Terms in this set (440)
consumer's willing and ability to pay for products or services. Law of demand states that as price goes up, quantity demanded goes down; as price goes down, quantity demanded goes up.
If a small change in price causes a large change in quantity demanded.
Law of supply
as the price rises for a product, the quantity supplied also rises. As the price falls, the quantity also falls.
the point at which the quantity demanded and the quantity supplied meet.
is a market structure with large numbers of buyers and sellers.
has all the characteristics of perfect competition except for identical products.
market structure dominated by a few very large firms in which the actions by one affects the welfare of others.
is a single producer with the most control over supply and price.
is a market where any of the requirements for a competitive market are lacking. They occur when sizable deviations from one or more of the conditions required for perfect competition take place. Some of the reasons are inadequate competition, inadequate information, and resource immobility.
economic side effects.
Sherman Antitrust Act of 1890
enacted to prohibit trusts, monopolies, and other arrangements that restrain competition.
The Clayton Antitrust Act of 1914
outlaw price discrimination.
Robinsion-Patman Act of 1936
was passed to strengthen the price discrimination provisions of the Clayton Antitrust Act.
Securities and Exchange Commission
any corporation that sells it stock publicly is required to supply financial reports to both its investors and the SEC.
involves all the activities needed to move goods and services from the producer to the consumer.
the ability of any good or service to satisfy consumer wants. Consumer wants can be divided into 4 major types: form, place, time, and ownership utility.
the first step in market research is performing a market survey.
Combines the "Four Ps" of marketing: product, price, place, and promotion.
means determing what services to offer with the product, how to package it, and what kind of product identification to use.
Setting a "price"
a company has to consider the cost of producing, advertising, selling, and distributing, as well as the amount of profit it hopes to make.
means determining where a product should be sold (such as through the mail, by tv, phone, shops).
is the use of advertising and other methods to inform consumers that a new product is currently available and to convince them to buy it.
Businesses that purchase large quantity of goods from producers for resale to other businesses.
businesses that sell consumer goods directly to the public.
Distribution of Income
is measured by ranking family incomes from lowest to highest and then dividing the ranking into quintiles. The income earned by each quintile is then compared to other quintiles.
shows that incomes are not evenly distributed, and that they are becoming less equal.
branch of economics that deals with the economy as a whole, including employment, gross domestic product, inflation, economic growth, and the distribution of income.
are systematic increases and decreases in real gross domestic product. They are caused by changes in capital and inventory spending by businesses, stimuli supplied by innovations and imitations, monetary factors, and external shocks.
one of the two phases of cycle. A "trough" is when recession ends.
A peak is when the expansion ends, and is one of the two phases.
Great Depression of 1930s
income distribution inequalities, risky credit practices, weak international economic conditions, and tariff wars all contributed.
Econometric Models and the index
are used to predict changes in future economic activity.
the number of unemployed is divided by the civilian labor force to arrive at the rate.
is caused by the workers changing jobs or waiting to go to a new one.
is caused by a fundamental changed in the economy that reduces demand for some workers.
is caused by swings in the business cycle.
is caused by changes in the weather or other conditions that prevail at certain times of the year.
is caused by technological developments or automation that make some workers' skills obsolete.
is the rate of change in the price level as measured by the consumer price index. It erodes the value of the dollar, makes life difficult for people on fixed incomes, changes spending habits.
terms used to describe the severity of inflation. Low rate of inflation typically 1 to 3 % annually.
a relatively intense inflation, usually ranging from 100 to 300 %.
the last stage of a monetary collapse, an abnormal inflation in excess of 500%.
Gross Domestic Product (GDP)
the most complete measure of total output of economy.
Gross National Product (GNP)
is the measure of the total income received by American citizens, regardless of where their productive resources are located.
The Output Expenditure model
is used to show how the GDP is consumed by four sectors: consumer, investment, govt, and foreign sectors.
allows nations to specialize, increase the productivity of their resources, and obtain more goods and services.
have a low GDP, an economy based on subsistence agriculture, poor health conditions, low literacy rate, and rapid population growth.
3 stages of Economic Development
agricultural stage, manufacturing stage, and the service sector stage.
World Bank & International Monetary Fund
channel funds to developing countries.
unwise investments, not enough time to adapt to new patterns of living and working, use of inappropriate technology, and inadequate time to move through the stages of development.
economics driven by a huge digital machine.
The limited quantities of resources to meet unlimited wants, the condition that results from limited resources combined with unlimited wants.
The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers.
Cost of the next best alternative use of money, time, or resources when one choice is made rather than another, the most desirable alternative given up as the result of a decision
Production Possibilities Curve
A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good.
The price at which buyers and sellers agree to trade. The price determined by supply and demand.
The price at which demand and supply are equal.
