Economics EOCT Review (ALL TERMS) – Flashcards
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Economics
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The study of the allocation of scarce resources and goods
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Resources/Factors of Production
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The inputs used by a society to produce outputs. Such as: Land, Labor, Capital, and Entrepreneurs
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Physical Capital
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The factor of production that includes tools, machinery, and buildings. Ex: warehouses, computers, money
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Land
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The factor of production that includes all NATURAL RESOURCES (timber, oil, iron ore)
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Human Capital
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The factor of production that includes the knowledge, experience, and skills of workers. Can be improved with training and education.
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Scarcity
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The BASIC CONDITION that exists because of unlimited wants and limited needs.
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Opportunity Cost
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The value of the best alternative that could have been chosen but was not. The SATISFACTION missed out on.
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Specialization
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Concentrating on a single activity or area of expertise Ex: Dividing labor in an assembly line.
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(Free) Market System
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Private individuals and firms control all resources and the price and quantity of all goods are determined by the interaction of suppply and demand
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Mixed System (Capitalism)
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An economy that incorporates aspects from different economic systems
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Traditional Economy
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A type of economy in which people tend to barter goods and services and stay in their classes. The son of a farmer would be a farmer. Ex: 10th Century England, The Middle Ages
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Production Possibility Curve
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A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good.
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Microeconomics
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The study of how individuals and businesses interact within an economic system
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Firm
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Another word for businesses
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Law of Supply
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As price goes us, supply goes up. As price goes down, supply goes down.
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Causes of a right shift (increase) in supply
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Improved technology Government subsidies Favorable growing conditions
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Law of Demand
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As price goes up, demand goes down As price goes down, demand goes up
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Causes of a left shift (decrease) in demand
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Decreased population Consumer expectations of lower future prices Fads or consumer tastes changing Decreased income
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Equilibrium price (Market Clearing Price)
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The price where demand exactly equals supply.
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Substitute Good
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A good that satisfies most of the same needs as the original good. Ex: Laura Lynn or Store Brands
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Complementary Good
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Goods that tend to be used together Ex. hotdogs and hotdog buns, skis and ski boots
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Price Floor
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A minimum price, (that the gov't. sets), for which a product can be sold. Ex: minimum wage THESE CAUSE SURPLUSES
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Price Ceiling
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A maximum price, (that the gov't. sets), at which a good can be sold. Ex: rent control THESE CAUSE SHORTAGES
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Inelastic Demand
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When the demand doesn't change very much even with a high price change. These are typically needs. Ex: cancer medication
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Elastic Demand
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When the demand changes greatly even with a small price change. These are typically wants or luxuries. Ex: a yacht
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Sole Proprietorship
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A single owner who takes all the financial risks and reaps all the financial rewards. Unlimited liability!
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Partnership
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Divides up the risk and reward among a group of people. Limited Liability. Most common type is a GENERAL PARTNERSHIP.
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Corporations
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Issue STOCK to raise money. The major weakness is DOUBLE TAXATION!
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Monopoly
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Market structure with ONE producer, high barriers to entry, and no competition. They have full price control. They are illegal in the U.S. due to Ant-Trust Laws.
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Pure (perfect) Competition
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Market structure with many producers, low barriers to entry, unlimited competiton, and identical products. Ex: Vegetable Stands
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Monopolistic Competition
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Market structure with many producers, low barriers to entry, much competition, and differentiated products. Ex: Fast Food, Same type of product with different QUALITIES!
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Oligopoly
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Market structure with only a few producers, high barriers to entry, and little competition EX: Coke and Pepsi Watch out for price fixing with these!
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Natural Monopoly
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Allowed to exist because it would be inefficient / chaotic to have more than one provider. Ex: Power Company, Water Company.
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The Main Function Of Money
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Money is mainly used as a medium of exchange.
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Macroeconomics
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The STUDY of the economic issues of an entire nation GDP, Trade Deficit, Fiscal and Monetary Policies!!!
