foundations of american enteprise topics

Economics

A way of thinking focused on how individuals, businesses, and governments make choices with limited resources.

Scarcity

The limitation of resources, which requires making choices.

Trade-offs

The concept that every choice involves giving up something to get something else.

Incentives

Factors that motivate individuals to make decisions, can be economic, social, or psychological.

Costs and Benefits

The analysis of decisions based on the advantages and disadvantages of alternatives.

Interdependence

The interconnected nature of economic actions and outcomes globally.

Capitalism

An economic system based on private ownership of the means of production for profit.

Means of Production

The resources used to produce goods and services, including land, labor, capital, and entrepreneurship.

Microeconomics

The branch of economics focusing on individual parts of the economy like households and firms.

Macroeconomics

The branch of economics that deals with the economy as a whole, including aggregate indicators.

Markets

Systems where buyers and sellers interact to exchange goods, services, or information.

Competition

The presence of a large number of buyers and sellers preventing any single entity from controlling prices.

Property Rights

Clearly defined and enforceable rights that allow ownership and control of resources.

Transaction Costs

The costs associated with making a transaction, which should be minimal for effective markets.

Supply

The amount of a good or service that producers are willing to sell at various prices.

Demand

The amount of a good or service that consumers are willing to buy at various prices.

Equilibrium Price

The price at which supply and demand meet.

Heilbroner's Fundamental Economic Problem

Managing scarce resources to meet unlimited societal wants.

Behavioral Economics

A field that studies how psychological factors influence economic decision-making.

Bounded Rationality

The idea that people make decisions with limited information and cognitive resources.

Loss Aversion

The tendency for losses to be felt more intensely than equivalent gains.

Framing Effect

The influence of how information is presented on people's decisions.

Fixed Costs

Costs that do not change with the level of output, such as rent and salaries.

Variable Costs

Costs that vary directly with the level of production, such as raw materials.

Total Costs

The sum of fixed and variable costs.

Average Cost

Total cost divided by the number of units produced.

Marginal Cost

The additional cost of producing one more unit of output.

Financial Markets

Markets where financial securities like stocks and bonds are bought and sold.

Financial Institutions

Entities that facilitate the exchange of funds, such as banks and insurance companies.

Financial Instruments

Securities and contracts traded in financial markets.

Central Bank (The Federal Reserve)

The institution managing the nation's money supply and monetary policy.

Efficient Financial System

A system that facilitates the flow of funds, provides liquidity, and promotes stability.

Stocks (Equities)

Shares representing ownership in a company, providing dividends and capital gains.

Bonds (Debt Securities)

Debt instruments that obligate the issuer to pay interest and return principal.

Treasury Bills (T-Bills)

Short-term government debt securities with low risk.

Derivatives

Contracts whose value is derived from an underlying asset, used in hedging and speculation.

Mutual Funds

Pooled investments allowing diversification in stocks and bonds.

Exchange-Traded Funds (ETFs)

Investment funds traded on stock exchanges, similar to mutual funds.

Federal Reserve (Fed)

The central bank responsible for monetary policy and regulating financial institutions.

Interest Rates

The cost of borrowing money, influenced by the Federal Reserve.

Open Market Operations

Fed's buying and selling of government securities to influence money supply.

Reserve Requirements

The amount of cash banks must hold, set by the Federal Reserve.

Lender of Last Resort

The role of the Fed in providing liquidity to banks in financial distress.

GDP (Gross Domestic Product)

The total value of all final goods and services produced in a country over a specified time.

GDP Formula

GDP = C + I + G + (X - M), where C is consumption, I is investment, G is government spending, X is exports, and M is imports.

Economic Health Indicator

GDP used to measure and compare the economic performance of countries.

Double-Entry Bookkeeping

An accounting system where every transaction affects at least two accounts to maintain balance.

Accounting Equation

Assets = Liabilities + Owner’s Equity.

Financial Statements

Reports that provide insights into the financial position of a company.

Manager-Owner Problem

The conflict of interest between managers and shareholders due to differing goals.

Income Statement

A financial statement showing a company's revenues, expenses, and net income over a period.

Balance Sheet

A snapshot of a company's financial position, showing assets, liabilities, and owner's equity.

