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Principles of Economics Terms
Terms in this set (21)
The study of how people interact with each other and with their natural surroundings in providing their livelihoods, and how this changes over time
A wave of technological advances and organizational changes starting in Britain in the eighteenth century, which transformed an agrarian and craft-based economy into a commercial and industrial economy.
The description of a process using a set of materials and other inputs, including the work of people and machines, to produce an output.
A way of organizing the economy that is distinctive in its basic institutions. Economic systems of the past and present include: central economic planning (e.g. the Soviet Union in the twentieth century), feudalism (e.g. much of Europe in the early Middle Ages), slave economy (e.g. the US South and the Caribbean plantation economies prior to the abolition of slavery in the nineteenth century), and capitalism (most of the world's economies today).
An economic system in which the main form of economic organization is the firm, in which the private owners of capital goods hire labour to produce goods and services for sale on markets with the intent of making a profit. The main economic institutions in a capitalist economic system, then, are private property, markets, and firms. an economic system characterized by a particular combination of institutions
These are not firms, either because they do not make a profit, or because the owners are not private individuals who own the assets of the firm and employ others to work there. Note: a firm pays wages or salaries to employees but, if it takes on unpaid student interns, it is still a firm.
The expanded role of firms created a boom in another kind of market that had played a limited role in earlier economic systems: the labour market.
The laws and informal rules that regulate social interactions among people and between people and the biosphere, sometimes also termed the rules of the game. institutions, we mean the different sets of laws and social customs regulating production and distribution in different ways in families, private businesses, and government bodies.
Something is private property if the person possessing it has the right to exclude others from it, to benefit from the use of it, and to exchange it with others.
A way that people exchange goods and services by means of directly reciprocated transfers (unlike gifts), voluntarily entered into for mutual benefit (unlike theft, taxation), that is often impersonal (unlike transfers among friends, family).
Economic organization in which private owners of capital goods hire and direct labour to produce goods and services for sale on markets to make a profit.
Rapid improvements in technology combined with the emergence of a new economic system.
A political system, that ideally gives equal political power to all citizens, defined by individual rights such as freedom of speech, assembly, and the press; fair elections in which virtually all adults are eligible to vote; and in which the government leaves office if it loses.
Gross Domestic Product (GDP)
A measure of the market value of the output of final goods and services in the economy in a given period. Output of intermediate goods that are inputs to final production is excluded to prevent double counting.
Total value of everything produced in a given period. Includes the goods and services produced by the government, such as schooling, national defense, and law enforcement.
GDP per capita
GDP / population. Used to compare living standards in each country; serves as "average income"
amount of wages or salaries, profit, rent, interest and transfer payments from the government (such as unemployment or disability benefits) or from others (for example, gifts) received over a given period such as a year, minus any transfers the individual made to others (including taxes paid to the government). Disposable income is thought to be a good measure of living standards because it is the maximum amount of food, housing, clothing and other goods and services that the person can buy without having to borrow
Disposable income isn't a great measure of our wellbeing b/c it leaves out quality of social and physical environment, amount of free time, etc
∑piqi where pi = price of good and qi = quantity of good i for i # of goods
measure of quantity of goods and services purchased —> gauge whether economy is growing or shrinking
Purchasing power parity
estimates of GDP/ccapita in a common set of prices. Ideas is to achieve parity/equality in the real purchasing power
Ratio Scale Graph
An upward-sloping straight line on a ratio scale graph means that the growth rate of the GDP per capita is constant. An upward-sloping convex curve on a linear scale graph means that the GDP per capita increases by a greater and greater amount in absolute terms over time, consistent with a positive constant growth rate.
An upward-sloping straight line on a linear scale graph means that the GDP per capita increases by the same amount every year. A straight horizontal line on a ratio scale graph means that the GDP per capita is constant over the years
An upward-sloping concave curve on a ratio scale graph means that the growth rate decreases each year.
GDP per capita, labor productivity, and atmospheric CO2 —> hockey stick trajectory (little to no growth followed by a sudden and shape change to a + growth rate, connectivity between parts of the world, impacts of the economy on the global environment)
an important type of private property is the equipment, buildings, and other durable inputs used in producing goods and services. These are called capital goods
In a capitalist system, production takes place in firms. Markets and private property are essential parts of how firms function for two reasons: Inputs and outputs are private property: The firm's buildings, equipment, patents, and other inputs into production, as well as the resulting outputs, belong to the owners. Firms use markets to sell outputs: The owners' profits depend on markets in which customers may willingly purchase the products at a price that will more than cover production costs
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