Economics 101 Kalamazoo College
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many jobs in a big picture production. ex: assembly line producing cars.
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Specialization
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dependence on others for resources ex: car companies depend on the steel industry
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Interdependence
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what the economy and people's choices are based on.
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self-interest
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goods are finite so choice is necessary
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scarcity
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economy characterized by doing things as they have always been done
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traditional economy
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economy run by a single leader. susceptible to corruption and revolt.
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command economy
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based on demand and efficiency. easy to receive changes and consumer/producer based
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market economy
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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
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A situation in which quantity demanded is greater than quantity supplied
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shortage
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The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
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consumer surplus
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The amount a seller is paid for a good minus the seller's cost of providing it
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producer surplus
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A customer's subjective assessment of benefits relative to costs in determining the worth of a product
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value
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legal system, monetary system, system of standards
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institutional framework for economics
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Costs (or benefits) of a market activity borne by a third party.
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externalities
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Goods that are neither excludable nor rival in consumption ex: fireworks show
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public goods
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A legal maximum on the price at which a good can be sold
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price ceiling
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A legal minimum on the price at which a good can be sold
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price floor
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A sum of money granted by the government or a public body to assist an industry or business so that the price of a commodity or service can be sold for less than the producers are willing to sell it for.
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subsidy
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A tax for which the percentage of income paid in taxes increases as income increases
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progressive tax
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A tax in which the average tax rate is the same at all income levels.
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proportional tax
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A tax for which the percentage of income paid in taxes decreases as income increases
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regressive tax
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Analysis done to compare and quantify the financial and non-financial costs of making a change or implementing a solution compared to the benefits gained.
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cost benefit analysis
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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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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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a fiscal policy used to reduce economic growth, often through decreased spending or higher taxes
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contractionary policy
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A fiscal policy used to encourage economic growth, often through increased spending or tax cuts
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expansionary policy
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The generalization that any 1-percentage-point rise in the unemployment rate above the full-employment unemployment rate will increase the GDP gap by 2 percent of the potential output (GDP) of the economy.
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okun's law
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Individuals 16 or older who either have jobs or are looking for available ones and are not institutionalized
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labor force
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self regulating market and competition for wages will fix unemployment
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classical economists
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unemployment necessary but will destroy capitalist the capitalist market system eventually
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marxist economic theory
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unemployment is necessary and 100% employment is impossible so markets should strive for "full employment"
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Keynesian economic theory
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sticker price
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nominal price
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price without inflation
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real price
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bank/bond/stocks
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savings
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investing in new capital that will grow
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investment
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face value of a bond which will be paid at the point of maturity
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parvalue
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yearly payment made on a bond similar to an interest payment
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coupon
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length of time the bond will be held ending at the point of the payment of the par value
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maturity
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bonds with no end maturity rate, but only with coupon payments until forever but eventually, due to discount rates, the payments become insignificant
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perpetuities
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bonds with no coupon annual payments, only with one payment at the point of maturity
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zero coupon bonds
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a package of stocks bought as a bunch meant to diversify portfolios without terrible amounts of risk
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mutual funds
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similar to a mutual fund but the stocks in the bundle match the companies in indexes of the market such as the Dow Jones Industrial Average
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index funds
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an agreement set to have the option to buy a stock at a set price at a future date
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options (stocks)
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assets of a company (physical assets --> factories, stores, product etc.)
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book value
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stream of future earnings and future expectations of earnings
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present value
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as a company produces larger numbers of a particular product, the cost of each of these products goes down
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economies of scale
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at a certain point, it is no longer beneficial to produce a mass number of goods, and cost begins to rise again.
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diseconomies of scale
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many small firms with no product diferentiation
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competition
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one large firm producing a good with no sufficient substitutes or alternatives
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monopoly
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small number of large firms in comparison to the market resulting in high amounts of market concentration
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oligopoly
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many firms but they do not produce identical goods and there is product differentiation ex: fossil in the production of handbags
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monopolistic competition
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shared monopoly, An agreement among firms in a market about quantities to produce or price to charge
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economic collusion
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Costs that do not vary with the quantity of output produced ex: rent
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fixed cost
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Costs that change directly with the amount of production ex:energy supply and labor costs
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variable cost
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Opportunity cost associated with a firms use of resources that it owns. Costs don't involve direct money payments. Ex. wage income
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implicit cost
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A cost incurred in the past that cannot be changed by current decisions and therefore cannot be recovered.
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sunk cost
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For any good or service, the marginal utility of that good or service deceases as quantity of good increases
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diminishing marginal returns
