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Economics

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study of how people and societies use limited resources to satisfy unlimited wants; the management of scarcity and choice

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Positive Economics

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An approach to economics that seeks to understand behavior and the operation of systems without making judgments. It describes what exists and how it works.

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Scarcity

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A situation in which unlimited wants exceed the limited resources available to fulfill those wants

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Cost-Benefit Analysis

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A decision-making technique that involves weighing the costs of a giving action against the benefits of that action.

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Economy

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A system for producing and distributing goods, and services to fulfill people's wants

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Normative Economics

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An approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe courses of action. Also called policy economics.

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Tradeoff

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Process of giving up something for gaining something else

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Incentive

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A positive or negative environmental stimulus that motivates behavior.

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Factors of Production

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Land, labor, and capital; the three groups of resources that are used to make all goods and services

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Opportunity Cost

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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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Goods

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Items purchased to satisfy needs and wants

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Entrepreneurship

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Accepting the risk of starting and running a business.

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Production Possibilities frontier

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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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Services

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Activities performed by people, firms or government agencies to satisfy economic wants.

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Productivity

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the ratio of the quantity and quality of units produced to the labor per unit of time

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Capital

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An economic system based on private ownership of capital

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Free Enterprise System

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An economic system in which individuals depend on supply and demand and the profit margin to determine what to produce, how to produce, how much to produce, and for whom to produce. The quest for improvement financially and materially motivates consumers and producers.

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Factor Payment

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the income people receive for supplying factors of production, such as land, labor, or capital

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Market Economy

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An economy in which the decisions of households and firms interacting in markets allocate economic resources.

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Economic System

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the system of production and distribution and consumption

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Command Economy

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An economic system in which the government controls a country's economy.

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Mixed Economy

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An economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion.

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Economic Equity

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the attempt to balance an economic policy so that everyone benefits fairly

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Traditional Economy

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An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.

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Comparative Advantage

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The ability of a country to produce a good at a lower cost than another country can.

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Money

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Assets that people are generally willing to accept in exchange for goods and services or for payment of debts.

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Specialization

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Development of skills in a specific kind of work

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Economic Interdependence

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a reliance on others, as they rely on you, to provide goods and services to be consumed

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Absolute Advantage

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The ability to produce a good using fewer inputs than another producer

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Barter

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Exchange goods without involving money.

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Voluntary Exchange

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the act of buyers and sellers freely and willingly engaging in market transactions

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Division of Labor

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Division of work into a number of separate tasks to be performed by different workers

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Demand

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Consumer willingness and ability to buy products

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Law of Demand

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consumers buy more of a good when its price decreases and less when its price increases

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Substitute Good

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Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.

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Supply

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A stock of a resource from which a person or place can be provided with the necessary amount of that resource.

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Complementary Good

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Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely).

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Law of Supply

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As the price increases producers produce more

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Revenue

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An increase in owner's equity resulting from the operation of a business

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Elasticity

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A measure of how much one economic variable responds to changes in another economic variable.

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Black Market

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an illegal market in which goods or currencies are bought and sold in violation of rationing or controls

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Equilibrium Price

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the price that balances quantity supplied and quantity demanded

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Price Controls

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Government regulation of prices by establishing maximum price levels for goods or services, as during a period of inflation.

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Price Floor

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A legal minimum on the price at which a good can be sold

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Market Equilibrium

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Occurs in a market when all buyers and sellers are satisfied with their respective quantities at the market price

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Price Ceiling

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A legal maximum on the price at which a good can be sold

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Rationing

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A limited portion or allowance of food or goods; limitation of use

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Equilibrium Quantity

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The quantity supplied and the quantity demanded at the equilibrium price

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Public Goods

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Goods and services that government supplies to its citizens that can be used by many people at one time.

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Externality

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An economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume

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Market Structures

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The nature and degree of competition among firms operating in the same industry

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Perfect Competition

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A market structure in which a large number of firms all produce the same product

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Monopoly

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A market in which there are many buyers but only one seller.

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Oligopoly

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A market in which control over the supply of a commodity is in the hands of a small number of producers and each one can influence prices and affect competitors

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Monopolistic Competition

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a market structure in which many companies sell products that are similar but not identical

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Market Failure

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A situation in which a market left on its own fails to allocate resources efficiently

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Bank

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Insolvent

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Assets

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Economic resources (things of value) owned by a firm.

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Credit Card

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a card (usually plastic) that assures a seller that the person using it has a satisfactory credit rating and that the issuer will see to it that the seller receives payment for the merchandise delivered

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Debit Card

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a card (usually plastic) that enables the holder to withdraw money or to have the cost of purchases charged directly to the holder's bank account

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Diversification

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A strategy for company growth through starting up or acquiring businesses outside the company's current products and markets

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Saving

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Disposable income not spent for consumer goods.

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Interest

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A sum paid or charged for the use of money or for borrowing money

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Principal

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The amount of money borrowed

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Investing

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The act of committing money or capital to an endeavor (a business, project, real estate, etc.) with the expectation of obtaining an additional income or profit.

