Economics: GACE prep, Fundamental Economic Concepts, Microeconomics, Macroeconomic, International Economics, Personal Finance

Value Tax

A "hidden" tax to all goods and services, computed on the added value at each stage of the manufacturing process.

Public Corporation

A company whose shares are publicly traded and are usually held by a large number (hundreds or thousands) of shareholders.

Vertical Monopoly

A corporation controls associated goods and services; control over the entire production and possibly the marketing flow for a product.

Bilateral Oligopsony

A few buyers and a few sellers in the market.

Over-sized Firms

A firm becomes too large and impairs their efficiency and productivity. If a firm becomes too large and too successful, it may attract negative publicly and even the attention of government regulatory agencies; Microsoft, Wal-Mart

Free Goods

A good or service that it abundant, making it available to everyone at little or no cost to the economy. (natural resources owned by the public, water, air. Skies used by airlines, ideas or inventions in public domain, the internet)

Corporation

A legal entity that is separate and distinct from its owners. Enjoys most of the rights and responsibilities that an individual possesses; enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes. It is often referred to as a "legal person."

Poverty Line

A level of income that fails to reach the minimum for people to purchase the necessities of life. Individuals or households are unable to provide for themselves and have zero disposable income.

Tax Rate

A percentage figure levied on the tax base to raise revenues.

Sole Proprietorship

A privately owned business with one principle owner who operates in his or her own name. Individual incurs any debts or liabilities of the business as personal obligations. ("mom and pop" store)

Monopsony

A single consumer of a product and numerous suppliers.

Excise Tax

A tax levied on a tax base of ma determined figure. (excess profit tax)

Income Elasticity of Demand

Change in the income of prospective buyers results in a change in demand.

Corporate/Managerial Finance

Process of acquiring and using funds for business operations.

Production

Process of producing or assembling goods and services to be traded in the marketplace.

Finance

-The use of money as an economic resource, includes the individual and business decisions regarding the obtaining, utilization, and allocation of financial resources after evaluating risk potential. -Collective policies and operations that business entities or individuals manage their activities with.

Diminishing Marginal Returns

Additional resources added to production factors, a point occurs where the production function becomes less efficient; yielding less profitable final products.

Total Personal Income

All earnings paid to an individual

Externality

An economic decision, made by a person who has no economic gain or loss at a stake, results in a significant impact on others.

Multinational Corporation

An enterprise operating in several countries but managed from one (home) country.

Tax

Any assessment or change to an individual economic unit by a government or quasi-government.

Revealed Preference theory

Articulated by Paul Samuelson. Past buying habits could be used to analyze and predict future consumer activity.

Loss Leader Pricing

Artificially lower prices on products to attract costumers in the hope they will make additional purchases.

Property Tax

Assessed on the value of real estate and person property, such as, automobiles and boats.

Consumer Preference Relations

Attempt to predict consumer behavior.

General Partnership

Business organizations where two or more individuals enter into an agreement to share in the financial proceeds or losses of a business in which they have invested resources. General partners are fully responsible for all liabilities the partnership incurs to third parties

Dis-economies of Agglomeration

By firms locating near each other it is easier for buyers to shop competitively.

Jeremy Benthan

Pioneered the concept of utility as an economic tool in the 17th century.

Manufacturers Suggested Retail Price (MSRP)

Provides guidelines for retailers when pricing goods. Usually heavily discounted to suggest the product is at a bargain price.

Indirect Taxes

Collected by a third party who is not being actually taxed. (valued added taxes, hidden from the consumer who pays an increased retail or wholesale price that includes the value added tax)

Economies of Agglomeration

Commonly in urban areas. The benefits that firms obtain by locating near each other. Similar firms' costs of production may decline, competing firms could attract more suppliers and consumers.

Income

Compensation received by economic units during the normal activities of business. Received from multiple sources: employers, investments, and gifts.