The measure of how responsive both consumers and producers are to price changes, a measure of consumers price sensitivity e = (percent change in quantity demanded)/(percent change inprice)
Costs that do not vary with the quantity of output produced
Costs that do vary with the quantity of output produced
Average Fixed Cost
The total fixed costs (TFC) divided by the number of units produced. It is the only cost that decreases with production.
Average Variable Cost
Total variable costs divided by the number of units of output.
The increase in total cost that arises from an extra unit of production, the increase or decrease in costs as a result of one more or one less unit of output
Law of Diminishing Return
When additonal units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.
All the goods and services produced by a business during a given period of time with a given amount of input
Total output divided by total units of the variable factor of production
The increase in output that arises from an additional unit of input, the additional output that can be produced by adding one more unit of a specific input, ceteris paribus.
The actual payments a firm makes to its factors of production and other suppliers.
All the firm's opportunity costs of the resources supplied by the firm's owners for which the owners do not make an explicit charge
Total revenue minus total explicit cost.
Total revenue minus total cost, including both explicit and implicit costs
A market structure in which a large number of firms all produce the same product. The market situation in which there are many sellers in a market and no seller is large enough to dictate the price of a product
Exclusive control of a commodity or service in a particular market, or a control that makes possible the manipulation of prices
Market or industry characterized by numerous buyers and relatively numerous sellers trying to differentiate their products from those of competitors.
A market in which control over the supply of a commodity is in the hands of a small number of producers and each one can influence prices and affect competitors. A market structure in which a few large firms dominate a market.
Demand for business or organizational products (tires) caused by demand for consumer goods of services (autos).
The relationship between the quantity of labor demanded by firms and the wage.
The total market value of all final goods and services produced annually in an economy
An index of the cost of all goods and services to a typical consumer
An index that traces the relative changes in the price of an individual good (or a market basket of goods) over time
The total demand for goods and services over varying prices within the economy, including componenting such as household consumption, business investment, government spending & net exports., the amount of goods and services in the economy that will be purchased at all possible price levels.
Measures the number of people who are able to work, but do not have a job during a period of time.
The total amount of goods and services in the economy available at all possible price levels
Theory stating that government spending should increase during business slumps and be curbed during booms, economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore, advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.
A relationship between the interest rate and the quantity of money that people are willing to hold at any given interest rate.
The quantity of money available in the economy
Federal Reserve System
The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates
The amount of money the banking system generates with each dollar of reserves, the multiple by which deposits can increase for every dollar increase in reserves; equal to 1 divided by the required reserve ratio.
An increase in the overall level of prices in the economy
A period of slow economic growth and high unemployment while prices rise (inflation)
The state of the economy declines, A period of an economic contraction, sometimes limited in scope or duration.
Taxes and transfer payments, Federal government expenditures or receipts that automatically increase or decrease without requiring action by Congress or the President. Examples are unemployment compensation and corporate and individual income tax.
Tariffs and quotas restrict the amount of a good imported and supply will decrease
The net result of public and private international investments flowing in and out of a country. The net results includes foreign direct investment, plus changes in holdings of stocks, bonds, loans, bank accounts, and currencies.
Long Run Phillips Curve
Relationship between the inflation rate and the unemployment rate in the long run, looks at long-term natural rate of unemployment.
Equilbrium Exchange Rate
Exchange rate at which demand for a currency is equal to the supply of the currency in the economy.
An index that traces the relative changes in the price of an individual good (or a market basket of goods) over time
A way to "protect" or insulate a domestic industry from competition by foreign producers of the same good. import tariff allows domestic producers to both capture a larger share of the domestic market and charge a higher price than would otherwise be possible
The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than other producers.
The ability of an individual, firm, or country to produce more of a good or service than competitors using the same amount of resources.
Balance of Payments Account
National account of international payments and receipts, devided into current account, and capital and financial account
Is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports.
When a country exports more than it imports
When a country imports more than it exports.
That part of the balance of payments recording a nation's exports and imports of goods and services and transfer payments
Foreign Exchange Market
The market in which the currencies of different countries are bought and sold.
Investment flows per period of time, into and out of a country. EX: Portfolio/FDI
Are minimum prices set by the government for certain commodities and services that it believes are being sold in an unfair market, with too low of a price and thus their producers deserve some assistance.
Are maximum prices set by the government for particular goods and services that they believe are being sold at too high of a price and thus consumers need some help purchasing them.
Diseconomies Of Scale
An economic concept referring to a situation in which economies of scale no longer function for a firm. Rather than experiencing continued decreasing costs per increase in output, firms see an increase in marginal cost when output is increased.
Economies of Scale
The increase in efficiency of production as the number of goods being produced increases.
Is the percentage increase or decrease of GDP from the previous measurement cycle. It is annualized so it can be compared to the previous year.
Cost Push Inflation
Occurs when businesses respond to rising production costs, by raising prices in order to maintain their profit margins.