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Nonprofit Organization

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Institution that functions much like a business, but does not operate for the purpose of generating profits

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Liability

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An amount owed by a business

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Cooperative

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A business organization owned and operated by a group of individuals for their mutual benefit

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Sole Proprietorship

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A business owned and managed by a single individual

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Partnership

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A business in which two or more persons combine their assets and skills

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Multinational Corporation

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An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management

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Corporation

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A business owned by stockholders who share in its profits but are not personally responsible for its debts

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Business Franchise

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a semi-independent business that pays fees to a parent company in return for the exclusive right to sell a certain product or service in a given area

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Offshoring

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Moving operations from the country where a company is headquartered to a country where pay rates are lower but the necessary skills are available.

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Fringe Benefits

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Any financial extras beyond the regular pay check, such as health insurance, life insurance, paid vacation and/or retirement

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Wage Gap

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the difference between the amount paid to different groups of people for their work

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Collective Bargaining

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Process by which a union representing a group of workers negotiates with management for a contract

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Labor Force

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All nonmilitary people who are employed or unemployed

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Equilibrium Wage

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the wage rate that produces neither an excess supply of workers nor an excess demand for workers in the labor market

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Affirmative Action

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A policy in educational admissions or job hiring that gives special attention or compensatory treatment to traditionally disadvantaged groups in an effort to overcome present effects of past discrimination.

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Right To Work Law

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legislation that gives workers the right, under an open shop, to join or not join a union if it is present

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Eminent Domain

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Allows the govt to take property for public use but also requires the govt to provide just compensation for that property

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Merger

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A corporate restructuring that occurs when two formerly independent business entities combine to form a new organization.

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Regulation

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A rule or directive made and maintained by an authority.

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Government Failure

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Government intervention that fails to improve economic outcomes

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Regulatory Agency

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Executive agency responsible for enforcing laws pertaining to a certain industry, the agency writes guidelines for the industry, such as safety codes, and enforces them through methods such as inspection

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Deregulation

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The lifting of restrictions on business, industry, and professional activities for which government rules had been established and that bureaucracies had been created to administer.

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Common Resource

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Goods that are rival in consumption but not excludable

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Poverty Rate

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the percentage of people who live in households with income below the official poverty line

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Tax Rate

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The rate, normally stated in units of $100, multiplied by the assessed value of property to determine the amount of the property tax due.

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Regressive Tax

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A tax whereby people with lower incomes pay a higher fraction of their income than people with higher incomes.

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Tax Equity

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balance and fairness across the tax system

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Tax Incidence

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The manner in which the burden of a tax is shared among participants in a market

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Tax Code

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The official body of tax laws and regulations.

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Progressive Tax

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A tax for which the percentage of income paid in taxes increases as income increases

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Deadweight Loss

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The fall in total surplus that results from a market distortion, such as a tax

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Proportional Tax

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A tax in which the average tax rate is the same at all income levels.

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Inflation

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A continuous rise in the price of goods and services

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Recession

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A period of declining real GDP, accompanied by lower real income and higher unemployment.

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Unemployment Rate

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Number of civilians at least 16 years who have been trying to find a job within the prior four weeks.

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Economic Indicators

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Statistics that provide information about the performance of the economy and its position in the business cycle.

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Business Cycle

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Fluctuations in economic activity, such as employment and production

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Inflation Rate

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the percentage change in the price index from the preceding period

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Gross Domestic Product

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The dollar amount of all final goods and services produced within a country's borders in a year.

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Consumer Price Index

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an index of the cost of all goods and services to a typical consumer

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Tight-Money Policy

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reduces the growth of the money supply, thus slowing economic growth

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Multiplier Effect

answer

An effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent.

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Stagflation

answer

a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)

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Deficit Spending

answer

Government practice of spending more than it takes in from taxes

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Fiscal Policy

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A government policy for dealing with the budget (especially with taxation and borrowing)

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Monetary Policy

answer

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

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Easy Money Policy

answer

monetary policy resulting in lower interest rates and greater access to credit; associated with an expansion of the money supply

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Crowding-Out Effect

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the offset in aggregate demand that results when expansionary fiscal policy raises the interest rate and thereby reduces investment spending

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Imports

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Goods and services bought domestically but produced in other countries

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Exports

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Goods and services that are produced domestically and sold abroad

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Global Economy

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An economy in which the production distribution and sale of goods take place on a world wide scale

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Protective Tariff

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A tax on imported goods that raises the price of imports so people will buy domestic goods

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Free Trade

answer

An economic theory or policy of the absence of restrictions or tariffs on goods imported into a country. There is no "protection" in the form of tariffs against foreign competition.

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Protectionism

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A government's establishment of economic policies that restrict imports to protect domestic industries.

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Balance of Trade

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the difference in value over a period of time of a country's imports and exports of merchandise

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Foreign Exchange

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The market in which the currencies of different countries are bought and sold.

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