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Economics Honors Concepts
Terms in this set (123)
the study of how people seek to satisfy their needs and wants by making choices.
limited quantities of resources to meet unlimited wants, always exists.
an alternative that we sacrifice when we make a decision.
the most desirable alternative given up as the result of a decision.
Thinking at the Margin
deciding whether to do or use one additional unit of some resource.
Production Possibilities Curve
a graph that shows alternative ways to use an economy's resources.
economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services.
decisions on production and consumption of goods and services are based on voluntary exchange in markets.
Centrally Planned Economy
central governments makes all decisions on the production and consumption of goods and services.
market-based economic system with limited government involvement.
term economists use to refer to describe the self regulating nature of the marketplace.
a Scottish social philosopher who, in 1776, published a book titled The Wealth of Nations, in which he described how the market functions. Smith observed that an economy is made up of countless individual transactions. In each transaction, the buyer and seller consider only their self-interest, or their own personal gain. In other words, self-interest is the motivating force in the free-market.
the doctrine that states that government generally should not intervene in the marketplace.
an economic system characterized by private or corporate ownership of capital goods; investments that are determined by private decision rather than by state control; and determined in a free market.
John Maynard Keynes
a British economist who developed a new theory of economics to explain the Depression. Keynes presented his ideas in 1936 in a book called The General Theory of Employment, Interest, and Money. John Maynard Keynes believed that to end the Great Depression, government should spend and buy more goods and services.
Gross Domestic Product
the dollar value of all final goods and services produced within a country's border in a given year. OR the total value of all final goods and services produced in a particular economy.
Gross Domestic Product/Capita
GDP per person.
a period of macroeconomic expansion followed by a period of contraction.
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.
someone who would not pay for a good or service but who would get the benefits anyway if it were provided as a public good.
Law of Demand
consumers buy more of a good when its price decreases and less when its price increases (P^ Dv)(Pv D^).
Law of Supply
tendency of suppliers to offer more of a good at a higher price (S^ P^)(Sv Pv).
when consumers react to an increase in a good's price by consuming less of that good and more of other goods.
the change in consumption resulting from a change in real income.
a good that consumers demand more of when their income increase.
a good that consumers demand less of when their income increases.
two goods that are bought and used together.
goods used in place of one another.
describes demand that is not very sensitive to a change in price.
describes demand that is very sensitive to change in price. Elasticity - 1=unielastic, 1>inelastic, 1<elastic
a cost that does not change, no matter how much of a good is produced.
a cost that rises or falls depending on how much is produced.
Marginal Product of Labor
the change in output from hiring one additional unit of labor.
the cost of producing one more unit of good.
the cost of operating a facility, such as a store or factory.
a government payment that supports a business or market.
a maximum price that can be legally charged for a good or service.
a minimum price for a good or service.
situation in which quantity supplied is greater than the quantity demanded; also known as excess supply.
situation in which a good or service is unavailable, or a situation in which the quantity demanded is greater than the quantity supplied; also known as excess demand.
a market dominated by a single seller.
a market in which a few large firms dominate a market.
ambitious leader who combines land, labor, and capital to create and market new goods and services.
"Guns and Butter"
refers to trade-offs that nations face when choosing whether to produce more or less military or consumer goods.
any human-made resource that is used to create other goods and services.
the concentration of the productive efforts of individuals and firms on a limited number of activities.
an income level below which income is insufficient to support families or households.
a shared good or service for which it would be impractical to make consumers pay individually and to exclude non-payers.
price paid for the use of borrowed money, or money earned by deposited funds.
the point at which quantity demanded and quantity supplied are equal.
costs of production that affect people who have no control over how much of a good is produced.
the removal of some government controls over a market.
government intervention in a market that affects the production of a good.
a legal entity owned by individual stockholders.
a business owned and managed by a single individual.
combination of two or more companies into a single firm.
the right to sell a good or service within an exclusive market.
partnership (LLP) is where all the partners are limited partners. Ex: If someone sues the company, they can't go after the partners themselves.
Certificates of Deposit
(CDs) are special kids of savings accounts that pay a higher rate of interest than do savings and checking accounts.
