Economics part 6
trade surplus
when a country exports more than it imports
NAFTA
North American Free Trade Agreement
Private Goods
Rivalrous and excludable
Service
Work or labor performed for someone
human resource
a factory worker, teacher, doctor, lawyer
good
apple, box, table
continuous life
corporation
Agricultural
farming
services
haircut, plumber
global economy
refers to all the economic interactions that cross international boundries
What is the fundamental problem of economics?
scarcity
natural resources
wood, gold, water
services
work someone does for something else
Service
work that is performed for someone
service
work that someone does for someone else
Value
worth that can be expressed in dollars and cents
Adam smith
wrote "wealth of nations"
command
you are told what to do
benefits of oligopolies
-control over price
benefits of monopoly
-favorable to business
Search costs
A financial and opportunity cost consumers pay in looking for a good or service
scarcity
3 hamburgers, 4 people want one
Currency
A country's system of money
Total cost
Cost of a firm supplying its goods
when a nation's total output of good and services increase over time
Economic Growth
When more suppliers enter the markets, the market supply will typically decline
False
What is an advantage of free market?
It encourages growth
Law of demand
Lower the price, more consumers will buy
That is the government's primary role in the Circular Flow Diagram?
Make sure businesses and individuals operate legally and fairly.
Labor market flexibility
May be achieved by reducing or eliminating interference with market forces. Example: Reducing or eliminating minimum wages and labor union activities, or reducing job security.
Substitution effect
Price rises, people substitute for other products
Social Surplus
Produces and Consumer Surplus
Entrepreneurs
Put together land, labor, and capital to create new businesses
Potential output
The level of output that can be produced when there is "full employment".
Demand deposits
The money in checking accounts
Demand
The number of people who want or need something.
selling price
The price at which something is offered for sale.
Need
a basic requirement for survival
services
businesses that do jobs for people
Utility
capacity to be useful and provide satisfaction
Which group of people ultimately decide the products that a free enterprise economy produces?
consumers
total costs
fixed plus variable
Human Resources
the people needed to perform a task
Supply elasticity
Affected by scarcity of inputs, presence of barriers to entry, time horizon
Service
An activity we pay someone else to do for us, such as a doctor.
Trade-off
An alternative choice that we sacrifice when we make a decision
Paradox of Value
Apparent contradiction between the high value of nonessential item and the low value of an essential item
Price Ceilings
Are maximum prices set by the government for particular goods and services that they believe are being sold at too high of a price and thus consumers need some help purchasing them.
ATMS
Automated teller machines
non accelerating rate of unN
NAIRU. the lowest unemployment rate which can be sustained without an increase in inflation
continuum
a range with no clear divisions
Revenue Bonds / Rate Supported Bonds
Bonds backed by revenue / rates from customers using a service bond is paying for. e.g. water and sewer
Expansionary monetary policy
Refers to monetary policy usually pursued in a recession, involving a decrease in interest rates, intended to increase investment and consumption spending.
Spare capacity
Refers to physical capital that firms have available but do not use; arises in recessions.
Reallocation of resources
Refers to reassigning resources to particular uses, so that the allocation of resources changes and becomes a new allocation.
Consumer surplus
Refers to the difference between the highest prices consumers are willing to pay for a good and the price actually paid.
Advantages of Fixed exchange rates
Certainty, trade encouragement, disciplined fiscal/monetary policy, little current account deficits, lack of speculation.
Ability to pay principle
The idea that taxes should be levied on a person according to how well that person can shoulder the burden.
Government intervention
The practice of government to intervene in markets, preventing the free functioning of the market, usually for the purpose of achieving particular economic or social objectives.
Dumping
The practice of selling a good in international markets at a price that is below the cost of producing the good.
Cost
To an economist, the alternative that is given up because of a decision you make
import
To bring trade goods into a country for sale from a foreign nation.
Privatization
To change from government or public ownership or control to private ownership or control.
Depreciated (Currency)
To decrease in value or strengthen our currency when compared to another countries currency.
Floating exchange rate
Where the value of the exchange rate is determined by supply and demand of the currency.
Inflation
a rise in the general level of prices
profit
a financial gain that a seller makes from a business transaction
Normal Good
a good for which, other things equal, an increase in income leads to an increase in demand
centrally planned economy
an economic system in which the government makes all decisions on the three key economic questions
command economy
an economic system in which the government makes all economic decision
Trading Bloc
a group of countries that have agreed to reduce tariff and other barriers to trade for encouraging freer trade and cooperation between them
Multilateral trade agreement
a group of countries that share an agreement
society
a group of individuals who have simular goals or intrests
Cartel
a group of producers in an industry that join together to regulate supply (or fix or increase prices).
Supply-side policies
are policies designed to shift the AS curve to the right. They may include tax cuts, reductions in welfare payments, promotion of training etc.
Common Access Resources
are resources that are not owned by anyone, do not have a price and are available for everyone without payment
Inferior Good
as Income increases, Quantity demanded decreases (second hand cars)
Normal Good
as Income increases, Quantity demanded increases (shoes)
Preferential trade agreement
as agreement between two of more countries to lower trade barriers between them on particular products, resulting in easier access for markets for member countries compared to others.
Joint Tenancy Owner
each tenant has a share in the whole development which passes to survivors after death
The minimum wage is an example of a federal law that supports
economic equity.
traditional economy
economic system that relies on habit, custom or ritual to decide questions of production and consumption of goods and services
market system
people decide what to buy and sell
The concept of voluntary exchange means
people freely and willingly engage in market transactions.
frictional unemployment
people moving between jobs for a number of reasons.
consumers
people who make purchases
Economics
how goods and services are produced (made), bought, and sold.
literacy rate
how much a country can read
mixed
how much do they control you
demand
how much people want an item
supply
how much there is of an item
supply
how much you have
Economy
how people or a country makes money
perfect competition
ideal model of a market economy
Factors of production
land, labor, capital (and possibly entrepreneurship / management / enterprise).
collective
large farm leased from the state to groups of peasant farmers
market allocation
occurs when competing businesses negotiate to divide up a market
monopolistic competition
occurs when many sellers offer similar but not standardized products
nonprice competition
occurs when producers use factors other than price to try to convince consumers to buy their products
monopoly
occurs when there is only one seller of a product that has no close substitutes
Demand
of an individual consumer indicates the various quantities of a good a consumer is willing and able to buy, at different possible price levels during a particular time period, ceteris paribus
Entrepreneur
risk taker in search of profits who does something new with existing resources
service
something that someone does for you, you are not buying something you can touch or hold
want
something that you spend money on and enjoy, but do not need
good
something you buy and consume, things you can keep, eat or use
need
something you must have in order to live a safe, healthy life: clothes, food, shelter (also medicine and transportation
Balance of current account
sum of all inflows-outflows of funds the current account of payments
Any price above the market clearing prices, will result in a
surplus of product
trading
swapping one good for another; exchanging
Primary Industry
takes natural resources from the Earth
Specialization
takes place when factors of production perform tasks that they can do relatively more efficiently than others
income tax
tax collected on what people earn
production
the process of making goods and services
Trade-Off
Alternative that must be give up when one choice is made rather than another
Entrepreneur
Ambitious individual who combines land, labor, and capital to create and market new goods and services
Preferential trade agreement
An agreement between two or more countries to lower trade barriers between them on particular products, resulting in an easier access to the markets of other members for selected products, compared with the access of countries that are not members.
Party Wall Agreement
An agreement on if and how to carry out building work on a wall that is shared by two people who each on their respective property.
Allocative efficiency
An allocation of resources that results in producing the combination and quantity of goods and services mostly preferred by consumers. Marginal Cost = Marginal Benefit
Subsidy
An amount of money paid by the government to firms for reasons: to protect infant industries, to support producers' income, or as a form of protection against imports.
Recession
An economic contraction, where there is falling real GDP and increasing unemployment of resources, lasting six months or more.
Capital
An economic system based on private ownership of capital
capital
An economic system based on private ownership of capital
Command economy
An economic system in which the government controls a country's economy.
command economy
An economic system in which the government controls a country's economy.
Traditional economy
An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.
traditional economy
An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.
economic growth
An increase in the output of goods and services per person.
Resource allocation
Assigning available resources, or factors of production, to specific uses chosen among many possible and competing alternatives. It involves answering "What to produce" and "How to produce".
Specialization
Assignment of tasks to the workers, factories, regions, or nations that can perform them most efficiently
An economy at its production possibilities frontier is operating
At full potential
Millenium Development Goal
8 development goals adopted by the millennium declaration of 2000, consisting of 18 targets to be achieved by 2015
Production Possibility Frontier
A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good.
Competitive market
A market composed of many buyers and sellers acting independently, none of whom has any market power.
Oligopoly
A market structure dominated by a few large, profitable firms
Price Ceiling
A maximum price, (that the gov't. sets), at which a good can be sold. Ex: rent control THESE CAUSE SHORTAGES
Efficiency
A measure of how well or how productively resources are used to achieve a goal
Income elasticity of demand (YED)
A measure of the responsiveness of demand to changes in income.
Cross-price elasticity of demand (XED)
A measure of the responsiveness of the demand for one good to a change in the price of another good.
Gross Domestic Product
A measure of the value of Aggregate output of an economy, it is the market value of all goods and services produced within a country during a given time period
Lorenz Curve
A curve illustrating the degree of equality of income distribution in an economy. It plots the cumulative percentage of income received by cumulative shares of the population.
Demand curve
A curve showing the relationship between the quantities of a good consumers are willing and able to buy during a particular time period and their respectable prices.
Marginal Decision
A decision made at the margin of an activity, to do a bit more or a bit less of the activity
Elastic demand
A demand that decreases after even a small price increase
Gross domestic product (GDP)
A measure of the value of aggregate output of the economy. It is the market value of all final good sand services produced within a country during a given time period.
Gross national income (GNI)
A measure of total income received by the residents of the country, equal to the value of all final goods and services produced by the factors of production supplied by the country's residents. GNI = GDP + (income from abroad - income sent abroad).
Credit worthiness
A measure of whether you'll be able to pay back a loan properly
Income approach
A method used to measure the value of aggregate output of an economy, which adds up all income earned by factors of production in the course of producing all goods and services within a country in a given time period.
Expenditure approach
A method used to measure the value of aggregate output of an economy, which adds up all spending on final good sand services produced within a country within a given time period.
Output approach
A method used to measure the value of aggregate output of an economy, which calculates the value of all final goods and services produced in the country within a given time period. According to the circular flow model, it is equivalent to measurement by the expenditure approach and the income approach.
Minimum wage (price floor)
A minimum price of wage set by governments in the labor market, in order to ensure that low-skilled workers can earn a wage high enough to secure them with access to basic goods and services.
Price Floor
A minimum price, (that the gov't. sets), for which a product can be sold. Ex: minimum wage THESE CAUSE SURPLUSES
Circular flow of income model
A model showing the flow of resources from consumers to firms, and the flow of products from firms to consumers, as well as money flows consisting of consumers' income arising from the sale of their resources and firms' revenues arising from the sale of their products. Basically, it illustrates the equivalence of expenditure flows, value of output flows, and income flows.
Contractionary monetary policy
A monetary policy usually pursued in an inflationary period. It involves increasing the interest rate (to lower investment and consumption spending).
monopoly
A monopoly is an enterprise that is the only seller of a good or service
innovation
A new idea or method. It can be the use of an existing idea or method for a new production increase or product.
Positive causal relationship
A relationship between two variables in which an increase in the value of one causes an increase in the value of the other, i.e. the two variables change in the same direction; also know as a direct relationship.
Inflation
A rise in the price level
Quota
A type of trade protection that involves setting a legal limit to the quantity of a good that can be imported over a particular time period.
Common market
A type of trading bloc in which countries that have formed a customs union proceed further to eliminate any remaining tariffs in trade between them. Example: European Economic Community.
Free trade area
A type of trading bloc, consisting of a group of countries that agree to eliminate trade barriers between themselves. Example: North American Free Trade Agreement.
Opportunity Cost
Cost of the next best alternative use of money, time, or resources when one choice is made rather than another
Perfectly Competitive Markets
Good being sold must be highly standardized, large numbers of buyers/sellers, everyone well informed, no barriers to entry.
Current account surplus issues
Good issues - foreign assets, generation of income. Negative issues: domestic consumption/investment issues and tax losses due to less domestic investment.
Durable Good
Good that lasts for at least 3 years
Anything that has value that can be touched
Goods
Common good
Goods that are rivalrous and non-excludable
consumer goods
Goods that give you direct satisfaction, for example, food, clothes, and houses.
Complementary Good
Goods that tend to be used together Ex. hotdogs and hotdog buns, skis and ski boots
Price elastic demand
Goods with close substitutes, luxuries
Securities and exchange commission
Gov. Agencies that regulate financial markets and investment companies
Deregulation
Gov. policies that keep firms from controlling the price and supply of important goods
Rationing
Government decides how to distribute a product. (this encourages black market activities)
Fiscal Policy
Government expenditures, taxes, and borrowing in order to influence an economy
Trade protection
Government intervention in international trade through imposition of trade restrictions to prevent the free entry of imports into a country and protect the domestic economy from foreign competition.
Collective farms
Government owned farms, workers were paid by government and they shared profits from products.
collective farms
Government owned farms, workers were paid by government and they shared profits from products.
Industrial policies
Government policies designed to support the growth of the industrial sector of an economy. It may include support for infant industries through tax cuts, grants, low interest loans, and etc, as well as investment in human capital, research and development, or infrastructure development.
mercantilism
Government regulation of trade, in order to build up gold reserves.
Inelastic demand
Keep buying despite a price increase
Disadvantages of Fixed exchange rates
Lack of monetary policy freedom, a need for foreign reserves, possibility of increased unemployment, import inflation.
"gifts of nature" or natural resources not created by humans
Land
Factors of production.
Land, labor, and capital
Factors of production
Land, labor, and capital; the three groups of resources that are used to make all goods and services
Safety Nets
Put in place by our government to help those in need. Ex: Welfare, Social Security, TANF, Medicare
Standard of Living
Quality of life based on ownership of necessities and luxuries that make life easier.
demand
Quantities of a particular good or service consumers are willing and able to buy at different prices at a particula time
Law of demand
Quantity demanded of a good decreases when the price increases.
Current account
Records export revenues from goods and services and import payments for goods and services.
Export promotion
Refers to a growth and trade strategy where a country attempts to achieve economic growth by expanding its exports. As a trade and strategy, it looks outward towards foreign markets and is based on stronger links between domestic and global economies.
Import substitution
Refers to a growth and trade strategy where a country begins to manufacture simple consumer goods oriented towards the domestic market in order to promote its domestic industry.
Underground market
Refers to a market that arises whenever a buying/selling of a transaction is unrecorded.
Perfectly elastic demand
Refers to a price elasticity of demand value of infinity, and arises in the case of a horizontal demand curve.
Perfectly elastic supply
Refers to a price elasticity of supply value of infinity, and arises in the case of a horizontal supply curve.
Unit elastic supply
Refers to a price elasticity of supply value of one.
Perfectly inelastic demand
Refers to a price elasticity of supply value of zero, and arises in the case of a vertical demand curve.
Perfectly inelastic supply
Refers to a price elasticity of supply value of zero, and arises in the case of a vertical supply curve.
Social optimum
Refers to a situation that is best from the social point of view, determined by the achievement of allocative efficiency.
Balanced Budget
Refers to a situation where the government's tax revenues equals the government expenditures.
Fixed exchange rate
Refers to an exchange rate that is fixed by the central bank of the country, and is not permitted to change in response to changes in currency supply and demand. Maintaining the value of a currency at its fixed rate requires constant intervention by the central bank.
Natural capital
Refers to an expanded meaning of the factor of production land, including everything that is included in land plus additional natural resources occurring naturally in the environment such as air, biodiversity, soil quality, the ozone layer, and the global climate.
Appreciation
Refers to an increase in the value of a currency in the context of a floating (flexible) exchange rate system or managed exchange rate system.
Revaluation (of a currency)
Refers to an increase in the value of the currency in the context of a fixed exchange rate system.
Diversification
Refers to change involving greater variety, and is used to refer to increasing the variety of goods and services produced and/or exported by a country.
Economic intergration
Refers to economic interdependence between countries.
Foreign debt
Refers to external debt, meaning the total amount of debt (private and public) incurred by borrowing from foreign creditors. The global problem of debt involves large volumes of public debt.
Expansionary fiscal policy
Refers to fiscal policies usually pursued in a recession, involving an increase in government spending or a decrease in taxes.
Reserve assets
Refers to foreign currency reserves that the central bank maintains and can buy or sell to influence the value of the country's currency exchange rate.
Sherman Anti-Trust Act
Passed to block the formation of monopolies.
Shortages
People have trouble supplying goods and services at current prices
Traditional Economic System
People produce what they need to survive.
Incentive-related policies (a type of supply-side policy)
Policies involving reduction of varies types of taxes, in the expectation that the tax cuts will change the incentives faced by tax payers. For example, tax cuts may encourage the desire to work and cuts in business taxes may encourage investment.
Demand-side policies
Policies that attempt to change aggregate demand in order to achieve goals of price stability, full employment, and economic growth, and minimize the severity of the business cycle.
Monetary policy (Type of demand-side policy)
Policy carried out by central bank, aiming to change interest rates in order to influence aggregate demand.
End on stage
Proscenium
Protectionism
Protectionism is any form of action that is taken by a country that reduces the competitiveness of imported goods in favour of domestically produced goods.
Income (Part of CURRENT ACCOUNT)
Refers to inflows of wages, rents, interest and profit earned abroad minus the same income factors that are sent abroad.
Foreign direct investment
Refers to investments by firms based in one country (the home country) in productive activities in another country (the host country).
Full employment
Refers to maximum use of all resources in the economy to produce the maximum quantity of goods and services that the economy is capable of producing, implying zero unemployment.
Producer surplus
Refers to the difference between the price received by firms for selling their goods and the lowest price firms are willing to receive to produce the good.
Market supply
Refers to the sum of all individual firm supplies of a good or service.
Net exports
Refers to the value of exports minus the value of imports.
Value of output flow
Refers to the value of output that is sold by firms and purchased by consumers.
Welfare
Refers to the well-being of population.
Leakages (CIRCULAR FLOW OF INCOME)
Refers to withdrawals from the income flow of funds corresponding to savings, taxes, or imports.
Labor market reforms
Reforms intended to make labor markets more competitive and flexible, to make wages respond to the forces of supply and demand, to lower labor costs and increase employment by lowering the natural rate of unemployment. Example: Abolishing or reducing minimum wages, reducing job security, and reducing unemployment benefits.
special economic zones
Region offering special tax breaks, eased environmental restrictions, and other incentives to attract foreign business and investment.
Demand
Relationship between prices and quantities for a particular market
Supply
Relationship between prices and quantities for a particular market.
Price elastic demand
Relatively high responsiveness of demand to changes in price. PED > 1
Price elastic supply
Relatively high responsiveness of supply to changes in price. PES > 1
Price inelastic demand
Relatively low responsiveness of demand to changes in price. PED < 1
Price inelastic supply
Relatively low responsiveness of supply to changes in price. PES < 1
Hard Money Loan
Relatively short term loan when there is a distressed financial situation such as foreclosure, bankruptcy, non-payment, etc. Based on quick-sale value of a proprety High interest rates
Traditional Economy
Relies on habit, custom, or ritual to answer economic questions
Resources that can be used again or brought back
Renewable Resources
Changes in quantity demanded (what will graph look like)
Represented by movement from one point to another point along the same line
Subdivision Extractions
Requirements that developers either dedicate some land for public use or contribute cash for the purchase of land and facilities made necessary by local governments.
According to the Circular Flow Diagram, individuals receive wages in what market?
Resource Market
The major purpose of any economic system is to assist citizens in dealing with what issue?
Scarcity
when there is not enough of something to satisfy how much everyone wants of it.
Scarcity
Describe the Product Market on a Circular Flow Diagram
See diagram in notes
Describe the Resource Market on a Circular Flow Diagram
See diagram in notes
Exports
Sending goods and services to other countries.
