Economics Course Review

market demand curve

a curve that shows how much of a product all consumers will buy at all possible prices

market supply curve

a graph that shows the various amounts offered by all firms over a range of possible prices

supply elasticity

a measure of how the quantity supplied responds to a change in price

elasticity

a measure of responsiveness that shows how one variable responds to a change in another variable

demand elasticity

a measure that shows how a change in quantity demanded responds to a change in price

budget surplus

a positive balance after expenditures are subtracted from revenues

economic model

a simplified version of a complex behavior expressed in the form of an equation, graph, or illustration

supply

amount of a product offered for sale at all possible prices

specialization

assignment of tasks to the workers, factories, regions, or nations that can perform them more efficiently

opportunity cost

cost of the next-best alternative use of money, time, or resources when making a choice

division of labor

division of work into a number of separate tasks to be performed by different workers

Medicare

federal health-care program for senior citizens, regardless of income

social security

federal program of disability and retirement benefits that covers most working people

mandatory spending

federal spending authorized by law that continues without the need for annual approvals by Congress

economic growth

increase in a nation's total output of goods and services over time

market

meeting place or mechanism that allows buyers and sellers to come together

labor

people with all their efforts, abilities and skills

equilibrium price

price where quantity supplied equals quantity demanded

law of supply

principle that more will be offered for sale at higher prices than at lower prices

factors of production

productive resources that make up the four categories of land, capital, labor, and entrepreneurs

inflation

rise in the general level of prices

entrepreneur

risk-taking individual in search of profits

consumer sovereignty

role of consumer as ruler of the market when determining the types of goods and services produced

Law of Demand

rule stating that consumers will buy more of a product at lower prices and less at higher prices

economics

social science dealing with the study of how people satisfy seemingly unlimited and competing wants with the careful use of scarce resources

want

something we would like to have but is not necessary for survival

discretionary spending

spending for federal programs that must receive annual authorization

competition

the struggle among sellers to attract consumers

land

natural resources or other "gifts of nature" not created by human effort

capital

tools, equipment, and factories used in the production of goods and services

national debt

total amount borrowed from investors to finance the government's deficit spending

unit elastic

type of elasticity where a change in price causes a proportional change in quantity demanded

elastic

type of elasticity where a change in price causes a relatively larger change in quantity demanded

inelastic

type of elasticity where a change in price causes a relatively smaller change in quantity demanded

fiscal year

12-month financial planning period that may not coincide with the calendar year

FICA

Federal Insurance Contributions Act; tax levied on employers and employees to support Social Security and Medicare

change in quantity demanded

change in amount demanded for sale when the price changes

change in quantity supplied

change in amount offered for sale when the price changes

utility

ability or capacity of a good or service to be useful and give satisfaction to someone

circular flow of economic activity

after individuals earn their incomes in factor markets, they spend it in product markets; businesses then use this money to produce more goods and services; the cycle of repeats.

federal budget

annual plan outlining proposed expenditures and anticipated revenues

need

basic requirement for survival, including food, clothing, and shelter

benefit principle of taxation

belief that taxes should be paid according to benefits received regardless of income

ability to pay principle of taxation

belief that taxes should be paid according to level of income, regardless of benefits received

demand

combination of desire, ability, and willingness to buy a product

market failure

condition that causes a competitive market to fail

real gross domestic product (GDP)

dollar value of all final goods, services, and structures produced within a country's borders during a one-year period based on a base year's prices

nominal gross domestic product (GDP)

dollar value of all final goods, services, and structures produced within a country's borders during a one-year period based on current year prices

command economy

economic system characterized with a central authority that makes most of the major economic decisions

market economy

economic system in which supply, demand, and the price system help people make decisions and allocate resources

traditional economy

economic system in which the allocation of scarce resources and other economic activities are based on ritual, habit, or custom

modified free enterprise

economy where people carry on their economic affairs freely but are subject to some government intervention and regulation

"there is no such thing as a free lunch"

everything we do has a cost, due to limited resources

scarcity

fundamental economic problem of meeting people's virtually unlimited wants with scarce resources

profit

income less expenses; extent to which persons or organizations are better off financially at the end of a period than they were at the beginning

profit maximizing quantity of output

level of production where marginal cost is equal to marginal revenue

product market

market where goods and services are bought and sold

factor market

market where the factors of production are bought and sold

productivity

measure of the amount of output produced with a given amount of productive factors

change in demand

situation where different amounts are demanded at all possible prices in the market; shift of the demand curve

change in supply

situation where different amounts are offered for sale at all possible prices in the market; shift of the supply curve

surplus

situation where quantity supplied is greater than quantity demanded at a given price

shortage

situation where quantity supplied is less than quantity demanded at a given price

human capital

sum of people's skills, abilities, health, knowledge and motivation

good

tangible economic product that is useful, relatively scarce, and transferable to others

proportional tax

tax in which percentage of income paid in tax is the same regardless of the level of income

regressive tax

tax in which the percentage of income paid in tax goes down as income rises

progressive tax

tax in which the percentage of income paid in tax rises as the level of income rises

public sector

that part of the economy made up of local, state, and federal governments

private sector

that part of the economy made up of private individuals and businesses

service

work or labor performed for someone