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A situation in which unlimited wants exceed the limited resources available to fulfill those wants

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scarcity

question

Study of a nation's economy as a whole.

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macroeconomics

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Study of individual consumers and businesses.

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microeconomics

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assumption in economics that people do what they want for a reason that makes sense to them at the time of the incident

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rational self interest

question

what to produce, how to produce, for whom to produce

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three fundamental economic questions

question

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

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opportunity cost

question

Giving up one thing for another

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trade off

question

the situation in which costs spill over onto someone who is not involved in producing or consuming the good

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negative externality

question

beneficial side effect that affects an uninvolved third party

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positive externality

question

Land, Labor, Capital, Entrepreneurship

answer

factors of production

question

A person who organizes, manages, and takes on the risks of a business.

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entrepreneur

question

analysis that involves comparing marginal benefits and marginal costs

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marginal analysis

question

a simplified representation of how the economy's transactions work together

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circular flow model

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A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good

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production possibilities frontier

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The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources.

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absolute advantage

question

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers.

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comparative advantage

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Goods and services are produced in better quality, quantity and speed when people focus on producing a few things instead of making everything they want by themselves.

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specialization

question

A trade agreement between Canada, the United States and Mexico that encourages free trade between these North American countries.

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NAFTA

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Decreasing satisfaction or usefulness as additional units of a product are acquired

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law of diminishing marginal utility

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consumers buy more of a good when its price decreases and less when its price increases

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law of demand

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income, population, price of substitutes, price of complements, expectations, tastes

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determinants of demand/demand shifters

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As the price of a particular good or service rises, suppliers will produce more of that good or service.

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law of supply

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technology, price of goods used in production, number of firms, seller's expectations, and government

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determinants of supply/supply shifters

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How much of a good or service a producer is willing and able to produce at different prices.

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supply

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A situation in which the market price has reached the level at which quantity supplied equals quantity demanded

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equilibrium

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The price at which the amount of goods producers supply meets the amount of goods consumers demand.

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equilibrium (price)

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A government price control that sets the maximum allowable price for a good; results in a shortage

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price ceiling

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A situation in which quantity demanded is greater than quantity supplied

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shortage

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A government price control that sets the minimum allowable price for a good; results in a surplus

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price floor

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A situation in which quantity supplied is greater than quantity demanded

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surplus

question

a measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

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elasticity

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all human-made goods that are used to produce other goods and services; tools and buildings

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physical capital

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the idea that free markets can regulate themselves

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classical economics

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Phrase coined by Adam Smith to refer to the self-regulating nature of a free marketplace.

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invisible hand

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a concept that those who govern are bound by the laws; no one is above the law

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rule of law

question

A document granting an inventor sole rights to an invention

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patent

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Theory based on the principles of John Maynard Keynes, stating that government spending should increase during business slumps and be curbed during booms.

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Keynesian Economics

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The sum total of the value of all the goods and services produced in a nation

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Gross Domestic Product

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Level of economic prosperity

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standard of living

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Government policy that attempts to manage the economy by controlling taxing and spending.

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fiscal policy

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An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output

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expansionary fiscal policy

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Decreases in government expenditures and/or increases in taxes to control inflation

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contractionary fiscal policy

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Government practice of spending more than it takes in from taxes

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deficit spending

question

the 12 member group that determines the purchase and sale policies of the Federal Reserve Banks in the market for U.S. government securities

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Federal Open Market Committee (FOMC)

question

A form of government regulation in which the nation's money supply and interest rates are controlled.

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monetary policy

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Federal Reserve system actions to increase the money supply, lower interest rates, and expand real GDP; an easy money policy.

