Economics Vocabulary Answers – Flashcards
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Scarcity
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The resources we use to produce goods and services are limited.
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Economics
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The study of choices when there is scarcity.
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Factors of Production
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The resources used to produce goods and services; also known as production inputs or resources
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Natural Resources
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Resources provided by nature and used to produce goods and services.
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Labor
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Human effort, including both physical and mental effort, used to produce goods and services.
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Physical Capital
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The stock of equipment, machines, structures, and infrastructure that if used to produce goods and services.
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Human Capital
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The knowledge and skills acquired by a worker through education and experience and used to produce goods and services.
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Entrepreneurship
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The effort used to coordinate the factors of production--natural resources, labor, physical capital, and human capital--to produce and sell products.
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Positive Analysis
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Answers the question "What is?" or "What will be?"
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Normative Analysis
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Answers the question "What ought to be?"
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Economic Model
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A simplified representation of an economic environment, often employing a graph.
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Variable
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A measure of something that can take on different values.
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Ceteris Paribus
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The Latin expression meaning that the other variables are held fixed.
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Marginal Change
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A small, one-unit change in value.
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Macroeconomics
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The study of the nation's economy as a whole; focuses on the issues of inflation,umemployment, and economic growth.
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Microeconomics
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The study of choices made by households, firms, and government and how these choices affect the markets for goods and services.
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Positive Relationship
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A relationship in which two variables move in the same direction.
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Negative Relationship
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A relationship in which two variables move in the opposite direction.
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Slope of a Curve
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The vertical difference between the two points (the rise) divided by the horizontal difference (the run).
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Opportunity Cost
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What you sacrifice to get something.
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Production Possibilities Curve
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A curve that shows the possible combinations of products that an economy can produce, given that its productive resources are fully employed and efficiently used.
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Marginal Benefit
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The additional benefit resulting from a small increase in some activity.
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Marginal Cost
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The additional cost resulting from small increase in some activity.
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Nominal Value
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The face value of an amount of money.
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Real Value
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The value of an amount of money in terms of what it can buy.
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Comparitive Advantage
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The ability of one person or nation to produce a good at a lower opportunity cost than another person or nation.
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Absolute Advantage
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The ability of one person or nation to produce a product at a lower resource cost than another person or nation.
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Import
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A good or service produced in another country and purchased by the residents of the home country.
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Export
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A good or service produced in the home country and sold in another country.
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Market Economy
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An economy in which people specialize and exchange goods and services in markets.
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Centrally Planned Economy
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An economy in which a government bureaucracy decides how much of each product to produce, how to produce the good, and who gets the good.
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Perfectly Competitive Market
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A market with many sellers and buyers of a homogeneous product and no barriers to entry.
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Quantity Demanded
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The amount of product that consumers are willing and able to buy.
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Demand Schedule
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A table that shows the relationship between the price of a product and the quantity demanded, ceteris paribus.
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Individual Demand Curve
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A curve that shows the relationship between the price of a good and quantity demanded by an individual consumer, ceteris paribus.
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Law of Demand
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There is a negative relationship between price and quantity demanded, ceteris paribus.
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Change in Quantity Demanded
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A change in the quantity consumers are willing and able to buy when the price changes; represented graphically by the movement along the demand curve.
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Market Demand Curve
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A curve showing the relationship between price and quantity demanded by all consumers, ceteris paribus.
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Quantity Supplied
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The amount of product that firms are willing and able to sell.
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Supply Schedule
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A table that shows the relationship between the price of a product and a quantity supplied, ceteris paribus.
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Individual Supply Curve
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A curve showing the relationship between price and quantity supplied by a single firm, ceteris paribus.
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Law of Supply
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There is a positive relationship between price and quantity supplied, ceteris paribus.
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Change in Quantity Supplied
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A change in the quantity firms are willing and able to sell when the price changes; represented graphically by movement along the supply curve.
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Minimum Supply Price
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The lowest price at which a product will be supplied.
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Market Supply Curve
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A curve showing the relationship between the market price and quantity supplied by all firms, ceterid paribus.
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Market Equilibrium
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A situation in which the quantity demanded equals the quantity supplied at the prevailing market price.
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Excess Demand
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A situation in which, at the prevailing price, the quantity demanded exceeds the quantity supplied.
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Excess Supply
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A situation in which the quantity supplied exceeds the quantity demanded at the prevailing price.