Demand Pull Inflation
Inflation resulting from an increase in aggregate demand. Increases in the following factors: money supply, government purchases, and price level in the rest of the world can impact this.
The value of something in current dollars without taking into account the effects of inflation.
Value in current dollars after adjusting for inflation.
Unemployment that occurs when workers' skills do not match the jobs that are available. Changes in technology and tastes can have an impact on this.
Is unemployment that comes from people moving between jobs, careers, and locations
Unemployment that rises during economic downturns and falls when the economy improves. Getting laid off due to a recession is the classic case of this.
Unemployment that occurs as a result of harvest schedules or vacations, or when industries slow or shut down for a season.
Nominal Interest Rate
The interest rate as usually reported without a correction for the effects of inflation.
Real Interest Rate
The interest rate corrected for the effects of inflation.
The federal government efforts to keep the economy stable by increasing or decreasing taxes or government spending.
A certificate issued by a government or private company which promises to pay back with interest the money borrowed from the buyer of the certificate.
The fall in total surplus that results from a market distortion, such as a tax.
Developing industries that require protection to get started.
Government loans, grants, and tax deferments given to domestic companies to protect them from foreign competition.
Restritions to free trade, put a legal limit on the amount that can be imported, creating shortages which cause prices to rise.
Taxes on imports, raise the price of imported goods, which increases the demand and price for the same goods produced by domestic suppliers. Revenues from these are collected by the domestic government.
Prohibit trade with other nations. They bar a foreign nation's imports or ban exports to that nation or both.
May be required of importers of foreign goods so that imports can be restricted.
Are laws or regulations establishing health and safety standards for imported goods, frequently much stricter than those applied to domestically produced goods.
Expansionary Monetary Policy
Federal Reserve system actions to increase the money supply, lower interest rates, and expand real GDP; an easy money policy.
Expansionary Fiscal Policy
An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output
Progressive Income Tax
The percentage of income paid in taxes will increase as income increases.
A consortium of independent organizations formed to limit competition by controlling the production and distribution of a product or service. ex/ OPEC
A group of diverse companies under common ownership and run as a single organization.
The smaller marginal propensity to save, the larger the multiplier; the larger the marginal propensity to consume, the larger the multiplier
The reciprocal of 1 minus the marginal propensity to consume. Or the reciprocal of the marginal propensity to save.
A firm produces a homogeneous product and is a small part o the total supply such that it cannot influence market price and total output.
Perfect and imperfect competition
When any of the elements for a successfully competitive market are missing this can lead to market failure. Certain elements are necessary to create what economists call perfect competition. If one of these factors is weak or lacking, the market is classified as having imperfect competition.
5 Major types of Market Failure
1. Competition is inadequate
2. Information is inadequate
3. Resources are not mobile
4. Negative externalities or side effect
5. Failure to provide public goods
3 Steps To Evaluate a Product's Market
1. Market Research
2. Market Surveys
3. Test Marketing
researching a market to determine if the market will be receptive to the product
A part of market research, market surveys ask specific questions of consumers to help determine the marketability of a product to a specific group
releasing the product into a small geographical area to see how it sells. Often test marketing is followed by wider marketing if the product does well.
Open Market Operations
The fed can buy or sell bonds it has purchased from banks or from individual.
Effects of the Fed buying bonds
1. More money it put into circulation
2. Creates an expansionary situation to stimulate the economy
Effects of the Fed selling bonds
1. Money is withdrawn from the system
2. Creates a contractionary situation to slow an economy suffering from inflation
Open Market Operations effect on American Banks
American banks borrow and lend money in markets outside the US. By shifting their attention to international markets, domestic banks and other businesses can circumvent whatever contradictory policies the Fed may have put into place in order to help a struggling economy
Marginal propensity to consume
The tendency of consumers to increase spending in conjunction with increases in income.
the satisfaction experienced by a consumer in relation to acquiring and using a good or service.
Providers stress utility to convince consumers they want the product being presented
2. Checakable deposits
3. Traveler's Cheques
Various other monetary deposits
Total Quantity of Available Money
M1+ M2 = Total Quantity of available money
What economics calculated as the amount of available money
Money in the US is not just currency. Deposits that have been placed n checking accounts, debit cards and near moneys such as savings accounts that can be quickly converted into cash.
3 Major Ways money is used
1. As an accounting unit
2. As a store of value
3. As an exchange medium
Characteristics of money
1. Must be acceptable throughout a society in exchange for debts or to purchase goods and services.
2. Should be relatively scarce
3. Easily carried
5. Easy to divide up
Basic types of money
1. Commodity, representatives, and fiat
includes gems or precious metals
can be exchanged for items such as gold or silver which have inherent value
Conditions used to classify markets
1. Existence of competition
2. Number and size of suppliers
3. Influence of supplier over price
4. Variety of available products
5. Ease of entering the market
Elements studied in microeconomics
2. Cost of production
3. Factor income
These determine production decisions of individual firms, based on resources and costs.
examines economies on a much larger level than microeconomics. Looks at economic trends and structures on a national level.
