BADM 1301 Chapter 13 - Understanding the Economy

Vocabulary practice flashcards generated from BADM 1301 Chapter 13 lecture slides covering core economic definitions, macroeconomic goals, unemployment types, market structures, and supply and demand dynamics.

Economics

The study of how individuals, businesses, governments, and societies make choices about how to allocate limited resources to satisfy unlimited wants and needs.

Microeconomics

The branch of economics that focuses on individual households, businesses, and markets by analyzing supply and demand, pricing, production decisions, and resource allocation at the local or firm level.

Macroeconomics

The branch of economics that focuses on the economy as a whole by examining broad aggregates such as GDP, inflation, unemployment, and government policies that influence national and global economic performance.

Economic Growth

An increase in the total output of goods and services produced by a nation over time, usually measured by Gross Domestic Product (GDP).

Recession

A decline in GDP that lasts for two consecutive quarters.

Full Employment

A condition in which everyone who wants to work and is able to work can find a job, with minimal levels of unemployment; considered to be $4\%$ unemployment in the U.S.

Price Stability

Keeping inflation low and predictable so that the purchasing power of money remains relatively constant over time, with the Federal Reserve aiming for an inflation rate of $2\%$.

Efficient Allocation of Resources

Ensuring that limited resources are used in a way that maximizes the value of goods and services produced, producing what people want at the lowest possible cost.

Consumer Satisfaction

Creating choices that meet consumer preferences and needs through competitive markets that increase product variety, quality, and affordability.

Profit Maximization

Helping businesses achieve the highest possible financial return given their costs and constraints by analyzing costs, pricing, and demand.

Opportunity Cost

The value of the next-best alternative that is given up when a choice is made.

Scarcity

A condition where resources are limited and cannot meet all the wants or needs of consumers.

Trade-Offs

The act of giving up one thing in order to gain something else.

The Seen and the Unseen

Recognizing both the obvious outcomes of choices and the hidden or unintended consequences.

Frictional Unemployment

Short-term unemployment that is not related to the business cycle, including people waiting to start a better job, reentering the workforce, or entering for the first time.

Structural Unemployment

Unemployment caused by a mismatch between available jobs and the skills of available workers in a specific industry or region, unrelated to the business cycle.

Cyclical Unemployment

Unemployment that occurs when a downturn in the business cycle reduces the demand for labor throughout the economy.

Seasonal Unemployment

Unemployment that occurs during specific seasons in certain industries such as agriculture, retail, or tourism.

Inflation

A general rise in the average prices of goods and services across the economy over time.

Demand-Pull Inflation

Inflation that occurs when the demand for goods and services is greater than the supply.

Cost-Push Inflation

Inflation triggered by increases in production costs, such as expenses for materials and wages.

Purchasing Power

The value of what money can buy, which decreases when prices rise due to inflation.

Consumer Price Index (CPI)

Measures the prices of a market basket of goods and services purchased by typical urban consumers, covering $93\%$ of the population.

Producer Price Index (PPI)

Measures prices paid by producers and wholesalers for raw materials, partially finished goods, and finished products.

Monetary Policy

Refers to government programs for controlling the amount of money circulating in the economy and interest rates, managed by the central bank.

Federal Reserve System (The Fed)

The central banking system of the U.S. that prints money and controls how much of it will be in circulation.

Contractionary Policy

A monetary policy where the Fed restricts the money supply by selling government securities or raising interest rates.

Expansionary Policy

A monetary policy where the Fed increases growth in the money supply by lowering interest rates or buying government securities.

Fiscal Policy

The government's use of taxation and spending to affect the economy.

Crowding Out

Occurs when the government takes more money from businesses and consumers and uses it for increased government spending, reducing private sector investment.

Federal Budget Deficit

Happens when the government spends more on programs than it collects in taxes.

National Debt

The cumulative total of all past federal budget deficits.

Supply

The quantity of a good or service that businesses will make available at various prices.

Demand

The quantity of a good or service that people are willing to buy at various prices.

Equilibrium Point

The point where the demand and supply curves cross on a graph, where quantity demanded equals quantity supplied.

Equilibrium Price

The price at which the quantity of a product demanded by consumers equals the quantity supplied by producers, resulting in no surplus or shortage.

Elastic Demand

When a small change in price causes a large change in the quantity demanded.

Inelastic Demand

When a change in price has little or no effect on the quantity demanded.

Complementary Goods

Items that are used together, so when the demand for one increases, the demand for the other also increases.

Substitute Goods

Items that can replace each other, so when the price of one goes up, the demand for the other increases.

Absolute Advantage

The ability to produce more of a good or service than another business using the same amount of resources.

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than another producer.

Business Cycle

The recurring pattern of expansion and contraction in an economy over time, including growth, peak performance, slowdown, and recovery.

Expansion

A phase of the business cycle when the economy is growing, businesses invest, jobs increase, consumer confidence rises, and GDP climbs.

Peak

The height of economic growth in the business cycle where the economy runs at full capacity, unemployment is low, and inflation pressures may begin to build.

Contraction

A slowdown in economic activity in the business cycle where businesses cut back, jobs are lost, spending declines, and GDP shrinks for two or more consecutive quarters.

Trough

The lowest point in the business cycle where economic decline bottoms out, signaling the end of a recession and the beginning of recovery.

Recovery

A rebound in economic activity where consumers start spending again, businesses rehire, and GDP begins to rise toward expansion.

Business

An organization that strives for a profit by providing goods and services desired by its customers.

Goods

Tangible items produced or manufactured by businesses that can be physically touched, seen, or held.

Services

Intangible offerings provided by businesses to satisfy customer needs that cannot be physically touched or held.

Standard of Living

The level of wealth, comfort, and access to goods and services available to a person or society, measured by the quantity of goods and services people can buy with their income.

Natural Resources

Resources found in nature, such as farmland, forests, minerals, and water, that are used in their raw state for production.

Labor

The human effort (both physical and mental) used to produce goods and services.

Capital

Tools, machinery, equipment, and buildings used to produce and distribute goods and services.

Entrepreneurship

The ability to combine natural resources, labor, and capital to produce goods or services and take on the risks of starting a business.

Knowledge

The collective skills, talents, and expertise of the workforce, recognized as a critical factor driving productivity and growth.

External Environment

Outside forces that impact how businesses operate and succeed, consisting of seven areas: economic, political and legal, demographic, social, competitive, global, and technological.

Internal Environment

Factors that business owners and managers can control through day-to-day decisions, including entrepreneurs, managers, workers, and customers.

Capitalism

An economic system based on competition in the marketplace and private ownership of the factors of production, also known as a private enterprise system.

Communism

An economic system in which the government owns all resources and controls all markets.

Socialism

An economic system where the government or a highly regulated private sector owns and controls key industries.

Mixed Economic Systems

A blend of multiple economic systems where some industries are government-owned while others remain privately operated.

Perfect Competition

A market structure with many small firms selling identical products, full information for buyers and sellers, and easy entry or exit.

Pure Monopoly

A market structure with only one firm that controls the entire supply, characterized by high barriers to entry.

Monopolistic Competition

A market structure with many firms selling similar but slightly differentiated products, where entry is relatively easy and firms compete on features, branding, and service.

Oligopoly

A market structure dominated by a few large firms that produce most of the industry's output, where entry is difficult due to high startup costs or legal barriers.