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Economics EOC vocabulary review

Terms in this set (263)

Scarcity
unlimited wants and needs but limited resources, must be desirable
Needs
our essentials, necessities: food, clothing, shelter
Wants
things we would like to have, desire
Opportunity cost
cost of the next best alternative use of money, time or resources when one choice is made rather than another
Trade-off
an alternative choice you face when you make an economic decision
Factors of production
productive resources required to produce things: land, labor, capital, and entrepreneurship
Land
natural resources
Labor
people with all their abilities and efforts, physical workers
Capital
tools, equipment, factories used in the production of goods and services
Entrepreneurship
mental labor, risk taker in search of profits, do new things with existing resources
Cost-benefit analysis
way of thinking that compares the cost of an action to its benefits
Voluntary exchange
act of buyers and sellers freely and willingly engaging in market transactions, characteristics of capitalism and free enterprise
Marginal benefit
added good or profit
Marginal cost
extra cost of producing one additional unit of production, added expense
Economics
the study of how people try to satisfy what appears to be seemingly unlimited and competing wants through the careful use of relatively scarce resources
Competition
the struggle among sellers to attract consumers while lowering costs
Market
meeting place or mechanism allowing buyers and sellers of an economic product to come together may be local regional national or global
Market Economic System/Capitalism/Free enterprise
economic system in which supply, demand, and the price system help people make decisions and allocate resources
Command economic system/communism
economic system characterized by a central authority that makes most of the major economic decisions
Traditional economic system
economic system in which the allocation of scarce resources and other economic activity is the result of ritual, habit, or custom
Microeconomics
individual units, businesses
Macroeconomics
larger problems, government, national, global
Adam Smith/ Wealth of Nations
Wealth of Nations was a book he wrote, believed government should not interfere with business- laissez-faire, believed in the invisible hand theory
Laissez-faire
government should not interfere with businesses
Invisible hand
people were motivated by self interest
Public ownership
the government owns the means of production
Private ownership
people or entrepreneurs own the means of production
Karl Marx/ Das Kapital
Marx wrote Das Kapital in which he laid out his communist ideas and his idea of class struggle
Class struggle
an idea Marx laid out in his works, that in every age one class fights against the other: the rich and the poor, the oppressor and the oppressed
Proletariat
people who must work for others because they have no means of production on their own
Bourgeoise
capitalists or people who own the means of production
Nationalization
the process of transforming private assets into public assets by bringing them under the public ownership of the national government, government takes over
Specialization
assignment of tasks so that each worker performs fewer functions more frequently, same as division of labor, a country should concentrate its production on what it can do best and trade for the rest
Three basic fundamental economic questions
What to produce? How to produce? For Whom to produce?
Product Market
markets where producers sell their goods and services to consumers
Resource Market
market where businesses purchase resources to produce goods and services, exchange of labor, capital, land
Profit motive
the driving force that encourages people and organizations to improve their material well-being
Consumer sovereignty
the role of the consumer as sovereign or ruler of the market
Standard of living
the quality of life based on the possession of the necessities and luxuries that make life easier
Seven Economic Goals of the US
economic freedom, economic efficiency, economic equity, economic security, full employment, price stability, and economic growth
Proxy
mail in ballot that gives a stockholder's representative the right to vote on corporative matters
Partnership
a business jointly owned by two or more people
Contract
written or verbal agreement between partners binding by law
Corporation
form of business organization recognized by law as a separate legal entity having all the rights of an individual, legal entity created by law
Legal entity
a company or organization that has legal rights and responsibilities
Sole proprietorship
a business owned and run by one person
Charter
a government document that gives permission to create a corporation
Non-profit corporation
operates in a businesslike way to promote the collective interests of its members rather than to seek financial gain for its owners, like the red cross
Cooperative
a voluntary association of people formed to carry on some kind of economic activity that will benefit its members, like a farmers market
Liability
debts and obligations owed to others
Assets
properties, possessions and claims on others
Stockholders
investors who buy stock, ownership in company
Stock
ownership certificates in the firm
Bondholders
a person owning a bond or bonds issued by a government or a public company
Default
the act of not repaying borrowed money, can be repossessed
3 functions of securities exchange commission SEC
regulate exchange, approve new issues of stock, license brokers
Yield
income return on an investment, how much you make
Maturity
life of a bond or length of time funds are borrowed
Preferred stock
nonvoting ownership shares of the corporation
Natural monopoly
a market situation where the costs of production are minimized by having a single firm produce the product, it's cheaper or safer, telephone poles heating etc
Technological monopoly
a monopoly that is based on ownership or control of a manufacturing method, process, or other scientific advance, have patent or copyright
Geographic monopoly
a monopoly based on the absence of other sellers in a certain geographic area, only gas station on an island
Oligopoly
market structure in which a few very large sellers dominate the industry
Monopolistic competition
market structure that has all the conditions of perfect competition except for identical products
