Econ Study Guide
Terms in this set (80)
the fundamental economic problem
The fundamental economic problem is that societies do not have enough productive resources to produce everything people want, aka scarcity.
condition that results from society not having enough resources to produce all the things people would like to have
the basic economic questions
What, how, and for whom to produce
production possibilities frontier
diagram representing various combinations of goods and services an economy can produce when all its resources are in use
law of supply
At a higher price, a producer is willing to produce more of a good. At a lower price the producer is less willing to produce more of a good.
A graph that shows the quantity supplied of a good or service at each possible price.
law of demand
At a higher price, a consumer is less willing to purchase a good. At a lower price, the consumer is more willing to purchase a good.
A schedule or curve that shows the total quantity of goods and services demanded (purchased) at different price levels.
The amount of goods or services a consumer is willing to buy at a given price.
The amount of goods or services a producer is willing to make at a given price.
when price or other factors have a big effect on the quantity consumers want to buy.
measure of the responsiveness of demand or supply of a good or service to changes in price.
externality (positive, negative)
the cost or benefit that affects a party who did not choose to incur that cost or benefit.
situation in which the allocation of goods and services is not efficient.
1) Inadequate competition
2) Uninformed buyers/sellers
3) Not enough resources
4) Bad prices
5) Positive and negative externalities
An effect in economics in which an increase in spending produces an increase in national income and consumption greater than the initial amount spent.
original economic system in which traditions, customs, and beliefs help shape the goods and the services the economy produces, as well as the rules and manner of their distribution. Countries that use this type of economic system are often rural and farm-based.
an economy in which production, investment, prices, and incomes are determined centrally by a government.
economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's individual citizens and businesses. There is little government intervention or central planning.
A conglomerate is a corporation that is made up of a number of different, seemingly unrelated businesses. In a conglomerate, one company owns a controlling stake in a number of smaller companies, which conduct business separately. Example: Nestle
Horizontal corporate merger
merger or business consolidation that occurs between firms that operate in the same space, as competition tends to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry.
Vertical corporate merger
merger between two companies that operate at separate stages of the production process for a specific finished product.
has facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they coordinate global management.
refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies. (irreversible trend)
the cost of the next best alternative use of money, time or resources when one choice is made over the other.
exchange of one thing to get the another. (alternative choices)
business expenses that are not dependent on the level of goods or services produced by the business. Example: rent, machinery
a corporate expense that changes in proportion with production output. Variable costs increase or decrease depending on a company's production volume; they rise as production increases and fall as production decreases.
price where quantity supplied equals quantity demanded; price that clears the market
medium of exchange in the sense that we all agree to accept it in making transactions.
degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's price.
Sustained increase in the general level of prices in an economy.
a portmanteau of stagnation and inflation, is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high.
the "invisible hand" - in a free market economy, self-interested individuals operate through a system of mutual interdependence to promote the general benefit of society at large.
faire - hands-off; minimal government interference
Keynesian economic theory
The idea of or relating to the economic theories of John Maynard Keynes, especially those theories advocating government monetary and fiscal programs designed to increase employment and stimulate business activity.
Von Hayek (Chicago school) economic theory
promoted the idea that private investment, rather than government spending, would promote sustainable growth.
The federal government efforts to keep the economy stable by increasing or decreasing taxes or government spending.
regulating the money supply, controlling inflation/deflation, adjusting the interest rates to regulate the economy, the cost of money, and adjusting the band reserve requirements.
the goal of FDR's New Deal
aimed at three R's--relief, recovery, and reform. The New Deal's most immediate goals were short-range relief and immediate recovery from the great depression
the Federal Reserve (the Fed)
central bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system.
federal discount rate
interest rate set by the Federal Reserve on loans offered to eligible commercial banks or other depository institutions as a measure to reduce liquidity problems and the pressures of reserve requirements.
keeps the price from getting higher; maximum; causes a shortage; below the equilibrium
price floor (price supports)
keeps the price from going lower; minimum; causes a surplus; above the equilibrium
government payment to individual or business to encourage economic activity
perfect (pure) competition
market structure with many buyers and sellers, identical products, easy market entry and exit, informed buyers Example: farmer's market
market structure with many buyers and sellers, DIFFERENT products, easy market entry and exit, informed buyers, non-price competition Example: Forever 21
one seller controls all production of a good or service. Example: PG&E
products that increase the value of another product; the price increase for one, reduces the demand for both Example: printer + ink
payment that shareholders get money from
goods whose quantity demanded decreases as consumer income rises Example: public transportation
competing products that can be used in place of one another; increase in price of one, increases demand for the other
portion of change in quantity demanded due to change of relative price of product; basically replace with something less costly and as efficient
factors of production
land, capital, labor, entrepreneurs (the most essential one)
The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
satisfaction/usefulness obtained from acquiring more units of a product
diminished marginal utility
decreasing satisfaction or usefulness as additional units of a product are acquired
Circular Flow chart
Securities and Exchange Commission
US government agency monitoring trading in the stock market
reasons for economic growth
when economy produces increasing amounts of goods and services over the long term and the increase is greater than the population, the amount of goods and services will rise, and thus the nation's standard of living will improve
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
a proportional tax on individual income after a specified income threshold has been reached.
nominal Gross Domestic Product (GDP)
Nominal GDP is economic output without the inflation adjustment. Nominal GDP is usually higher than real GDP because inflation is typically a positive number.
Real GDP is equal to the economic output adjusted for the effects of inflation.
commodity provided without profit to society Example: streetlight
entitlement payment/entitlement offer
most commonly associated with the issuance of new shares of stock by a company. A company looking to raise new capital can offer existing shareholders a deal: purchase a given amount of new shares at a set price over a specific time period.
effect of tariffs
Tariffs are taxes imposed on imported goods; they will increase the price of the good in the domestic market. Domestic producers benefit because they receive higher prices. The government benefits by collecting tax revenues. The additional tax, or tariff, on imported goods can discourage foreign countries or businesses from trying to sell products in a foreign country.
effect of quotas
Quotas are numerical limits imposed on imported goods. Consumers are harmed by quotas, while domestic and foreign producers benefit by receiving higher prices.
the gap between federal gov tax revenues and spending in a fiscal year
the sum total of outstanding (not yet paid off) US securities issues to cover past deficits
the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.
a rise in interest rates and a resulting decrease in planned investment caused by the federal government's increased borrowing in the money market
A plastic card that you can use to access a line of credit that has been established in advance.
a card used to withdraw money, Like a credit card, but directly attached to a checking account, and can be used with a pin to pay for items at a store.
push inflation - inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods.
pull inflation - occurs when aggregate demand within the economy increases. Often, the economy is almost at their productive capacity and therefore instead of increase productivity and supply, there is a price increase, therefore increasing inflation.
qualified employer-established plan to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pre-tax basis.
Why have a 401k?
First of all, money you deduct from your paycheck and invest in a defined contribution plan is pretax money. That means it's taken out of your paycheck before your income taxes are calculated.
Second, as long as your money stays in the plan, you won't pay a penny in tax on your investment returns.
Second, as long as your money stays in the plan, you won't pay a penny in tax on your investment returns; the higher the score the better