Production Possibilities Frontier (PPF)
Shows all the ways an economy can produce goods. Each axis features a good. Measures trade-off limits between these two goods. All points outside curve impossible to produce at. Points inside curve possible but inefficient and do not use all available resources.
Why must choices be made?
So we know how to allocate our scarce resources
Want
Something we would like to have but is not necessary for survival
Health and Safety Standards
Standards that must be complied with to all goods coming into a country. For example, medicines might be required to have FDA approval, child car seats have to pass crash testing.
Bear Market
Stock market on a decrease, negative
Bull Market
Stock market on a increase, positive
Accounting profit
Straight monetary profit earned
Natural rate of unemployment
Structural + Frictional + Seasonal
The law of supply and demand
The availability of a particular product and the desire for that product has an effect on price
Marshall-Lerner Condition
The balance of payments will not necessarily improve or deteriorate if the exchange rate changes. This depends on the value of exports or imports changing.
scarcity
The basic economic problem that arises because people have unlimited wants but resources are limited.
Marginal Benefit (Marginal Revenue)
The benefit associated with one additional item
Marginal Benefit
The benefit that arises from an increase in an activity.
Balance of Payments
a record of all transactions between the residents of a country and the residents of all other countries, showing all payments received from other countries and all payments made to other countries
Current account (balance)
a record of the revenues earned from the export of goods and services and the expenditure on imports of goods and services and net incomes and current transfers
cease and desist order
a ruling that requires a firm to stop an unfair business practice
safety net
a set of government programs that protect people who face unfavorable economic conditions
Humanitarian Aid
a type of foreign aid extended in regions where there are emergencies caused by violent conflicts or natural disaster, intended to save lives, ensure access to basic necessities and provide assistance with reconstruction
Quota
a type of trade protection that involves setting a legal limit to the quantity of a good that can be imported over a particular time period
Want
a way of expressing a need
Cost-Benefit Analysis
a way of thinking about a problem that compares the costs of an action to the benefits received
strike
a work stoppage used to convince an employer to meet union demands
free market economy
an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets
market economy
an economic system in which individual choice and voluntary exchange direct economic decisions
traditional economy
an economic system that relies on habit, custom, or ritual to decide the three economic questions
socialist economy
an economy in which businesses are owned by the state and prices are set by state planners
command economy
an economy in which most economic issues or production ans distribution are resolved through central planning (government) and control
mixed economy
an economy that has elements of traditional, command, and market systems
incentive
an expectation that encourages people to behave in a certain way
Economic System
an organized way of providing for the wants and needs of the people
market
any arrangement that allows buyers and sellers to exchange things
Money
any item that can be traded for goods or services
Market
any kind of arrangement where buyers + sellers of goods and services (and resources) are linked together to carry out an exchange
market
any place where people buy and sell goods and services
Bilateral trade agreement
any track agreement involving trading partner
Consumer
anyone who buys goods or services
Producer
anyone who makes a good or provides a service
Good
anything that has value that can be touched
Human Development Index (HDI)
composite indicator of development which includes that measure 3-Dimensions of development: Income, level of education and Health
Resource allocation
concerned with how resources (land, labor, capital and management) are distributed in an economy.
Globalization
expanding trade and communications around the world that helps open new markets and keeps prices low
Investment
expenditure by firms on capital equipment and is an injection into the economy.
Indirect tax
expenditure tax or a tax levied on goods and services and it is imposed by the government.
start-up costs
expenses that a new business faces when it enters the market
human resource
efforts and skills that individuals can contribute to producing goods and services
inelastic or elastic? The product has a substitute
elastic
taxes
extra money
In this production possibilities frontier, what could cause production to move from point a to point e?
factories that are available but idle
How does increasing the minimum wage impact producers?
goods must cost more because the cost of labor has increased and some employees might get fired
command economy
government control
command economy
government decides what is produced (made) and how it's produced.
Price Floors
government imposed limits on how low a price can be charged
Trade protection
government intervention in international trade through the imposition of trade restrictions to prevent the free entry of imports into a country
Appreciation
increase of the value of the currency, expressed in terms of another currency, in a floating exchange rate system.
microeconomic reform
govt policies designed to increase productivity and improve international competitiveness
tied aid
granted on the condition that it is used to buy goods or services from the donor country.
Product differentiation
is where a producer attempts to distinguish her product from those of competitors, with the aim of making demand less price elastic.
opprtunity cost
it must be given up when scarce resources are used for one purpose instread of the other
Structural unemployment
long term unemployment that occurs when there is a mismatch between the skills of unemployed workers and the jobs available or that exists as a result of rigidities in the labor market.
2 examples of goods
look at example pictures (be able to name 2)
2 examples of services
look at example pictures (be able to name 2)
What does the government safety net not provide for?
low income
To maximize profits on a product that is elastic, you rasie or lower prices
lower prices
producer
manufactures goods and services (products)
This economy is based on the idea that the factors of production and businesses should be owned privately.
market economy
market economy 2
market economy is free enterprise
factor market
market in which firms purchase the factors of production from households
consumers get the most value in what kind of markets?
markets that approach perfect competition
resources
materials found in the Earth that people need and value
natural resources
materials that come from the air, water, and earth
privatize
means to change from government or public ownership to private ownership
nationalize
means to change from private ownership to government or public ownership
Inflation Rate
measure of the overall increase in the price of goods and services
Real GDP
measurement of economic growth
Laissez-faire
minimal government intervention in economic affairs
focus group
moderated discussion with small groups of consumers
The United States can best be described as having a
modified private enterprise system.
savings
money a person keeps in a bank
currency
money from another country
purplus
more is availoable than demanded
opportunity cost
gum or candy? I choose gum. The candy is...
In the economic system described in this passage, answers to the basic economic questions would be determined by
habit and custom.
capital resource
hammer, machine, computer, desk
afford
have enough money
abundance
having more than enough of a product or natural resource
scarcity
having seemingly unlimited human needs and wants, in a world of limited resources
services
help that is received from other people
According to this author, a good economic theory is one that
helps solve real problems.
Indirect Tax
imposed on spending, partially payed by consumer and producer
invisible hand
in our economy business will make items the consumer wants demand of product cause company to make more product
National income
The total income of an economy, often used interchangeable with the value of aggregate output.
Costs of production
The total opportunity costs incurred by firms in order to acquire resources for use in production.
Reduction in Aggregate Demand - Expenditure Reducing Policy
This is where ....The government implements policies which reduce AD which reduces spending on imports. The amount of the fall in import spending will be determined by the MPM (Marginal Propensity to Import). Government policies to reduce AD include a contractionary fiscal policy or tight monetary policy.
Current account (BALANCE OF PAYMENTS)
This includes the balance of trade (exports minus imports of goods), the balance of services (exports of services minus imports of services), inflows minus outflows of income and current transfers.
Mixed Economy
United states and Great Britain. Economic decisions are made by private businesses
import
a good or service brought into one country from another
Price floor
a legal set minimum price set by the government
Market
a location or other mechanism that allows buyers & sellers to exchange a product
depression
a long-term economic state characterized by unemployment and low prices and low levels of trade and investment
Black market
a market in which goods are sold illegally
natural monopoly
a market situation in which the costs of production are lowest when only one firm provides output
Monopolistic competition
a market when there are many buyers and sellers, producing differentiated products, with no barriers to entry.
mixed economy
a market-based economic system in which the government is involved to some extent
gini co-efficient
a mathematical expression of the degree of income or wealth inequality
structural unemployment
a mismatch between the labour skills of employees and the job vacancies available
government monopoly
a monopoly that exists because the government runs and owns the business or authorizes only one producer
communism
a political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government
communism
a political system in which the government owns and controls all resources and means of production and makes all economic decisions
price
a price is the amount of money that a buyer gives to a seller in exchange for a good or a service.
binding arbitration
a process in which an impartial third party resolves disputes between management and unions
standardized product
a product that consumers consider identical in all essential features to other products in the same market
socialism
a range of economic and political systems based on the belief that wealth should be distributed evenly throughout society
Traditional economy
mostly farming
Externality
occurs then the action of consumer or producers give rise to negative or positive side-effects on other people who are not part of these actions and whose interest are not taken into consideration.
Trough
occurs when a contraction stops -high unemployment -not much spending -low incomes
Specialization
occurs when a country or a firm concentrates production on one or a few goods
Supply
of an individual firm indicates the various quantities a firm is willing and able to produce and supply, at different possible prices, during a particular time period, ceteris paribus
unlimited personal financial liability
sole proprietorship & partnership
mixed economy
some government control like command, but mostly a market system
independent contractor
someone who sells their services on a contract basis
sales tax
tax added to the cost of what you buy
property tax
tax based on the value of someone's house
Tariff
taxes on imported goods, in order to protect the domestic industry. form of a trade restriction
human resources
teacher, nurse, firefighter
tariffs
term for taxes that governments apply only to imported goods
trade balance
term for the difference in value of the goods that a country sells abroad compared to those it purchases from other countries
imperialism
term for the establishment of colonies and extensive territories created to benefit their mother countries
laws of economics
term for the general rules or principles guiding the production, distribution, and consumption of goods
specialization
term for the principle that says that the division of tasks among workers allows the production of goods by people doing the jobs they do best
division of labor
term for the separation of work into individualized tasks
classical economics
term for the theories developed by economists of the 19th and early 20th centuries that stated that the free market was the best possible economic system
Cyclical Unemployment
that occurs during the downturns of the business cycle. When the economy is in a recessionary gap due to low AD Demand-deficient UE
Urban-informal sector
that part of an urban economy that lies outside the formal economy, consisting of economic activity that are unregistered and illegal
An example of a market economy is
the United States
distribution
the act of giving something to a large group of people
Consumer Surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
Producer Surplus
the amount a seller is paid for a good minus the seller's cost of providing it
Demand
the amount of a product or service that consumers want to purchase
Supply
the amount of a product or service that producers have to sell
marginal propensity to consume
the amount of each additional $ earnt that is spent
supply
the amount of goods and services that are available
quantity
the amount of goods or services that is produced or purchased.
profit
the amount of money a business receives in excess of its expenses
Supply of money
the amount of money in circulation, determined by the central bank of a country
income
the amount of money someone receives for working
Indebtedness
the amount of money that a country owes to other countries and/or international institutions.
Normal profit
the amount of revenue needed to cover the total costs of production, including the opportunity costs.
consumption
the amount of something that is used
Scarcity
the challenge of stretching resources to cover needs and wants
trade-off
the choice to accept having less of one thing in order to get more of something else
Foreign direct investment
the establishment of production units by multinational companies in a foreign country.
trade
the exchange of goods, services, and resources between individuals and firms in the economic system
multiplier
the extent to which an initial change in autonomous spending is multiplied to give a larger change in the equilibrium level of nat Y
Entrepreneurship
the factor of production involving organizing of the other factors and/or risk taking.
Fiscal Policy
the federal government's taxing and spending decisions
counter cyclical policies
policies used to correct adverse fluctuations in the economic cycle
Monetary Policy
policy carries out by central bank, aiming to change interest rates in order to manipulate AD
In a command economy, who/what decides "what" should be produced?
political leaders
excludable
possible to exclude someone (price e.g)
consumer sovereignty
the power of consumers to decide what gets produced
consumer sovereignty
the powers of the consumers to decide what gets produced
outsourcing
the practice of contracting with an outside company, often in a foreign country, to provide goods or services.
insourcing
the practice of foreign companies establishing operations in, and therefore bringing jobs to, the United States.
Dumping
the practice of selling goods in international market at a price that is below the cost of production
Tied Aid
the practice whereby donors make the recipients of foreign aid opened a portion of the borrowed funds on the purchase of goods and services from the donors country.
Who is responsible for fiscal policy?
the president and congress
market clearing price
the price at which the amount supplied is equal to the amount demanded
Economics
the study of how a society uses its resources to produce and distribute goods and services, while satisfying wants and needs
Economics
the study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources.
Economics
the study of how resources are managed in the production, exchange, and use of goods and services
*The Wealth of Nations*
the successful book on economics written by Adam Smith that sought to explain why some nations grow progressively richer while others remain poor
Maquiladoras
the term given to zones in Northern Mexico with factories supplying manufactured goods to the U.S. market. The low-wage workers in the primarily foreign-owned factories assemble imported components and/or raw materials and then export finished goods.
Traditional Economy
use what they available and produce what they have always produced
immediate, longer, consequences
"The art of economics consists in looking not merely at the ______ but at the _____ effects of any act or policy: it consists in tracing the ________ of the policy not merely for one group but for all groups." --Henry Hazlitt
Adam smith _quote
"The real tragedy of the poor is the poverty of their aspirations."
Ceteris Paribus
"other things being equal"
Adam Smith
(1723-1790) Scottish philosopher. "wealth of nations" advocated the idea of laissez faire; or government not involving themselves in the economy.
Ceteris paribus
A Latin term that means "other things being equal" or if all other relevant things remain the same."
Patents
A company's exclusive rights to sell a new good or service for a specific "protected" time period
Human development index (HDI)
A composite indicator of development which includes indicators that measure three dimensions of development: income per capita, levels of health and educational attainment.
Economic efficiency
A condition that arises when allocative efficiency is achieved.
Deflation
A continuing decrease in the general price level
Inflation
A continuous increase in the general price level.
Economic Model
A description of some aspect of the economic world that includes only those features of the world that are needed for the purpose at hand.
Central Bank
A financial institution that is responsible for regulating the country's financial system and commercial banks, and carrying out monetary policies.
Commercial bank
A financial institution whose main functions are to hold deposits for their customers, to make loans to their customers, to transfer funds by check from one bank to another, and to buy government bonds.
Contractionary fiscal policy
A fiscal policy that is usually pursued during an inflationary period. It involves decreasing government spending or increasing taxes. Possibly both methods.
Proportional Tax
A flat tax; it does not change with respect to income and is based on a flat percentage.
Ecotourism
A form of tourism, based on the enjoyment of scenic areas or natural wonders, that aims to provide an experience of nature or culture in an environmentally sustainable way.
ecotourism
A form of tourism, based on the enjoyment of scenic areas or natural wonders, that aims to provide an experience of nature or culture in an environmentally sustainable way.
Bonds
A formal contract to repay borrowed money with interest at fixed intervals, large supper in the home
According to Adam Smith, which would be example of the "invisible hand" at work?
A freeze ruins much of the orange crop. The price of orange juice increases by 10%.
Inflation
A general and progressive increase in prices
inflation
A general and progressive increase in prices
Inflation
A general increase in prices
Economic Theory
A generalization that summarizes what we think we understand about the economic choices that people make and the performance of industries and entire economies.
substitutes
A good or service that can replace another good or service
Private good
A good that is both rivalrous and excludable.
Public good
A good that is non-rivalrous and non-excludable.
Common market
A group of countries imposing few or no duties on trade with one another and a common tariff on trade with other countries.
Trading bloc
A large free trade zone or near-free trade zone formed by one or more tax, tariff and trade agreements.
Law of Demand
A law stating that there is a negative causal relationship between the price of a good and quantity of the good demanded, over a particular time.
Maximum price (Price ceiling)
A legal price set by the government, which is below the market equilibrium price.
Gross National Income
A measure of the total income received by the residents of a country, equal to the value of all final goods and services produced by the factors of production supplied by the countries residents no matter where located
invention
A new process, application, machine, or way of application.
Primary sector
A part of an economy that is dominated by agriculture, including fishing and forestry.
Incentive
A reward that encourages an action or a penalty that discourages an action
Sole Proprietorship
A single owner who takes all the financial risks and reaps all the financial rewards. Unlimited liability!
Shortage
A situation in which a good or service is unavailable
Equilibrium
A situation in which the market price has reached the level at which quantity supplied equals quantity demanded
Scarcity
A situation in which unlimited wants exceed the limited resources available to fulfill those wants
Competition
A situation that occurs when there are many buyers and sellers acting independently, so that no one has the ability to influence the price at which the product is sold in the market.
Recessionary gap
A situation where real GDP is less than potential GDP, and unemployment is greater than the natural rate of unemployment.
Competitive supply
A situation where two goods compete for the same resources. Example: A farmer can produce wheat or corn, but producing ore of one means producing less of the other.
recession
A slowdown in a nation's economy
Consumerism
A social movement that was aimed at promoting the interests of consumers
Economics
A study of the process by which goods and services are produced, sold, and bought.
Composite indicator
A summary measure of more than one indicator. For example: Human Development Indicator includes income, education and health indicators.
Specific tax
A tax calculated as an absolute amount per unit of the good or service sold.
Administrative Obstacles
Administrative 'red tape' which adds to the overall cost of the imported good such as extensive documentation, testing of the product to ensure it complies with local safety standards.
Keynesian aggregate supply curve
An aggregate supply curve that has a flat horizontal section, and upward sloping section and a vertical section.
Market Economy
An economy in which. Economic decisions are based on exchange of trade
Open economy
An economy that has international trade: (imports and exports) usually appears in connection with economic theories and models as virtually all economies in the real world are open economies (though to varying degrees).
Closed economy
An economy that has no international trade. THIS DOES NOT REALLY EXIST IN THE REAL WORLD.
Mixed System (Capitalism)
An economy that incorporates aspects from different economic systems
Multiplier effect
An effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent.
International Monetary Fund (IMF)
An international financial institution composed of 185 member countries, whose purpose is to make short-term loans to governments on commercial terms in order to stabilize exchange rates, alleviate balance of payments difficulties, and help countries meet their foreign debt obligations.
European Union
An international organization of European countries formed after World War II to reduce trade barriers and increase cooperation among its members.
Business
Any commercial activity that seeks profit bu providing goods and services to others in exchange for money
Barriers to entry
Any factor that makes it difficult for a new firm to enter a market
Capital
Any human-made resource (money, tools, machines, vehicles) that is used to create other goods and services
Progressive taxation
As income increases, the fraction of income paid as taxes increases.
Law of Demand
As price goes up, demand goes down As price goes down, demand goes up
In the production of an automobile, in the circular flow models; What would the product market include?
Auto Dealerships
Area / Volume method of Budgeting
Averages cost per unit of area or volume
Purpose of banks
Banks take customer deposits in return for paying annual interest, then they use the majority of the deposits to lend out to other customers for a variety of loans
Federal Mandatory Spending
Based off of existing laws, 2/3 of budget
Need
Basic requirement for survival
Marginal benefit
Benefit of producing/consuming one more
Economic cost
Both monetary (accounting) cost and the opportunity cost of the resource used
Imports
Bringing in goods and services from other countries.
Free Enterprise System
Businesses are free to operate without government interference or wage controls
trade
Buy and sell goods and services. Exchange (something) for something else.
international trade
Buying and selling of goods between different countries around the globe
Speculation
Buying and selling of something in hope of making profit.
Capital account
Capital transfers (Money given to purchase fixed assets and or cancelled loans) and Transactions non-produced, non-financial assets (Disposal of intangible assets e.g. permits for fishing, patents and copyrights)
Economics
Choose from limited resources to meet their needs
Free Enterprise
Conduct of business with minimum gov. intervention
Development Impact Fees
Costs charges to developer for offsite infrastructure improvements made necessary by new development.
Variable costs
Costs that change as the level of output changes (for example: electricity, shipping)
Empowerment
Creation of conditions for equality of opportunities. It involves increasing the political, social, and economic power of individuals or groups of individuals.
Representative Money
Credit cards, debit cards, checks, ect.
entrenprener
DEFINITION of 'Entrepreneur' An individual who, rather than working as an employee, runs a small business and assumes all the risk and reward of a given business venture, idea, or good or service offered for sale. The entrepreneur is commonly seen as a business leader and innovator of new ideas and business processes.
Thinking at the margin
Deciding whether to act, create, or use one additional unit of some resource
Causes of a left shift (decrease) in demand
Decreased population Consumer expectations of lower future prices Fads or consumer tastes changing Decreased income
Causes of a left shift (decrease) in supply
Decreased technology Government Excise Taxes Horrible growing conditions (Drought)
What are the 7 economic goals?
Economic Freedom, efficiency, equity, security, growth, full employment, and price stability
Profit motive
Encourages people and organizations to improve their material well being
Development Method
Estimated the selling price of a lot, cost to develop, time to develop, and net sale price Useful when comparisons are not available.
surplus
Extra beyond what is need to survive.
