decisions -partners are liable for each other -partners may encounter conflict through disagreements -legally dissolve if a partner dies/leaves, unless partnership agreement contains proper procedures

how do stocks and bonds differ?

corporations sell stock, but are not required to issue bonds. bonds represent debt, while stocks represent ownership. stocks do not have maturity dates, while bonds do.

capital loss

decrease in value of an asset from the time it was bought to the time it was sold

if income and population increase, what tends to happen to demand curves?

demand curves shift to the right

Some advantages of owning an apartment?

-only requires security deposit and 1-2 months of rent up front -dont have to pay maintenance costs/real estate taxes -allows greater mobility

5 determinants of demand

1) changes in population 2) changes in income 3) availability and price of substitutes 4) changes in consumers' tastes and preferences 5) price of complementary goods

4 things you must do before starting a business?

1) invest your money into an inventory 2) invest into advertising 3) keep record of your expenses and income 4) balance the risks against the advantages of being in business

5 ways of investing for retirement

1) pension plans 2) IRA 3) Roth IRA 4) Buying real estate 5) Keogh Plan

4 determinants of supply

1) price of input: cost of direct material/labor devoted to the production of a good/service 2) # of industry firms: increase/decrease in firms means more/less production 3) any improvement in technology increases supply 4) if gov imposes more taxes, cost of production rises

list high to low, the five possible investments you could make w $100,000 in funds

5) treasury bills/notes/bonds 4) FDIC insured bank CDs or savings accounts for short term investments 3) AAA rated corporate bonds 2) participation in real property deeds of trust 1) preferred stock/common stock

"don't put all your eggs in one basket" is an example of?

diversification

demand curve

downward sloping line that shows in graph form the quantities demanded at each possible price

elasticity

economic concept dealing with consumers' responsiveness to an increase or decrease in the price of a product

price elasticity of demand

economic concept that deals with how much demand varies according to changes in price

law of diminishing returns

economic rule stating that as more units of a factor of production are added to the other factors of production, after some point total output continues to increase but at a diminishing rate

substitution effect

economic rule stating that if two items satisfy the same need and the price of one rises, people will buy more of the orher

real income effect

economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same

law of supply

economic rule stating that price and quantity applied move in the same direction

law of demand

economic rule stating that the quantity demanded and price move in opposite directions

over the counter market

electronic purchase and sale of stocks and bonds, often of smaller companies, which often takes place outside the organized stock exchanges

elements of business

expenses, receipts, record keeping, risks, advertising

inventory

extra supply of the items used in a business (i.e raw materials or goods for sale)

explain how shortage of tickets determines price of tickets

higher the demand, higher amount of money people are willing to pay

how do price floors/price ceilings restrict the free exchange of prices?

if price ceilings are high, producers supply more. if price floors are low, not enough supply will be produced for demand

receipts

income received from the sale of goods/services; also slips of paper documenting a purchase

capital gain

increase in value of an asset from the time it was bought to the time it was sold

two advantages of US savings bonds?

interest is not taxed until bond is turned in for cash

how is equilibrium price determined?

intersection of supply and demand

mutual fund

investment company that pools the funds of the many individuals to buy stocks, bonds, and other investments

savings bonds

issued by the federal gov as a way of borrowing money; they are purchased at half the face value and increase every 6 months until full face value is reached

price ceiling

legal maximum price that may be charged for a particular good/service

price floor

legal minimum price below which a good/service may not be sold

corporate charter

license to operate granted to a corporation by the state where it is established

difference between limited partnership and joint venture?

limited partnership is permanent but unequal. joint venue is temporary but members are equal

articles of incorporation

list basic info about a corporation that filed with the state where the corporation will be headquartered

knowing about diminishing marginal utility, how would you price your popcorn after halftime?

lower price

stock market indexes

measures of what is happening to a given set of stock prices for a specified list of companies; the most well known is the Dow Jones Industrial Average

what kind of investment company hires professionals to manage the investments of a pool of investors?

mutual fund investment company hires brokers

limited partnership

one or more partners have limited liability but no voice in management

what is the value of your time called?

