Business in Action: Chapter 2 – Understanding Basic Economics – Flashcards
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economy
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the sum total of all the economic activity within a given region
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economics
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the study of how a society uses its scarce resources to produce and distribute goods and services
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microeconomics
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the study of how consumers, businesses, and industries collectively determine the quantity of goods and services demanded and supplied at different prices
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macroeconomics
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the study of "big picture" issues in an economy, including competitive behavior among firms, the effect of the government polices, and overall resource allocation issues
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factors of production
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economic resources
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natural resources
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land, forests, minerals, water, and other tangible assets usable in their natural state
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human resources
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all the people who work in an organization or on its behalf
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capital
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the funds that finance the operations of a business as well as the physical, human-made elements used to produce goods and services, such as factories and computers
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entrepreneurship
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the combination of innovation, initiative, and willingness to take the risks required to create and operate new businesses
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knowledge
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expertise gained through experience or association
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knowledge workers
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employees whose primary contribution is the acquisition and application of business knowledge
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trade-off
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have to give up something to get something else
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opportunity cost
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the value of the most appealing alternative not chosen
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economic system
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the policies that define a society's particular economic structure; the rules by which a society allocates economic resources
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free-market system
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economic system in which decisions about what to produce and in what quantities are decided by the market's buyers and sellers
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capitalism
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economic system based on economic freedom and competition (private enterprise)
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mixed economy/mixed capitalism
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the economic system of the United States and most other countries
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price controls
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maximum allowable prices and minimum allowable prices
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planned system
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economic system in which the government controls most of the factors of production and regulates their allocation
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communism
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the planned system that allows individuals the least degree of economic freedom (North Korea and China)
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socialism
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economic system characterized by public ownership and operation of key industries combined with private ownership and operation of less-vital industries
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nationalizing
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a government's takeover of selected companies or industries
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privatizing
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turning over services once performed by the government and allowing private businesses to perform them instead
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demand
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buyers' willingness and ability to purchase products at various price points (behavior of buyers)
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supply
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a specific quantity of a product that the seller is able and willing to provide at various prices (behavior of sellers)
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demand curve
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a graph of the quantities of a product that buyers will purchase at various points (slope downward)
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substitute products
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products that can be purchased instead
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supply curve
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a graph of the quantities of a product that sellers will offer for sale, regardless of demand, at various prices (slope upward)
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equilibrium point
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the point at which quantity supplied equals quantity demanded
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competition
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rivalry among businesses for the same customers
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pure competition
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a situation in which so many buyers and sellers exist that no single buyer or seller can individually influence market prices (many small suppliers, virtually identical products, low barriers to entry, no single firm can grow large enough to influence prices across the market, buyers' choices are extensive)
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monopoly
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a situation in which one company dominates a market to the degree that it can control prices
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pure monopoly
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(only one supplier in a given market, monopoly achieved without government intervention, by innovation, specialization, exclusive contracts, or simple lack of competitors, products are unique, with no direct replacements available, barriers to entry are extremely high, making entering the market difficult or impossible, suppliers can charge as much as they want, at least until people stop buying, buyers have no choice)
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regulated monopoly
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(only one supplier in a given market, monopoly granted by government mandate, such as a license to provide cable TV and Internet service, no product competition is allowed, barriers to entry are infinitely high; new competitors are not allowed, prices are set by government mandate, buyers have no choice)
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monopolistic competition
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a situation in which many sellers differentiate their products from those of competitors in at least some small way (can have few or many suppliers, of varying size, products can be distinguished but are similar enough to be replacements, variables barriers to entry but market open to all, firms that excel in one or more aspects can gain some control over pricing, buyers' choices are extensive)
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oligopoly
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a market situation in which a very small number of suppliers, sometimes only two, provide a particular good or service (small number of suppliers, even as few as just two, products can be distinguished in important ways, but replacements are still available, barriers to entry tend to be high, making entering the market difficult, individual firms can have considerable control over pricing, buyers' choices are limited)
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economic expansion
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the economy is growing and consumers are spending their money, which stimulates higher employment and wages, which then stimulate more consumer purchases
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economic contraction
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spending declines, employment drops, and teh economy as a whole slows down
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recession
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a period during which national incomes, employment, and production all fall; defined as at least six months of decline in the GDP
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depression
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deep and prolonged recession generally considered to involve catastrophic collapse of financial markets
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unemployment rate
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the portion of the labor force currently without a job
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labor force
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consists of people aged 16 or older who are either working or looking for a job
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frictional unemployment
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the "natural" flow of workers into and out of jobs, such as when a person leaves one job without first lining up a new job, always some level in the economy
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structural unemployment
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a mismatch between workers' skills and current employer needs, workers can't find jobs that match their qualifications, and employers can't find employees with the skills their job openings require, a never-ending concern as changes in the external environments of business make some skills obsolete and create demand for new skills
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cyclical unemployment
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caused by economic fluctuations, when demand for goods and services drops, businesses reduce production, thereby requiring fewer workers, an increasing number of people who want to work can't find jobs
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seasonal unemployment
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predictable increases and decreases in the need for workers in industries with seasonal fluctuations in customer demand, common in agriculture, leisure and entertainment, retailing, and accounting services
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inflation
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an economic condition in which prices rise steadily throughout the economy
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deflation
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an economic condition in which prices fall steadily throughout the economy
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purchasing power
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the amount of a good or service you can buy for a given amount of money
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regulation
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relying more on laws and policies than on market forces to govern economic activity
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deregulation
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removing regulations to allow the market to prevent excesses and correct itself over time
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antitrust laws
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limit what businesses can and cannot do to ensure that all competitors have an equal chance of succeeding
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trusts
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huge companies controlled enough of the supply and distribution in their respective industries to muscle smaller competitors out of the way
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economic development zones
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zones that typically offer a variety of financial incentives such as tax credits, low-interest loans, and reduced utility rates to businesses that meet specific job creation and local investment criteria (governments encourage businesses to locate or expand in particular geographic areas)
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monetary policy
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government policy and action taken by the Federal Reserve Board to regulate the nation's money supply
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money supply
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the amount of "spendable" money in the economy at a given time, by increasing or decreasing interest rates
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fiscal policy
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use of government revenue collection and spending to influence the business cycle
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economic indicators
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statistics that measure the performance of the economy
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leading indicators
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suggest changes that may happen to the economy in the future and are therefore valuable for planning
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lagging indicators
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provide confirmation that something has occurred in the past
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consumer price index (CPI)
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a monthly statistic that measures changes in the prices of a representative collective of consumers goods and services
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producer price index (PPI)
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a statistical measure of price trends at the producer and wholesaler levels
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gross domestic product (GDP)
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basis measure of the country's economic output; the value of all the final goods and services produced by businesses located within a nation's borders; excludes outputs from overseas operations of domestic companies (where)
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gross national product (GNP)
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excludes the value of production from foreign-owned businesses within a nation's boundaries and includes receipts from the overseas operations of domestic companies (who)