Social security is an example of government's direct role in the economy
False
Goods
Finished products that people buy
Project aid
Foreign aid involving support for specific projects, such as building schools, clinics, hospitals, irrigation systems, or other agricultural infrastructure.
In the production of a wooden chair, in the circular flow model; What would the resource market include?
Forest
Formula for changes in terms of trade
Formula: (Index of Average Export Prices) ÷ (Index of Average Import Prices) x100
Free Enterprise System
Free enterprise is an economic system in which the prices for and services are set freely and competitively by owners iand consumers
Free trade
Free trade is trade that contains no intrusion or barrier in the flow of goods and services between countries. The only disadvantage a country may face is transaction costs such as foreign exchange, transportation costs.
the dollar value of all final goods and services and structures produced within a country's borders in a 12 month period.
Gross Domestic Product
GDP per capita
Gross domestic product divided by the number of people in the population.
Investment
Includes spending by firms or the government on capital goods (buildings, machinery, equipment), and all new spending on new construction (housing and other buildings).
Methods to determine building value
Income Approach Market Approach Cost Approach
Wealth
Income and owning
Taxable income
Income on which tax must be paid; total income minus exemptions and deductions
The DOW and S&P 500
Indexes that show the performances of several key stocks to I've a broad picture of stock performance
Demand
Indicates the various quantities of good that consumers are willing and able to buy at different possible prices during a particular time period.
Equilibrium
Intersection of supply/demand
Corporations
Issue STOCK to raise money. The major weakness is DOUBLE TAXATION!
Entrepreneurship (FACTOR OF PRODUCTION)
It involves a special human skill that includes the ability to innovate by developing new ways of doing things, to take business risks and to seek new opportunities for opening and running businesses.
Budget surplus
It is a situation where the government tax revenues are greater than government expenditures over a specific period of time.
Budget deficit
It is a situation where the government's tax revenues are less than the government expenditures over a specific period of time.
Disadvantages of Floating Exchange rates
Lack of predictability, lack of monetary/fiscal policy prudence, loss of efficiency.
Scarcity
Limited quantities of resources to meet unlimited wants
Specialization
Making one kind of good or providing one kind of service.
Fiscal policy
Manipulations by the government of its own expenditures and taxes in order to influence the level of aggregate demand.
What is the best word to describe our US economic system?
Market
An economic system in which people choose freely what to buy and sell
Market Economy
Free Enterprise Economy
Market economy in which privately owned businesses have the freedom to operate for a profit with limited government intervention
Production Markets
Market in which goods and services are bought and sold
Factor Markets
Market in which productive resources are bought and sold
Market
Meeting place or mechanism thorough which buyers and sellers of an economic product come together
benefit
Monetary or non-monetary gain received because of an action taken or a decision made.
Economic profit
Monetary profit minus opportunity cost; always equal to zero in the long run.
GDP
Monetary value of all final goods, services, and structures produced within a country's national borders during a one-year period
Value
Monetary worth of a good or service as determined by the market
Any item that can be traded for goods or services
Money
Capital gains and losses
Money, stock market, make it or lose it
An example of a private good?
Movie
Resources that cannot be brought back or used again
Non-renewable Resources
Overallocation of resources
Occurs when too many resources are allocated to the production of a good relative to what is socially most desirable, resulting in its overproduction.
Eminent Domain
Power of state to take over private property without owner's consent, but with fair market value of the land compensated.
How much an item costs
Price
Total Revenue
Price x Quantity Revenue of Firm
Law of supply
Quantity supplied of a good increases when the price increases.
Bridge Loan
Quickly granted and used to close on a property / start construction while waiting for the official long term loan to be approved.
Special economic zones
Region offering special tax breaks, eased environmental restrictions, and other incentives to attract foreign business and investment.
a situation in which a good or service is unavailable; a temporary situation
Shortage
Credit Union
Similar services as a bank, but provided only to members. Ex: A Teacher's Credit Union
Economics
Social science dealing with how people satisfy seemingly unlimited and competing needs and wants withe the careful use of scarce resources
France is to _________ as Japan is to Capitalism
Socialism
Need
Something like air, food, or shelter that is necessary for survival
Need
Something necessary for survival.
Want
Something we desire, but is not necessary for survival.
Consumption
Spending by households (consumers) on goods and services (excludes spending on housing).
a measure of how well people live
Standard of living
Tariffs
Taxes on imported goods.
Tariffs
Taxes placed on Imported goods.
Urban informal sector
That part of an urban economy that lies outside the formal economy, consisting of economic activities that are unregistered and legally unregulated.
Scarcity
The BASIC CONDITION that exists because of unlimited wants and limited needs.
Free trade
The absence of government intervention of any kind in international trade, so that trade takes place without any restrictions between individuals or firms in different countries.
profit
The amount calculated by subtracting a business' total cost from its total revenues. In other words, it is the income left over after all of a business' costs of production have been paid.
Scarcity
The condition in which available resources are limited.
Equity
The condition of being fair or just.
Capital Account Surplus
The country has received net inflows of money from overseas that may be used to fund imports, or is for foreign investment domestically.
Aggregate demand curve
The curve that shows that relationship between total quantity of goods and services that all buyers in an economy want to buy over a particular time period.
How do technological advances affect a nation's production possibilities curve?
The curve will shift Outward
Elasticity
The degree to which changes in a good's prices affects the quantity demanded
Corporate indebtedness
The degree to which corporations have debts.
Labor
The effort that people devote to a task for which they are paid
Profit
The money left over after a business has paid the cost of providing its goods and services
The Business Cycle
The normal ups and downs of the economy. Expansion - Peak - Contraction - Trough
Tied aid
The practice whereby donors make the recipients of foreign aid spend a portion of the borrowed funds on the purchase of goods and services from the donor country.
investment
The purchase of capital goods that are used to produce goods and services.
prosperity, wealth
The purpose of economics is to increase the _____ of a people, a nation, or the whole world, and to thereby increase the ____.
What do children in traditional economies grow up to do?
The same jobs their parents did.
Human capital
The skills and knowledge gained by workers through education and experience
Human capital
The skills, abilities, and knowledge acquired by people, as well as good levels of health, all of which make them more productive.
Economics
The study of choices leading to the best possible use of scarce resources in order to best satisfy the unlimited human needs and wants.
Economics
The study of how people seek to satisfy their needs and wants by making choices
Economics
The study of the allocation of scarce resources and goods
Microeconomics
The study of the choices that individuals and businesses make, the way these choices interact in markets, and the influence of governments
Progressive Tax
The tax rate increases as income increases. THIS IS THE UNITED STATES FEDERAL ICOME TAX SYSTEM. (The more you make, the more you get taxed)
Opportunity Cost
The value of the next best alternative that must be given up in order to obtain something else
What concept is illustrated by a a production possibilities curve?
The various combinations of two goods that can be produced when society uses its scarce resources efficiently.
Economic System
The way a society organizes the production, distribution and consumption of goods and services.
privatization
To change from government or public ownership or control to private ownership or control.
barter
To exchange goods or services without the use of money
invest
To give money to a company in exchange for a share of the profits.
export
To send trade goods for sale in another country.
An increase in output as each new input is added, as in the addition of a worker, describes Stage I of the stages of production
True
An increase in the cost of inputs can cause the supply curve to shift to the left
True
Capitalism is a competitive economic system in which private citizens own the factors of production
True
Economic growth occurs when a nation's total output of goods and services increases over time
True
Economic products consist of both goods and services that are useful, relatively scarce, and transferable to others
True
Substitute goods
Two or more goods that satisfy a similar need, so that one good can be used instead of the other. If two goods are substitutes, an increase in the price of one leads to an increase in the demand for the other.
Hidden unemployment
Unemployment that is not accounted in official unemployment statistics because of such factors as the exclusion of discouraged workers, the practice of considering part time workers as full-time workers, and others.
Frictional Unemployment
Unemployment that occurs while peole are looking for a job that is a good fit.
Standards
Used by governments to ensure the safety of imported goods. Ex: Recalling toys made in China with lead filled red paint.
Consumer Price Index
Used to measure the monthly inflation rate of regular goods that we use everyday.
Is a video game a need or a want?
Want
Positive
What it is; fact
Deficit
When government spends more money than it takes in. We have had one every year except ONE over the last three decades.
Stagflation
When prices rise and the unemployment rate rise at the same time.
Surplus
When quantity supplied exceeds quantity demanded at a certain price
Elastic Demand
When the demand changes greatly even with a small price change. These are typically wants or luxuries. Ex: a yacht
Demand supply
While efficiency is indicated by equality between______ price and_____ price for a given market, there are no clear-cut comprehensive indicators for attaining this efficiency goal.
Jane wants to play basketball and also work. She cannot do both so she decides to play basketball. What is her opportunity cost?
Working
sole proprietorship
a business firm that is owned by one person
Multinational Cooperation
a firm involved in foreign direct investment
limited liability company LLC
a form of business organization that combines the benefits of a corporation with those of a partnership
Complementary Good
a good that is normally consumed together with another one
Substitute Good
a good that satisfies a similar need, and can be consumed 'instead'
Productivity
a measure of the amount of output produced by a given amount of input in a specific time period
price elasticity of demand
a measure of the impact of the price effect
Elasticity
a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants
Managed exchange rates
a system where the exchange rate is determined by market forces, but the government/Central Bank intervenes from time to time in order to keep it within a certain "band" (= range).
eesd
amount of economic resource available are limited
Incentives
an action or reward that motivates one to act a certain way
Anti-Dumping
an argument that justifies trade protection policies against countries that do 'dumping'
market
an arrangement that allows buyers and sellers to exchange things
market
an arrangement that allows people to buy and sell and exchange goods and services
glass ceiling
an artificial barrier to advancement faced by women and minorities
restricted trade
an artificial restriction on the trade of goods and/or services between two countries. It is the byproduct of protectionism.
Recession
an economic contraction where there is a falling rGDP which lasts at least 6 months
market structure
an economic model of competition among businesses in the same industry
supply
an economic principle that describes the total amount of a specific good or service that is available to consumers
What transactions occur in product markets?
business firms sell goods and service to house holds
Market Economy
business owners determine what to produce and charge government has little involvement
consumers
buyers
Speculation
buying and selling of something in the hope of making a profit
commerce
buying and selling on a large scale
Underground Market
buying and selling transactions that are unrecorded and usually illegal
distributor
buys from producer to sell to the store or consumer.
foreign aid
consists of concessional financial flows from the developed world to economically less developed countries
deciding whether to make exchange
deciding whether to make exchange,you must determine if the use of the tools (a capital resource) is more valuable than time(human resource) that would be necessary to do particular job.
Profit
extent to which persons or organizations are better off at the end of a period than at the beginning
Official Development Assistance
foreign aid that is offered by countries or by organizations composed of a number of countries
perfect income inequality
gini coefficient = one
perfect income equality
gini coefficient = zero
bilateral aid
given directly from one country to another.
Durable Good
includes both capital and consumer goods
Consumer Price Index (CPI)
is a measure of the cost of living for a typical household
closed market
is an economy that severely limits the exchange of goods and services with other countries in an effort to become self-sufficient.
Equilibrium
is defined as a state of balance between different forces, such that there is no tendency to change
Service
job done for money
Seasonal Unemployment
jobs that depend on seasonal activities
producer
makes, grows or supplies goods or services
complementary goods
products that often are used together
official aid
provided to a country by another government or governmental organization such as UN or EU.
All of the following are characteristics of a command economy EXCEPT
public services are available at little or no cost.
Edward Chamberlin
published Theory of Monopolistic Competition
consumer
purchases goods and services (products)
Balance of payments
records all inflows and outflows resulting from a country's economic activity in the domestic economy and foreign sectors in a given time period.
Foreign exchange
refers to foreign national currency
freedom from being an employee
sole proprietorship
wealth
term for the value of all the things that people own
Traditional Economy
the allocation of scarce resources and nearly all other economic activity, stems from ritual, habit, or custom
"laissez-faire"
the doctrine of economics that says that a nation's economy is best left to itself and should not be stifled by governmental regulation
wage rates
the established rate of pay for a specific job or work performed
product market
the market where goods and services are bought and sold
demand
the number of consumers willing and able to purchase a good or service at a given price.
demand
the number of people who want certain goods or services
Unemployment
the number of unemployed people, defined as all people above a particular age, who are not working and are actively looking for a job
Equilibrium Price
the place where the market determines the price and quantity of a good or service
Trade Liberalization
the policy of freeing up the international trade by eliminating trade protection and barriers to trade
buying power
the quantity of goods and services a person can buy with a given amount of money
Cross elasticity of demand
the responsiveness of the demand for one good to a change in the price of another good.
goods
things people sell or buy
Free trade area
type of trading bloc - eliminate trade barriers between them
free enterprise
you choose what to do
Deposit
When you give your money to the bank.
trade
does not require money
Land
"gifts of nature" or natural resources not created by humans
needs
something people must have to survive such as food & water, clothing, shelter.
barrier to entry
something that hinders a business from entering a market
Economists often use an academic model to help analyze behavior and predict outcomes
False
wants
something that people would like to have, but they do not need it to survive
Depreciation of the currency
- Marshall-Lerner Condition, balance of payments improve High elasticity -> PEDx + PEDm > 1 - Elasticity = 1 , unitary elasticity -> PEDx + PEDm = 1 Balance of Payments is unchanged - Elasticity low (inelastic) -> PEDx + PEDm < 1 Balance of Payments deteriorates
Econ Security
- Social security - Unemployment benefits - food stamps
Economic Freedom
- consumers spend and save income - workers change jobs - individuals start and close businesses
In the circular flow of the economy, what goes from individuals to businesses?
4 factors of production
embargo
A ban on trade
World Bank
A development assistance organization, composed of 185 member countries which are its joint owners, that extends long-term credit to developing country governments for the purpose of promoting economic development and structural changes. It consists of two organizations: The International Bank for Reconstruction and Development and the International Development Association.
Depreciation
A fall in the value of one currency against another with a floating exchange rate.
Multinational corporation
A firm involving in foreign direct investment.
Monopoly
A market dominated by a single seller
Quotas
A quantative limit on imports set by the importing country. Domestic producers will end up producing more goods because of the higher price resulting from limited imports.
economy
A system of production, consumption, and distribution.
Frictional unemployment
A type of unemployment that occurs when workers are between jobs, workers make leave their job because they have been fired, or because their employers went out of business, or because they are in search of a better job, or they may be waiting to begin a new job.
Supply-side policies
A variety of policies that focus on aggregate supply. There are market-based policies and interventionist policies.
invisible hand
According to Adam Smith, when individual producers and consumers are allowed to pursue their own interests, they are brought together, as if by a(n) "_____ ____."
Services
Actions or activities that one person performs for another
Utility
Ability or capacity of a good or service to be useful and give satisfaction to someone
Accounting cost
Actual monetary cost
Public good
Airport, dam, park; a shared good or service for which it would be impractical to mark consumers pay individually and to exclude non-payers
Physical capital
All human-made goods that are used to produce other goods and services; tools, machines, and building
Land (FACTOR OF PRODUCTION)
All natural resources: land and agricultural land, including minerals, oil reserves, underground water, forests, rivers, and lakes.
Who makes up the labor force?
All non-military employed or unemployed individuals
Total revenue
Amount of money a company makes by selling its goods
Production possibilities curve
All possible combination of the maximum amounts of two goods that can be produced by an economy, given fixed and unchanging resources and technology.
Primary products
All products produced in the primary sector of an economy.
Factors of production
All resources or inputs used to produce goods and services. LAND, LABOR, CAPITAL, AND ENTREPRENEURSHIP.
industry
All the firms that make a particular product
Natural Monopoly
Allowed to exist because it would be inefficient / chaotic to have more than one provider. Ex: Power Company, Water Company.
Poverty threshold
An income lever below which income is insufficient to support families or household items
Banks
An institution for receiving, keeping, and lending money
underlying inflation
CPI measure adjusted for volatile items or one off price rises eg intro of GST
headline inflation
CPI measure of inflation
What are the four economic indicators?
CPI, Inflation, Unemployment, GDP
Socialist Economy
Canada and Denmark. An economic and political system based on public or collective ownership of the means of production
Wage is to labor as interest is to ______.
Capital
the tools, equipment, machinery, and factories used in the production of goods and services
Capital
Manufactured goods needed to produce other goods and services are called
Capital goods
An economic system in which the government makes all economic decisions
Command Economy
How much people want
Demand
5 Types of ownership
Fee Simple/Fee Absolute Condo Co-Op Leasehold Sale and Leaseback
Special District Assessments Business Improvement Districts Benefit Assessments
Fees used to fund public space improvements in order to enhance an areas appeal and property value. Special district is established to include the properties that will benefit from improvements and if a majority of owners in the area agree then all owners in area area required to contribute.
The money used to buy the tools and equipment needed for production is known as
Financial capital
Portfolio investment
Financial investment, including investment in stocks and bonds. Appears as an item in the financial account of the balance of payments.
Uses of money
Financial, pleasure, taxes, living, food, loans, credit, ect.
Trade-off
Giving up one alternative for another
Main goals of gov.
High employment, steady growth, and stable prices
Law of supply
Higher price, larger quantity produced
System Method of Budgeting
Historical cost information is applied based on major sub-systems Values of low, average, and high quality construction can be obtained from cost databases and published estmiating manuals
Free Market Economy
Hong Kong and Singapore Economic decisions are made between privately owned businesses
In our economy, companies produce goods and services using resources of lang, labor and capital supplied by who?
Households
What transactions occur in resource of factor markets?
Households sell resources to buiness firms
Supply
How much is available
Demand
How much people want
standard of living
How well off people are, as measured by the quantity and quality of goods and services that they have.
human resources
Human effort.
capital goods
Human-made goods used to produce other goods and services.
Stages of Productions (3 of them)
I. Increasing returns II. Diminishing returns III. Negative returns
What effect would an employee strike or a factory closed due to fire have on the production possibilities curve?
It would cause the production possibilities curve to shift inward/left.
Nondurable Good
Item that wears out or lasts fewer than 3 years
Monopoly
Market structure with ONE producer, high barriers to entry, and no competition. They have full price control. They are illegal in the U.S. due to Ant-Trust Laws.
Monopolistic Competition
Market structure with many producers, low barriers to entry, much competition, and differentiated products. Ex: Fast Food, Same type of product with different QUALITIES!
Pure (perfect) Competition
Market structure with many producers, low barriers to entry, unlimited competiton, and identical products. Ex: Vegetable Stands
Oligopoly
Market structure with only a few producers, high barriers to entry, and little competition EX: Coke and Pepsi Watch out for price fixing with these!
Factor Market (resource market)
Markets where productive resources are bought and sold
Matrix Costing Method of Budgeting
Matrix is drawn showing various alternative methods and their costs. E.g. cost per different wall types.
Market equilibrium
Maximizes consumer and producer surplus
Tax Increment Financing
Method cities use to issue bonds to pay for civic improvements with the intention that it will stimulate development in that area. During development taxes are based on the pre-improved assessed value of the area. After development taxes are based on improved assessed value of area. The difference in those tax values is used to repay bonds issued to pay for development.
Poverty threshold
Minimum income need to support a household
Price support
Minimum prices (price floors) set by governments for agricultural product.
Market-based economic system with limited government involvement
Mixed Economy
The process of creating goods and services
Production
Factors of Production
Productive resources need to produce goods; land, labor, capital and entrepreneurship
Job done for money
Services
natural resources
Raw materials supplied by nature that come from the earth, the water, or the air and are used to produce goods.
Capital account
Records money inflows and outflows from foreign investment, loans, loan repayments.
Unit elastic demand
Refers to a price elasticity of demand value of one.
Price inelastic supply
Short run, scarce good
Human Capital
Sum of people's skills, abilities, health, and motivation
Wealth
Sum of tangible economic goods that are scarce, useful, and transferable
How much is available
Supply
Market Economic System
Supply and demand determine what goods and services are produced.
