Intro to finance: Study guide 2 – Flashcards
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Market
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Any place or method used by buyers and sellers to exchange goods and services
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free market
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Exists when consumers and businesses buy and sell products with a minimum of governments restrictions
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Scarcity
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The condition in which human wants are forever greater than the available supply of time, goods, and resources
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Resources
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The basic categories of inputs used to produce goods and services
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Land
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Any natural resource provided by nature and used in the production process
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Labor
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The mental and physical capacity of workers to produce goods and services
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Entrepreneurial Resources
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Meets the changing wants and needs of people
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Capital
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Human-made goods that are used to produce other goods and services
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Economics
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Study of how society chooses to use its scarce resources for the production of goods and services to satisfy unlimited wants
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Macroeconomics
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The branch of economics that studies decision making for the economy as a whole, rather than individual parts
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Microeconomics
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The branch of economics that studies decision making by individuals, families, or businesses
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Principle 1
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The Right to Own Private Property
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Principle 2
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The Profit Motive
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Principle 3
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Competition
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Principle 4
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Consumer Sovereignty
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Principle 5
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Freedom is Choice
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Economic Goals and Free Markets
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Different societies choose different goals for their economies
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Economic Freedom
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Government intervention is minimal
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Economic Efficiency
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Producing the most goods and services from limited resources
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Economic Security
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Protection against economic hardships
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Economic Equity
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Each society must decide the best way to divide its economic pie
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Full Employment and Stable Prices
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Another important goal is for everyone who wants a job to have one
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Economic Growth
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An economy must grow for its citizens to improve their standard of living
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Three economic questions
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What products will be produced? How will the products be produced? For whom will the products be produced?
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Economic System
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The methods used to answer the What, How, and For Whom questions
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Traditional Economy
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A system in which economic decisions are based on a society's values, culture, and customs
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Market Economy (Capitalism)
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A system in which privately owned businesses operate and compete for profits with limited government regulation or interference
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Command Economy
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A system in which a central authority, usually the government, controls economic activities
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Socialism
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An economic system based on government ownership of resources and centralized decision making
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Communism
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A classless economic system in which all resources are owned by the workers
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Mixed Economy
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A system that answers the What, How, and For Whom questions through a mixture of traditional, command, and market systems
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Demand
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The relationship between the price and the quantity demanded for a good or service, when other variables are held constant
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Law of Demand
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A law that states there is an inverse relationship between the price of a good or service and the quantity buyers purchase
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Demand Schedule
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A table that lists the quantity of a good or service consumers purchase at various possible prices
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Demand Curve
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Formed by the line connecting points that represent possible combinations of price and quantity purchased by consumers
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Supply
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The relationship between the price and quantity supplied for a good or service, when other variables are held constant
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Law of Supply
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A law that states that there is a direct relationship between the price of a good and the quantity sellers offer for sale
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Supply Schedule
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A table that lists the quantity of a good or service sellers offer for sale at possible prices
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Supply Curve
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Formed by the line connecting possible price and quantity supplied responses of sellers
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Surplus
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Occurs at any price at which the quantity supplied is greater than the quantity demanded
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Shortage
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occurs at any price at which the quantity demanded is greater than the quantity supplied
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Equilibrium price
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Occurs at a price which quantity demanded and the quantity supplied are equal
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prosperity
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Peak of economic activity
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Recession
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Economic activity slows down
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Depression
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A deep recession that affects the entire economy and lasts for several years
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The Great Depression
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October 29, 1929 "Black Tuesday" - stock market crashes - the start of the Great Depression
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Recovery
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Rise in business activity after a recession or depression
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Gross Domestic Product (GDP)
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Market value of all final goods and services produced annually in a country
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GDP Calculator
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GDP = C + I + G + (X - M) C - spending by households (durable goods, nondurable goods, services) I - spending by businesses (capital assets that are expected to earn profits in the future) G - spending by all levels of government (defense, schools, highways, bridges, government buildings) (X - M) - net spending for foreign trade X = Exports (good produced in one country and sold to another country) M = Imports (good produced in country and purchased by another country)
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GDP per Capita
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Market value of final goods and services produced per person
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Unemployment Rate
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The percentage of the civilian labor force that is actively seeking work but is not employed
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Frictional
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temporary unemployment that affects people who are between jobs or finding initial employment
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Seasonal
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Caused by changes in the seasons
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Structural
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caused when the skills of workers do not match the skills required for existing jobs
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Cyclical
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caused by the lack of jobs during a recession
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Underemployment
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People who work at jobs below their skill levels, or work part-time when they want to work full-time
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Inflation
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The increase in general price level for goods and services
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Deflation
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General decrease in the cost of goods and services
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National Debt
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Total amount of money a government owes
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Budget Deficit
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When the government spends more on programs than it collects in taxes
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Budget Surplus
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When government's revenue exceeds its expenditure