Variables studied in macroeconomics
4. Government Spending
5. Net exports
The study of the ways specific societies allocated resources to individuals and groups within that society. Choices society makes regarding what efforts or initiatives are funded and which are not. Since resources are finite, allocation becomes a vivid reflection of that society's values.
Economic Systems that drive individual society is based on
1. What goods are produced
2. How those goods are produced
3. Who acquires the goods or benefits from them
4 Major Elements of a Marketing Plan
Any elements pertaining directly to the product, including packaging, presentation or services to include along with it
Calculates cost of production, distribution, advertising, etc as well as the desired profit to determine the final price
What outlets will be used to sell the product whether traditional outlets such as brick and mortar stores or thorough direct mail or internet marketing
Ways to let consumers know the product is available through advertising and other means.
Based on how the quantity of a particular product responds to the price demanded for that product. if quantity responds quickly to changes in price, the supply/demand for that product is said to be elastic. if they do not respond quickly, then it is inelastic.
When a market is capable of producing output high enough to meet consumer demand, that market is efficient.
in the Field of international trade this refers to a country focusing on a specific product that it can produce more efficiently and more cheaply or at a lower opportunity cost than another country, thus giving it a comparative advantage in production of that product.
Basics of Market Economy
Market Economy is based on supply and demand.
has to do with what customers want and need as well as how quantity those consumers are able to purchase based on other economic factors.
How much can be produced to meet demand, or how much suppliers are willing and able to sell.
Market equilibrium Price
Where the needs of the consumers meet the needs of suppliers . This price varies depending on factors in including the overall health of a society economy, overall benefits and considerations of individuals in a society and other factors.
Determine the route a product takes on its journey from producer to consumer and can also influence the final price and availability of the product.
buys in large quantities and then resells smaller amounts to other businesses.
sells directly to the consumers rather than to businesses
Additional Distribution Channels
Club warehouses, purchasing through catalogs or over the internet. Most new ones are direct to consumer eliminating the need for middlemen.
4 Kinds of Market Structures in an Output Market
1. Perfect competition
3. Monopolistic competition
All existing firms sell an identical product. The firms are not able to control the final price. In addition, there is nothing that makes it difficult to become involved in or leave the industry. Anything that would prevent entering or leaving an industry is called a barrier to entry. An example of this market structure is agriculture.
A single seller controls the product and its price. Barriers to entry, such as prohibitively high fixed cost structures, prevent other sellers from entering the market
A number of firms sell similar products, but they are not identical , such as different brands of clothes or food. Barriers to entry are low.
Only a few firms control the production and distribution of products, such as automobiles. Barriers to entry are high, preventing large numbers of firms from entering the market.
Public entity or planning authority makes that decisions about what resources will be produced, how they will be produced and who will be able to benefit from them. The means of production such as factories are also owned by a public entity rater than by private interests.
Supply and demand are determined by consumers
The economic structure falls somewhere between the market economy and the planned economy. Planning authorities determine allocation of resources at higher economic levels while consumer goods are driven by a market economy.
A products desireability lies in tis physical characteristics
A products desireability is connected to its location and convenience
A products desirability is determined by its availability at a certain time
a products desireability is increased because ownership of a product passes to the consumer
occurs when a single supplier has a distinct advantage over the others
Only one business offers the product in a certain area
A single company controls the technology necessary to supply a product
a government agency is the only provider of a specific good or service
Characteristics of international trade
1. Takes advantage of broader markets bringing a variety of products within easy reach
2. Allows individual countries to specialize in particular products that they can produce easily wile other products can be acquired through trade with other nations
3. Requires efficient use of native resources as well as sufficient disposable income to purchase native products and imported products.
Ideal Balance in an Economy
an economy functions efficiently with the aggregate supply or the amount of national output, equal to the aggregate demand or the amount of the out that that is purchased. In these cases the economy is stable and prosperous
GDP is high and the economy prospers
GDP falls, unemployment rises
The recession reaches its lowest point
Unemployment lessens, prices rise and the economy begins to stabilize again.
Ways population and population growth are studied and quantified
2. Rates of growth due to immigration, the overall fertility rate and life expectancy
3 Stages of Economic Development
1. Agricultural Stage
2. Manufacturing Stage
3. Service Sector Stage
Challenges in Economic Development in developing nations
Funding to provide equipment and training
Help is available through international investment and international agencies- International monetary fund or the world bank.