Aggregate Supply
Supply of ALL goods ans services within a country
cottage industry
System for making products to sell in which people work in their own homes and use their own equipment. Usually textiles or pottery.
Command (Centrally Planned) System
The GOVERNMENT controls ALL markets determining what to produce, how to produce, and for whom to produce
Macroeconomics
The STUDY of the economic issues of an entire nation GDP, Trade Deficit, Fiscal and Monetary Policies!!!
Comparative Advantage
The ability of a country to produce a good at a lower cost than another country can.
Property rights
The ability of an individual to own and exercise control over scarce resources.
Non-price rationing
The apportioning or distributing of goods among interested users/buyers through means other than price, often necessary when there are price ceilings (maximum prices); may include waiting in line (queues) and underground markets; to be contrasted with 'price rationing', which involves distributing goods among users by means of market-determined prices.
Absolute poverty
The inability of an individual or a family to afford a basic standard of goods and services, where the standard is absolute and unchanging over time. Absolute poverty is defined in relation to a nationally or internationally determined 'poverty line', which determines the minimum income that can sustain a family in terms of its basic needs.
Relative poverty
The inability of an individual or family to afford an adequate standard of goods and services, where the adequate standard is relative and changes over time.
Poverty
The inability of an individual or family to afford an adequate standard of goods and services. It may be relative or absolute.
The exchange rate
The price/rate at which one currency can be exchanged for another.
Collective Bargaining
The process in which union and company representatives meet to negotiate a new labor contract
economic systems
There are 3. Communism, Capitalism, Socialism
Why can economic growth occur?
There are more resources and more technology
Crowding out
a situation where the government spends more (government expenditure) than it receives in revenue (mainly taxation), and needs to borrow money, forcing up interest rates thereby reducing investment and consumption
socialism
a social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout a society
economics
a social science that examines how people choose among the alternatives available to them
Composite Indicator
a summary measure of more than one indicator, often used to measure economic development
Inflation
a sustained increase in the general or average level of prices.
economy
a system for producing, distributing, and consuming goods and services
Command Economy
a system in which a central authority, usually the government, controls economic activities (socialism, communism)
centrally planned economy
a system in which central government officials make all economic decisions
Traditional Economy
a system in which economic decisions are based on a society's values, culture, and customs
Market Economy
a system in which privately owned business operate and compete for profits with limited governmental regulation or interference (capitalism)
Less Developed Countries
according to the world bank, classification system, includes countries that have a per capital GNI below a certain level
Wealth
accumulation of those products that are tangible scarce, useful, and transferable from one person to another
external stability
achieved when export Y is sufficient to finance import spending
services
actions or activities an individual, company, or business provides for someone else
cosigning
agreeing to pay the debt of another person if he does not pay it
land
all natural resources, land, water, air, and wildlife
labour force
all persons of working age who are either employed (p/t +f/t) + unemployed
Trade off
alternative choices
Fixed Income
an income that doesn't increase even if prices go up
inflation
an increase in the overall level of prices in the economy
Potential growth
an increase in the potential output of an economy through an increase in the quantity/quality of resources
self-interest
an individual's own personal gain
Good
an item that is economically useful or satisfies an economic want
firm
another name for a business
Recession
at least two consecutive quarters of negative economic growth.
producers
baker, Nike
Current Account
balance of payments, including balance of trade, balance of service, plus inflows minus outflows of income and current transfer
Quality of Life
based on possession of necessities and luxuries that make life easier
capitalist economy
based on private ownership of property and investment of capital for the purpose of making a profit
The study of economics is important because it enables us to
become better decision makers.
regulation
controlling business behavior through a set of rules or laws
Devaluation
decrease in the value of a currency in the context of a fixed exchange rate system
If price is low...
demand is high and supply is low
If price is high...
demand is low and supply is high
limited resource
every single resource considered scarce or limited resource
demand
everyone wants orange Gatorade
money
everything acceptable for payment for goods and services
trade
exchange one good or service for another
Managed exchange rate
exchange rate that are for the most part free to float to their market levels over long periods of time, but there is some intervention of the government to reduce short-term fluctuations
Portofolio Investment
financial investment, including Investment in stocks and bonds
capital resources
goods made, not to consumed, but to make other goods and services. Machines and tools are capital goods as well as infrastructure.
Merit goods
goods or services with strong positive externalities that would be under-provided by the market and so under-consumed.
market economy 3
in market economy goods and services go to those who have the money are willing to spend it
becomes more complicated
in modern society as people rely on others,life becomes more complicated
LR Phillips curve
in the LR there is no tradeoff because all factors are variable
Economic growth
increases in the real output of an economy over time
Tariff
indirect tax on imports.
heavy industry
industry that requires a large capital investment and that produces items used in other industries
inelastic or elastic? The product is a necessity
inelastic
Inflationary gap
inflationary pressure created by the current (or SR) equilibrium being above the full employment (or LR) equilibrium.
incentives
loan, no interest
capital resources
machine, tools
capital resources
machinery, tools, factories, stores, vehicles, etc. made by humans that are used to produce goods or services
civilian labor force
made up of people age 16 or older who are employed or actively looking for and and available to do work.
tax money
majority goes to state
right-to-work laws
make it illegal to require workers to join unions
The purpose of government in a command economy is to
make major economic decisions.
producers
makers
producer
makes products (things in the store)
Secondary Industry
makes products using the natural resources
Oligopoly
market where few large firms dominate the industry, with at least one other characteristic such as interdependency of firms, high barriers to entry, homogeneous or differentiated product with example, imperfect information.
mixed economy
market-based economic system with limited government involvement
Informal markets
markets in which economic activity is not officially measured/ recorded.
distribution
moving goods and services directly or near consumers
population growth rate
natural increase in population plus net migration
Price inelastic demand
necessities
market economy
no government control
Common Market
no restriction on any factors of production + freer trade + common policy towards non-members
goods
objects of value acquired and used by consumers
good
objects that can be measured or weighed
seller
offers goods and services to consumers to buy
Command Economy
one in which the central authority makes most of the WHAT, HOW, and FOR WHOM decisions- government interference
surety
one who obligated himself to pay the debts of another; a cosigner
entrepreneur
one who takes risks, makes decisions, and organizes other productive resources to earn a profit
self-interest
one's own personal gain
oligopoly
only a few sellers offer a similar product
private property
owned and controlled by individuals
public property
owned and controlled by the government
conflicts between partners
partnership
telecommuting
performing office work in a location other than the traditional office
transition
period of change in which an economy moves away from a centrally planned economy toward a market-based system
Tradable Permits
permits to pollute, can be bought and sold
consumer
person who buys products (stuff)
Consumers
person who uses the goods
hidden / disguised unemployment
persons not counted as unemployed because they have given up looking for work
long term unemployment
persons unemployed for more than 12 months
underemployment
persons working part time who want to work more hours or switch to full time
Capitalism
private citizens own factors of production
Economic Development
process leading to improved standards of living for a population as a whole over time
Is an iPod a product or a service?
product
natural resources
productive resources that occur in nature
In the circular flow of the economy, what goes from business to individuals?
products and services
deregulation
reduces or removes government control of business
Supernormal profits
refer to a situation where all costs, including opportunity cost, are more than covered by revenue, OR profits that are above the level that is sufficient to keep the firm in an industry.
Price Control
refer to the setting of minimum or maximum prices by the government so that prices are unable to adjust to their equilibrium level determined by Demand and Supply - results in market disequilibrium
Depreciation
refers to a decrease in the value of a currency in the context of a free floating managed exchange rate system.
Export Promotion
refers to a growth and trade strategy where a country attempts to achieve economic growth by expanding its export
Import Substitution
refers to a growth and trade strategy where a country begins to manufacture simple consumer goods oriented towards the domestic market in order to promote the domestic industry
Many oceanographers are concerned with over fishing our oceans. What economic term are they most concerned about?
scarcity
government services (public service)
school, post office, military
Capital
secondary goods that help producing final goods and services
Tertiary Industry
sells a product or provides a service
predatory pricing
setting prices below cost for a time to drive competitors out of the market
stock
shares or portions of ownership in a corporation
Frictional Unemployment
short term, affects people between jobs (people who have moved or changed careers)
Any price below the market clearing price, will result in a
shortage or product
An example of a land resource!
silicon (sand) used to make computer chips
Stagflation
simultaneous appearance of Inflation and recession
stagflation
situation of simultaneous rising inflation and unemployment
Paradox of Value
situation where some necessities have little monetary value
Condo Ownership
sole ownership of a property and shared ownership of common elements. (hallways, lobbies, meeting rooms, pools, etc)
Freedom to enter and exit the market easily
sole proprietorship
macroeconomics
the branch of economics that examines government decisions
microeconomics
the branch of economics that examines the behavior of the individual consumer and businesses
Exchange Rate
the rate at which one currency can be exchanged for another, or the number of units of foreign currency that corresponds to one unit of domestic currency
Multiplier (HL)
the ratio of the induced change in national income to the increase in the level of injections and it is equal to the reciprocal of the mps + mpt + mpm.
privatize
to sell state-run firms to idividuals
aggregate demand
total level ofspending in an economy. = C+ I + G + X - M
Income Approach Method (building)
used by appraisers to value properties that earn income (offices, warehouses, apartments, malls) using reliable financial data that is available for recent sales of similar income properties in a given market
Market Approach Method
used to determine the true underlying value of a property based on the estimated amount for which a property would trade in a competitive auction setting.
Cost Approach Method
used to determine the true underlying value of a property by estimating the land value and the depreciated value of any improvements. Typically applied to special use building.
Developer Impact Fee
used to fund infrastructure needed to support new developments. Paid by developers
This passage advises advertisers to focus on the economic concept of
utility.
Balance of Trade
value of exports - imports over a specific time period
demand
want
production
what a country makes
Trade surplus
when a country exports more than it imports
Scarcity
when a resource is in limited or short supply
price takers
when all 5 characteristics of perfect competition are met; business that accepts the market price determined by supply and demand
price fixing
when businesses agree to set prices for competing products
Capital Good
when manufactured goods are used to produce others goods and services
Econ Equity
- distribution of income: minimum wage - opportunity to pursue job opportunities
Econ Stability
- full employment - price stability: not too much inflation or deflation
Economic Growth
- increasing the production of goods and services - measure by gross domestic product = dollar value - occurs with C.E.L.L., technology, and productivity
Characteristics of a production possiblities curve:
- it illustrates the concept of opportunity costs - it is based on full employment of all productive resources - economists use it as a tool for description and analysis
Examples of Four different factors of production
- land, labor, capital and money - land, captial, business and entrepreneur - land, capital, entrepreneurial ability and money
List ways money flows from a business to a households
- wages - rent - interest
What are examples of resoures buinesses provide households?
- wages - rent - interest
What are the basic economic questions?
- what to produce - for whom to produce - how to produce
Sherman Anti Trust Act
-1890 -gave government the power to control monopolies and to regulate business practices that might reduce competition -responded to Standard Oil
Developing Economies
-are poorer and trying to become developed.
Developed Economies
-are rich and have many industries and factories
benefits of monopolistic competition
-businesses have some control over prices -best products because of competition -affordable to start up business
disadvantages of monopoly
-consumers do not effect price
disadvantages of oligopolies
-consumers have limited options -cost of doing business is high
how does gov evaluate a merger?
-look at how a market is defined -look at market share before/after merger
Federal Trade Commission (FTC)
-responsible for enforcing antitrust legislation -assess mergers
Joan Robinson
-wrote The Economics of Imperfect Competition -described competition between firms with differentiated products -control over price limited by competition
Are trade offs the same as opportunity costs?
...
Macroeconomic objectives
1) Full employment. 2) Low rate of inflation. 3) Economic growth. 4) An equitable distribution of income. 5) Avoidance of balance of payments problems.
What are the disadvantages of a corporation?
1. Higher taxes 2. Greater governmental regulation 3. Lack of secrecy 4. Impersonality 5. Rigidity
supply
100 pairs of shoes
Complement
A good that is used along with another good (for example hot dogs and hot dog buns (demand decreases)
substitute
A good that is used in place of another good (for example: sugar and Sweet and Low (demand increases)
Substitute Good
A good that satisfies most of the same needs as the original good. Ex: Laura Lynn or Store Brands
Inferior good
A good the demand for which varies negatively with income. As income increases, the demand for the good decreases.
Subsidy
A gov. payment to support a business or market
Embargo
A government completely prohibits the import of an item. EX: Cuba
Welfare state
A government that undertakes responsibility for the welfare of its citizens through programs in public health and public housing and pensions and unemployment compensation etc.
welfare state
A government that undertakes responsibility for the welfare of its citizens through programs in public health and public housing and pensions and unemployment compensation etc.
Production possibilities curve
A graph that shows the combinations of goods and services that can be produced and the combinations that cannot
Demand Curve
A graph which shows how much consumers are willing and able to purchase at various prices
Quota
A limit on the amount of a good that is allowed into a country. EX: Only trading a certain amount of rugs with India to protect U.S. carpet jobs.
Interest
A payment, per unit of time, for the use of borrowed money (borrowers pay interest, lenders receive interest.)
Rent
A payment, per unit of time, to owners of land resources who supply their land to the production process.
Wage
A payment, per unit of time, to those who provide labor.
household
A person or a group of people that make their earning and spending decisions together
entrepreneur
A person starts businesses and assumes the risk of organizing productive resources to produce goods and services, often in a new or improved way. When buyers purchase their products or services at prices higher than the costs of production, this person earns a profit.
Consumer
A person who buys a good or a service.
Producer
A person who makes a good or provides a service.
Entrepreneur
A person who organizes, manages, and takes on the risks of a business.
Regional trade agreement
A trade agreement between several countries that are located within a geographical region. Example: NAFTA.
Privatisation
A transfer of ownership of the public sector (the government) to the private sector (the private owners).
Traditional Economy
A type of economy in which people tend to barter goods and services and stay in their classes. The son of a farmer would be a farmer. Ex: 10th Century England, The Middle Ages
Negative externality (also known as spillover costs)
A type of externality where the side-effects on third parties are negative or harmful.
Positive externality (also known as Spillover Benefits)
A type of externality where the side-effects on third parties are positive or beneficial.
Grant
A type of foreign aid consisting of funds that are in effect gifts (they do not have to be paid).
Non-price competition
Advertising, location, style, and service
Demand elasticity
Affected by substitutes, necessities, scope of market, time horizon
Government Securities
Also known as Treasury Bonds. The Federal Reserve buys and sells these with the Open Market Committee.
To arrive at an economic decision, a decision-making grid may be used to evaluate
Alternative choices of action
Capital
An economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.
Appreciation
An increase in the value of one currency against another with a floating exchange rate.
Infant Industry
An industry in the domestic market that would have little chance of competing against international firms if they were open to competition.
World Trade Organization
An international organization that provides the institutional and legal framework for the trading system that exists between member nations worldwide, responsible for liberalizing trade, operating a system of trade rules and providing a forum for trade negotiations between governments, and for settling trade disputes.
law of demand
An inverse relationship between the quantity demanded and the price of a product
Errors and omissions (BALANCE OF PAYMENTS)
An item that is included to account for possible omissions and errors in items that have been included or excluded in order to ensure that the balance of payments balances.
Want
An item that we desire but that is not essential to survival
World Trade Organisation
An organisation made up of member countries which aims to create a global free trade environment. It deals with eliminating trade barriers (tariffs, quotas), ensuring dumping of goods does not take place, reducing/eliminating subsidies on domestic production, focussing on standards for labour laws and ensuring intellectual property issues are dealt with in a fair manner.
Labor Unions
An organization of workers that tries to improve working conditions, wages, and benefits for its members
Black market
Another term for underground economy
Market
Any kind of arrangement where buyers and sellers of a particular good, service, or resource are linked together to carry out an exchange.
Which point on the production possibilities graph represents an unobtainable point for the given economy with current resources?
Any point above the curve. (point B)
Which point on the production possibilities graph represents an economy underutilizing its resources?
Any point under the actual curve. (point C)
Interventionist Policy
Any policy based on government intervention in the market.
Market-based supply-side policy
Any policy based on promoting well-functioning, competitive markets in order to influence the supply-side of the economy, usually to shift the LRAS curve to the right, increase potential output and achieve long term economic growth. It includes labor market reforms, competition policies and incentive-related policies.
Primary commodity
Any product that is produced in the primary sector, which includes agriculture, forestry, fishing, and the extractive industries.
Bilateral trade agreement
Any trade agreement involving two trading partners.
Advantages of Floating Exchange rates
Balance of payments adjustment, no foreign reserves needed, domestic monetary policy freedom, reduced speculation, less import inflation risk.
scarcity
Because of ____,__various economic decisions must be made to allocate resources efficiently.
Absolute advantage
Being able to produce a good more efficiently than anyone else. Can have this in more than one product.
Interdependence
Being dependent on other countries or people to produce the things you need.
Development Loan Types
Blanket Loan Bridge Loan Mezzanine Loan Conventional Mortgage Deed of Trust Bond Construction Loan Hard Money Loan
Socialism
Democratic means should be used to distribute wealth
Net Exports
Exports - Imports (X - M)
North Korea is one of the economically successful Asian Tigers.
False
Free Enterprise System
Goods and services offered are determined by the owners and consumers
Substitutes
Goods and services that can be used for the same purpose.
imports
Goods and services that one country buys from another country
Consumer Good
Goods intended for final use by consumers
capital resources
Goods made and used to produce other goods and services.
Demerit goods
Goods that are considered to be undesirable for consumers and are over-provided by the market.Reasons for over-provision may be that the good has negative externalities. Example: cigarettes.
Merit goods
Goods that are held to be desirable for consumers, but which are underprovided by the market. Reasons for underprovision: Good may have positive externalities, or consumer ignorance about the benefits of the good.
Necessities
Goods that are necessary of essential. They have inelastic PED and inelastic YED.
Luxuries
Goods that are not necessary or essential; They have an elastic PED and elastic YED.
tariff
Government tax on imports.
Economic Model
Graph, figure, equation, or diagram used to describe how the economy is expected to perform in the future
Real GDP
Gross domestic product measured in constant prices.
Nominal GDP
Gross domestic product measured in terms of current (nominal) prices.
Green GDP
Gross domestic product which has been adjusted to take account environmental destruction and/or health consequences of environmental problems.
GNI per capita
Gross national income divided by the number of people in the population.
Causes of a right shift (increase) in demand
Increased population Consumer expectations of higher future prices Fads or consumer tastes Increased income
Economic growth
Increases in total real output produced by an economy over time.
Why is the production possibilities curve concave or bowed out?
Increasing opportunity costs
market economy
Individual buyers and sellers set prices and interact.
When there is too much money and it becomes worthless
Inflation
How do banks make money?
Interest
Interest rate
Interest expressed as a percentage.
Simple Interest
Interest is only applied to the value of the principal of the loan. Interest accrued is typically an even number. Ex: $1000 loan for one year = $75.00 interest
Price elastic supply
Long run
Productivity
Measure of the amount of output produced in a specific time period with a give amount of resources
The Main Function Of Money
Money is mainly used as a medium of exchange.
Structural Unemployment
Occurs when you have job skills that do not match the job requirements. EX: Jobs getting shipped to other countries EX: Losing your job to a robotic arm
Bond
Often issued by government. Receive money for a project to pay back with interest over bond term.
Physical capital
One of the factors of production, which is itself produced (it doesn't occur naturally), used to produce goods and services; includes machinery, tools, factories, buildings, road systems, airports, telephone supply lines, etc. Also referred to as 'capital', or 'capital good' or 'investment good'.
Goods
Physical products
(Free) Market System
Private individuals and firms control all resources and the price and quantity of all goods are determined by the interaction of suppply and demand
Methods of budgeting
Project Comparison Method Area / Volume Method System Method Matrix Costing Parameter Method
Income flow
Refers to the flow of income of households that are received by selling their factors of production to firms.
Pro Forma Statement
Statement or model of all expected expenses of a project compared against income and increased value. Latin for "as a matter of form"
Service
Tasks that businesses perform for consumers.
Ad Valorem Tax
Tax based on value of a property
Tariff
Tax on imported goods
Regressive Tax
Tax rate decreases as income increases. This type of tax hurts poor people the most. EX: Sales Tax
Appropriate technology
Technologies that are well-suited to a country's particular economic, geographical, ecological, and climate conditions.