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Change in Demand
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A shift of the demand curve caused by a change in a variable other than the price of the poduct.
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Normal Good
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A good for which an increase in income increases demand.
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Inferior Good
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A good for which an increase in income decreases demand.
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Substitutes
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Two goods for which an increase in the price of one good increases the demand for the other good.
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Complements
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Two goods for which a decrease in the price of one good increases the demand for the other good.
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Change in Supply
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A shift of the supply curve caused by a change in a variable other than the price of the product.
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Inflation
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Sustained increases in the prices of all goods.
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Gross Domestic Product (GDP)
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The total market value of final goods and services produced within an economy in a given year.
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Intermediate Goods
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Goods used in the production process that are not final goods and services.
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Real GDP
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A measure of GDP that controls for changes in prices.
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Nominal GDP
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The value of GDP in current dollars.
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Economic Growth
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Sustained increases in the real GDP of an economy over a long period of time.
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Consumption Expenditures
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Purchases of newly produced goods and services by households.
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Private Investment Expenditures
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Purchases of newly produced goods and services by firms.
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Gross Investment
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Total new investment expenditures.
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Depreciation
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Reduction in the value of capital goods over a one-year period due to physical wear and tear and also to obsolescence; also called capital consumption allowance.
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Net Investment
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Gross investment minus depreciation.
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Government Purchases
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Purchases of newly produces goods and services by local, state, and federal governments.
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Transfer Payments
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Payments from government to individuals that do not correspond to the production of goods and services.
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Net Exports
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Exports minus imports.
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Trade Deficit
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The excess of imports over exports.
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Trade Surplus
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The excess of exports over imports.
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National Income
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The total income earned by a nation's residents both domestically and abroad in the production of goods and services.
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Gross National Product
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GDP plus net income earned abroad.
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Personal Income
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Income, including transfer payments, received by households.
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Personal Disposable Income
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Personal income that households retain after paying income taxes.
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Value Added
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The sum of all the income--wages, interest. profits, and rent-- generated by an organization. For a firm, we can measure the value added by the dollar value of the firm's sales minus the dollar value of the goods and services purchased from other firms.
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GDP Deflator
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An index that measures how the prices of goods and services included in the GDP change over time.
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Chain-weighted Index
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A method for calculating changes in prices that uses and average of base years from neighboring years.
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Recession
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Commonly defined as six consecutive months of declining real GDP.
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Peak
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The date at which the recession starts.
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Trough
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The date at which the output stops falling in a recession.
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Expansion
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The period after a trough in a business cycle during which the economy recovers.
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Depression
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The common name for a severe recession.
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Labor Force
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The total number of workers, both the employed and the unemployed.
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Unemployment Rate
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The percentage of the labor force that is unemployed.
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Labor Force Participation Rate
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The percentage of the population over 16 years of age that is in the labor force.
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Discouraged Workers
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Worker who left the labor force because they could not find jobs.
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Seasonal Unemployment
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The component umemployment attributed to seasonal factors.
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Cyclical Unemployment
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Unemployment thar occurs during flucuations in real GDP.
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Frictional Unemployment
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Unemployment that occurs with the normal workings of the economy, such as workers taking time to search for suitable jobs and firms taking time to search for qualified workers.
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Structural Unemployment
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Umemployment that occurs when there is a mismatch of skills and jobs.
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Natural Rate of Unemployment
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The level of unemployment at which there is no cyclical unemployment. It consists of only frictional and structural umemployment.
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Full Employment
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The level of umemployment that occurs when the umemployment rate is a the natural rate.
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Unemployment Insurance
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Payments unemployed people receive from the government.
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Consumer Price Index
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A price index that measures the cost of a fixed basket of goods chosen to represent the consumption pattern of a typical consumer.
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Cost-of-living Adjustments (COLAs)
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Automatic increases in wages ot other payments that are tied to the CPI.
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Inflation Rate
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The percentage rate of change in the price level.
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Deflation
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Negative inflation or falling prices of goods and services.
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Anticipated Inflation
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Inflation that is expected.
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Unaticipated Inflation
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Inflation that is not expected.
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Menu Costs
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The costs associated with changing prices and printing new price lists when there is inflation.
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Shoe-leather Costs
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Cost of inflation that arrives from trying to reduce holdings of cash.
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Hyperinflation
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An inflation rate exceeding 50 percent per month.
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Classical Models
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Economic models that assume wages and prices adjust freely to changes in demand and supply.
