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89 terms

econ100

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economics
the study of how society chooses to allocate its scarce resources to the production of goods and services in order to satisfy unlimited wants
macroeconomics
the branch of economics that studies decision making for the economy as a whole
microeconomics
the branch of economics that studies decision making by a single individual, household, firm, industry, or level of government
scarcity
the condition in which human wants are forever greater than the supply of time, goods, and resources
resources
the basic categories of inputs used to produce goods and services; also called factors of production, divided into 3 categories
land
a shorthand expression for any natural resource provided by nature
labor
the mental and physical capacity of workers to produce goods and services
entrepreneurship
the creative ability of individuals to seek profits by taking risks and combining resources to produce innovative products
capital
the physical plants, machinery, and equipment used to produce other goods; human made goods that do not directly satisfy human wants
externality
a cost or benefit imposed on people other than the consumers and producers of a good or service
market economy
an economic system that answers the what, how, and for whom questions using prices determined by the interaction of the forces of supply and demand
adam smith
father of economics
laissez faire
allow to act
invisible hand
a phrase that expresses the belief that the best interests of a society are served when individual consumers and producers compete to achieve their own private interests
consumer sovereignty
the freedom of consumers to cast their dollar votes to buy or not to buy at prices determined in competitive markets
opportunity cost
the best alternative sacrificed for a chosen alternative
marginal analysis
an examination of the effects of additions to or subtractions from a current situation
production possibilities curve
a curve that shows the maximum combinations of two outputs an economy can produce in a given period of time with its available resources and technology
technology
the body of knowledge applied to how goods are produced
law of increasing opportunity costs
the principle that the opportunity cost increases as production of one output expands
price ceiling
a legally established maximum price a seller can charge
price floor
a legally established minimum price a seller can be paid
nominal income
the actual number of dollars received over a period of time
real income
the actual number of dollars received (nominal income) adjusted for changes in the CPI
public good
a good or service with two properties: (1) users collectively consume benefits, and (2) there is no way to bar people who do not pay (free riders) from consuming the good or service
market failure
a situation in which market equilibrium results in too few or too many resources used in the production of a good or service. This inefficiency may justify government intervention
normal profit
the minimum profit necessary to keep a firm in operation. a firm that earns normal profit earns total revenue equal to its total opportunity cost
business cycle
alternating periods of economic growth and contraction, which can be measured by changes in real GDP
peak
the phase in the business cycle in which real GDP reaches its maximum after rising during recovery
recession
a downturn in the business cycle during which real GDP declines, and the unemployment rate rises; also called a contraction
trough
the phase of the business cycle in which real GDP reaches its minimum after falling during a recession
recovery
an upturn in the business cycle during which real GDP rises; also called an expansion
economic growth
an expansion in national output measured by the annual percentage increased in a nation's real GDP
full employment
the situation in which an economy operates at an unemployment rate equal to the sum of the frictional and structural unemployment rates
GDP gap
the difference between actual real GDP and potential or full-employment real GDP
price system
a mechanism that uses the forces of supply and demand to create an equilibrium through rising and falling prices
natural monopoly
an industry in which the long-run average cost of production declines throughout the entire market. as a result, a single firm can supply the entire market demand at a lower cost than two or more smaller firms
economic system
the organizations and methods used to determine what goods and services are produced, how they are produced, and for whom they are produced
traditional economy
a system that answers the What, How, and For Whom questions they way they always have been answered
command economy
a system that answers the What, How, and For Whom questions by central authority
capitalism
an economic system characterized by private ownership of resources and markets
socialism
an economic system characterized by government ownership of resources and centralized decision making
government expenditures
federal, state, and local government outlays for goods and services, including transfer payments
market
any arrangement in which buyers and sellers interact to determine the price and quantity of goods and services exchanged
surplus