Clean technology
Technology that is not polluting, associated with environmental sustainability. Examples: Solar power, wind power, hydropower, and recycling.
Taxation
The action of the taxing authorities levying a tax.
Microeconomics
The branch of economics that examines the behavior of individual consumer and firm.
Competition
The contest between businesses to win customers. It is a direct response to wants and needs.
Benefit principle
The idea that people should pay taxes based on the benefits they receive from government services.
Economic Growth
The increase in a country's total output of goods and services over time
Production possibilities frontier
The line on a production possibilities graph that shows the maximum possible output
Production Possibility Curve
The maximum an economy can produce based on all inputs
Unemployment rate
The measure of the amount of unemployment in an economy.
Exchange Rate
The measure of the price of one nation's currency in terms of another nation's currency
Underemployment
The number of underemployed people, defined as all people above a particular job who have part-time jobs.
Unemployment
The number of unemployed people, defined as all people above a particular age who are not working and not actively searching for work.
Marginal Cost
The opportunity cost of producing one unit of a good or service. It is the best alternative forgone. It is calculated as the increase in total cost divided by the increase in output.
Human Resource
The people needed to produce goods and provide services.
Price Elasticity
The percentage change in quantity divided by the percent change in price - to track how mch a change in price affects a change in quantity
Labor (FACTOR OF PRODUCTION)
The physical and mental effort that people contribute to the production of goods and services.
Regulation
The policies involving government regulation of a private sector's activities, based on the argument that governments can help/improve the economy's performance.
Trade liberalization
The policy of liberalizing international trade by eliminating trade protection and barriers to trade.
Actual output
The quantity of output actually produced by an economy.
Exchange rate
The rate at which one currency can be exchanged for another, or the number of units of foreign currency that corresponds to the domestic currency.
Terms of Trade
The ratio of export prices to import prices using a common currency. Price = in dollar terms - not quantity!!
Globalisation
The spread of economic, social and cultural ideas across the world and growing uniformity between different places. It has resulted from the increased integration of economies through trade, investment and capital flow, made possible through improvements in technology.
Microeconomics
The study of how individuals and businesses interact within an economic system
Social surplus
The sum of consumer and producer surplus.
Aggregate demand
The total quantity of goods and services that all buyers in an economy (Consumers, Firms, the Government, and Foreigners) want to buy over a particular time period, at different possible price levels.
Barter
The trade of one good or service for another.
Flexible (Floating) Exchange Rate
The value of a currency is determined by the supply and demand of the currency. Ex: The U.S. dollar, the Euro, the Yen
Balance of Trade
The value of all products exported from a country minus the value of all products imported
Balance of payments
The value of all the money $$$ that enters and leaves the country.
Opportunity Cost
The value of the best alternative that could have been chosen but was not. The SATISFACTION missed out on.
Opportunity cost
The value of the next best alternative that must be given up or sacrificed in order to obtain something else.
Appreciate (Currency)
To increase in value or strengthen our currency when compared to another countries currency.
Average tax rate
Total taxes paid divided by total income.
Gross domestic product
Total value of all final goods and services produced in an economy, best way of measuring output
Advantages of Single Currency/Monetary Integration
Trade creation, greater competition, benefits of scale, lower transaction costs.
raw materials
Trade goods not ready to be sold to consumers.
Administrative barriers
Trade protection measures taking the form of administrative procedures that countries may use to prevent the free flow of imports into a country.
the alternative choices people face in making an economic decision
Trade-offs
Efficiency
Using materials & resources in such a way as to maximize the production of goods and services
Nominal value
Value that is measured in prices that prevail at the time of measurement, and does not account for changes in the price level.
Normative
What it should be
Implicit
_____are costs that do not require a money payment.
Partnership Owner
a business built on the shares of partners after the death of one, the partnership may be dissolved and assets are distributed to remaining partners/estate of the deceased
corporation
a business entity recognized by the government as separate from its owners or stock holders; it is treated as a single individual
general partnership
a business firm owned by two or more people in which each partner has an equal voice in business decisions
derived demand
a demand for a product or resource based on its contribution to the final product
Monetary policy
a demand-side policy with the Central Bank using changes in the money supply or interest rates to affect AD.
World Bank
a development assistance organization, composed of 185 member countries that extended long-term credit to developing countries for the purpose of promoting economic development & structural change
Production Possibilities Frontier (PPF)
a diagram representing various combinations of goods and/or services an economy can produce when all productive resources are fully employed
Normal good
a good the demand for which varies positively (or directly) with income; this means that as income increases, demand for the good increases.
producer
a person, company, or business that makes goods or provides services for consumers
consumer
a person, company, or business that uses goods or services
budget
a plan for using money, helps to balance your income
Rationing Systems
a system must decide upon to ration the scarce items
International Monetary Fund (IMF)
an international financial institution composed of 185 member countries, whose purpose is to make short-term loans to governments on commercial terms in order to stabilize exchange rates, alleviate balance of payments difficulties and help countries meet their foreign debt obligations
Non Durable Good
an item that lasts for 3 years or less when used on a regular basis
labor union
an organization of workers that seeks to improve wages, working conditions, fringe benefits, job security, and other work-related matters for its members
Karl marks
capitalism
lack of secrecy
corporation
limited personal financial liability
corporation
rigidity
corporation
Opportunity cost
cost of the next best alternative use of $, time, and resources
Project Comparison Method Budgeting
costs of past projects with similar scope and function are used to estimate cost of new projects.
negative externalities
costs to a third party caused by the production, or consumption of a good (or service) or that they occur when MPB/C is greater than MSB/C in the market for a good or service.
export
creating services or good in your country and sending them off to another country
production
creating something
Empowerment
creation of conditions for equality of opportunities
Deficit
credits < debits deficiency between in & out
Surplus
credits > debits --> excess
SR Phillips curve
curve showing the tradeoff between inflation and unemployment
rationing
distributing or allocating a product by a price system
traditional economy
do what your parents did
Which of the following choices best describes what this production possibilities frontier is depicting?
economic growth
inelastic or elastic? The product is a large portion of income
elastic
Which of the following is NOT considered an economic and social goal?
entrepreneurship
All prices tend to puch toward
equilibrium
product market
exchanges goods and services
resource market
exchanges human, natural and capital resources
Price discrimination
exists when a producer charges a different price to customers for an identical good or service.
Productive efficiency
exists when production is achieved at lowest cost per unit of output. This is achieved at the point where average total cost is at its lowest value.
Allocative efficiency
exists where price is equal to marginal cost (or marginal social cost) and resources are allocated in such a way that neither too much nor too little is produced from society's point of view.
Customs union
fre trade between countries in union, ADDITIONAL common policies towards non-members
free enterprise system
free enterprise system is one in which households and the managers
Quaternary Industry
gathers and provides information to the other levels of industry
lorenze curve
graph of Y or wealth distribution in an economy
Quotas
import barriers that set limits on the quantity or value of imports into a country.
Supply-Side Policies
incentive/interventionist/market based a variety of policies that focus on AS, namely factors aiming to shift the long-run AS curve to the right, in order to achieve long run economic growth
Actual growth
increase in real output for an economy over time. It is measured as an increase in real GDP.
Economic Growth
increase in total real output (GDP) produced by an economy over time
This cartoonist would like government to
interfere with business less.
product differentiation
is the effort to distinguish a product from similar products
international trade
is the exchange of goods and services between countries
YED (Income Elasticity of Demand)
is the measurement of the responsiveness of a change Demand to changes in Income - inferior good + normal good above 1: luxurious good
XED (Cross-Elasticity of Demand)
is the measurement of the responsiveness of a change in Demand of good to a change in price of another good. - Complements + Substitutes
PED (Price elasticity of Demand)
is the measurement of the responsiveness of a change in Quantity demanded to a change in its price.
PES (Price Elasticity of Supply)
is the measurement of the responsiveness of a change in quantity supplied to a change in its price
Market Demand
is the sum of all individual demands for a good. It is also the sum of all consumers' marginal benefits.
Market Supply
is the sum of all individual firms supplies for a good
Rivalrous
its consumption by one person reduces its availability for another person
Factors of Production
land - rent labour - wages capital - interest entrepreneurship - profit
resource
land is the most important resource
Fiscal Policy
manipulation by the government of its own expenditures and taxes in order to influences the level of AD
Non-Price Rationing
methods other than price to divide up the choice of to who to sell
mixed economy
most countries
imperfect competition
occurs in markets that have few sellers or products that are not standardized
voluntary trade
occurs only when both parties believe that the trade and they will be better off after exchange
Co-Op Ownership
ownership of a number of shares of stock of a corporation that owns land
Non-financial assets
part of capital account, includes a variety of items such as mineral rights, forestry rights, airspace etc.
society
people in a country
Unemployment
people of working age (those in the labor force) actively seeking work at the current wage rate but cannot find one.
consumers
people who buy goods and services
producers
people who make or grow or create goods
unemployment
people willing and able to work, actively seeking work, but unable to find work.
Labor
people with all their efforts, abilities, and skills (workers)
inflationary expectations
peoples perceptions about future price rises based on past and current prices
market share
percent of total sales in a market
Unemployment Rate
percentage of the civilian population without a job but looking for work
participation rate
percentage of the working age population actually in the labour force
Market
place or atmosphere in which goods or services are sold
Incentive Related Policies
policies involving reduction of various types of taxes in the expectation that the tax cuts will change incentives faces by the tax payers
Deregulation
policies involving the elimination or reduction of government regulation of private sector activities, based on the argument that government intervention lowers competition and hence increase inefficiency
goods
products made or grown by producers; will be purchased by consumers
According to Adam Smith, what directs the choices business people make about how to use their resources?
profit
private property
property owned by individuals or companies, not by the government or the people as a whole
private property
property that is owned by individuals or companies, not by the government or the people as a whole
supply
quantities of a good or service that producers are willing and able to sell at different prices at a particular time
Supply
quantity of goods and services that producers are willing and able to offer at various prices
inflation
rate of increase in the general level of prices
Revaluation
refers to an increase in currency value in the context of a fixed exchange rate system
Reserve Assets
refers to foreign currency reserves that the central bank maintains and can buy&sell in order to influence the value of the country's currency exchange rate
Foreign Direct Investment (FDI)
refers to investment by firms based in one country, but in productive activity based in another country
Productive Efficiency
refers to producing goods and services, using the fewest number of possible resources
Allocative Efficiency
refers to producing the combination of good mostly wanted by society (maximize CS and PS)
contingent employment
refers to temporary or part-time work
Sustainability
refers to the ability of something to be maintained or preserved overtime
The government's role in a mixed economy is that it is the
regulator charged with preserving competition.
private services
restaurant, mall
freedom to retain information
sole proprietorship
limited availability of money
sole proprietorship
limited management and employee skills
sole proprietorship
limited life/uncertain life
sole proprietorship & partnership
invisible hand
term economists use to describe the self-regulating nature of the marketplace
physiocrats
term for French economists that favored a "natural" economy, as opposed to the "unnatural" or "artificial" economy created by mercantilism
labor
term for the human activity which results in the creation of goods and services
factor market
the arena of exchange in which firms purchase the factors of production from households
product market
the arena of exchange in which households purchase goods and services from firms
specialization
the concentration of the productive efforts of individuals and firms on a limited number of activities
scarcity
the condition that exists because human wants are more than the capacity of availoable resources to satisfy those wnats
Scarcity
the condition that results from society not having enough resources to produce all the things people would like to have
Opportunity cost
the cost of an economic decision in terms of the next best alternative foregone.
Interest Rate
the cost of borrowing and holding money, expressed as percentage of the money.
surplus
the difference between the amount supplied and the amount demanded when the asking price is grater than a market clearing price
Adam Smith
the founder of modern economics
Economic growth
the growth of real output in an economy over time and it is measured by an increase in real GDP.
Peak
the height of expansion and lasts until growth begins to slow -economy is booming -everyone is employed -lots of spending
Law of Demand
the lower the price of a product or service, the more consumers will buy
factor market
the market for the factors of production-land, labor, capital, and entrepreneurship
product market
the market in which households purchase the goods and services that firms produce
labor
the mental and physical efforts applied to the production of goods and services
privatization
the process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the marketplace
capital resource
the tools building,and machinery used to produce goods and services
Study the graph. Suppose this nation starts with producing all military goods. It then decides to produce a mix of civilian and military goods represented by point B. What represents the cost in military goods given up?
the vertical distance from point A to point x
natural resource
tree, wood, water, sun
Free good
unlimited in supply and has no opportunity cost
consumption
use of these things
capital
wealth in the form of money or property owned by a person or business and human resources of economic value
Welfare
well-being of society
ffd
when more goods or services are desired than available
Inflation
when there is too much of a countries money and it becomes worthless
Trading bloc
A group of countries that have agreed to reduce tariff and other barriers to trade for the purpose of encouraging the development of free or freer trade and cooperation between them.
Supply curve
A grpah which shows how much producers are willing and able to offer at various prices
Monetary union
A high form of economic integration, involving the adoption by a group of countries of a single currency. Example: European Union.
Law of Supply
A law stating that there is a positive causal relationship between the price of a good and quantity of the good supplied, over a particular time.
Minimum price (price floor)
A legal price set by the government which is above the market equilibrium price to fall to its equilibrium level determined by a free market.
Price Ceiling
A legal set maximum price, under the equilibrium price. Set by the government
Elasticity
A measure of responsiveness or sensitivity of a variable to changes in any of the variable's determinants.
Consumer Price Index
A measure of the cost of living for the typical household. It compares the value of a basket of goods and services in one year with the value of the same basket in a base year.
Negative externality of consumption
A negative externality caused by consumption activities, leading to a situation where MSB<MPB.
Negative externality of production
A negative externality caused by production activities, leading to a situation where MSC >MPC.
Infant industry
A new domestic industry that has not had time to establish itself and achieve efficiencies in production, and therefore may be unable to compete with more mature competitor firms from abroad. This is used as a strong argument for trade protection policies in developing countries.
Subsidy
A payment by government to domestic producers to encourage an increase in production.
Bank
A safe means to store earnings, keep checking accounts, and get loans.
Cap and Trade Scheme
A scheme in which a government authority sets a limit or 'cap' on the amount of pollutants that can be legally emitted by a firm, set by an amount of pollution permits (tradable permits) distributed to firms.
Recession
A slowdown in economic activity over a period of time. During one of these periods all of the following things decline: Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits and inflation. Meanwhile bankruptcies and the unemployment rate rise.
Equilibrium
A state of balance such that there is no tendency to change.
Depression
A steep fall in GDP (more than 10%) combined with a high unemployment rate for more than a year
Socialism
A system in which society, usually in the form of the government, owns and controls the means of production.
Carbon tax
A tax per unit of carbon emissions of fossil fuels.
Lump-sum tax
A tax that is the same amount for every person.
Recession
A temporary decrease in GDP that lasts for more than two consecutive quarters
Economically more developed countries
Common characteristics: High levels of GDP per capita, relatively low levels of poverty, small agricultural sectors, and large industrial and services sectors.
a risk- taking individual in search of profits who does something new with existing resources
Entrepreneurs
Deregulation
Policies involving the elimination or reduction of government regulation of private sector activities, based on the argument that government regulation stifles the competition and increases inefficiency.
Disinflation
Refers to a fall in the rate of inflation; it involves a positive rate of inflation.
Welfare loss
Refers to a loss of a portion of social surplus that arises when MSB doesn't equal MSC.
Monetary Policy
Refers to changes in the money supply of a nation in order to influence its economy. The Federal Reserve controls it.
Redistribution of income
Refers to changing the distribution of income, giving rise to a new distribution.
Conditional assistance
Refers to development assistance provided by bilateral or multilateral development organizations, which is extended to countries on condition that they satisfy certain requirements, usually requiring that the country adopts particular policies.
Injections (part of the CIRCULAR FLOW OF INCOME MODEL)
Refers to the entry into income flow of funds corresponding to investment, government spending or exports.
Public debt
Refers to the government's accumulation of budget deficits minus budget surpluses.
Financial account (BALANCE OF PAYMENTS)
Refers to the inflows minus outflows of funds due to foreign direct investment, portfolio investment, and changes in reserve assets.
Capital account (BALANCE OF PAYMENTS)
Refers to the inflows minus the outflows of funds for capital transfers (including debt forgiveness and non-life insurance claims) and the purchase or use of non-produced natural resources (such as mineral rights, forestry rights, fishing rights, and airspace).
Indebtedness
Refers to the level of debt, or the amount of money owed to creditors.
Joint supply
Refers to the production of two or more goods that are derived from a single product, so that it is not possible to produce more of one without producing more of the other. Example: Butter and Skimmed milk are both produced from whole milk, producing more of one means to produce more of the other.
Productivity
Refers to the quantity of output produced for each hour of work of the working population.
Market demand
Refers to the sum of all individual consumer demands for a good or service.
Common access resources
Resources that are not owned by anyone, do not have a price, and are available for anyone to use without payments. Examples: Lakes, rivers, and fishes in open seas. These resources are a threat to sustainability.
Quotas
Restrictions on the amount of a good that can be imported into a country.
Right-of-Way
Right for people to cross land of another e.g. pathways / cattle drives
Easements
Right to use part of a site without ownership e.g. utilities
Entrepreneurs
Risk-taking individual who introduces new products or services in search of profits
Price control
Setting of minimum or maximum prices by governments so that prices are unable to adjust to their equilibrium level determined by demand and supply.
Deadweight Loss
The fall in total surplus that results from a market distortion, such as a tax.
Capital Resource
The goods used to make other goods or provide services.
Command Economy
The government decides what is made and how much it will cost -Russia had a command economy during the Cold War
Disposable income
The income of consumers that is left over after the payment of income taxes.
Resources/Factors of Production
The inputs used by a society to produce outputs. Such as: Land, Labor, Capital, and Entrepreneurs
The U.S. government intervenes in the economy to reduce the costs of imperfect competition.
True
The United States government uses taxes to reduce the effects of negative externalities.
True
The dividends of stockholders in a corporation are subject to double taxation
True
When manufactured goods are used to produce other goods and services, they are called capital goods.
True
firm
an organization that uses resources to produce a product or service, which it then sells
firm
an organization that uses resources to produce a product, which it then sells
command economy
another name for a centrally planned economy
Primary Commodities
are good arising directly from the use of natural resources
Demerit Goods
are goods that are considered to be undesirable for consumer but which are over provided by the market
Merit goods
are goods that are held to be desirable consumer but are under provided by market and consumer want more!
Secondary Commodities
are manufactured products and services
economies of scale
average cost of production falls as the producer grows larger
Supply
Indicates the various quantities of a good that firms (or a firm) are willing and able to produce and sell at different possible prices during a particular time period.
Multilateral development assistance
Lending to developing countries for the purpose of assisting their development on non-concessional terms by multilateral organizations. Example: World Bank and International Monetary Fund.
Restrictive Covenants
Limitations and stipulation used in residential settings. Aesthetic, storage, etc. e.g. Color Palettes, Vegetation types, parking requirements.
Deed Restrictions
Limitations of the use of a property. Typically by original developers. Can't be changed by future owners
Scarcity
Limited amount of goods and services are available to meet unlimited wants.
Concessional loans
Loans that are offered as part of FOREIGN AID, made on concessional terms. They are offered at interest rates that are lower than commercial rates, with longer repayment periods.
Basic services
Loans, savings, checking, cards, mortgages, ect.
Poverty cycle
Low incomes to low education and health to low human capital to low productivity to low income to low saving to low investment to low economic growth
Economic Interdependence
Mutual dependence of the economic activities of one person, company, region or nation and those of another person, company, region, or nation
Land
Natural resources that are used to make goods and services
productive resources
Natural resources, human resources and capital. These resources are used to produce goods and services like food, clothing and shelter. All of these resources are scarce. Producers must choose which resources will produce the highest amount of goods and services given the costs.
something like air, food, or shelter that is necessary for survival
Need
Effects of Gov. regulation
No monopolies, workman's comp., decrease competition, decrease profit, increase price, but protect worker
Can the US economic system be described as "laissez-faire"?