Problems with rapid industrialization
1. Use of technology not suited to the products or services being supplied
2. Poor investment of capital
3. Lack of time for the population to adapt to new paradigms
4. Lack of time to experience all stages of development and adjust to each stage
5 Characteristics of a developing nation
1. Low GDP
2. Rapid growth of population
3. Economy that depends on subsistence agriculture
4. Poor conditions, including high infant morality rates, high disease rates, poor sanitation, and insufficient housing
5. Low literacy rate
Oppressive govts, no private property rights, withhold education and other rights from women
4 major obstacles developing nations face regarding economic growth
1. Rapid, uncontrolled population growth
2. trade restrictions
3. missed resources often perpetrated by the nation's government
4. traditional beliefs that can slow or reject change
Technology, especially in the area of communications
How the knowledge economy effects economic growth
Information age may prove to bring about changes in life and culture as a significant as those brought on by the agricultural and industrial revolutions.
Importance of E-Commerce
Supply channels are now bypassed as e-commerce makes it possible for nearly any individual to set up a direct market to consumers and direct interaction with suppliers
Competition is fierce
Many industries are struggling with the best ways to adapt to the rapid, continuous changes
Issues with Cybernomics
Secure Online trade
Intellectual Property rights
Rights to privacy
Bringing developing nations into the fold
Challenges of Cybernomics
The face of many industries continues to undergo drastic change. Many of the old ways of doing business no longer work, leaving industries scrambling to function profitably within the new system
Factors that earn income are
1. Labor- Earns eages
2. Capital - earns interest
3. Land - earns rent
4. Enterepreuners - earn profit
Factor Income 2
Each factors' income is determined by its contribution. In a market economy this income is not guaranteed to be equal. How scarce the factor is and the weight of its contribution to the overall production process determines the final factor income
Income Factors used to calculate the GDP
1. Wages paid to laborers, or compensation of employees
2. Rental income derived from land
3. Interest income derived from invested capital
4. Entrepreneurial income
a type of entrepreneurial income that comes back to the entreprenuer himself.
income that goes back into the corporation as a whole. It's divided by the corporation into corporate profits taxes, dividends, and retained earnings.
Distribution of income
Range from poorest to the richest. Income is not distributed evenly. To determine the income distribution, family incomes are ranked lowest to the highest. These rankings are divided into sections called quintiles, which are compared to each other
Causes of uneven distribution of income
higher levels of education and ability in the upper classes
it continues to grown in America due to the service industry and changes in the family unit, and reduced influence of labor unions
Comparing incomes to poverty guidelines. guidelines determine the level of income necessary for a family to function. Those below the poverty line are often eligible for assistance from government agencies.
Expenditures approach to the GDP
calculates the GDP based on how much money is spent in each individual sector
Income approach to the GDP
calculated based on how much money is earned in each sector
4 Economic Sectors that make up a country's Macro economy
4. Foreign sector
Population's Effect on the GDP
GDP and GNP are measured per capita.
Economic production is low, population high- the income per individual will be lower than if the income is high and the population is lower.
If the population grows quickly, and income grows slowly, individual income will remain low or drop drastically.
Factors that effect Economic Growth
Population growth, economic growth required both consumers to purchase goods and workers to produce them. A population that doesn't grow quickly enough will not supply enough workers to support rapid economic growth
Association is causation fallacy
The incorrect idea that if two variables are associated in time, one must necessarily cause the other
Fallacy of composition
the incorrect belief that what is true for the individual or part must necessarily be true for the group or whole
A cost that must be incurred no matter what; hence , a cost that is irrelevant when an economic choice is being made
Law of comparative advantage
the individual or country with the lowest opportunity cost of producing a particular good should specialize in producing that good
the ability to produce something with fewer resources than other producers use.
the Ability to produce something at a lower opportunity cost than other producers face
the direct exchange of one good for another without the use of money
Division of labor
The organization of production of a single good into separate tasks in which people specialize
Specialization of labor
Focusing an individual efforts on a particular product or a single task
The condition that exiss when there is no way resources can be reallocated to increase the production of one good without decreasing the production of another
Law of increasing opportunity cost
As more of a particular good is produced, larger and larger quantities of an alternative good must be sacrificed if the economy's resources are already being used efficiently.