"legal tender" money that has value because the government has ordered that it is an acceptable means to pay debts.
objects that have value in themselves and that are also used as money (ex. cattle, salt).
Moody's and Standards & Poor's
a formal contract to repay borrowed money with interest at fixed intervals.
lower-risk investments basically loans that represent debt that the government or a corporation must repay to an investor.
a steady rise in the stock market over a period of time.
a steady drop in the stock market over a period of time.
a bond issued by a state or local government or municipality to finance such improvements as highways, state buildings, libraries, parks, and schools.
a bond that a corporation issues to raise money to expand its business.
a lower-rated, potentially higher-paying bond.
a prolonged economic contraction.
a recession that is especially long and severe.
a general increase in prices.
inflation that is out of control.
the level of employment reached when there is no cyclical unemployment.
a tax on the dollar value of a good or service being sold.
Individual Income Tax
a tax on a person's earnings.
Corporate Income Tax
a tax on the value of a company's profits.
a tax on the value of a property.
Federal Insurance Contributions Act are taxes that fund Social Security and Medicare.
spending category about which government planners can make choices (defense and education) decreased in years.
spending on certain programs that is mandated, or required, by existing law (social security and medicare) increased in years.
a national health insurance program that helps pay for health care for people over age 65 or with certain disabilities.
entitlement program that benefits low-income families, some people with disabilities, and elderly people in nursing homes.
Old-age, Survivors, and Disability insurance (OASDI) largest category of federal spending.
a tax for which the percentage of income paid in taxes increases as income increases.
a tax for which the percentage of income paid in taxes decreases as income increases.
the use of government spending and revenue collection to influence the economy (used to acheive economic growth, full employment, and price stability).
the actions the Federal Reserve (Fed) takes to influence the level of real GDP and the rate of inflation in the economy.
a graph that shows the relationship between the tax rate set by government and the total tax revenue that the government collects.
fiscal policies, like higher spending and tax cuts, that encourage economic growth or increase in output.
fiscal policies, like lower spending and higher taxes, that reduce growth and decrease output.
Surplus (trade and budget)
a situation in which the government takes more than it spends (revenues exceed expenditures).
Deficit (trade and budget)
a situation in which the government spends more than it takes in (expenditures exceed revenues).
a sum of all the amount of money borrowed up to that time, minus the borrowings that have been repaid. The debt is the total of all deficits and surpluses.
rate the Federal Reserve charges for loans to commercial banks.
amount of new money that will be created with each demand deposit, calculated as 1/RRR.
(Fed) the nation's central banking system.
Current chairman of the board of governors of the U.S. Federal Reserve as of February 1, 2006.
Former chairman, for 18 years from 1987 to 2006, of the Board of Governors of the U.S. Federal Reserve.
World Trade Organization
(WTO) is a worldwide organization whose goal is to free global trade and lower tariffs and to negotiate new trade agreements and resolve trade disputes.
a cycle of increasing trade restrictions.
the ability to produce a product most efficiently given all the other products that could be produced.
the average expected life span of an individual.
the proportion of the population over age 15 that can read and write.
the ability to be used as, or directly converted, to cash.
a collection of financial assets.
spreading out of investments to reduce risk.
the total amount of goods and services in the economy available at all possible price levels (price level rises then goods and services are rising).
the amount of goods and services in the economy that will be purchased at all possible price levels.
the process by which rising wages cause higher prices, and higher prices cause higher wages.
unemployment that occurs when workers' skills do not match the jobs that are available.
taking tax payments out of an employee's pay before he or she receives it.
a government bond that can be issued for as long as 30 years.
Tight Money Policy
monetary policy that reduces the money supply interest rates go up and investment spending declines with GDP.
Board of Governors
the seven-member board that oversees the Federal Reserve System (14 year terms and can't be reappointed).
the value of a foreign nation's currency in terms of the home nation's currency.
a tax on imported goods.
goods that are sent to another country for sale.
goods that are brought in from another country for sale.
the extensive organization of an economy for the purpose of manufacture.
the services and facilities necessary for an economy to function.
Foreign Direct Investment
(FDI) is the establishment of an enterprise by a foreigner.
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