No, because the Federal Government establishes a minimum wage.
middle class
Social class. Mainly skilled professionals and business owners.
Which group of people ultimately determines the products that a free enterprise economy produces?
consumers
unlimited wants
consumers want more and more goods and services, most people develop more wants as old wants are satisfied
ease in raising financial capital
corporation
experienced management and specialized employees
corporation
greater governmental regulation
corporation
higher taxes
corporation
impersonality
corporation
Depreciation is
fall in the value of one currency against another currency in a floating exchange rate system.
technological monopoly
firm controls manufacturing method, an invention, or a type of technology
Business Cycle
fluctuations between periods of economic growth and decay
Development Aid
foreign and intended to help economically less developed countries
Command Economy
government makes decisions for business
safety net
government programs that protect people experiencing unfavorable economic conditions
laissez faire
government should leave buisness alone
Government Regulations
government uses its authority to command a legislation
supply and demand
if the supply is up, and the demand is low, price goes down. if the demand is high, and the supply is low, price goes up
incidence of unemployment
impact of unemployment on different groups of persons
Excise Tax
imposed on particular good
In the production possibilities frontier shown in this graph, what could cause production to move from point b to point d?
increased productivity
Income
inflow of wages rent interest, profit earned abroad minus the same income factors are sent abroad
Capital Account
inflows minus outflows of i) purchase or use of non-financial/non-produced natural resources ii) capital transfer ---> relatively unimportant in balance of payments
Direct Investment
inflows-outflows of funds for the purpose of foreign direct investment
Consumer Good
intended for final use by individuals
Subsidy
is a payment made by the government to a produces, in oder to encourage or support the consumption and production of a particular good (keeps the price low)
Concessional Loan
loans that are offered as part of foreign aid, made on concessional terms, i.e. that they are offered on lower interest rates than commercial rates, with longer repayment periods
Structural Unemployment
long term, hard to fix, most damaging, when workers drop out of the work force or cannot enter
Public Good
non-rivalrous and non-excludable
Purchasing power
number of what you can buy with your money
Infrastructure
numerous types of physical capital resulting from Investment, making major contribution to economic growth and development by lowering cost of production
The concept of economic efficiency is primarily concerned with what issue?
obtaining maximum output from available resurces during production
Structural UE
occurs as result of technological changes and changes in pattern of Demand
Economic Growth
occurs when a nation's total output of goods and services increases over time
Productivity
quantity of output produced for each hour of work for the working population
To maximize profits on a product that is inelastic, you raise or lower profits
raise prices
Fixed Exchange Rate
refers to an exchange rate that is fixed by the central bank of a country and is not permitted to change in currency supply & Demand
Appreciation
refers to an increase in the value of a currency in the context of floating/managed exchange rate system
Errors&Omission
refers to an item that is included to account for possible omissions and errors in items that have been included or excluded, in order to ensure that the balance of payment balance
Economic Integration
refers to economic interdependence between countries usually achieved by agreement between countries to reduce or eliminate trade and other barriers between them.
Market Failure
refers to the failure of the market to allocate resources efficiently, meaning that either too much or too little goods or service are produced and consumed from the point view of what the society most desires
Crowing out
refers to the possible impacts on real GDP of increased Government spending, financed by borrowing
public disclosure
requires a business to reveal product information to consumers
authoritarian
requires absolute obedience to those in power
authoritarian
requiring strict obedience to an authority, such as a dictator
freedom from outside control
sole proprietorship
freedom from paying excessive taxes
sole proprietorship
resource
something available for use
resources
something like land that can be used to make the country richer
Purchasing Power parities
special exchange rates between currencies that make the buying power of each currency equal to the buying power of 1 US Dollar
What makes an economy more efficient?
specialization
consumption
spending by household on goods and services
induced consumption
spending dependent on the level of income
Balance of Capital Account
sum of inflows - outflows of funds in capital payments
Human Capital
sum of the skills, abilities, health, and motivation of people
What happens during a surplus?
supply is higher than the demand and price decreases
Division of Labor
takes place when work is arranged so that individual workers do fewer tasks than before
mercantilism
term for an economic system that seeks to build up a state's treasury and attain a favorable balance of trade
prosperity
term for economic success, or the condition of enjoying many goods including services
specialization
the concentration of the productive efforts of individuals and businesses on a limited number of activities
Quota rent
the difference between the demand price and the supply price at the quota limit
laissez faire
the doctrine that government generally should not intervene in the marketplace
Who is responsible for monetary policy?
the federal reserve
profit
the financial gain made in a transaction
Market Equilibrium
the forces of Supply & Demand are in balance Social Surplus is maximized
Law of Supply
the higher the price of a good or service, the more producers will supply
incentive
the hope of reward or fear of penalty that encourages a person to behave in a certain way
Consumer sovereignty
the idea that consumers have the ultimate control over what is produced because they are free to buy what they want and to reject what they don't want
factor payments
the income people receive for supplying factors of production, such as land, labor or capital
factor payment
the income people receive in return for supplying factors of production
merger
the joining of two firms to create a single firm
human capital
the knowledge and skills that enable workers to be productive
Human resources
the labor force of a country.
consumption spending
the largest component of aggregate demand that causes economic growth
minimum wage
the legal minimum amount that an employer must pay for one hour of work
equilibrium income
the level of Y where saving =investment or agg D = agg S
Potential GDP and output
the level of output that can be produced when there is full employment
natural rate of unemployment
the level of unemployment due to frictional and structural factors
economic system
the method used by a society to produce and distribute goods and services
laissez faire
the principle that the government should not interfere in the marketplace
Private Property Rights
the privilege that entitles people to own and control their possessions as they wish
Nationalized
the process by which organizations or businesses become owned and operated by the government
Natural Resources
the raw materials needed to make products
private property rights
the rights of individuals and groups to own businesses and resources
Dumping
the selling of a good in another country at a price below its cost of production.
scarcity
the shortage or lack of products or natural resources
Aggregate demand
the total spending in an economy consisting of consumption, investment, government expenditure and net exports.
GDP or national output
the total value of all final goods and services produced in an economy in a given time period (usually one year).
Fiscal policy
the use of government spending and taxation to to shift the AD curve.
Nominal
the value of an economic variable that has not been adjusted for the effects of inflation.
labor productivity
the value of the goods and services a worker can produce in a set amount of time
opportunity cost
the value of the next-highest-valued alternative use of that resource.
economic system society
the way a society makes these choices is through the economic system of the society.The economic system includes all of the organizations,laws,traditions,beliefs,and habits that affect decison making in the society
collective bargaining
the way businesses and unions negotiate wages and working conditions
market
the world of commercial activity where goods and services are bought and sold
needs
things that are necessary to survive (water, food, shelter, oxygen)
Factors of Production
things that are needed for production
goods
things that are produced to be sold
wants
things you WANT but don't need
Cyclical Unemployment
tied to the business cycle
Deed of Trust
title is held by a trustee foreclosure can happen under power of sale
What is the goal of monetary policy and how it is done?
to increase or decrease the money supply (controls inflation) -reserve requirements (banks must have 10% of their money physically in the bank) -discount rate (interest rate the banks pay to borrow from the federal reserve) -open market operations (selling and buying securities)
What is the goal of fiscal policy and how is it done?
to increase or slow consumer policy gov spending/fed taxation
unemployment rate
total number of workers unemployed divided by labour force as a percentage
aggregate supply
total output of goods and services in the economy (AS = C + S)
Jaki's famly and their neighbors earn their living fishing in a nearby river. Life has always been this way since Jaki can remember, and her father says this is the way life will continue. Fishing barely supports the community. Which economic system does Jaki live in?
traditional
Complements
two goods that are bought and used together
seasonal unemployment
type of frictional unemployment in specific industries that are seasonal eg fruit pickers, ski instructors
negative externalities
unintended negative consequence due to private actions not pricing social costs which are then passed onto a third party
Mezzanine Loan
used by a developer to pay a variable amount of interest during project development. Starts at a low % ends at a high % Risky the stock of the company is used as collateral if revenue isn't produced by sale or lease at the end to repay loan
Blanket Loan
used by a developer to purchase land that they intend to subdivide and resell. When it is sold the lot is released from the loan and dept is repaid as part of the selling price.
Business Improvement Districts
used to fund public space improvements with the intention that it will enhance an area's appeal. All business owners in district who would benefit pay increased taxes
Gross Domestic Product (GDP)
value of goods and services produced in a country during the year
Real Value
value that has eliminated the influence of changes in price level
Nominal Value
value that is in money terms, measured in terms of price prevail at the time of measurement and that does not take into account for changes in the price level
trade
voluntary exchange of goods and services
needs
water, clothing, food, air, shelter
Economic Interdependence
we rely on us to provide the goods and services that we consume
Equilibrium price (aka market clearing price)
wher supply and demand intersect and are equal Everything produced will be sold
European union
International organization comprised of Western European countries to promote free trade among members.
joint-stock company
Investors bought shares in a business, business used the capital, business profit was shared among investors.
Entrepreneur
Is a individual who is not an employee and assumes all the risk and reward of a given business.
Resource
Is anything that is needed to provide a good or service.
Market Economy
Is run by supply (how much is available) and demand ( how much people want) -we have a market economy
undervalued currency
a currency that value is lower than its free-market value
Overvalued currency
a currency whose value is higher than its free-market value
Disinflation
a decrease in rate of inflation
Social Security
a federal program of disability and retirement benefit that covers most of the working people
Inferior Good
a good that consumers demand less of when their incomes increase
trust
a group of firms combined in order to reduce competition in an industry
cartel
a group that acts together to set prices and limit output
patent
a legal registration of an invention or process that gives the inventor the exclusive property rights to that invention or process for a certain number of years
creditor
a lender to whom a debt is owed
Infant Industry
a new domestic industry that has not had time to establish itself and achieve efficiency in production and may therefore be unable to compete with 'mature' competitors
Capital Transfer
a part of the capital account, that includes inflow-outflows of debit forgiveness, non-life insurance claims and investment
limited partner
a partner in a limited partnership who has no management responsibilities and no liabilities in the firm other than his total investment
limited partnership
a partnership in which there is at least one general partner who has unlimited personal financial liability and decision-making responsibility and at least one limited partner
Subsidy
a payment made by the government to producers in order to reduce the costs of production or to increase output.
Adam smith _quote
" The real and effectual discipline which is exercised over a workman is that of his customers. It is the fear of losing their employment which restrains his frauds and corrects his negligent"
natural resources
"Gifts of nature." Examples include rivers, land, and mineral deposits.
Devaluation
A decrease in the value of the currency in the context of a fixed exchange rate system.
Affirmative Covenants
Commits a buyer to performing duties in the future. e.g. paying for common charges for a condo
What are the advantages of a sole proprietorship?
1. Freedom to enter and exit the market easily 2. Freedom from outside control 3. Freedom to retain information 4. Freedom from paying excessive taxes 5. Freedom from being an employee
What are the advantages of a partnership?
1. Greater management skills 2. Greater retention of competent employees 3. Greater sources of financing 4. Ease of formation and freedom to manage
economy
1. How a country manages its money, goods and services, and resources. 2. The wealth and resources of a country or region, especially in terms of the production and consumption of goods and services.
What are the advantages of a corporation?
1. Limited personal financial liability of stockholders 2. Experienced management and specialized employees 3. Continuous life 4. Ease in raising financial capital
5 Characteristics of Perfect Competition
1. Numerous buyers and sellers 2. Standardized product 3. Freedom to enter and exit markets 4. Independent buyers and sellers 5. Well-informed buyers and sellers
3 Characteristics of a Monopoly
1. Only one seller 2. Restricted, regulated market 3. Control of prices
What are the disadvantages of a sole proprietorship?
1. Unlimited personal financial liability 2. Limited management and employee skills 3. Limited life 4. Limited availability of money
What are the disadvantages of a partnership?
1. Unlimited personal financial liability 2. Uncertain life 3. Conflicts between partners
The 3 Basic Economic Questions
1. What to produce? 2. How to produce it? 3. For whom to produce it?
4 characteristics of oligopoly
1. few sellers and many buyers 2. standardized or differentiated products 3. more control of prices 4. little freedom to enter/exit market
4 characteristics of monopolistic competition
1. many sellers and buyers 2. similar but differentiated product 3. limited control of prices 4. freedom to enter or exit market
society
1.family 2.town 3.country
Changes in the terms of trade:
> Changes in the short run: A change in the exchange rate An increase in demand for exported goods (D increase, price increase) will improve the terms of trade. An increase in supply of exported goods (S increase, price decrease) will decrease the export price index. Implementing trade barriers, devaluing or revaluing the currency. Foreign investment can cause the exchange rate to appreciate which will result in lower import prices and higher export prices - improving the terms of trade. > Changes in the long run: Supply side policies, which result in LRAS shifting to the right, will decrease domestic prices (inflation) compared to our trading partners. Gluts (large supply) in the market can depress prices in the long term. Increased incomes will increase the demand for secondary/tertiary products. This tends to benefit the terms of trade for developed but does not help developing countries. International commodity agreements may stop prices rising/falling which will limit any changes in the terms of trade.
Depreciation
A decrease in the value of currency in the context of a floating (or flexible) exchange rate system or managed exchange rate system.
Marginal external cost
Change in total cost incurred by households or firms, associated with a unit-change in the consumption or output of other households or businesses.
Total revenue
Amount a firm receives from selling goods
Quantity demanded
Amount demanded at a given price. Can shift due to consumer income, substitutes/complements, and consumer preferences/expectations.
Quantity supplied
Amount supplied at a given price. Can shift due to changes in costs, technology, expectations, number of producers, and government regulations.
Debt Service
An additional, long term cost to the owner to pay off the construction loan for a project.
Anti-dumping
An argument that justifies trade protection policies: if a country's trading partner is suspected of practicising dumping, than the country should have the right to impose trade protection measures (tariffs or quotas) to limit quantities of the dumped good.
demand
An economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service
Command Economy
An economy in which production, investment, prices, and incomes are determined by the government.
multiplier
An effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent.
Trade deficit
An excess of imports over exports
trade deficit
An excess of imports over exports
Trade-off
An exchange of one thing in return for another; especially relinquishment of one benefit or advantage for another regarded as more desirable.
Freely floating exchange rates
An exchange rate determined entirely by market forces (the forces of supply and demand.)
Fixed exchange rate
An exchange rate that links to another currency within a narrow band or corridor. The central bank buys and sells its own currency on the foreign exchange market and/or changes the domestic interest rate to keep the exchange rate within the corridor.
Law of Supply
As price goes us, supply goes up. As price goes down, supply goes down.
Law of Supply
As prices goes up, supply increases. As price goes down, supply decreases. Direct relationship between price and quantity supplied
Business cycle
Fluctuations in the growth of real GDP, consisting of alternating periods of expansions and contractions.
Microeconomics
Focus on individual decision making; works its way up from individuals to market economics
Certificates of deposit
Bonds
Adam Smith is to Capitalism as Karl Marx is to
Communism
Comparison Method
Compare property to other similar parcels. Most accurate with current data
Methods to determine land value
Comparison Method Development Method Residual / Income Approach Method Allocation Method
Cost-Benefit Analysis
Comparison of the cost of an action to its benefits
Wealth of Nations considers what three things?
Competition Laissez Faire Self Interest
Specialization
Concentrating on a single activity or area of expertise Ex: Dividing labor in an assembly line.
Gross Domestic Product Formula
Consumer Spending + Investment + Government Spending + Net Exports (Xports - Mports) :)
Fixed costs
Costs that don't change as output changes (for example: rent, salaries, insurance, financing)
Subsidy
Government payments to a supplier to reduce the production costs of the supplier and INCREASE SUPPLY! Ex: Paying farmers or gas producers to keep costs down for the consumer.
the quantity demanded of a good or service varies inversely with its price
Law of Demand
Amortization
Decreasing or accounting for an amount over a period of time.
Aggregate Demand
Demand for ALL goods and services within a nation
Production Possibility Curve
Diagram representing all possible combinations of goods and/or services an economy can produce when all productive resources are fully employed
Consumer surplus
Difference between how much consumers are willing to pay and market price
Producer surplus
Difference between price at which firms are willing to sell and market price
Financial account
Direct investment, portfolio investment and reserve assets.
Partnership
Divides up the risk and reward among a group of people. Limited Liability. Most common type is a GENERAL PARTNERSHIP.
Characteristics of Money
Divisible, easily exchanged, durable, denominations: coins, cash
What influences productivity?
Division of Labor, specialization, human capital and investing the future
Quintiles
Division of population into five equal groups with respect to the distribution of a variable, such as income. Example: The lowest income quintile refers to the 20% of the population with the lowest income.
Division of Labor
Division of work into a number of separate tasks to be performed by different workers
Deciles
Divisions of a population into ten equal groups with respect to the distribution of a variable, such as income. So, basically 10% of the population with the lowest income.
Laissez Faire
Doctrine that Gov. should not intervene in the market place
standard of living
level of economic prosperity
Market economy
Economic decisions are made by individuals or the open market.
market economy
Economic decisions are made by individuals or the open market.
Law of increasing costs
Economic law that states that as we shift factors of production from making one good or service to another, the cost of producing the second item increases
What is the way in which a soceity organizes itself to answer the basic economic question?
Economic system
capitalism
Economic system based on private ownership of resources and production.
The way goods and services are produced, bought, and sold
Economy
Points on the production possiblilities curve indicate
Efficient allocation of resources. (point A)
Millennium Development Goals
Eight development goals adopted by the Millennium Declaration of 2000, consisting of 18 targets to be achieved by the year 2015. It includes 1) eradicating extreme poverty and hunger, 2) achieving universal primary education, 3) reducing child mortality, 4) and promoting gender equality.
Commercial Revolution
European economic expansion, colonialism, and mercantilism which lasted from approximately the late 13th century until the early 18th century.
Life Cycle Assessment Analysis
Evaluates environmental impacts from initial raw material extraction to final recycling / reuse / disposal.
Supply shock
Events that have a sudden and strong impact on short-run aggregate supply. Example: A war that destroys physical capital or unfavorable weather on a factor of production.
Managed exchange rates
Exchange rates that are mostly free to float to their market price levels over long periods of time; however, central banks periodically intervene in order to stabilize them over the short term.
favorable balance of trade
Exporting more than importing
The Law of Variable Proportions states that in the short run, output will not change as one production input is varied while the other remain constant
False
The circular flow of economic activity describes an economy that is free of markets
False
The production possibilities frontier can be reached even if certain resources remain idle
False
Voluntary exchange is a characteristic of command economies
False
Innovative
Featuring new methods; advanced and original ideas
Embargoes
Forbid of trade with a country.
Humanitarian aid
Foreign aid extended in regions where there are emergencies caused by violent conflicts or natural disasters such as floods, earthquakes and tsunamis, intended to save lives, ensure access to basic necessities and provide assistance with reconstruction.
Development aid
Foreign aid intended to help economically less developed countries; may involve project aid, program aid, technical assistance, or debt relief.
Program aid
Foreign aid involving financial support to sectors, such as education, health care, agriculture, urban development, financial sector (credit, banking, insurance), and the environment.
society is able to get the greatest amount of satisfaction from available resources. society cannot change the way resources are used in any way that would increase the total amount of satisfaction obtained by society. The pervasive scarcity problem is best addressed when limited resources are used to satisfy as many wants and needs as possible.
Goals of an efficient economy
According to economists, consumers should purchase a movie ticker when?
If the marginal benefit of the movie exceeds the marginal cost.
the principle that suppliers will normally offer more for sale at high prices and less at lower prices
Law of Supply
Pareto efficiency
Impossible to improve well-being without hurting someone else. Provides no way to judge superiority of one distributer versus another.
Causes of a right shift (increase) in supply
Improved technology Government subsidies Favorable growing conditions
technological changes
Improvements in the ability to produce due to improved processes, methods, and machines.
private property, personal choices
In a free market, individuals are allowed to own _____ ____ and make ______ _____.
Largest portion of FED REV
Individual income tax
Expenditure flow
It is the flow of spending from households to firms to buy the goods and services produced by the firms. The expenditure flow is equal to the income flow and the value of output flow.