An economic system characterized by private ownership of resources and the use of pieces to coordinate economic activity in unregulated markets.
an economic system characterized by public ownership of resources and centralized economic planning
Mixed Captialist Economy
An economic system characterized by private ownership of some resources and public ownership of other resources. Some markets are unregulated and others are regulated.
a good for which demand increases as consumer income rises
a good for which demand decreases as consumer income rises
a curve showing the quantities of a commodity demanded at various possible prices, other things constant
goods that are related in such a way that an increase in such a way that an increase in the price of one leads to an increase in the demand for the other
goods that are related in such a way that an increase in the price of one leads to the decrease in the demand of the other
Change in quantity demanded
a movement along the demand curve in response to a change in price, other things constant
Change in demand
a shift in a given demand curve caused by a change in one of the non price determinants of demand for the good
law of supply
the quantity of product supplied in a given time period is usually directly related to its price, other things constant
A curve showing the quantities of a good supplied at various prices, all things constant.
resources used to produce the good in question
other goods that use some of the same types of resources used to produce the good in question
change in quantity supplied
a movement along the supply curve in response to a change in the price, other things constant
Change in supply
A shift in a given supply curve caused by a change in one of the non price determinants of the supply of a good
the cost of time and information required to carry out market exchange
an excess of quantity supplied over quantity demanded at a given price
the condition that exists in a market when the plans of the buyer match the plans of the sellers
Usually a temporary mismatch between quantity supplied and quantity demanded as the market seeks equilibrium
A minimum legal price below which a good or service cannot be sold
a maximum legal price above which a good or service cannot be sold
Cash or in-kind benefits given to individuals as outright grants from the government
Economic unit, formed by profit-seeking entrepreneurs, that use hired resources to produce goods and services for sale
A firm with a single owner who has the right to all profits and bears unlimited liability for the firm's debts.
A firm with multiple owners who share the firm's profits and each of whom bears unlimited liability for the firm's debts.
A legal entity owned by stockholders whose liability is limited to the value of their stock
a condition that arises when unrestrained operation of markets yield socially undesirable results
One firm that can serve the entire market at a lower per-unit cost than can two or more firms
A good that is available for all to consumer, regardless of who pays and does not
a cost or a benefit that falls on third parties and is therefor ignored by the two parties to the market transaction.
the use of government purchases, transfer payments, taxes, and borrowing to influence aggregate economic activity
Regulation of the money supply in order to influence aggregate economic activity
The distribution of tax burden among tax payers
the currency of another country needed to carry out international transactions
a tax on imports or exports
A legal limit on the quantity of a particular product that can be imported or exported
The structure of economic life or economic activity in a community a region a country a group of countries or the world
a variable that measures the amount of something over an interval of time, such as the amount of money you spend on food per week
a variable that measures the amount of something at a particular point in time, such as the amount of money you have right now
the rise and fall of economic activity relative to the long term growth trend of the economy, also called business cycles.
A severe reduction in an economy's total production accompanied by high unemployment lasting more than a year
a period of decline in total output usually lasting at least 6 months and marked by contractions in many sectors of the economy
a phase of economic activity during which there is an increase in the economy's total production
The total quantity of final goods and services produced in an economy during a given time period
the relationship between the price level in the economy and the quantity of aggregate output demanded, other things held constant
a composite measure reflecting the price of all goods and services in the economy relative to prices in a base year.
aggregate demand curve
a curve representing the relationship between the economy's price level and the amount of aggregate output demanded per period of time, other things held constant
aggregate supply curve
A curve representing the relationship between the economy's price level an the amount of aggregate output supplied per period of time, other things held constant
Government budget deficit
a flow variable that measures the amount by which total government revenues in a particular period
Demand side economics
a sustained increase in the economy's average price level
Supply side economics
Macroeconomic policy that focuses on increasing aggregate supply through tax cuts or other changes to increase incentives to produce
a stock variable that measures the net accumulation of prior budget deficits
the ratio of a specific measure of output to a specific measure of input
per-worker production function
the relationship between the amount of capital per worker in the economy and the output per worker
the policy that government using taxes subsidiaries, and regulations should future the industries and technologies of the future to give domestic industries an advantage over foreign competition
a theory that economies around the world will grow more alike over time with poor countries catching up with richer countries
all non institutionalized individuals 16 years of age and older who are either working or actively looking for work
the number of unemployed individuals expressed as a percentage of the labor force
a person who has dropped out of the labor force because of lack of success in finding a job
labor force participation rate
the ratio of the number in the labor force to the population of working age
unemployment that arises because of the time needed to match qualified job seekers with available job openings
unemployment caused by seasonal shifts in labor supply and demand
unemployment that occurs because of declines in the economy's aggregate production during recessions
temporary income provided to unemployed workers who actively seek employment and who meet other qualifications
a situation in which workers are overqualified for their jobs or work fewer hours than they would prefer
a very high rate of inflation
a sustained decrease in the price level
demand pull inflation
a sustaned rise in the price level caused by increases in aggregate demand
cost push inflation
a sustained rise in the price level caused by reductions in aggregate supply
the dollar amount paid to lenders to forgo present consumption and imposed on borrowers
interest per year as a percentage of the amount loaned
Nominal rate of interest
The interest rate expressed in current dollars as a percentage of the amount loaned
real rate of interest
the interest rate expressed in dollars of constant purchasing power as a percentage of the amount loaned; the nominal rate of interest minus the inflation rate
A method of calculating GDP by adding up expenditures on all final goods and services produced during the year
a method of calculating GDP by adding up all payments to owners of resources used to produce output during the year
Final goods and services
Good and services sold to final or ultimate, users
intermediate goods and services
goods and services purchased for further reprocessing and resale
all household purchases of final goods and services
the purchase of new plants, equipment, buildings, and net additions to inventories