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Gross Domestic Product Formula
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Consumer Spending + Investment + Government Spending + Net Exports (Xports - Mports) :)
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Net Exports
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Exports - Imports (X - M)
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Inflation
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A rise in the price level
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Consumer Price Index
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Used to measure the monthly inflation rate of regular goods that we use everyday.
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Aggregate Demand
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Demand for ALL goods and services within a nation
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Aggregate Supply
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Supply of ALL goods ans services within a country
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The Business Cycle
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The normal ups and downs of the economy. Expansion - Peak - Contraction - Trough
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Recession
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A temporary decrease in GDP that lasts for more than two consecutive quarters
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Depression
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A steep fall in GDP (more than 10%) combined with a high unemployment rate for more than a year
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Structural Unemployment
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Occurs when you have job skills that do not match the job requirements. EX: Jobs getting shipped to other countries EX: Losing your job to a robotic arm
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Frictional Unemployment
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Unemployment that occurs while peole are looking for a job that is a good fit.
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Cyclical Unemployment
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Unemployment that rises during a downturn in the economy. The government is the MOST concerned with this type! EX: Jimmy loses his job. His auto plant closed due to a recession.
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Deficit
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When government spends more money than it takes in. We have had one every year except ONE over the last three decades.
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National Debt
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When a government operated with a deficit for many years, they build and form this. Ours is OVER 16 TRILLION!
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Federal Reserve System
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Created by Congress and acts as the nation's central bank. It controls the nation's money supply through monetary policy.
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Monetary Policy
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Refers to changes in the money supply of a nation in order to influence its economy. The Federal Reserve controls it.
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Fiscal Policy
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Government expenditures, taxes, and borrowing in order to influence an economy
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Progressive Tax
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The tax rate increases as income increases. THIS IS THE UNITED STATES FEDERAL ICOME TAX SYSTEM. (The more you make, the more you get taxed)
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Regressive Tax
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Tax rate decreases as income increases. This type of tax hurts poor people the most. EX: Sales Tax
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Proportional Tax
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A flat tax; it does not change with respect to income and is based on a flat percentage.
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Comparative Advantage in Trade
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When countries make decisions as to which goods to produce and which to trade for based on the lowest OPPORTUNITY COST. It is the reason for ALL trade!
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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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Balance of Trade
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The value of all products exported from a country minus the value of all products imported
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Balance of payments
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The value of all the money $$$ that enters and leaves the country.
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Tariff
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A tax on an imported good
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Quota
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A limit on the amount of a good that is allowed into a country. EX: Only trading a certain amount of rugs with India to protect U.S. carpet jobs.
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Embargo
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A government completely prohibits the import of an item. EX: Cuba
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Standards
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Used by governments to ensure the safety of imported goods. Ex: Recalling toys made in China with lead filled red paint.
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Subsidy
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Government payments to a supplier to reduce the production costs of the supplier and INCREASE SUPPLY! Ex: Paying farmers or gas producers to keep costs down for the consumer.
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Exchange Rate
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The measure of the price of one nation's currency in terms of another nation's currency
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Investment
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Money used with the expectation of some future return or benefit usually for RETIREMENT!!!
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Bank
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A safe means to store earnings, keep checking accounts, and get loans.
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Government Securities
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Also known as Treasury Bonds. The Federal Reserve buys and sells these with the Open Market Committee.
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Stocks
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Corporations issue these in return for partial ownership of the company, the investor gives that corporation their money to spend
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Simple Interest
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Interest is only applied to the value of the principal of the loan. Interest accrued is typically an even number. Ex: $1000 loan for one year = $75.00 interest
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Compound Interest
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Interest is applied to the value of the loan PLUS other interest! Ex: $1000 loan for one year = $115.73 interest
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NAFTA
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(North American Free Trade Agreement) Broke down the trade barriers and allowed free trade between The U.S.A., Mexico, and Canada
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Fixed Exchanged Rate
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When the value of a currency is set to the value of another currency.
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Floating Exchange Rate
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Exchange rates that are allowed to fluctuate in the open market in response to changes in supply and demand. Sometimes call free exchange rates or floating exchange rates.