Resources
Items that we use to make or get what we need or want
3 types of owners
Joint Tenancy Partnership Corporation Trustee
Concept of Laissez Faire
Keep government out of business
people with all of their abilities, efforts, and skills
Labor
Non-governmental organizations (NGOs)
Non-profit organizations that provide a very wide range of services and humanitarian functions. Activities are 1) Emergency assistance, 2) Promotion of sustainable development, 3) Protection of child health, 4) Health, 5) Provision of technical assistance.
Infrastructure
Numerous types of physical capital resulting from investments, making major contributions to economic growth and development by lowering costs of production and increasing productivity. Examples: roads, airports, and dams.
Productive efficiency
Occurs when firms produce at the lowest possible cost.
Speculation
Occurs when people buy/sell currency to make a profit.
Free rider problem
Occurs when people can enjoy the use of a good without paying for it and arises from non-excludability: people cannot be excluded from using the good, because it is not possible to charge a price. It is often associated with public goods, which are a type of market failure: due to the free rider problem, private firms fail to produce these goods.
Externality
Occurs when the actions of consumers or producers give rise to positive or negative side-effects on other people who are not part of these actions, and whose interests are not taken into consideration.
Market failure
Occurs when the market fails to allocate resources efficiently, or to provide the quantity and combination of goods and services mostly wanted by society. There is either an underallocation or an overallocation.
Excess supply (Surplus)
Occurs when the quantity of a good demanded is smaller than the quantity supplied.
Lawmakers, preparing a balanced budget for the State of Georgia illustrates what concept?
Opportunity Costs
Sale and leaseback Ownership
Owner sells property and then leases it back long-term at a fixed rate, in order to raise money by offloading a property to someone who wants to make a long-term investment. Typically done for tax purposes.
Current account deficit issues
Paid for by borrowing money from overseas or overseas investment, in the long run problems with this are: loan repayment issues, higher interest rates attracting foreign investment, foreign capital leaves. Good issues: greater choice for consumers (due to increased imports).
The situation in which some necessities have little value while some non-necessities have a much higher value is known as
Paradox of value
Wage
Payment for work by an hourly calculation or schedule
Salary
Payment for work on an annual salary schedule.
Transfer payments
Payments made by the government to individuals specifically for the purpose of redistributing income.
human resources
People using efforts, knowledge, and skills at work to produce goods and services
Adam Smith argued that
People will exchange goods and services with each other to meet their wants and needs
Labor
People with all their abilities and efforts
Explain why scarcity exists
People's wants are unlimited and resources are limited.
per capita
Per person, or per head. For example, GDP per capita is total GDP divided by the number of people in the population.
Elasticity
Percent change in quantity over percent change in price
Tradable permits
Permits that can be issued to firms by a government or international body, and that can be traded (bought and sold) in a market, the objective being to limit the total amount of pollutants emitted by the firms.
Goods
Physical objects such as clothes or shoes
Effect of Elasticity for Exports and Imports
Primary goods tend to be inelastic in their nature. A change in supply will result in a large change in the price for primary goods. Secondary and tertiary goods tend to be elastic in their nature. A change in supply will result in a small change in the price for secondary/tertiary goods.
Which is essential to market economies, but not to traditional or command economies?
Private Property
free enterprise
Private businesses operate without government involvement.
Elastic supply
Products can be: made quickly, made inexpensively use only a few, readily available resources
Inelastic supply
Products can take a great deal of: time money resource not readily available
Land of opportunity
Provides anyone from any background the possibility of success through hard work
Purchasing power parity exchange rate
Special exchange rates between currencies that makes the buying power of each currency equal to the buying power of the US $1, and therefore, equaling each other.
Environmental Standards
Standards that must be complied with if the good creates an impact on the environment. E.G. refrigerators must not have CFC's in them, new cars must meet emission standards.
Prices as signals
The ability of prices, and changes in prices, to communicate information to consumers and producers, on the basis of which they make economic decisions.
Price as incentives
The ability of prices, and changes in prices, to convey information to consumers and producers that motivates them to respond by offering them incentives to behave in their best-self-interest.
Total revenue
The amount of money received by firms when they sell a good or service. TR = P x Q.
productivity
The amount of output (goods and services) produced per unit of input (productive resources) used.
Supply
The amount of something that is available.
inelasticity of demand
The degree to which demand for a good or service does NOT vary with its price. (i.e.do not sell significantly more or less with changes in price)
elasticity of demand
The degree to which demand for a good or service varies with its price. Normally, sales increase with drop in prices and decrease with rise in prices
Household indebtedness
The degree to which households have debt.
Coase theorem
The proposition that if private parties can bargain without cost over the allocation of resources, they can solve the problem of externalities on their own.
Supply
The quantity of goods or services that someone is able and willing to supply at different prices
Opportunity Cost
The things you have to give up, your second best choice.
Needs
The things you must have to survive such as food, water, clothing, and shelter.
Aggregate supply
The total quantity of goods and services produced in an economy over a particular time period, at different price levels.
work, intelligence, freedom
The true source of prosperity is diligent ____ directed by ingenious ______ allowed to develop under conditions of _____.
Currency
The type of Money a country uses.
Supply Side Policies - Increasing Competitiveness
This is where ...... The competitiveness of the domestically produced goods is increased by reducing labour costs, investing in technology for greater productivity and efficiency. However this would take time to implement and the benefits to occur.
Market situations lacking one or more of the characteristics of perfect competition are called imperfect competition.
True
Non-price competition is the use of advertising, giveaways, and other promotional campaigns to win customers.
True
revolution
Times of relatively rapid change, often due to the use of new technologies. This word is also used in history.
One disadvantage of a general partnership is each partner's responsibility for the acts of all other partners
True
Preferred stock represents the nonvoting ownership of a corporation
True
Allocate
To distribute efficiently according to some plan or system
GDP (Gross Domestic Product)
Total market value of goods and services produced in a country in a year.
An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next
Traditional Economy
Federal Discretionary Spending
Transportation, water, power, ect. 1/3 of budget
A consumer cooperative can offer members prices that are lower than those charged by regular businesses
True
Japan experienced outstanding economic growth during the 1970s and 1980s.
True
Complement goods
Two or more goods that tend to be used together. If two goods are complements, an increase in the price of one will lead to a decrease in the demand of the other.
Allocation Method
Used to determine value of improved properties by deducting the value of the site improvements to get value of the land
Public Enterprise Revenue Bonds
Used to finance facilities for revenue production public enterprises paid off via revenues generated by facility through charges they impose.
General Obligation Bonds
Used to fund a civic project and requires voter approval. All taxpayers in jurisdiction help pay through taxes
Underutilization
Using fewer resources than an economy is capable of using
things you would like to have but are not necessary for survival
Wants
3 key economic questions
What is produced? How is it produced? Whom is it consumed by?
What are the 3 basic economic questions?
What to Produce? How to Produce? For whom to Produce?
What are the 3 economic questions to the production of a good or service?
What to produce? How to produce? Whom to produce?
cost
What you give up when you decide to do something. It is not always an amount of money paid. It may be monetary or non-monetary.
Margin
When a choice is changed by a small amount or by a little at a time, the choice is made at the margin.
Comparative Advantage
When a country can produce a good at a lower opportunity cost than that of another country.
Specialization
When a country produces what they are best at making.
"Going private"
When the managers of a firm purchase all outstanding stock, allowing the corporation to keep sensitive information from reaching the public
Full Employment
When there is no CYCLICAL unemployment. Typically between 3 - 5% unemployment rate.
Managed exchange rate
Where the exchange rate can fluctuate within a narrow band in the short run and in the long run it can be re-aligned. It is also called an "Adjustable Peg System".
Matt has an opportunity to work after school and weekends to save money for college. He is afraid that working so many hours will negatively affect his grades and social life. Which decision represents a trade-off?
Work on weekends leaving school nights free to study and have social life.
Underemployed
Working at a job for which one is over-qualified, or working part-time when full-time work is desired
Explicit costs
_______ are costs that require a money payment. .
Opportunity cost
________includes both explicit and implicit costs
partnership
a business firm that is owned by two or more people
Corporation Owner
a business independent of shareholders. after death on one, their shares pass on and do not affect the business
price maker
a business that does not have to consider competitors when setting the prices of its products
closed shop
a business where an employer can hire only union members
union shop
a business where workers are required to join a union within a set time period after being hired
Mixed Economy
a combination of the market and command systems (USA)
Deflation
a continuing decrease in general price level
Inflation
a continuing increase in general price level
subchapter S corporation
a corporate status for small businesses that allows them to continue being taxed at the lower personal income tax rates (usually with fewer than 35 shareholders)
private corporation
a corporation owned by private citizens; ie, ExonMobil, Disney, Coca-Cola
public corporation
a corporation owned by the general public and managed by the government; ie, Tennessee Valley Authority (TVA), Amtrak
circular flow model
a tool that economists use to understand how market economies operate
Regional trade agreement
a trade agreement between several countries located in a specific geographical region
voluntary exchange
a trade in which both traders believe that what they are getting is worth more than what they are giving up
According to Alice Rivlin in the passage, if you have a rudimentary working knowledge of economic concepts, you will be
able to ask questions to gain more knowledge.
free enterprise system
an economic system characterized by private or corporate ownership of capital goods
free enterprise
an economic system characterized by private or corporate ownership of capital goods; investments that are determined by private decision rather than by state control; and determined in a free market
market economy
an economic system in which individuals Not the government control the production and distribution of goods and services
traditional economy
an economic system in which people produce and distribute goods according to customs handed down from generation to generation
communism
an economic system in which the government owns all the factors of production and there is little or no political freedom
socialism
an economic system in which the government owns some or all of the factors of production
mixed economy
an economic system that include both private ownership of properties and government control
capitalism
an economic system that is based on private ownership of the factors of production
national market and international market
bring distant and sellers into contact
want
car, new clothes, candy, phone, I POD, I PAD, video games
a trust is similar to a
cartel
Current Transfer
item in current account: refers to inflow and outflows of funds for items involving gifts, foreign aid and pension
antitrust legislation
laws that define monopolies and gives government power to control them
Price Controls
legal restrictions on how high or low a market price may go
Multilateral Development Assistance
lending to developing countries for the purpose of assisting their development on non-concessional terms by multilateral organizations -- IMF & World Bank
human resources
the abilities, talents, training, skills and knowledge of people used in the production of goods or services
Absolute Advantage
the ability of an individual or group to carry out a particular economic activity more efficiently than another individual or group.
Voluntary exchange
the act of buyers and sellers freely and willingly engaging in market transaction
Marginal Benefit
the additional benefit received of consuming one more unit of a good
Marginal Cost
the additional cost of producing one more unit of a good
Undervalued currency
A currency whose value is lower than its free-market value.
Natural Resource
Things made by nature that people can use to create a product.
Wants
Things that you do not have to survive, but would like to have
currency
coins and bills used to buy goods and services
Financial Capital
the money used to buy the tools and equipment used in production
Fee Simple / Fee Absolute Ownership
the most common form of real estate title in wich the owner has "absolute ownership" and can do whatever they want with the property taxes, easements, deed restrictions still apply
Macroeconomics
the study of economy-wide phenomena, including inflation, unemployment, and economic growth
economic system
the way a society makes it economic choices
economic system
the way a society uses its resources to satisfy its people's wants
Current account deficit
A current account deficit means the capital account will be in surplus.
Government budget
A type of plan of a country's tax revenues and government expenditures over a period of time.
Opportunity cost
The most desirable alternative given up as the result of a decision
NAFTA
(North American Free Trade Agreement) Broke down the trade barriers and allowed free trade between The U.S.A., Mexico, and Canada
Inelasticity
*Even if prices rise, people will continue to demand the good and there is not likely to be any effect or change in the quantity demanded.
Marx's ideas
- History is a series of class conflicts - Das Capital and Communist Manifesto - The right of workers to the full value of their labor
Effect of Elasticity on Terms of Trade, Balance of Payments
- If the terms of trade falls (say due to an increase in the number of suppliers around the world), this will result in the price of the good falling. - Depending on the elasticity of the good, this will result in total revenue received from these goods either increasing or decreasing. This will affect the current account - either improving it or resulting in it worsening.
Econ Efficiency
- allocative: producing goods and services the people want - productive: producing goods and services at the lowest cost
Needs
Things that you must have to survive. Basic needs include food, water, shelter, and clothing
Wants
Things you would like to have, but aren't necessary to live.
Changes in terms of trade
>Improvements in Terms of Trade: The ratio of export prices to import prices has improved. Benefits: Ability to consume more imports may improve living standards. Problems: If exports are elastic, this may deteriorate the current account balance, decrease national income (GDP) and employment. > Deterioration in Terms of Trade: The ratio of export prices to import prices worsens. Benefits: If demand for exports and imports are elastic, it may improve the current account balance, GDP employment. Problems: Higher prices of imports produce consumer choice and possibly debt. A deterioration of the terms of trade can cause a large impact on developing countries - especially as they rely on a few commodities for export earning, and these goods tend to have a low price elasticity (not luxury but basic type goods). This results in much needed imports such as machinery becoming more expensive, which may hinder any increase in output, higher debt servicing costs more - exports are required to earn foreign currency which is used to repay foreign debt.
Overvalued currency
A currency whose value is higher than its free-market value; may occur if the exchange rate is fixed (or pegged), or in a managed exchange rate system, but not in a freely floating exchange rater system.
Embargo
A ban on trade
trade
A basic economic concept that involves multiple parties participating in the voluntary negotiation and then the exchange of one's goods and services for desired goods and services that someone else possesses.
efficient economy
A broad term that implies an economic state in which every resource is optimally allocated to serve each person in the best way while minimizing waste and inefficiency
Sole proprietorship
A business owned and managed by a single individual
Corporations
A business owned by individual stockholders
Changes in demand (causes)
A change in consumer's tastes A change in consumer's income Changes in prices of goods Changes in consumer expectations
Inelastic demand
A change in price has little impact on demand (for example health care, gas
Changes in quantity demanded (causes)
A change in prices
Rivalrous
A characteristic of a good according to which its consumption by one person reduces its availability for another person.
Non-rivalrous
A characteristic of some goods where the consumption of the good by one person does not reduce consumption by someone else; it is one of the two characteristics of public goods.
Non-excludable
A characteristics of some goods where it is not possible to exclude someone from using a good, because it is not possible to charge a price. It is one of the characteristics of public goods.
Ways to fix current account deficit
A combination of increasing export revenue and/or decreasing import spending. This can be done by: -Devaluing the currency -Making domestic goods more competitive than imports through the use of subsidies or tariffs -Reducing demand for imports -Improving the competitiveness of domestic firms through eg research and development.
Mixed Economy
A combination of multiple economic systems.
Absolute advantage
A country can produce more of a good than another country
Dumping
A country sells its goods to another country at a price that is below its production cost.
Credit union
A non-profit bank owned by its members, often members of a single organizations or trade union
Non-produced, non-financial assets
A part of the capital account of the balance of payments, which includes a variety of items such as mineral rights, forestry rights, fishing rights and airspace.
Profit
A payment per unit of time to owner of entrepreneurship.
entrepreneur
A person who organizes, manages, and takes on the risks of a business.
entrepeneur
A person who takes on the risk of owning a business.
Consumer
A person who uses goods or services
Invisible Hand
A phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all
Guns or butter
A phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military goods or consumer goods
Market-oriented policy
A policy in which government intervention is limited, economic decisions are made mainly by the private decision-makers and the market has significant freedom to determine resource allocation.
Perestroika
A policy initiated by Mikhail Gorbachev that involved restructuring of the social and economic status quo in communist Russia towards a market based economy and society
perestroika
A policy initiated by Mikhail Gorbachev that involved restructuring of the social and economic status quo in communist Russia towards a market based economy and society
Positive externality of consumption
A positive externality caused by consumption activities, leading to a situation where MSB>MPC.
Positive externality of production
A positive externality caused by production activities, leading to a situation where MSC > MPC.
law of supply
A positive relationship between the quantity supplied and the price of the product
Cost benefit analysis (CBA)
A process by which you weigh expected costs against expected benefits to determine the best (or most profitable) course of action
production
A process of manufacturing, growing, designing, or otherwise using productive resources to create goods or services used to satisfy a want.
Commodity
A product that is considered the same regardless of who makes or sells it
Micro-credit
A program to provide credit (loans) in small amounts to people who do not have access to credit.
Core rate of inflation
A rate of inflation based on consumer price index that excludes goods with highly volatile (unstable) prices. This is most notable in food and energy prices.
Balance of payments
A record of all transactions between the residents of a country and the residents of all other countries. It shows all payments received from other countries (credits), and all payments made to other countries (debits). It has CURRENT ACCOUNT, CAPITAL ACCOUNT, FINANCIAL ACCOUNT, and ERRORS&OMISSIONS.
Crowding-out
A situation where increasing government spending causes a higher rate of interest, reducing private investment spending. Thus, reversing expansionary fiscal policy (BTW: it's fiscal policy because it's increasing government spending).
Inflationary gap
A situation where real GDP is greater than potential GDP, and unemployment is lower than the natural rate of unemployment.
Elastic demand
A small change in price, results in a large change in demand (for example ice cream, soda, cars, meat furniture)
Gini coefficient
A summary measure of the information contained in the Lorenz Curve of an economy. The closer the Gini coefficient is to 1, the greater the income inequality. The closer the Gini coefficient is to 0, the greater the income equality.
socialism
A system in which society, usually in the form of the government, owns and controls the means of production.
Social safety net
A system of government transfers of cash or goods to vulnerable groups, undertaken to ensure that these groups do not fall below a socially acceptable minimum standard of living.
Demand Schedule
A table which shows how much consumers are willing and able to purchase at various prices
Supply schedule
A table which shows how much producers are willing and able to offer at various prices
Tariff
A tariff is a tax levied on imported goods. The tariff can be an ad valorem tax (percentage based) or a specific rate based on e.g. volume, weight etc.
Corrective tax
A tax designed to induce private decision makers to take account of the social costs that arise from a negative externality.
Tariff
A tax on an imported good
Tariff
A tax on imported goods
tariff
A tax on imported goods
Multilateral trade agreement
A trade agreement to lower trade barriers between many countries.
Value added tax
A type of consumption tax that is placed on a product whenever value is added at the stage of production and at final sale.
Cost-push inflation
A type of inflation caused by a fall in AGGREGATE SUPPLY, resulting from an increase in COSTS OF PRODUCTION.
Demand-pull inflation
A type of inflation caused by an increase in AGGREGATE DEMAND.
Inflation targeting
A type of monetary policy carried out by some central banks that focuses on achieving a particular inflation target, rather than focusing on the goals of low and stable rate of inflation and low unemployment. Common inflation targets are between 1.5% and 2.5%.
Customs union
A type of trading bloc, consisting of a group of countries that fulfill the requirements of a free trade area and adopts a common policy towards all non-member. (It's higher than a FREE TRADE AREA, but lower than a COMMON MARKET)
Structural unemployment
A type of unemployment that occurs as a result of technological changes and changing patterns of demand, as well as geographical changes, and labor market rigidities.
Cyclical unemployment (demand-deficient unemployment)
A type of unemployment that occurs during the downturns of the business cycle, when the economy is in a recessionary gap.
Seasonal unemployment
A type of unemployment that occurs when the demand for labor in certain industries changes on a seasonal basis because of variations in needs.
black market
Another term for underground economy
Firm
Another word for businesses
Interventionist supply-side policy
Any policy based on government intervention in the market intended to affect the supply-side of the economy, usually to shift the LRAS curve to the right, increase potential output and achieve long term economic growth.
Money
Anything that is acceptable as payment for goods and services.
Products
Anything that might satisfy a want or a need
Good
Anything that you can buy, hold or touch. Food, books, and clothes are goods
Poverty cycle
Arises when low incomes result in low savings, permitting low investments (in physical, human, and natural capital), and therefore, low productivity leading to low incomes.
Dual economy
Arises when there are two different and opposing sets of circumstances that exist simultaneously, often found in economically less developed countries. For example: Higher class living with lower class.