Perfect competition
larger numbers of well informed independent buyers and sellers who exchange identical products
Vertical integration
when firms involved in different steps of manufacturing or marketing join together
Horizontal integration
two or more firms that produce the same kind of product join together
Franchise
an authorization granted by a government or company to carry out specific activities
Conglomerate
firm that has at least four businesses, each making unrelated products, none of which is responsible for a majority of its sales
Multinational
a corporation that has manufacturing or service operations in a number of different countries
Bond
IOU paid interest, paid before stock holders
Board of directors
makes long term decisions, elected by stockholders
Collateral
something of value to secure or back up a loan
Secured loan
has something up as collateral, will have lower interest
Unsecured loan
does not have something up as collateral, will have higher interest
Principal
amount of loan
Equity
money paid back in
Dividend
interest paid to stock holders
Mutual fund
pool of stocks so you can diversify
Dow Jones Index
30 companies, snapshot of how stock market is doing
Diversification
own different stock, "don't put all eggs in one basket"
Revenue
money coming in
Portfolio
list of my investments/stock
Bull market
stock prices high and rising, best time to sell
Bear market
stock prices low and falling, best time to buy
Capital gain
difference between low and high stock prices, bull and bear markets
Round lot
set of 100 usual way to buy stock
Unlimited liability
for sole proprietors and partnerships personally responsible for debts
Double taxation
corporations are taxed like a person
Artificial being
corporation, created by law, own property can sue and be sued
Commercial paper
unsecured short term business IOU
Demand
a want or need for a good or service at a certain price at a certain time
Demand schedule
shows the quantity consumers are willing to buy at a series of prices
Law of demand
when price goes up, demand goes down
when price goes down, demand goes up
relationship is direct
Quantity demanded/supplied
result of a change in price
Consumer tastes and preferences, buyers income, # of buyers, price of related goods or services, changes in prices only
Things that cause shifts in the demand curve
Complimentary goods
goods in which the use of one increase the use of the other, hot dogs and hot dog buns
Substitute goods
goods that can be used in place of another, coke and pepsi
Elastic demand
demand changes with price
Inelastic demand
demand does not change with price
whether a purchase can be delayed, whether a purchase uses a large portion of income, whether it has substitutes available
Factors that influence demand elasticity
Total receipts test/ total revenues test
measures elasticity
Diminishing marginal unity
decreasing satisfaction or usefulness as additional units of a product are acquired
Supply
the amount or quantity a producer is willing to offer for sale at a certain price and time
supply schedule
shows the quantity producers are willing to supply at a series of prices
Law of supply
when price goes up, quantity goes up
when price goes down, quantity goes down
relationship is direct
Number of sellers, state of technology, cost of resources, government regulation, change in price only
things that cause shifts in the supply curve
whether a firm can adjust to new prices quickly or not
factor that determines supply elasticity
Surplus
situation where quantity supplied is greater than quantity demanded
Shortage
situation where quantity supplied is less than quantity demanded
Cartel
group of sellers or producers acting together to set prices, OPEC, illegal in the US
Three stages of production
increasing returns, diminishing returns, negative returns
Fixed costs
payments that do not change with output, ex.rent, phone bill
Variable costs
payments that change with output, ex pizza boxes, ingredients
Aggregate demand
the total quantity of goods and services demanded at different price levels
Aggregate supply
the total value of goods and services that all firms would produce in a specific period of time at various price levels
GNP
value of all goods and services made by US companies anywhere in the world
GDP
value of all goods and services produced in a country in a year, within the borders
Real GDP
GDP after adjustments for inflation
Nominal GDP
now, in current dollars, includes inflation
Durable goods
goods that last longer than one year, lead indicators
Balance of trade
Exports-Imports= X want to export more than import to make profit
Stagflation
combination of stagnant economic growth and inflation
Business cycle
systematic changes in real GDP marked by alternating period of expansion and contraction
Productivity
degree to which productive resources are used efficiently
Deflation
decrease in price level, value of dollar goes up
Purchasing power
what your dollar can buy, value of dollar
low in inflation, high in deflation
Price index
PPI and CPI, measures inflation
Debtors
Who does inflation help
Creditors
Who does inflation hurt
COLA Cost of Living Adjustment
when you get a yearly pay raise that matches inflation
BLS Bureau of Labor Statistics
calculates unemployment data for the US economy
Frictional unemployment
temporarily in-between jobs for one reason or another, maturity, graduate
Seasonal unemployment
unemployment because of changes in season, haunted houses, santa, tree lots
Cyclical unemployment
unemployed due to changes in business cycle
Structural unemployment
unemployed due to mismatch between job skills and jobs available
Inflation
increase in price level, decrease purchasing power, decrease value of dollar, dollar not worth as much, rise in general level of prices
Lead indicators
at the beginning of new phase of business cycle, ex housing durable goods
Lag indicators
at the end of the phase of the business cycle, signals end
Natural disasters, consumer expectations, government involvement, war
things that cause changes in the business cycle
pollution, loss of green space, overcrowding
Environmental costs of economic growth
National debt
added up, cumulative of all deficits
National deficits
negative balance that year
Peak, recession, trough, recovery
Four phase of the business cycle
Interest rate
return on capital
Net worth
Assets-liabilities= ?
