Chapter 3: Economic Environment of Business

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economics
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The body of knowledge that relates to producing and using goods and services that satify human wants.
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economic wants
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The desire for scarce material goods and services.
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noneconomic wants
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Desire for non material things that are not scarce.
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utility
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The ability of a good or service to satisfy a want.
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producer
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anyone who aids in creating a utility
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factors of production
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land, labor, capital goods, and management- the four basic resources that are combined to create useful goods and services.
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natural resources
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Anything provided by nature that affects the productive ability of a country.
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labor
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The human effort, either physical or mental, that goes into the production of goods and services.
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human capital
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Accumalated knowledge and skills of
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capital goods
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Buliding tools machines and other equipment that are use to produce other goods but do not directly satisfy human wants
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capital formation
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The production of capital goods
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consumer goods and services
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Products produces for sale to individuals and families for personal use
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economic system
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An organized way for a country to decide how to use its productive resources; that is, to decide what, how, and for whom goods and services will be produced.
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market economy
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An economic system in which individual buying decisions in the market place together determine what, how, and for whom goods and services will be produced.
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command economy
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An economic system in which the method for determining what how and for whom goods and serivces are produced is decided by a central planning authority.
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mixed economy
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An economic system that uses aspects of a market and a command economy to make decisions about what, how and for whom goods and services are produced.
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privatization
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Transfer of authority to provide a good or service from a government to individuals or privately owned business.
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capitalism
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An economic-polital system in which private citizens are free to go into business for themselves, to produce, and distribute what they produce as they please.
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socialism
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An economic-political system in which the government controls and regulates the means of production.
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communism
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Forced socialism where all or almost all the productive resoursed of a nation are owned by the government
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private property
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items of value that individuals can own use and sell.
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profit
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The incentive, as well as the reward, for producing goods and services.
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demand
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The # of simialr products that will be bought at a given time at a given price.
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supply
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The # of similar products that will be offered for sale at a particular time at a particular price.
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competition
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Is the rivalry among sellers for consumers’ dollars.
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economic growth
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oocurs when a country’s ouput exceeds it population growth.
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consumer price index (CPI)
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A measure of the avg. change in prices of consumer goods and sefices typically purchased by people living in urban areas.
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recession
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A decline in the GDP that continues for 6 months or more.
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inflation
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rapid rise in prices caused by inadequate supply.
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business cycles
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A pattern of irregular but repeated expansion and contraction of the GDP
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depression
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A long severe drop in the GDP

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