a market condition existing at any price where the quantity supplied is greater than the quantity demanded
shortage
a market condition existing at any price where the quantity supplied is less than the quantity demanded
equilibrium
a market condition that occurs at any price and quantity at which the quantity demanded and the quantity supplied are equal
law of demand
the principle that there is an inverse relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus
privatization
process of turning a government enterprise into a private enterprise
nationalization
act of transforming a private enterprise's assets into government ownership
poverty line
the level of income below which a person or a family is considered to be poor
in-kind transfers
government payments in the form of goods and services, rather than cash, including such government programs as food stamps, Medicaid, and housing
explicit costs
payments to nonowners of a firm for their resourcess
implicit costs
the opportunity costs of using resources owned by the firm
economic profit
total revenue minus explicit and implicit costs
marginal revenue product
the increase in a firm's total revenue resulting from hiring an additional unit of labor or other variable resource
demand curve or labor
a curve showing the different quantities of labor employers are willing to hire at different wage rates in a given time period, ceteris paribus. it is equal to the marginal revenue product of labor
human capital
the accumulation of education, training, experience, and health that enables a worker to enter an occupation and be productive
featherbedding
the union forces firms to hire more workers than are required or to impose work rules that reduce output per worker
monopoly
a market structure characterized by (1) a single seller, (2) a unique product, and (3) impossible entry into the market
wealth
the value of the stock of assets owned at some point in time
nominal interest rate
actual rate of interest earned over a period of time
real interest rate
the nominal rate of interest minus the inflation rate
proportional tax
a tax that charges the same percentage of income, regardless the size of income
vicious circle of poverty
the trap in which countries are poor because they cannot afford to save and invest, but they cannot save and invest because they are poor
infrastructure
capital goods usually provided by the government, including highways, bridges, waste and water systems, and airports
oligopoly
a market structure characterized by (1) few sellers, (2) either a homogenous or a differentiated product, and (3) difficult market entry
normative economics
an analysis based on value judgement
positive economics
an analysis limited to statements that are verifiable
benefits received principle
the concept that those who benefit from governemnt expenditures should pay the taxes that finance their benefits
ability to pay principle
the concept that those who have higher incomes can afford to pay a greater proportion of their income in taxes, regardless of benefits received
progressive tax
a tax that charges a higher percentage of income as income rises
average tax rate
the tax divided by the income
marginal tax rate
the fraction of additional income paid in taxes
regressive tax
a tax that charges a lower percentage of income as income rises
gross domestic product
the market value of all final goods and services produced in a nation during a period of time, usually a year
crowding out effect
a reduction in private-sector spending as a result of federal budget deficits financed by US Treasury borrowing
crowding in effect
an increase in private-sector spending as a result of federal budget deficits financed by US Treasury borrowing
aggregate supply curve
the curve that shows the level of real GDP produced at different possible price levels during a time period, ceteris paribus
classical economists
a group of economists whose theory dominated economic thinking from the 1770s to the great depression. they believed recessions would naturally cure themselves because the price system would automatically restore full employment
transactions demand for money
the stock of money people hold to pay everyday predictable expenses
precautionary demand for money
the stock of money people hold to pay unpredictable expenses
speculative demand for money
the stock of money people hold to take advantage of expected future changes in the price of bonds, stock, or other non money financial assets
discretionary fiscal policy
the deliberate use of changes in government spending or taxes to alter aggregate demand and stabilize the economy
spending multiplier
the change in aggregate demand (total spending) resulting from an initial change in any component of aggregate demand, including consumption, investment, government spending, and net exports. as a formula, the spending multiplier = 1/(1 - MPC)
keynesian range
the horizontal segment of the aggregate supply curve, which represents an economy in a severe recession
intermediate range
the rising segment of the aggregate supply curve, which represents an economy as it approaches full-employment output
classical range
the vertical segment of the aggregate supple curve, which represents an economy at full-employment output
M1
the narrowest definition of the money supply. it includes currency, and checkable deposits