opportunity cost

proprietor

owner of a business

joint venture

partnership set up for a specific purpose or a short period of time

stockholders

people who have invested in a corporation and own some of its shares of stock

broker

person who acts as a a go-between for buyers and sellers of stocks and bonds

entrepreneur

person who organizes, manages, and assumes the risk of a business in order to gain profit

equilibrium price

price at which the amount producers are willing to supply and is equal to the amount consumers are willing to buy

small-business incubator

private or gov funded agency that assists new businesses by providing advice or low rent building and supplies

individual retirement account (IRA)

private retirement plan that allows individuals or married couples to save a certain amount of untaxed earnings per year with the interest being tax deterred

Roth IRA

private retirement plan that taxes income before it is saved, but does not tax interest on that income when funds are used upon retirement

market

process of freely exchanging goods and services between buyers and sellers

complementary good

product often used with another product

what happens to quantity demanded when the price of a good goes up?

quantity demanded goes down

limited liability

requirement in which an owner's responsibility for a company's debts is limited to the side of the owner's investment in the firm

unlimited liability

requirement that an owner is personally and fully responsible for all losses and debts of a businesses

Keogh plan

retirement plan that allows self employed individuals to save a maximum of 15% of their income up to a specified amount each year + deduct that amount from their yearly taxable income

which gov agency regulates stock and bond markets?

securities and exchange commission

stock

share of ownership in a corporation that entitles the buyer to a certain part of the future profits and assists of the corporatkon

common stock

share of ownership in a corporation that give stockholders voting rights and a portion of future profits (after holders of preferred stock are paid)

elastic demand

situation in which a given rise or fall in a product's price greatly affects the amount that people are willing to but

inelastic demand

situation in which a product's price has little impact on the quantity demanded by consumers

shortage

situation in which the quantity demanded is greater than the quantity supplied at the current price

surplus

situation in which the quantity supplied is greater than quantity demanded at the current price

if you need help starting a small business, where can you look?

small business administration, small-business incubators, also can look on the Internet to gain tips

tax-exempt bonds

sold by local and state gov; interest paid on the bond is not taxed by federal gov

what is the most common form of business organization?

sole proprietorship

diversification

spreading of investments among several different types to lower overall risk

law of diminishing marginal utility

states that additional satisfaction a consumer gets from purchasing one more unit of a product will less with each additional unit purchased

what would an increase in taxes do to the position of the supply curve?

supply curve would shift to the left, indicating a decrease in supply

demand schedule

table showing quantities demanded at different possible prices

supply schedule

table showing quantities supplied at different possible prices

what terms describe the difference between the purchase price of a stock and the sale price of a stock?

tax basis/cost basis

how does the incentive of greater profits affect supply?

the higher the price of a good, the greater the incentive for a producer to produce more

when the price of a good changes, what effects tend to create the law of demand?

the inverse/opposite relationship between quantity demanded and price

voluntary exchange

transaction in which a buyer and seller exercise their economic freedom by working out their own terms of exchange

limited liability company

type of business enterprise that protects members against losing all of their personal wealth; members are taxed as if they were in a partnership

corporation

type of business organization owned by many people but greater by law as though it were an individual; it can own property, pay taxes, make contract, sue/be sued

money market fund

type of mutual fund that used investors' funds to make short term loans to businesses and banks

supply curve

upward sloping line that shows in graph form the quantities supplied at each possible price

technology

use of science to develop new products and new methods for producing and distributing goods and services

how does the elasticity of demand affect the price for a given product?

when demand is elastic, the effect of getting more money for each unit is dominated by the effect of selling fewer units, so revenue falls in reponse to a price increase when a demand is elastic

rationing

when distribution of goods/services are based on something other than price

how do shifts in equilibrium price occur?

a change in supply/demand will shift the equilibrium price

utility

ability of any good or service to satisfy the consumer wants

advantages and disadvantages of a partnership?

advantages: -more efficient -low taxes -good borrowing potential disadvantages: -decision making is slower -disagreements can lead to problems

advantages and disadvantages of a sole proprietorship?

advantages: -satisfaction from being the boss -control over the vision of the business -receive all of the profits -pay income taxes only on profits disadvantages: -time consuming and demanding -owner has unlimited liability -personal assets may be seized to pay off business debts

assets

all items to which a business or household holds legal claim

quantity demanded

amount of a good or service that a consumer is willing and able to purchase at a specific price

quantity supplied

amount of a good or service that a producer is willing to supply at a specific price

demand

amount of a good or service that consumers are able and willing to buy at various prices during a specified time period

supply

amount of a good or service that producers are able and willing to sell at various prices during a specified

marginal utility

an additional amount of satisfaction