Temporary stack - Vocab Section 1-3

Microeconomics

choices made by individuals, households, firms

macroeconomics

focused on the bigger picture—the ups and downs of the economy

Ex. Unemployment rate, inflation rate, GDP (aka economic aggregates)

opportunity cost

the value of the next best alternative that you must give up in order to get the item

trade off

when you give up something to have something else

economics

the study of scarcity and choice

market economy

production and consumption are the result of decentralized decisions by firms and individuals

command economy

industry is publicly owned—there is a centralized authority making decisions for production and consumption

incentives

rewards or punishments that motivate particular choices

marginal analysis

the suits of the costs and benefits of doing a bit more of an activity versus a bit less

resource

anything that can be used to produce something else

land

refers to all resources that come from nature—minerals, timber, petroleum, etc.

labor

the effort of workers

capital

refers to the manufactured goods to make other goods and services

entrepreneurship

describes the efforts in organizing resources for production, taking risks to create new enterprises, and innovating to develop new products and production processes

scarcity

when resources are not available in sufficient quantities to satisfy all the various ways society wants to use it

property rights

establish ownership and grant individuals the right to trade goods and services with each other

business cycle

the alternation between economic downturns (recessions), and economic upturns (expansions)

gains from trade

an economic principle that states people can get more of what they want through trade than they could if they tried to be self-sufficient, this increase in output is due to specialization

price stability

when the overall price level is changing slowly if at all

labor force

number of people currently holding a job (part time or full time)or are actively looking for work but aren’t employed; the sum of employed and unemployed

efficient

describes a market or economy in which there is no way to make anyone better off without making at least one person worse off

recession

period of economic downturn when output and employment are falling

expansions

period of economic upturn when output and employment are rising; also referred to as recovery

depression

a very deep and prolonged economic downturn

employment

number of people worked for pay in the economy

trade

when, in a market economy, individuals provide goods ad services to others and receive goods ad services in return

aggregate output

the economy’s total production of goods and services for a given time period

factors of production

land, labor, capital, and entrepreneurship

production possibilities curve (PPC)

illustrates the trade offs facing an economy that produces only two goods; shows the maximum quantity of one good that can be produced for each possible quantity of the other good produced

cost-benefit analysis

compares the total expected costs of an action against total explored benefits

adam smith

Scottish philosopher and founder of economics (and capitalism), was the originator of the wealth definition of economics

economic aggregates

economic measures that summarize data across many different markets

unemployment rate

percentage of labor force that is unemployed

productive efficiency

achieved by an economy if it produces a point on its PPC

comparative advantage

the advantage conferred by a individual if the opportunity cost of producing the good/service is lower for that individual than for other people

allocative efficiency

achieved by an economy if it produces at the point along PPC that makes consumers as well off as possible

absolute advantage

the advantage conferred by the ability to produce more of a good or service with a given about of time and resources, different from comparative advantage

inflation

a rising overall price level

economic model

provides simplified representations of reality using graphs/equations

economic growth

an increase in the max amount of goods and services an economy can produce

terms of trade

the rate at which one good can be exchanged for another

specialization

situation in which each person is specializing in the task that he or she is good at performing

unemployment

the number of people actively looking for work but aren’t employed

deflation

a falling overall price level

national accounts

keeps track of the flows of money among different sectors of the economy (consumer spending, government purchases, etc.)

firm

an organization that produces goods and services

taxes

required payments to the government

government transfers

payments that the government makes to individuals without expecting a good or service in return

gross domestic product (GDP)

the total value of all goods and services produced in the economy during a given year

frictional employment

unemployment due to the time workers spend in job search

unemployed

people actively looking for work but aren’t currently employed

underemployed

workers who would like to work more hours or are overqualified for their jobs

cyclical unemployment

the deviation of the actual rate of unemployment from the natural rate

value-added approach

an approach to calculating GDP by surveying firms and adding up their contributions to the value of final goods or services

nominal interest rate

the interest rate actually paid for a loan

producer price index (PPI)

measures the price of goods and services produced by producers

real interest rate

the nominal interest rate minus the rate of inflation

price index

measures the cost of purchasing a given market basket in a given year; the index value is normalized so that it is equal to 100 in the selected base year

marginally attached workers

people who would like to be employed and have looked for a job in the recent past but not currently looking for work

labor force participation rate

the percentage of the population aged 16 and older that is in the labor force

intermediate goods and services

goods and services bought from one firm by another firm to be used as inputs into the production of final goods and services

natural rate of unemployment

the unemployment rate that arises from the effects of frictional plus structural employment

exports

goods and services sold to other countries

real GDP

the total value of all final goods and services produced in the economy during a given year, calculated using the prices of a selected base year in order to remove the effects of price changes

employed

people who are currently holding a job in the economy either full time or part time

real wage

the wage rate divided by the price level to adjust for the effects of inflation or deflation

labor force

the number of people who are either currently holding a job (part time or full time) in the economy or are actively looking for work but aren’t currently employed; the sum of employment and unemployment

nominal GDP

the total value of all final goods and services produced in the economy during a given year, calculated using prices in the current year which the output is produced

imports

goods and services purchased from other countries

net exports

the difference between the value of exports and the value of imports (exports - imports)

GDP deflator

100 times the ratio of nominal GDP to real GDP in that year

disinflation

the process of bringing the inflation rate down

income approach

an approach to calculating GDP by adding up the total factor income earned by households to firms in the economy (rent, wages, interest, profit)

transfer payments

government payments to individuals/groups without receiving any good or service in return

competitive market

a market where there are many buyers and sellers of the same good or service, none of whom can insure the price at which the good is sold

supply and demand model

a model of how a competitive market works

demand schedule

shows how much a good or service companies will be willing and able to buy at different prices

quantity demanded

the actual amount of a good or service consumers are willing to buy at some specific price. It is shown as a single point in a demand schedule or along a demand curve

demand curve

a graphical representation of the demand schedule, shows the relationship between quantity demanded and price

law of demand

a higher price for a good or service, all other things being equal, leads people to demand a smaller quantity of that good or service

change in demand

a shift of the demand curve, which changes the quantity demanded at any given price

substitutes

if rise in price of one leads to an increase in the demand for the other good

complements

if rise in price of one leads to decrease in demand for the other good

normal good

when income rises, demand for these types of goods increases

inferior goods

when income decreases, demand for these types of goods increases (off brands, etc)

quantity supplied

the actual amount of a good or service people are willing to sell at some specific prices

supply schedule

shows how much of a good or service producers are willing to supply at different prices

supply curve

shows the relationship between quantity supplied and the price

change in supply

a shift of the supply curve, which changes quantity supplied at any given price

input

a good or service that is used to produce another good or service

equilibrium price

also referred to as market-clearing price, this price takes Palme when the market is in equilibrium

equilibrium

when quantity demanded equals quantity supplied

equilibrium quantity

quantity supplied of the good bought and sold at that price is the equilibrium quantity

surplus

when the quantity of a good or service exceeds quantity demanded, occurs when price is above equilibrium level

shortage

when quantity demanded exceeds quantity supplied, occurs when price is below equilibrium level

price controls

legal restrictions on how high or low a market price may go

price ceiling

a maximum price buyers are required to pay for a good or service

price floor

a minimum price buyers are required to pay for a good/service

inefficient allocation to consumers

caused by price ceilings: people who want the good badly and are willing to pay a high price don’t get it, and those who care relatively little about the good and are willing to pay a relatively low price do get it

wasted resources

caused by price ceilings: people expend money, effort, and time to cope with the shortages caused by the price ceiling