Production Functions

Concerns itself with the ratio of raw materials or resources needed to produce a certain amount of goods and services.

Fixed Costs

Constant and do not depend on the amount of production. (physical plant, heavy equipment)

Production Possibility Curve/Frontier

Depicts all maximum output possibilities for the goods, given a set of inputs consisting of resources and other factors.

Theories of Value

Diamond-Water paradox. Valued measured by the cost of production. Value is completely subjective.

Marginal Utility

Focus on buying and selling transactions between individual units in the economy, excluding the economy as a whole.

Artificial Surplus

Government intervention: subsidies, taxes

Regressive Tax System

Have a reduced schedule of tax rates as income rises. (those earning less pay more, and vise versa)

Productivity

How many units of a finished product can be made from a minimum amount of inputs.

Dis-economies of Scope

Implementation of a new product unrelated to existing product. Requiring a different marketing strategy and distribution, packaging, storing, and shipping. (Candy manufacture producing shoes)

Direct Taxes

Imposed and collected directly from the economic units being taxed. (taxes are levied and collected from the individual or business that actually receives monies as income.)

Private Corporation

Incorporated firm whose shares are not publicly traded, and are held by a small number of stockholders (shareholders).

Lorenz Curve

Indicator of equality and inequality in income distribution in an economy. Compares actual income distribution to perfect income equality.

Efficient Market Theory/Hypothesis

Investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information; Random Walk Theory

Economies of Scope

Planning and implementation of product mix as a strategy of marketing and distribution. Concerned with the types and numbers of different products the firm markets. (Candy manufacture introducing a new candy bar)

Horizontal Monopoly

Large corporations will buy or control smaller firms who are considered competitors.

X-Efficient Production

Less productive than anticipated, due to internal or external forces: shortages of raw materials, increased and unexpected competition, or problems in the supply of necessary labor.

Capital Gains Tax

Levied whenever a major capital asset is sold.

Oligopsony

Limited number of buyers and an unlimited number of sellers. Buyers have a competitive advantage.

Consumer Surplus

Prices of goods fall and buyers save money.

Monopolistic Competition

Many firms offer products or services that are similar, but not perfect substitutes. No regulations on entering or exiting the market. Consumers have more product knowledge and definite choices between products.

Income Distribution Metrics

Measurement of income distribution in an economy. Identify patterns of wealth in a society and determine the fairness or inequality of the economy.

Utility

Measurement of the want-satisfying power of goods and services purchased by consumers.

Indifference Curves

Measures consumer activity where they are indifferent to a choice between two products.

Social Welfare Function

Measures economic welfare of a given society, after considering all relevant factors.

Economies of Scale

Measures the changing variables that must occur when production in increased or decreased. The goal is to determine the ideal size of a company to maximize productivity and decrease inefficiency

Fixed Factor of Production

One whose quantity cannot readily be changed: major pieces of equipment, suitable factory space, and key managerial personnel.

Ideal Firm Size

Optimum size of a company which provides a profit. It is a fluid variable which takes economies and dis-economies of scale, scope, and agglomeration into account.

Individual Demand Curve

Represents the quantity of a good that a consumer will buy at a given price, holding all else constant.

Flat Tax

Same tax rate applies to all levels of income.

Limited Partnership

Serve as investors only; they have no control over the company and liabilities are limited to the amount of their investment.

Cartels

Several firms acting as one business with a few suppliers to gain an economic advantage.

Parento Efficiency Theory

Study the level of economic efficiency determined by the distribution of income. IF change in the allocation of resources improves the economic condition of one individual or group without hurting another this is an improvement. If no individual or group within an economy can be improved by switching allocations of resources without degrading the economic condition of another, the economy in efficient.

Purpose of Pricing

Sufficient to ensure sales that will attain the financial goals of the firm.

Factors of Production

Sum total of resources needed to produce finished goods: Land, Labor, Natural Resources, and Capital Goods

Supplier Surplus

Suppliers are able to sell at a higher price than originally obtainable.