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expansionary monetary policy

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The Federal Reserve's adjusting of the money supply by increasing interest rates, resulting in less money in circulation (for the purpose of halting inflation)

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contractionary monetary policy

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the percentage of the labor force that is unemployed

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unemployment rate

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Alternating periods of economic expansion and economic recession; 1. expansion 2. peak 3. recession 4. trough

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business cycle

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unemployment directly related to swings in the business cycle

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cyclical unemployment rate

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unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills

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frictional unemployment

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unemployment that occurs when workers' skills do not match the jobs that are available

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structural unemployment

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A monetary system in which paper money and coins are equal to the value of a certain amount of gold

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gold standard

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A market structure in which a few large firms dominate a market

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oligopoly

question

A rise in the general level of prices in an economy.

answer

inflation

question

An index that measures the prices of a fixed "market basket" of some 300 goods and services bought by a "typical" consumer

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consumer price index

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A situation in which prices are declining

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deflation

question

a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)

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stagflation

question

Market classification according to number and size of firms, type of product, and type of competition

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market structure

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A market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market.

answer

perfectly competitive market

question

a market structure in which many companies sell products that are similar but not identical

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monopolistic competition

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A market structure in which a few large firms dominate a market

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oligopoly

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A market in which there are many buyers but only one seller.

answer

monopoly

question

a market that runs most efficiently when one large firm supplies all of the output

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natural monopoly

question

medium of exchange, unit of account, store of value

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functions of money

question

Goods that are neither excludable nor rival in consumption

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public good

question

The number of years it takes for a certain amount to double in value is equal to 72 divided by its annual rate of interest.

answer

rule of 72

question

A certificate of ownership in a corporation

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stock

question

A form of lending to a company or the government (city, state, or federal)

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municipal bond

question

A pool of money from many investors that is used to buy different stocks and bonds.

answer

mutual fund

question

monitors the stock market and enforces laws regulating the sale of stocks and bonds

answer

Securities and Exchange Comission

question

A tax for which the percentage of income paid in taxes increases as income increases

answer

progressive tax

question

a tax for which the percentage of income paid in taxes remains the same for all income levels

answer

proportional tax

question

A tax for which the percentage of income paid in taxes decreases as income increases

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regressive tax

question

the taxes that the federal government imposes on personal income in order to provide services

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federal income tax

question

The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates

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Federal Reserve System

question

Federal Reserve System

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central banking system

question

reserves that a bank is legally required to hold, based on its checking account deposits

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required reserve

question

an economic system with no government so that private firms account for all production

answer

pure market economy

question

economic system in which the central government makes all decisions on the production and consumption of goods and services; command economy

answer

centrally planned economy

question

An economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion.

answer

mixed economy

question

a process used to achieve financial success based upon the development and implementation of financial goals and planning

answer

financial planning

question

a measure of your creditworthiness, often computed as a numerical score, using the FICO scoring system to analyze your credit history

answer

credit rating

question

An agency which checks credit information and keeps complete files on people who apply for and use credit.

answer

credit bureau

question

capital, character, capacity

answer

3 C's

question

A loan that is backed by collateral.

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secured loan

question

the difference between a country's total exports and total imports

answer

balance of trade

question

when a country imports more than it exports

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trade deficit

question

A tax on imported goods; results in increased prices

answer

tariff

question

Goods that are commonly used with other goods (e.g. ketchup/mustard)

answer

complementary goods

question

goods that can be used to replace the purchase of similar goods when prices rise (e.g. strawberries/blueberries)

answer

substitute goods

question

A good that does not have a change in demand based upon price (e.g. medicine)

answer

inelastic good

question

A good where consumers are very responsive to price changes (e.g. soda)

answer

elastic good

question

Buildings, machines, technology, and tools needed to produce goods and services.

answer

capital goods

question

Negotiations between representatives of labor unions and management to determine pay and acceptable working conditions.

answer

collective bargaining

question

An organization of workers that tries to improve working conditions, wages, and benefits for its members

answer

labor union

question

A general rise in prices that results from a rise in the costs of production.

answer

cost-push inflation

question

A general rise in prices that occurs when overall demand for goods increases faster than the output of goods.

answer

demand-pull inflation

question

GDP=C+I+G+(X-M)

answer

GDP Formula

question

A regulation in which requires a bank to keep a certain percentage of each dollar deposited in the bank in its reserve.

answer

reserve requirement

question

Contracting outside the organization to have work done that formerly was done by internal employees.

answer

outsourcing

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