Specie
money in the form of gold or silver coins, specific type of money
Commodity money
money that has an alternative use as a commodity, gunpowder, flour, corn
Fiat money
money by government decree
Commercial bank
depository institution that, until the mid 1990s had the exclusive right to offer checking accounts
State bank
bank that receives it's charter from the state in which it operates
National bank
commercial bank chartered by the National banking system, member of the Fed
Asset
properties, possessions and claims on others
Representative money
Our money, stands for value/worth, but is not backed by anything
Balance sheet
condensed statement showing assets, liabilities, and net worth of an economic unit
Liquidity
potential for being readily convertible into cash
Demand deposits
another name for checking accounts
Federal reserve system
privately owned, publicly controlled, central bank of the United States
Monetary policy
actions by the Fed to expand or contract the money supply by changing the reserve requirement, discount rate, and open market operations
Fiscal policy
actions by the government to fight inflation through spending and taxation
Treasury bill
short term US government obligation with a maturity of one year or under in denominations of 1000
Commercial Paper
Short term, unsecured, business IOU; can buy for 6 days
Prime Rate
Best or lowest interest rate commercial banks charge their customers
Tight Money
= contractionary policies
want money supply to decrease
increase RR
increase DR
sell omo
Loose Money Policy
= expansionary policies
want money supply to increase
decrease RR
decrease DR
buy omo
Certificates of Deposits
receipts showing that an investor has made an interest-bearing loan to a financial institution
Barter
exchange of one good or service for another
Wampum
form of a dollar used by Natives used in Massachusetts in the 1840's pesos-spanish made with silver bullion
Money
anything that serves as a medium of exchange, a measure of value, and a store of value
Federal Deposit insurance corporation (FDIC)
insures all money in every bank in USA
Federal Savings and Loan Insurance Corporation (FSLIC)
federal gov agency that insures savings and loan deposits
Federal Advisory Council
Consist of representatives from each of the 12 district banks provides advise to federal reserve on the economy
Board of Governors
Members approved by Senate, one of the two parts of the Fed
Federal Reserve Act (1913)
Set up current banking system "the fed"
Gold Standard
monetary standard under which a country's currency is equivalent to, and can be exchanged for, a specified amount of gold
FED Charimen
Janet Yellin, Ben Berniecke, Alan Greenspan, Paul Volker
1. Provide financial advice and assistance-regulating the banking industry
2. Works as a bank for banks
3. Works as a bank for USA
4. Manage the nation's money supply
4 Roles of the FED
1. Make use of check clearing services
2. obtain financial advice and assistance (FDIC)
3. vote on 7 member board of governors
4. make use of overnight borrowing
5. share dividends
5 Privileges of Member Banks
M1= coins, currency, demand deposits(checking accounts, travelers checks) narrowest/smallest measure
M2= M1 + "near money" (easily liquidated kinds of savings)
M3=M2 + certificates of deposit, long term savings
3 ways the FED measures the money supply
Medium of exchange= used as a go between instead of barter
Measure of value= states the value of something in terms everyone can understand
Store of value= save it for future purchases
3 functions of money
Reserve requirement, discount rate, and open market operations
The 3 ways the Fed controls the money supply (monetary policy)
Reserve requirement
percent of deposits banks must keep on hand
Discount rate
intrest Fed charges members before overnight borrowing
Open market operations
either buy or sell, most direct way Fed controls money supply
portable, durable, acceptable, divisible, and stable in value
5 characteristics of money
Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St Louis, Minneapolis, Kansas City, Dallas, and San Francisco
12 federal reserve district banks in order: Bad News Pair Can Really Aggravate Children Sleeping Meanwhile Kids Don't Study
simple interest
calculated only on the original amount of the loan
compound interest
calculated on original and accumulative interest of previous periods, on principal amount
raise revenue
the purpose of taxation
Federal, state, and local
3 levels of government taxation
federal income tax
main source of revenues on federal level
sales and income taxes
main source of revenues on the state level
property tax
main source of revenues on the local level
April 15th
due date for filing calendar year returns
progressive, regressive, and proportional
3 types of tax rates
progressive tax
tax rate that hits rich harder than poor, percent of tax rate increases as wage increases, collects the most money
regressive tax
tax rate that hits the poor harder than the rich, percent of tax rate increases as wage decreases, everyone pays the same dollar amount
proportional tax
tax rate that remains the same regardless of income (rate is constant but amount paid will vary)
IRS
world's largest forms collecting organization
excise tax
additional tax levied by government on specific goods- cigarettes, gasoline
Deficit spending
government spending more than they have, debt
Ability to pay
the idea that those who have the ability to pay should pay
Benefits received
the idea that those who uses the service, who benefits from it should pay
balance of trade
exports-imports=?
