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Absolute Advantage

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Created by Adam Smith, it is the ability of a party to create more of a good or service than competitors, using the same amount of resources.

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Business Cycle

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Movement of the economic activity or the real GDP. -A short-run alternation between economic upturns and downturns -A country's total product, better known as real gross domestic product (GDP) undergoes periodic fluctuations

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Business-Cycle Peak

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The point in a business cycle at which business activity has reached a temporary maximum; the economy is near or at full employment and the level of real output is at or very close to the economy's capacity.

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Business-Cycle Trough

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The point in a business cycle at which business activity has reached a temporary minimum; the point at which a recession has ended and an expansion (recovery) begins.

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Choice

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The decision made by an individual as a result of the scarcity of resources.

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Comparative Advantage

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Concept in economics that a country should specialize in producing and exporting only those goods and services which it can produce more efficiently (at lower opportunity cost) than other goods and services (which it should import). -An economy that has the lowest opportunity cost for producing a particular good.

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Deflation

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A decline in the economy's price level. -encourages people to hold cash rather than invest in new factories and productive -The annual percentage change in the aggregate price level is negative

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Depression

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A deep recession with high levels of unemployment.

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Economic Growth

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Allows a sustained rise in aggregate output. The sources of growth are increases in resources and progress in technology. Results in the PPC shifting to the right.

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Equilibrium

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The critical intersection point at which agreement between consumers and suppliers occurs on products or services.

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Equilibrium Price

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The price at which consumers and willing to pull out of the market the exact quantity of product that suppliers are willing to push into the market.

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Equilibrium Quantity

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The quantity in which consumers are willing to pull out of the market they same amount as the suppliers are willing to push into the market.

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Expansions

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A phase of the business cycle when the economy moves from a trough to a peak. -An economy has rising total output accompanied by increasing employment.

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Inflation

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An increase in the economy's price level. -a rising aggregate price level.

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Labor Force

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People who are willing and able to do work.

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Law of Demand

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States that, everything else being held constant, the lower the price charged for a good or service, the greater than quantity people will demand. -An inverse relationship between price and quantity

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Law of Supply

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The higher the price buyers are willing to pay, other things being held constant, the greater the quantity of the product a supplier will produce, and vice versa. -A direct relationship between price and quantity produced.

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Macroeconomics

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Concerns itself with large scale economic choices and issues

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Microeconomics

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Concerns itself with the economic choices made by individual units (people, households, businesses)

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Normative Economics

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Normative Statements are opinions on what "should" be

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Opportunity Cost

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A special kind of trade-off, the value of the next best thing

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Price Ceiling

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The maximum legal price for an output. It must be below the price equilibrium (shortage). -Protects consumers so they don't have to pay as much for a product

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Price Floor

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The minimum legal price for an output. It must be above the price equilibrium (surplus). -Protects producers. Ex: minimum wage

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Price Stability

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The general level of prices is increasing at an acceptable rate. -A desireable goal

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Production Possibilities Frontier

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-Illustrates the trade-offs facing an economy that produces only two goods. -Shows the max quantity of one good that can be produced for any given production of the other.

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Recession

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A period of reduced economic activity. -output and employment are falling.

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Resource

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The goods and services that are produced. Examples include machinery, raw materials, and labor.

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Scarcity

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The condition of a good or service being finite or limited in quantity.

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Shifts of curves vs. movement along the curve

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Movement along the curve occurs as a result of a change in price. The shift of a curve occurs as a result of a change in supply/ demand regardless of price.

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Shortage

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Created by the price of a good being held lower than its market equilibrium price. Ways to relieve: -Decrease Demand -Increase Supply -Allow the price to rise to the market equilibrium price

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Specialization

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People, companies, or countries focusing on providing a single good or service, instead of on a range of different goods and services to increase efficiency and profit.

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Supply and Demand Model

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Line graph form of the supply and demand schedule with an infinite number of points. Can show shortages, surpluses, and the market equilibrium point.

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Surplus

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An excess of unsold product. Ways to relieve: -Increase Demand -Decrease Supply -Allow the price to fall to the market equilibrium price

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Trade

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The exchange of goods and services between parties

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Micro or Macro: The unemployment rate is holding steady at 7.2%.

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Macroeconomics

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Micro or Macro: Congress should lower taxes to allow consumers to keep more of their income.

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Macroeconomics

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Micro or Macro: Colleges should lower the tuition for freshmen and sophomores.

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Microeconomics

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Micro or Macro: The price of cars is rising in spite of a recent recession.

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Microeconomics. (Car company)

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Micro or Macro: Increases in personal tax rates hurts middle class workers.

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Macroeconomics (The government sets tax rates)

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Micro or Macro: Microsoft will be sending one million tablets to Germany.

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Microeconomics

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Scarcity in economics means:

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Not having sufficient resources to produce all the goods and services we want

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Mr. Duke is offered a free ticket to the opera. His opportunity cost of going to the opera is:

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Whatever Mr. Duke would have done had he not gone to the opera.

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Which economic measure is typically used as an indicator of the conditions in the labor market?

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The unemployment rate

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If nominal wages have risen by 25% over a ten?year period and aggregate prices have increased by 20% in that same period, then we can safely conclude that the real wages of the workers have:

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Increased

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Paying rent instead of purchasing tickets to a concert is an example of

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Trade-off, opportunity cost

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Technological improvements will have what effect on the production possibilities curve?

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There will be economic growth, resulting in a shift of the curve to the right.

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Efficient production exists when the economy is operating where on the production possibilities curve?

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On the line/ curve. Inefficiency occurs below the line, and unfeasible occurs above the line.

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The process through which an economy's production possibility curve is shifted outward is:

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Economic growth. (The rate at which the economy's potential level of output increases)

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Societies are faced with which three basic questions about the production of goods. What are they?

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What should be produced? How will it be produced? Who gets what is produced?

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The three synonymous terms to describe the U.S. economic system are free enterprise, capitalism, and ___.

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Free market

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Which of these economic systems would be grouped together? (market economy, command economy, capitalism, socialism)

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Market economy ; capitalism, Command economy ; socialism

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What does the graph demonstrate in regards to supply and demand?

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** Supply and demand are interconnected. If the demand for something increases, so will the supply.

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What are the five main factors that shift the supply curve?

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1. A change in input prices 2. A change in the prices of related goods and services 3. A change in technology 4. A change in expectations 5. A change in the number of producers

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What are the five main factors that shift the demand curve?

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1. A change in the prices of related goods or services 2. A change in income 3. A change in tastes 4. A change in expectations 5. A change in the number of consumers

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Contrast nationalization and privatization

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Nationalization: When a nation's govt. assumes ownership of companies on such a large scale Privatization: When a nation's government sells nationalized businesses back to the private sector.

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Worldwide, what type of economic system do most nations have?

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Mixed economic system

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