Progressive Income Tax System

Tax higher levels of income more than lower levels.

Marginal Tax Rate

Tax imposed on the next unit of currency earned. (differ from person to person)

Net Income

The amount earned after paying expenses.

Gross Income

The amount earned before expenses.

Profit Maximization

The amount of production of finished goods at a certain price which guarantees the best return. Determine the minimum input that will result at the optimal level of per unit products

Pricing

The assignment of monetary amounts to goods and services sold by the company.

Cross Elasticity of Demand

The demand of a good or service in affected by the change in price of a different good or service.

Revenue

Total amount of income that the firms receive from any source. (sale of deeds and services, transfer payments, investment returns, additional investments by owners, issuing additional stock or floating bonds, and venture capital))

Per Capita Income

Total earned by residents or an area divided by the number of inhabitants of the region. Based on where the individuals lives, not where they work.

Market Failure

The market is unable to provide a stable trading framework for the distribution of goods and services to the buyers.

Costs and Revenues

The most common measuring tools for assessing business success.

The Tragedy of the Commons

The overuse or misuse of a scarce resource which negatively affects the general welfare. Selfish actions of special groups and interests that result in negative impacts on the quality of life. (All forms of pollution, irresponsible consumption of natural resources, littering, graffiti, traffic congestion, noise pollution, legalized gambling, pornography and pirate sites on the internet) Term coined by Garrett Hardin, stems from the controversy of who owns natural resources such as the seas and atmosphere.

Price Elasticity of Supply

The price of a good or service directly affects the supply of that good or service. Increased price = Increased Supply.

Price Elasticity of Demand

The rate at which demand falls or rises when a price is changed.

Economic Rent

The ratio between the cost of a factor of production and the revenue yielded by that factor.

Cardinal Utility

The satisfaction derived by the consumers from the consumption of good or service can be expressed numerically.

Ordinal Utility

The satisfaction which a consumer derives from the consumption of good or service cannot be expressed numerical units. Observe patterns of prior economic behavior.

Social Cost

The total cost of an economic action to society as a whole.

Average Tax Rate

The total tax revenue is compared to the total tax base as a ratio.

The Tragedy of the Anti-Commons

The under-use of a scare resource. When a large part of society is denied access to a fundamental economic activity. (patents preventing cooperative development of therapeutic drugs and technology, property rights which exclude individuals from fully participating in the economic system)

Marginalism

The worth of the last/next product or service. The cost of making the last product, the cost of hiring the last employee, and the cost of making the lat product.

Variable Costs

Tied directly to the production of finished goods and services. More goods equals more costs. (raw materials, extra labor, additional capital)

Government Involvement in Competition

U.S. Department of Justice monitors all proposed mergers and acquisitions to insure they will not significantly reduce competition. They have the power to deny merger and takeovers if they feel the public interest in negatively affected. Have the ability to force large monopolistic conglomerates to break up.

Oligopoly

When a market is controlled by a small group of suppliers. All suppliers are cognizant of each other's activities.

De Facto Monopoly

When an industry or portion of an industry is so dominated by a company that it controls the market completely. (Microsoft in the 1980s and 90s)

Information Asymmetry

When one party has superior information. Allows dishonest sellers to sell inferior or sub-standard products to buyers who are unaware of the information.

Monopoly

When one supplier is the sole seller of a service or product. No competition or ready substitutes.

Dis-economies of Scale

When production changes have reached a point where they are detrimental to the firm.

Positive Externality

When the costs are greater to the private sector than to society.

Efficient Productivity

When the optimum number of finished products is produced with a minimum of raw materials.

Negative Externality

When the social cost to society is greater than the cost to the decision maker. (manufacturing pollution)

Ad Valorem Tax

When the tax base is a good, service, or property. (most property and sale tax)

Opportunity Cost

the sacrifice of the next best thing in order to gain the opportunity of having one's first best choice