Net Income

The profit or loss resulting from subtracting expenses from revenue.

Cash Flow Statement

A statement that tracks the flow of cash in and out of a company during a specific period.

Corporation

A legal entity separate from its owners, allowing it to own property and enter contracts.

Limited Liability

Shareholders are only liable for the amount they invest, protecting personal assets.

Perpetual Existence

The ability of a corporation to exist independently of its owners.

Transferability of Shares

The ability to buy and sell shares of a corporation easily.

Permanent Capital

Funds raised through stock issuance that do not need repayment unless the corporation is liquidated.

Expansion and Diversification

Growth strategies enabled by permanent capital, allowing corporations to develop in various directions.

Financial System

The framework facilitating the flow of money and investment in an economy.

Economic Policies

The regulations and guidelines set by a government that impact corporate growth and operations.

Externalities

Costs or benefits of economic activities impacting third parties not involved in the transaction.

Negative Externality

A cost imposed on others, such as pollution from a factory affecting nearby communities.

Positive Externality

A benefit derived by others not party to a transaction, such as job creation by a business.

Market Failure

A situation where the allocation of goods and services is not efficient, often due to externalities.

Regulation and Policy

Government actions intended to correct market failures, including taxes or subsidies.

Social Welfare

The overall well-being of society, improved by addressing externalities and ensuring business accountability.

Consumer Sovereignty

The idea that consumers determine the production of goods and services through their purchases.

Utility

The satisfaction or pleasure derived from consuming goods and services.

Diminishing Marginal Utility

The principle that as a person consumes more units of a good, the additional satisfaction decreases.

Elasticity

The measure of how much demand or supply responds to changes in price.

Public Goods

Goods that are non-excludable and non-rivalrous, meaning they are available for everyone's use without depletion.

Monopoly

A market structure characterized by a single seller dominating the market, leading to less competition.

Oligopoly

A market structure in which a few large firms control most of the market share.

Price Discrimination

The practice of selling the same product at different prices to different consumers.

Fiscal Policy

Government adjustments to spending and tax policies to influence the economy.

Monetary Policy

The process by which the central bank manages the money supply and interest rates.

Business Cycle

The fluctuating levels of economic activity that an economy experiences over a period.

Inflation

The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Deflation

A decrease in the general price level of goods and services, leading to increased purchasing power.

Stagflation

A situation where the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high.

Gross National Product (GNP)

The total economic output produced by the residents of a country, regardless of where the production occurs.

National Debt

The total amount of money that a country's government has borrowed, which it must repay.

Trade Deficit

An economic measure of a negative balance of trade, where a country's imports exceed its exports.

Tariff

A tax imposed on imported goods to protect domestic industries.

Subsidy

Financial assistance granted by the government to support a particular industry or the production of certain goods.

Globalization

The process of interaction and integration among people, companies, and governments worldwide.

Supply Chain

The entire system of production, processing, and distribution of goods from suppliers to end-users.

Insurance

A financial product that provides protection against losses in exchange for regular premium payments.

Risk Management

The identification, evaluation, and prioritization of risks followed by coordinated efforts to minimize, control, or monitor the impact of unfortunate events.

Investment

The action or process of investing money for profit, expecting a return on the initial amount.

What is the accounting equation?

The accounting equation is Assets = Liabilities + Owner's Equity, reflecting a company's financial position.

What is a cash flow statement?

A financial statement that provides data regarding the inflow and outflow of cash in a business over a specific period.

What is the role of financial regulators?

Financial regulators oversee and enforce laws and regulations to ensure the stability and integrity of the financial system.

What are generally accepted accounting principles (GAAP)?

GAAP is a standard framework of guidelines for financial accounting used in a particular jurisdiction.

What is the purpose of auditing?

Auditing ensures the accuracy and reliability of financial statements, providing assurance to stakeholders about the integrity of financial reporting.

What is a financial ratio?

A financial ratio is a comparison of two numbers in financial statements that helps assess a company's performance.

What is the significance of corporate governance?

Corporate governance involves the systems and processes that direct and control a company, ensuring accountability and transparency.

What are stakeholders?

Stakeholders are individuals or groups who have an interest in the success or failure of a business, including employees, customers, investors, and the community.