Law of Demand
As the price goes up, demand decreases. As the price goes down, demand increases. Inverse relationship between price and quantity.
Division of labor is a characteristic of
Assembly line production
Grant
a type of foreign aid consisting of funds that are in effect gifts
Marginal cost
Cost of producing/consuming one more
What is the main function of an entrepreneur?
combine the land, labor and capital in new ways
Communism
Characterized by a centrally planned economy with an economic and political power resting in the hands of the central gov.
Command Economy
China and North Korea. Economic decisions are made by a central authority or between government
Two types of Economies
Command Economy and Market Economy
Economically less developed countries
Common characteristics: Low levels of GDP per capita, high levels of poverty, large agricultural sectors, and large urban informal sectors.
Foreign aid
Consists of concessional financial flows from the developed world to economically less developed countries, and includes CONCESSIONAL LOANS, and GRANTS.
Producer Price Index
Consists of several indices of prices received by the producers of goods at various stages in the production process.
equilibrium
Consumers find enough quantity goods at a fair price; producers receive a fair price to cover costs and make a profit. (Win/win situation)
Stocks
Corporations issue these in return for partial ownership of the company, the investor gives that corporation their money to spend
Guns or Butter
Countries must choose between producing military or consumer goods
Federal Reserve System
Created by Congress and acts as the nation's central bank. It controls the nation's money supply through monetary policy.
Example of command economies
Cuba and North Korea
Devaluing the Exchange Rate - Managed ER
Devaluing the currency will .... Make the relative price of domestic goods cheaper compared to imported goods - imports become relatively more expensive. Exports become cheaper.
Economies that are rich and have many industries and factories
Developed Economies
Economies that are poorer and trying to become developed
Developing Economies
Residual / Income Approach Method (land)
Estimating potential income from improvements that yield the highest return. useful in highly developed areas
The Sherman Antitrust Act prohibits monopolistic competition.
False
J-curve
Exports become cheaper immediately but it takes time when exports become cheaper for foreign consumers to buy more and domestic producers to produce more. * Think drugs and medicines: takes time for effects. E.g if oil price increases, takes time for consumers to find domestic substitutes.
the resources required to produce the things we would like to have--these are land, capital, labor, and entrepreneurs.
Factors of Production
Resources
Factors of production, used by firms as inputs in the production process.
Labor market rigidities
Factors preventing the forces of supply and demand from operating in the labor market, and therefore preventing labor market flexibility. Example: Minimum wages, legislation, and job security.
Automatic stabilisers
Factors that automatically, without any actions by the government, work toward stabilizing the economy by reducing the short term fluctuation of the business cycle. Two important automatic stabilizers are PROGRESSIVE INCOME TAXES and UNEMPLOYMENT BENEFITS.
A desire to buy a product is the only requirement needed for demand to exist
False
A government monopoly is a monopoly based on ownership or control of a manufacturing method or process.
False
A nondurable good lasts less than five years when used on a regular basis
False
A private agency usually approves prices for water and electric utilities.
False
A proxy is a written promise issued by a corporation to repay borrowed money at a later date
False
A supply curve is a graph that shows the various quantities supplied at a single market price
False
Cooperative can be organized to help consumers, provide services, or help producers
False
During the 1990s, Sweden restructured its economy to pure capitalism.
False
If the price of an item is too high in a competitive market, shortage appears until the price goes down
False
Macroeconomics
Focuses on economy as a whole; tracks economy wide variables. Top-down approach.
Types of unemployment
Frictional (issues), seasonal (farmer), structural (issues), cyclical (cycles)
Scarcity
Fundamental economic problem of meeting people's virtually unlimited needs and wants with scarce resources
Conditional Covenants
If restriction is violated ownership reverts back to original owner.
Compound Interest
Interest is applied to the value of the loan PLUS other interest! Ex: $1000 loan for one year = $115.73 interest
Disadvantages of Single Currency/Monetary Integration
Loss of domestic monetary policy, restricted domestic fiscal policy, regional unemployment.
Foreign Exchange
Money from one country must be converted into the currency of another country to pay for goods and services in that country.
What are three characteristics of money?
Money is portable, divisible, and durable.
Fiat Money
Money that has a value because the gov. has orders that it is an acceptable means to pay debts ( average money)
capital
Money used for investments in business.
Investment
Money used with the expectation of some future return or benefit usually for RETIREMENT!!!
If someone asks you to go out for lunch and says they will pay, will lunch actually be free?
No because nothing is free and these are services being offered by someone
Excess demand (Shortage)
Occurs when the quantity of good demanded is greater than the quantity supplied.
Underallocation of resources
Occurs when too few resources are allocated to the production of a good relative to what is socially most desirable.
Three examples of different factors of production
Oil, bus drivers, trucks
the cost of the next best alternative among a person's choices-the time, money, or resources that are given up or sacrificed to make the final choice
Opportunity Cost
Withdrawal
Taking money out of the bank
Withholding
Taking tax payments out of an employee's pay before he/she receives it
Good
Tangible economic product that is useful, transferable to others, and used to satisfy wants and needs
Regressive taxation
Taxation where as income increases, the fraction of income paid as taxes decreases.
Proportional taxation
Taxation where as income increases, the fraction of income paid as taxes remain constant.
Ad Valorem Taxes
Taxes calculated as a fixed percentage of the price of the good or service; the amount of tax increases as the price of the good or service increases.
Excise taxes
Taxes imposed on spending on particular goods or services.
Indirect taxes
Taxes levied on spending to buy goods and services, called indirect because payments of some or all of the taxes by the consumer is paid to the government authorities by the firms.
Personal income taxes
Taxes paid by households or individuals in households on all forms of income, including wages, rental income, interest income, and dividends (income from ownership of shares in a company); is the most important source of government tax revenues in many countries (especially economically more developed countries).
Direct taxes
Taxes paid directly to the government tax authorities by the taxpayer, including personal income taxes, corporate income taxes, and wealth taxes.
Demand
The amount of a good or service that a consumer is willing and able to buy at various prices.
labor productivity
The amount of goods and services produced per worker in a given time period.
Demand
The amount of goods and services that are willing to buy at various prices.
Supply
The amount of goods and services that producers will provide at various prices
Supply of money
The amount of money in circulation, determined by the central bank of a country.
Prices
The amount of money or its equivalent for which anything is bought, sold, or offered for sale.
Normative economics
The body of economics based on normative statements, which involve beliefs, or value judgements about what ought to be. Normative statements cannot be true or false; they can only be assessed relative to beliefs and value judgements. Normative economics forms the basis of economic policies.
scarcity
The condition that exists because human wants are greater than the capacity of available resources to satisfy those wants. This problem faces all individuals and organizations across time.
What does the production possibilities curve for two different products reflect?
The cost of producing more of the first product will be the amount of the second product given up.
Marginal Cost
The cost of producing one more item
cost per unit
The cost to produce and sell one unit of a particular product, including labor and equipment.
Transaction cost
The costs that parties incur in the process of agreeing to and following through on a bargain.
Capital Account Deficit
The country has increased its holdings of capital, property and financial assets OVERSEAS.
Profit motive
The desire to make money (the driving force behind our economy)
entrepreneurship
The development of a business from the ground up — coming up with an idea and turning it into a profitable business.
Trade
The exchanging of one good or service for something else.
Marginal private benefits
The extra benefit received by consumers when they consume one more unit of a good.
Marginal social benefits
The extra benefits to society of consuming one more unit of a good.
Marginal private costs
The extra costs to producers of producing one more unit of a good.
Marginal social costs
The extra costs to society of producing one more unit of good.
Marginal benefit
The extra or additional benefit received from consuming one more unit of a good.
Marginal cost
The extra or additional cost of producing one more unit of output.
Marginal tax rate
The extra taxes paid on an additional dollar of income.
Land
The factor of production that includes all NATURAL RESOURCES (timber, oil, iron ore)
Human Capital
The factor of production that includes the knowledge, experience, and skills of workers. Can be improved with training and education.
Physical Capital
The factor of production that includes tools, machinery, and buildings. Ex: warehouses, computers, money
Command Economic System
The government makes all decisions about production of goods and services.
Interest
The money the bank pays you for your money.
Official Development Assistance (ODA)
The most important part of foreign aid, referring to foreign aid that is offered by countries or by international organizations composed of a number of countries (it does not include aid offered by non-governmental organizations).
Equilibrium price (Market Clearing Price)
The price where demand exactly equals supply.
Macroeconomics
The study of the performance of the national economy and the global economy
Non-price determinants of demand
The variables that can influence demand: Income, Preferences, Prices of related goods (Substitution and Complementary), and Demographic changes.
Non-price determinants of supply
The variables that can influence supply: Costs of factor of production, Price of related goods (Joint Supply and Competitive Supply), Technology, Producer expectations, Taxes, The number of firms, Supply shocks and Subsidies.
Changes in Demand (what will graph look like)
The whole curve will shift. A shift to the right represents and increase in demand. A shift to the left represents a decrease in demand
What does "there is no such thing as a free lunch" mean?
There is always a cost when something is produced.
Scarcity
There is not enough of the thing you want.
Competition
There is not enough resources in the world for everyone so economies are always trying to get them from each other
Why is it important for an economy to have economic goals?
They serve as benchmarks that help determine if the system meets most of the needs
Protectionism - Expenditure Switching Policy
This is where ...The government imposes a policy which diverts domestic spending away from imports to domestically produced goods. This could include trade barriers (tariffs, quotas) or devaluing the currency.
What goods and services should be produced? How these goods and services should be produced? For whom should these goods and services be produced?
Three Economic Questions
Nationalized
Took ownership of
nationalized
Took ownership of
Capital Good
Tool, equipment, or other manufactured good used to produce other goods and services
Capital
Tools, equipment, and factories used in the production of goods and services
Economics is a social science because it deals with how people behave while trying to satisfy their needs and wants through relatively scarce resources
True
Limited liability is one characteristic of the corporate form of business organization
True
Market failure can occur when resources do not move freely from one industry to another.
True
The production function describes the relationship of changes in output to different amounts of a single input while others are held constant
True
The supply curve is likely to be elastic for products that can be made quickly without huge amounts of capital and skilled labor
True
The theory of production deals with the relationship between the factors of production and the output of goods and services
True
Time is an opportunity cost when a manufacturer assigns workers to one task rather than to another
True
Cyclical Unemployment
Unemployment that rises during a downturn in the economy. The government is the MOST concerned with this type! EX: Jimmy loses his job. His auto plant closed due to a recession.
specialization
When individuals choose work based on their talents. Examples include potter producing pottery or a baker making bread.
Absolute Advantage
When a country is able to produce more of a good than another country given the same resources i.e. they are more efficient.
Fixed Exchange Rate
When a currency is locked onto the value of another currency.
Voluntary Export Restraints
When a foreign producer limits the amount of a good exported to another country, often as a result of political pressure from the importing country.
National Debt
When a government operated with a deficit for many years, they build and form this. Ours is OVER 16 TRILLION!
Revaluation
When a managed/pegged currency is realigned to a high value/band.
Devaluation
When a managed/pegged currency is realigned to a lower value band.
Shortage
When consumers want more of a good or service than producers are willing to make available at a particular price.
Comparative Advantage in Trade
When countries make decisions as to which goods to produce and which to trade for based on the lowest OPPORTUNITY COST. It is the reason for ALL trade!
Inelastic Demand
When the demand doesn't change very much even with a high price change. These are typically needs. Ex: cancer medication
Customs union
Where there is a common (same) tariff set for member countries receiving goods from non-member countries. Free trade exists between member countries. This solves the problem of re-exporting taking place, as happens in a FTA. HOWEVER, if Monaco prior to the customs union had tariffs of 4% from goods coming from Country Y, a higher tariff (7%) now exists, making imported goods more expensive for consumers in Monaco.
economic transition
a period of change in which a nation moves from one economic system to another
recession
a period of reduced economic activity
Contraction
a period of slow or no growth -recession (if negative growth lasts 2+ quarters) -depression (2+ years) -high unemployment -lower incomes -reduced spending
Expansion
a period when business activity is growing -inflation -incomes increase -spending increases
Trustee Owner
a person or company who holds property or authority for the benefit of another e.g. 401k, charity
household
a person or group of people living in a single residence
household
a person or group of people living in the same residence
consumer
a person who buys a good or uses a service
Land redistribution
a policy by which land is taken from those who own large amounts and redistributed to those who have little or none
land redistribution
a policy by which land is taken from those who own large amounts and redistributed to those who have little or none
interdependance
a situation in which events in one part of the world affect other parts of the world
specialization
a situation in which people concentrate their efforts in the activities that they do best
specialization
a situation in which people produce a narrow range of goods than they consume. this increases productiviity, it also requires increased interdependance
Social Safety Net
a system of government transfer of cash or goods to vulnerable groups, undertaken to ensure that these groups do not fall below a socially acceptable minimum of standard of living
invisible hand
a term coined by Adam Smith to describe the self-regulating nature of the marketplace
Privatization
a transfer of ownership from the public sector to the private
National Debt
all the debt in the country
economy
all the places in society where spending and earning decisions are made
free trade
also called laissez-faire, a policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports).
Economies of scale
are a fall in long run unit costs that comes about as a result of a firm increasing its scale of operations.
Free enterprise
competition is allowed to flourish with a minimum of government interference
Comparative advantage
being able to produce a good at a lower opportunity cost than anyone else. If a producer has this, they should specialize. Can only have this in one product.
Conventional Mortgage
borrow money at a fixed or adjustable rate and when it is paid off the borrower has a clear title to what was purchased.
need e
certain type of car eating out cable iphone candy
Consumer Price Index (CPI)
changes in the price over time of a specific group of goods in an industry
tax money 2
clothes are from poor nations
What happens during a shortage?
demand is higher than supply and price increases
authoritarian
describes a form a government that limits individual freedoms and requires strict obedience from its citizens
Consumer sovereignty
describes role of consumer as a ruler
Sustainable development
development needed to meet the needs of the present generation without compromising the ability of future generations to meet their own needs.
Ecologically sustainable development
development that meets the needs of the present without compromising the ability of future generations to meet their needs
Anti-trust Laws
discourage monopolies, encourage competition
In this passage, Adam Smith is describing the basic economic concept of
division of labor.
A market economy
does not provide for everyone's basic needs.
things that determine whether you are right for the job
education-in the sense of increasing your skills age health
Economic development
economic growth involving welfare improvements to the standard of living including health, education and shelter.
Actions in one part of the country or world that have an economic impact on what happens elsewhere are examples of
economic interdependence.
command economy
economic system in which a central authority is in command of the economy; a centrally planned economy
market economy
economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets
free enterprise
economic system in which individuals and businesses are allowed to compete for profit with a minimum of government interference
centrally planned economy
economic system in which the central government makes all decisions on the production and consumption of goods and services
four important freedoms that exist in a free enterprise system freedom to own property freedom to buy freedom to produce and sell freedom to work
economic system of society determined by factors such as location history and tradition. economic systems can be grouped into three board catagories
Free Enterprise/Market Economy
economy where business owners compete in the market with little government interference
Diversification
involves a reallocation of resources int new activities that broaden the range of goods and services produced
local market
involves buyer and seller located close to one another
Infrastructure
involves essential facilities and services such as roads, airports, sewage treatment, railways, telecommunications and other utilities typically provided by the government.
opportunity cost
is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice". The notion of ________ _______ays a crucial part in ensuring that scarce resources are used efficiently.
private property
my car
Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3% return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorportes the idea of
opporunity costs
ease of formation and freedom to manage
partnership
greater management skills
partnership
greater retention of competent employees
partnership
greater sources of financing
partnership
Debits
payment made to other countries (- in balance of payments)
What do households provide business in the product market?
payments for products/services.
Credits
payments received from other countries (+ in the balance of payments)
wages
payments received in return for work
goods
pencil, shoes
Market Economy
people and firms act in their own best interests to answer the WHAT, HOW, and FOR WHOM questions- little to no government interference
problem
people are going to do their own thing even if people get hurt
Mixed Economy
people carry on their economic affairs freely, but subject to some gov't interference and regulation.
Governance
refers to the way the government is governing, and the excise of power in the management of an economy's economic and social resources, in order to achieve particular objectives such as economic growth and development
free trade
removing trade barriers so that goods flow freely among countries
Leasehold Ownership
rental agreement where a person owns a temporary right to land or property for a determined period of time.
Factors of Production
resources required to produce the things we would like to have: land, capital, labor, and entrepreneurs
laissez faire
the doctrine that states that government generally should not intervene in the marketplace
laissez faire
the doctrine that states that government generally should not intervene in the marketplace "let them do as they please"
Gross Domestic Product
the dollar value of all final goods and services and structures produced within a country's borders in a 12 month period
laws,traditions,beliefs,
the economic system includes all of the organizations,laws,traditions,beliefs,and habits that affect decision making in the society
competition
the effort of two or more people, acting independently, to get the business of others by offering the best deal
patriotism
the love of one's country ; the passion that inspires a person to serve his or her country
Minimum price
the lower limit imposed by the government below which the price may not fall. A minimum price is usually set above the equilibrium to aid farmers.
income
the momentary payment recieved for goods or services,or from other sources,as rents or investments
profit
the money a business makes after paying for tools, employees, and other costs
innovation
the process of bringing new methods, products, or ideas into use
A popular model used to illustrate the concept of opportunity cost is
the production possibilities frontier.
supply
the quantity of resources, goods, or services that sellers offer at various prices at a particular time.
communist
the state plans and controls the economy and a single, party holds power, all goods are equally shared by the people
economic system
the structure of methods and principles that a society uses to produce and distribute goods and services
competition
the struggle among producers for the dollars of consumers
competition
the struggle among producers fro the dollars of consumers
Competition
the struggle among sellers to attract consumers while lowering costs
maquiladoras
the term given to zones in Northern Mexico with factories supplying manufactured goods to the U.S. market. The low-wage workers in the primarily foreign-owned factories assemble imported components and/or raw materials and then export finished goods.
Capital
the tools, equipment, machinery, and factories used in the production of goods and services
Capital Resources
the tools/machines needed to make products AND the factories/buildings where products are made and where companies are managed
market supply
the total of an individual supplied is equal to the amount demanded
AS (Aggregate Supply)
the total quantity of goods and services produced in an economy over a particular time period at different possible price levels, c.p.
Gross Domestic Product
the total value of the goods and services that a country produces each year
division of labor and a free market
the two key ingredients of Adam Smith's formula for economic success
Maximum price
the upper limit imposed by the government below which the price may not fall. A maximum price is usually set below the equilibrium to aid relatively poor consumers.
fiscal stimulus
the use of fiscal policy to expand the economy ie increase in govt spending, lower taxes
equilibrium wage
the wage at which the quantity of workers demand equals the quantity of workers supplied; the market price for labor
economy
the way a place uses its money, goods, natural resources and services
Underemployment
when workers are employed only part time or are over qualifed for their jobs
freedom to work
when you take a job, you are selling your time.The person who pays you is buying your time.you are free to accept or refuse the work
inflationary gap
where Agg D exceeds Agg S at the full employment level of Y
collusive oligopoly
where a few firms act together to avoid competition by resorting to agreements to fix prices or output.
market failure
where environmental resources are not allocated efficiently as they have no price
deflationary gap
where equilibrium level of Y is less than the full employment level of Y
budget surplus
where govt plans to save more than it spends to dampen agg D and slow economic growth
budget deficit
where govt spending exceeds govt revenue
Product Market
where producers sell their goods and services to customers and consumers
Terms of trade deterioration
where the average price of exports falls relative to the average price of imports, or making it more expensive to buy imports, in terms of exports that need to be sold.
Floating exchange rate
where the exchange rate (i.e. price of one currency in terms of another) changes according to the market forces of demand and supply.
Progressive tax
where the higher the level of income, the higher the percentage of taxation that is paid (or the higher the average rate of taxation).
Regressive taxes
where the proportion of income paid in tax falls as the income of the taxpayer rises or where the average rate of tax falls as income rises.
markets
whereby parties engage in exchange parties may exchange goods and services by barter, however, most markets rely on sellers offering their goods or services (including labor) in exchange for money from buyers.