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Economics Semester Exam

Terms in this set (62)

What is economics?
the study of how we make decisions in a world where resources are limited
Scarcity
A situation in which unlimited wants exceed the limited resources available to fulfill those wants
Opportunity Costs
the most desirable alternative given up as the result of a decision
trade off
an alternative that we sacrifice when we make a decision
PPC
production possibilities curve
Traditional Economy
An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.
command economy
An economic system in which the government controls a country's economy.
market economy
Economic decisions are made by individuals or the open market.
mixed economy
An economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion.
Circular Flow
the pattern in which goods and services and resources flow in the marketplace
market failures
situations in which the market does not lead to a desired result
free riding
enjoying the benefits of some good or action while letting others bear the costs
positive externalities
by-products of consumption or production that benefit third parties
negative externalities
by-products of production or consumption that impose costs on third parties
Public
a good or service that is open to everyone
Private
a good or service that is open to a select few
excludable good
a good for which it is easy to prevent consumption by those who do not pay
non-excludable good
a good for which it is difficult (or very costly) to prevent consumption by those who do not pay
rivalrous good
its use by one individual makes it less available for use by others
non-rivalrous good
its use by one individual does not make it less available for use by others
Demand
the desire to own something and the ability to pay for it
Law of Demand
consumers buy more of a good when its price decreases and less when its price increases
Normal goods
Goods for which demand goes up when income is higher and for which demand goes down when income is lower.
inferior goods
Goods for which demand tends to fall when income rises.
complementary goods
Goods that are commonly used with other goods
substitute goods
Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.
demand curve
a graph of the relationship between the price of a good and the quantity demanded
Law of Diminishing Marginal Utility
the principle that consumers experience diminishing additional satisfaction as they consume more of a good or service during a given period of time
elastic goods
if price goes up slightly, people stop buying
inelastic goods
Very little change in demand for large changes in price
Supply
The amount of goods available
Law of Supply
Tendency of suppliers to offer more of a good at a higher price
supply curve
a graph of the relationship between the price of a good and the quantity supplied
Price ceilings
price levels set below the equilibrium prices
price floors
price levels set above the equilibrium prices
Perfect competition
a market structure in which a large number of firms all produce the same product
Monopolistic competition
a market structure in which many companies sell products that are similar but not identical
Oligopoly
A market structure in which a few large firms dominate a market
Monopoly
A market in which there are many buyers but only one seller.
Sole proprietorships
businesses owned and operated by one individual; the most common form of business organization in the United States
Partnerships
businesses with two or more owners
Corporations
businesses that are owned by many investors who buy shares of stock
Franchises
Privileges granted by a company or government to sell a product or service under specified conditions.
GDP
Gross Domestic Product- the total market value of all final goods and services produced annually in an economy
Real vs. Nominal GDP
real GDP is GDP adjusted for inflation and nominal GDP is measured in current dollars
business cycle
peak, expansion, trough, retraction
frictional unemployment
unemployment that occurs when people take time to find a job
cyclical unemployment
unemployment that rises during economic downturns and falls when the economy improves
Seasonal unemployment
unemployment linked to seasonal work
structural unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
Inflation
a general increase in prices and fall in the purchasing value of money.
deflation
a decrease in the general level of prices
hyperinflation
A very rapid rise in the price level; an extremely high rate of inflation.
Characteristics of money
acceptability, divisibility, portability, stability, durability, scarce
M1 money supply
consists of currency, travelers' checks, demand deposits, and other checkable deposits at depository institutions
M2 money supply
Includes all of M1 money supply plus most savings accounts, money market accounts, and certificates of deposit.
RRR
required reserve ratio; the fraction of a bank's deposits that it must keep in reserve
interest
The cost of borrowing money
When i is low
It grows the economy
When i is high
It slows the economy
Monetary policy
the setting of the money supply by policymakers in the central bank
Monetary Policy Tools
open market operations; reserve requirements
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