manufactured items used to produce goods and services
producer's stock of finished or in process goods
spending for goods and services by all levels of government
the value of country's exports mine the value of its imports
total spending on final goods and services during a given time period
the same of all income earned by resource suppliers in an economy during a given time period
the difference at each stage of production between the value of a product and the cost of intermediate goods bought from other firms
an expression used to describe all market exchange that goes unreported either because it is illegal or because those involved want to evade taxes
the value of capital stock used up during a year in producing GDP
net domestic product
gross domestic product minus depreciation
based on prices prevailing at the time of the transaction; current dollar GDP
A measure of GDP that removes the impact of price changes from changes in nominal GDP
the year with which other years are compared when constructing an index; the index equal 100 in the base year or base period
GDP Price Index
A comprehensive price index of all goods and services included in the gross domestic product
a group of 18th and 19th century economists who believed the recession and depressions were short run phenomena that corrected themselves through natural market forces thus the economy was self-adjusting
the income households have available to spend or save after paying taxes and receiving transfer payments
taxes minus transfer payments
banks and other institutions that facilitate the flow of loanable funds from savers to borrowers
DI (Disposable income) =
C (consumption) + S (Savings)
any diversion of income from the domestic spending stream, includes saving, taxes and import
Any payment of income other than by firms or any spending other than by domestic households; includes investment, government purchases, transfer payment and exports
the amount of investment firms plan to undertake during a year
the amount of investment actually undertaken during a year, equals planned investment plus underplanned changes in inventories
the relationship between the level of income in an economy and the amount households spend on consumption, other things constant
marginal propensity to save
the fraction of a change in income that is saved; the change in saving divided by the change in income that caused it
the value of a households' assets minus liabilities
the relationship between planned investment income and the level of income other things constant
a term that means independent; autonomous investment is independent of the level of income
government purchase function
the relationship between government purchases and the level of income the economy, other things constant
Net export function
the relationship between net exports and the level of income in the economy other things constant
Income expenditure Model
A relationship between aggregate income and aggregate spending that determines for a given price level where income equals spending
aggregate expenditure function
A relationship showing for a given price level, the amount of planned spending for each level of income, the total of C +I+ G+(X-M) at each level of income
the wage measured in terms of current dollars; the dollar amount on a paycheck
the wage measured in terms of dollars of constant purchasing power; hence, the wage measured in terms of quantity of goods and services it will purchase
the economy's maximum sustainable output level given the supply of resources technology and the underlying economic institutions' the output level when there are no surprises about the price level
natural rate of unemployment
the unemployment that occurs when the economy is producing its potential level of output
efficiency wage theory
The idea that keeping wages above the level required to attract a sufficient pool of workers makes workers compete to keep their jobs and results in greater productivity
short run aggregate supply (SRAS) curve
a curve that shows the direct relationship between the price level and the quantity of aggregate output supplied in the short run, other things constant
a period during which some resource prices especially those for labor are fixed by agreement
a period during which wage contracts and resource price agreements can be renegotiated
the amount by which actual output in the short run exceeds the economy's potential output
the amount by which actual output in the short run falls below the economy's potential output
long run aggregate supply (LRAS) curve
the vertical line drawn at potential output
a state in which workers and employers fail to achieve an outcome that all would prefer because they are unable to jointly choose strategies that would result in a preferred outcome
unexpected events that affect aggregate supply, usually only temporary
beneficial supply shocks
unexpected events that increase aggregate supply, usually only temporarily
adverse supply shocks
Unexpected events that reduce aggregate supply usually only temporary
the argument that a long stretch of high or low unemployment can increase or decrease the natural rate of unemployment
autonomous net tax multiplier
the ratio of change in a equilibrium real GDP demanded to the initial change in autonomous net taxes that brought it about; the numerical value of the multiple
balanced budget multiplier
a factor that shows that identical changes in government purchases and net taxes change real GDP demanded by that same amount
structural features of government spending and taxation that smooth fluctuations in disposable income over the business cycle
discretionary fiscal policy
the deliberate manipulation of government spending or taxation in order to promote full employment and price stability
income that individuals expect to receive on average over the long term
political business cycles
economic fluctations that result when discretionary policy is manipulated for political gain
double coincidence of wants
a situation in which two traders are willing to exchange their products directly
medium of exchange
anything that facilitates trade by being generally accepted by all parties in payment for goods and services
unit of account
a common unit for measuring the value of every good and service
store of value
anything that retains its purchasing power over time
standard of deferred payment
an agreed unit of measure that enables people to contract for future payments and receipts
people tend to trade away inferior money and hoard the best
the difference between the face value of money and the cost of supplying it; the profit from issuing money
the name given to money whose face value exceeds the cost of producing it
fractional reserve banking system
a banking system in which only a portion of deposits is backed by reserves
papers promising a specific amount of gold or silver to bearers who presented them to issuing banks for redemption; an early type of money
Institutions that serve as go betweens, accepting funds from savers and lending them to borrowers
commercial banks and other financial institutions that accept deposits from the public
depository institutions that make short term loans primarily to businesses
accounts at financial institutions that pay no interest and on which depositors can write checks to obtain their deposits any time
thrift institutions or thrifts
depository institutions that make long term loans primarily to households
funds that banks use to satisfy the cash demands of their customers and the reserve requirements of the Fed; reserves consist of deposits at the Fed plus currency physically held by banks
Open market operations
Purchases and sales of government securities by the Fed in an effort to influence the money supply
money market mutual fund
a collection of short term interest earning assets purchased with funds collected from many shareholders
Flexible exchange rate
Rates determined by the forces of supply and demand without govt. intervention
The branch of economics that deals with the specific factors that affect an economy, such as how particular products are marketed or the behavior of individual consumers.
