Economics Vocabulary Definitions – Flashcards
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Land
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natural resources used to make goods and services
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Labor
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the effort people devote to a task for which they are paid
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Capital
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any human-made resource that is used to produce other goods and services
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Physical capital
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buildings and tools. Human capital: the knowledge and skills a worker gains through education and experience
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Opportunity cost
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the most desirable alternative given up as the result of a decision
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Economic Continuum
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a range with no clear divisions. On one end of the eco. Con. Is centrally planned governments (I.e. north korea) and on the other end is the free market (like america)
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Free enterprise
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an economic system characterized by private or corporate ownership of capital goods
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Profit motive
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the force that encourages people and org. to improve their material well-being.
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Open opportunity
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everyone can compete in the marketplace.
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Legal equality
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everyone can compete because we all have the same rights
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Private property rights
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everyone has the right to control their possessions
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Free contract
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people can decide what agreements they want to enter into
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Voluntary exchange
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people can buy and sell what they want
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Law of demand
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consumers will buy more of a good when the price is lower, and less of a good when the price is higher
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Demand curve
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a graphic representation of a demand schedule. As price goes down, demand goes up. As price goes up demand goes down.
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Inelasticity
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demand is not very sensitive to a change in price. Ex: if prices change in toilet paper, I will buy it because it is a necessity.
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Law of supply
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tendency of suppliers to offer more of a good at a higher price (COSTCO) as price increases, so does supply quantities. And vice versa.
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Surplus
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a situation in which quantity supplied is greater than quantity demanded; also known as excess supply.
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Deficit
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a situation in which quantity demanded is greater than quantity supplied
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Equilibrium
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the point of balance between price and quantity. Stable market. On the graph, the demand and supply lines intersect
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Barrier to entry
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factors that make it difficult for new firms to enter a market. They can lead to imperfect competition (a market structure that does not have a large number of firms that all produce the same product) Example: start-up cost: the expense a firm must pay in order to start selling. Technology: skillz
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Deregulation
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the removal of some gov't control over a market. Effects: forces firms and industries to compete more in markets by eliminating many entry barriers and price controls, weakens gov't, promotes competition, creates inefficiencies
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Patent rights
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a patent is a license that gives the inventor rights to sell the product for a certain amount of time. Patents encourage firms to research and develop new products that benefit society as a whole.
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Oligopoly
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a market structure in which a few large firms dominate the market. Industry examples: air travel, cereal, appliances
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General Partnership
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a partnership in which they share equally in both responsibility and liability
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Limited Partnership
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a partnership in which only one partner is required to be a general partner
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Limited Liability Partnership
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(LLP) a partnership in which all partners are limited partners
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Know differences between blue collar and white collar workers
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blue collars work in an industrial jobs often in manufacturing and receive wages; white collars are people who earn a salary (teachers, doctors, etc.)
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Productivity
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value of output
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Understand interest and why it's important
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interest is the price paid for borrowed money. It is important because it forces people to pay you back, also increases the amount of money you earn (like in a bank).
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Understand what a person is doing when they buy a US savings bond
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savings bonds are low denominations issued by the US gov't. They pay public works projects. Savings bonds have no risk of default or failure to repay the loan.
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Three components of bonds
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Coupon rate: interest rate that a bond issuer pays a bond holder. Maturity: time at which payment to a bond holder is due. Par value: amount that an investor pays to purchase a bond and will be repaid to bond holder at maturity
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Relationship between risk and return
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risk is when you take a risk and invest; the risk is that the investment will not return loan (usually a higher return.)
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What banks do with your money when you deposit in a savings account
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they use the money you deposit, and then are required to pay it back with interest.
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Definition of and importance of diversification
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spreading out investments to reduce risk. It is important because you can not put all your eggs in one basket, otherwise you will lose them all.
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Stock Market
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sells and buys stocks
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NYSE
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the country's largest and most powerful exchange. Handles stock and bond transactions for only the largest and most established companies the country (referred to as blue-chip companies).
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DJIA
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is the Dow Jones Industrial Average, it's an index that shows how the stocks have traded
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S&P 500
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index that shows the changes in price of 500 different stocks. S & P stands for standard and Poor's 500. Reports mainly stocks in NYSE but some of them are from the NASDAQ
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What is a business cycle, and how to define it
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it is a period of macro-economic expansion followed by a period of contraction. Consists of four phases: expansion- a period of economic growth as measured by the rise of real GDP ( total value of all final goods and services produced within a country's border in a year.), Peak- height of economic expansion, Contraction- economic decline, and Trough- lowest point in economic contraction in which GDP stops decreasing
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Disposable personal income
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amount of money people have to spend after taxes
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Aggregate income
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total income
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What is GDP and how it differs from GNP
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GDP is final dollar value of all final goods and services produced within a country's borders. GNP is the annual income earned by US owned firms and US citizens. Difference is GDP is all of US's money and GNP is money made by the US.
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What is included in calculation of GDP and what is not
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expenditure approach- estimate the annual amount of money spent on four categories of goods and services (consumer goods/services, business goods/services, government goods/services, and net exports and imports of goods and services) then they add up the amount spent on all four categories to get the GDP. Income approach: add up all the incomes in the economy.
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Differences between Real and Nominal GDP
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Nominal is GDP measured in current prices. Real is GDP expressed in constant or unchanging prices.
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Know what full employment is and the ideal rate of unemployment
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Know what full employment is and the ideal rate of unemployment
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Ideal rate of unemployment
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4-6%
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Causes and theories of inflation
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Quantity Theory: too much money in economy causes inflation. Demand-pole theory: inflation occurs when demand for goods and services exceeds supply. Cost-Push theory: inflation occurs when producers raise prices in order to meet increased costs can lead to a Wage-Price spiral a process in which higher prices cause higher wages and vice versa
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Know what an entitlement program is
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a social welfare program that people are 'entitled' to if they meet certain requirements
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Revenue
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property taxes, local gov levy sales, excise income taxes.
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Spending
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Public school sys. Law enforcement, fire protections, public facilities, parks/public recreational facilities, public health/transportation, elections, record keeping and social services. Know what a sales tax is: The dollar value of a good or service that is being subjected to tax. Know the difference between proportional, progress and regressive tax: Proportional tax: a tax for which the percentage of income paid in taxes remains the same for all income levels. Progressive tax: a tax for which the percentage of income paid in taxes increases as income increases
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Recessive tax
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a tax for which the percentage of income paid in taxes decreases as income increases
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Know the largest source of spending for the federal gov
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22% is spent on social security. 16% is spent on defense.
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Understand what gives the gov the right to collect taxes
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The Constitution
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The Office of Management and Budget
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It manages the government's budget. Its most important job is to prepare the federal budget.
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Easy money policy
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monetary policy that increases the money supply
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Tight money policy
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monetary policy that reduces the money supply
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Trade surplus
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the result of a nation exporting more than it importing
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Trade deficit
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the result of a nation importing more than exporting
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NAFTA
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North American Free Trade Agreement: agreement that will eliminate all tariffs and other trade barriers between Canada, Mexico, and the US
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Absolute advantage
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the ability to produce more of a given product using a given amount of resources
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Comparative advantage
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the ability to produce a product most efficiently given all of the other products that could be produced
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Law of comparative advantage
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a nation is better off producing goods for which it has a comparative advantage
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How to calculate GDP per capita
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divide the GDP by the population