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Production Function
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The relationship between the level of output of a good and the factors of production that are inputs to production.
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Stock of Capital
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The total of all machines, equipment, and buildings in an entire economy.
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Real Wage
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The wage rate paid to employees adjusted for changes in the price level.
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Full-employment Output
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The level of output that results when the labor market is in equilibrium and the economy is producing at full employment.
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Real Business Cycle Theory
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The economic theory that emphasizes how shocks to technology can cause fluctuations in economic activity.
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Crowding Out
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The reduction in investment (or other component of GDP) caused by an increase in government spending.
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Closed Economy
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An economy without international trade.
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Open Economy
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An economy with international trade.
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Crowding In
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The increase of investment (or other component of GDP) caused by a decrease in government spending.
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Capital Deepening
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Increases in the stock of capital per worker.
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Technological Progress
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More efficient ways of organizing economic affairs that allow an economy to increase output without increasing inputs.
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Real GDP Per Capita
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Gross domestic product per person adjusted for changes in prices. It is the usual measure of living standards across time and among countries.
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Growth Rate
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The percentage rate of change of a variable from one period to another.
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Rule of 70
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A rule of thumb that says output will double in 70/x years, where x is the percentage rate of growth.
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Convergence
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The process by which poorer countries close the gap with richer countries in terms of real GDP per capita.
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Saving
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Income that is not consumed.
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Growth Accounting
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A method to determine the contribution to economic growth from increased capital, labor, and technological progress.
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Creative Destruction
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The view that a firm will try to come up with new products and more efficient ways to produce products to earn monopoly profits.
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New Growth Theory
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Modern theories of growth that try to explain the origins of technological progress.
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Short Run in Macroeconomics
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The period of time in which prices do not change or do not change very much.
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Aggregate Demand Curve (AD)
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A curve that shows the relationship between the level of prices and the quantity of real GDP demanded.
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Wealth Effect
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The increase in spending that occurs because the real value of money increases when the price level falls.
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Multiplier
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The ratio of the total shift in aggregate demand to the initial shift in aggregate demand.
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Consumption Function
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The relationship between consumption spending and the level of income.
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Autonomous Consumption Spending
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The part of consumption spending that does not depend on income.
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Marginal Propensity to Consume (MPC)
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The fraction of additional income that is spent.
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Marginal Propensity to Save (MPS)
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The fraction of additional income that is saved.
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Aggregate Supply Curve (AS)
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A curve that shows the relationship between the level of prices and the quantity of output supplied.
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Long-run Aggregate Supply Curve
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A vertical aggregate supply curve that reflects the idea the in the long run, output is determined solely by the factors of production and technology.
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Short-run Aggregate Supply Curve
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A relatively flat aggregate supply curve the represents the idea that prices do not change very much in the short run and that firms adjust production to meet demand.
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Supply Shocks
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External events that shift the aggregate supply curve.
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Stagflation
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A decrease in real output with increasing prices.
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Fiscal Policy
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Changes in government taxes and spending that affect the level of GDP.
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Expansionary Policies
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Government policy actions that lead to increases in aggregate demand.
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Contractionary Policies
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Government policy actions that lead to decreases in aggregate demand.
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Stabilization Policies
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Policy actions taken to move the economy closer to full employment or potential output.
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Inside Lags
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The time it takes to formulate a policy.
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Outside Lags
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The time it takes for the policy to actually work.
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Discrectionary Spending
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The spending programs that Congress authorizes on an annual basis.
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Entitlement and Mandatory Spending
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Spending that Congress has authorized by prior law, primarily providing support for individuals.
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Social Security
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A federal government program to provide retirement support and a host of other benefits.
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Medicare
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A federal government health program for the elderly.
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Medicaid
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A federal and state government program for the poor.
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Supply-side Economics
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A school of thought that emphasizes the role that taxes play in the supply of output in the economy.
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Laffer Curve
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A relationship between the tax rates and tax revenue that illustrates that high tax rates could lead to lower tax revenues is economic activity is severely discouraged.
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Budget Deficit
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The amount by which government spending exceeds revenues in a given year.
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Budget Surplus
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The amount by which government revenues exceed government expenditures in a given year.
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Automatic Stabilizers
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Taxes and transfer payments that stabilize GDP without requiring policymakers to take explicit action.
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Permanent Income
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An estimate of a household's long-run average level of income.