Represents a consumer's willingness and ability to pay for products and services.
Law of Demand
States that as the price goes up, quantity demanded goes down and vice versa.
Real Income Effect
Economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same.
when consumers react to an increase in a good's price by consuming less of that good and more of other goods
Diminishing Marginal Utility
How your satisfaction of a product goes down as you continue to buy it.
Price Elasticity of Demand
A measure of how much consumers respond to a price change.
If a small change in price causes a large change in quality demanded.
If a small in change in price does not change the demand.
Law of Supply
As the price rises for a product, the quantity supplied also rises and vice versa.
The point where the quantity demanded meets the quantity supplied.
As the cost goes up, production is increased and consumers buy less.
As the cost goes down, production is decreased and consumers buy more.
Prevents prices from going above a specified amount. Often leads to shortages and black market activity.
Prevents prices such as a minimum wage from dropping too low.
A market structure with large numbers of buyers and sellers, identical economic products, independent actions by buyers and sellers, reasonably well-informed participants, and freedom for firs to enter or leave the market. This is a largely theoretical situation used to evaluate other market situations.
A market lacking one or more of the characteristics of a Perfect Competition.
Is a perfect competition without the identical products.
A market structure dominated by a few very large firms in which the actions by one effect the welfare of others.
one producer with the most control over the price and supply. Forms of monopoly: Natural, Geographic, Technological, Government.
Maximize profits by producing at the level of output at which marginal cost is equal to marginal revenue
A market in which any of the requirements of a competitive market are lacking. (Adequate competition, Knowledge of prices and opportunities, Mobility of resources, Competitive profits)
Sherman Antitrust Act of 1890
Enacted to prohibit trusts, monopolies, and other arrangements that restrain competition.
Clayton Antitrust Act
(1914) Outlawed price discrimination.
(1936) Strengthened the Clayton Antitrust Act
A tool to promote competition.
The ability of a product to satisfy a consumer. Four major types; form, place, time, ownership.
Business that purchase large quantities of goods from producers for resale.
Sell consumer goods directly to the public.
Distribution of Income
measured by ranking family incomes from lowest to highest and then dividing it into 5ths.
Shows that incomes are not evenly distributed and are becoming less equal. This is caused by education, wealth, discrimination, ability, and monopoly power.
models developed to trace economic conditions in the US by industry, with the objective of capturing, in the form of equations, complex interrelationships among the factors affecting either the total economy or the industry's or company's sales.
A relatively low rate of inflation (1-3% annually)
Relatively intense rate of inflation (100-300% annually)
The last stage of monetary collapse (500%+ per year)
Gross Domestic Product
The most complete measure of total output. Refers to the market value of all goods/services produced in a country in a given period.
Gross National Product
The measure of the total income received by Americans regardless of where their productive resources are located. The total value of all final goods and services produced in a nation in one year PLUS the income earned by citizens, MINUS income of nonresidents located in the country.
Output Expenditure Model
GDP=C+I+G+F, used to show GDP is consumed by the four sectors of the economy (Consumer, Investment, Government, Foreign).
Tracks price changes over time and can be used to remove the distortions of inflation from other statistics. It is computed by taking the latest prices of the market basket item then dividing it by the base-year price then multiplying by 100.
Money that has an alternative use; Cattle, gems, tobacco
Backed by, or can be exchanged for, gold or silver.
Not backed or supported by any other source. Has a value because the Government says so.
1914, paper money.
Assets such as savings accounts that can be turned into money relatively easily and without the risk of loss of value.
Economics driven by the Internet.
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