Imports
goods and services that a country buys, brings in
Exports
goods and services that a country sends to other nations
Trade deficit
more imports than exports leads to
Trade surplus
more exports than imports leads to
Comparative advantage
can make it "cheaper" more efficient, lower opportunity costs
Absolute advantage
can outproduce the other guy/ country
Exchange rate
used to facilitate international trade, can be floating or fixed
Currency
paper component of the money supply
possession of special resources, economic advantages, politics
3 reasons to trade
Protectionism
belief in using a protective tariff, buy American
Free trade
trading freely without taxes or restrictions or trade barriers
Economic unions
countries group together for mutual benefit
tariff, quotas, embargos
3 trade barriers
quota
limit on the amount of a good that can be allowed into a country
tariff
tax on an imported good
embargos
cut off trade imports and exports to a specific country, most commonly for political reasons or health- example pig flu in England, Cuban cigars
specific duties
tariff levied at a rate per unit per pound, fixed
Compound duties
combination(both ad valor and specific duties)
Ad valor duties
tariff based on a products value
NAFTA
agreement signed to reduce tariffs between the US, Canada, and Mexico
Most favored nation status
trade agreement with a country where you never give another country a better deal, if you do you must give it to this nation also
Strong dollar
value of dollar is up higher than other countries' currencies, can buy more with it
Weak dollar
value of dollar is down lower than other countries' currencies, can buy less with it
Single market
countries band together for economics
Imports, and also hours gained, time
what are the gains of trade
Exports
what are payments of trade
Infant industries
new companies just starting out
checking accounts
an account at a bank against which checks can be drawn by account depositor
US tourists to other countries, and imports from other countries to the US
strong US dollar helps who?
US exports
strong US dollar hurts who?
Tourists traveling to the US and US exports
weak US dollar helps who?
imports from other countries to the US, US citizens traveling abroad
weak US dollar hurts who?
savings accounts
interest bearing deposit account not requiring prior notice before making a withdrawal
lender
an organization or person that lends money
borrower
person or business that obtains funds from another for a specified period of time
debit card
card issued by a bank allowing the holder to transfer money electronically to another bank account when making a purchase, can withdraw money from an ATM
credit card
cards that may be issued to those who apply and meet the credit requirements, pay for things and receive a monthly bill
money order
a printed order for payment of a specified sum issued by a bank
wire transfer
electronic funds transfer from one person or entity to another
ATM
automated teller machine, can get cash out anytime with your debit card
bank loans
most common form of loan for a business, sets fixed period over which loan is provided
cashier's check
a check that is guaranteed by a bank and drawn on the bank's own funds not anyone's personal funds
smart card
a plastic card with a built in microprocessor used for electronic transactions
APR
annual percentage rate, monthly interest rate charged to you for the loan converted to a %
budget
an estimate or plan of income and expenditures for a set period of time
income
money received especially on a regular basis for work or through investments
expenses
the cost required for something, money spent on something
Rule of 72
a shortcut to estimate the number of years required to double your money at a given annual rate of return 72/interest rate
20-10 Rule
a rule to help understand how much credit you can afford, avoid borrowing more than 20% of your annual net income and avoid loans whose payment exceed 10%
risk
a situation in which the outcome is not certain, a chance
bankruptcy
court granted permission to an individual or business to cease or delay payment of some or all debts for an amount of time, have no money
foreclosure
the process of taking possession of a mortgaged property as a result of the mortgagor's failure to keep up mortgage payments
return
a profit from an investment
insurance
provides financial protection against different kinds of risks we face in life
insurance policy
written agreement between you and your insurance company explaining what the company will cover and how much you will pay them in return
insurance premium
the amount of money you must pay per month in order to guarantee your coverage
coverage limit
the maximum amount the insurance company will pay you for your loss
deductible
amount of loss that you must pay yourself before the company will step in and pay the rest
insurance claim
a request for payment of your loses
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