CH 1

These flashcards cover key economic terms and definitions relevant to understanding economic systems and business.

Barriers to Entry

Factors, such as technological or legal conditions, that prevent new firms from competing equally with an existing firm.

Business Cycles

Upward and downward changes in the level of economic activity.

Capital

The inputs, such as tools, machinery, equipment, and buildings, used to produce goods and services and get them to the customer.

Capitalism

An economic system based on competition in the marketplace and private ownership of the factors of production (resources); also known as the private enterprise system.

Circular Flow

The movement of inputs and outputs among households, businesses, and governments; a way of showing how the sectors of the economy interact.

Communism

An economic system characterized by government ownership of virtually all resources, government control of all markets, and economic decision-making by central government planning.

Consumer Price Index (CPI)

An index of the prices of a 'market basket' of goods and services purchased by typical urban consumers.

Contractionary Policy

The use of monetary policy by the Fed to tighten the money supply by selling government securities or raising interest rates.

Cost-Push Inflation

Inflation that occurs when increases in production costs push up the prices of final goods and services.

Costs

Expenses incurred from creating and selling goods and services.

Crowding Out

The situation that occurs when government spending replaces spending by the private sector.

Cyclical Unemployment

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

Demand

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

Demand Curve

A graph showing the quantity of a good or service that people are willing to buy at various prices.

Demand-Pull Inflation

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

Demography

The study of people’s vital statistics, such as their age, gender, race and ethnicity, and location.

Economic Growth

An increase in a nation’s output of goods and services.

Economic System

The combination of policies, laws, and choices made by a nation’s government to establish the systems that determine what goods and services are produced and how they are allocated.

Economics

The study of how a society uses scarce resources to produce and distribute goods and services.

Entrepreneurs

People who combine the inputs of natural resources, labor, and capital to produce goods or services with the intention of making a profit or accomplishing a not-for-profit goal.

Equilibrium

The point at which quantity demanded equals quantity supplied.

Expansionary Policy

The use of monetary policy by the Fed to increase, or loosen, the growth of the money supply.

Factors of Production

The resources used to create goods and services.

Federal Budget Deficit

The condition that occurs when the federal government spends more for programs than it collects in taxes.

Federal Reserve System (the Fed)

The central banking system of the United States.

Fiscal Policy

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

Frictional Unemployment

Short-term unemployment that is not related to the business cycle.

Gross Domestic Product (GDP)

The total market value of all final goods and services produced within a nation's borders in a given time period.

Inflation

The rise in the general level of prices over time.

Monopoly

A market structure in which there is only one firm providing a product or service.

Monetary Policy

The management of the money supply and interest rates by central banks, such as the Federal Reserve System, to influence the economy.

National Debt

The quantity of new money created by the government in any one year; also known as the public debt.

Oligopoly

A market structure in which a few firms dominate.

Perfect Competition

A market structure characterized by a large number of small firms, identical products, and freedom of entry and exit.

Producer Price Index (PPI)

An index of the prices paid by producers for inputs of goods and services.

Productivity

The amount of goods and services produced over a given period, divided by the inputs used to produce them.

Recession

A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

Socialism

An economic system in which the government owns and operates basic industries, but individuals own most businesses.

Stagflation

A period of slow economic growth and high unemployment (stagnation) while prices rise (inflation).

Structural Unemployment

Unemployment that is caused by a mismatch between the skills of workers and the skills needed for available jobs.

Supply

The quantity of a good or service that businesses are willing to sell at various prices.

Supply Curve

A graph showing the quantity of a good or service that businesses are willing to sell at various prices.