Economics and Personal Finance Vocab

scarcity

fundamental economic problem of meeting people's virtually unlimited needs and wants with scarce resources

economics

social science dealing with how people satisfy seemingly unlimited and competing needs and wants with the careful use of scarce resources

need

basic requirement for survival, including food, clothing, and shelter

want

something we would like to have but is not necessary for survival

good (n.)

tangible economic product that is useful, transferable to others, and used to satisfy wants and needs

durable goods

goods that lasts for at least three years when used regularly

consumer goods

goods intended for final use by consumers other than businesses

nondurable goods

items that wears out, is used up, or lasts for fewer than three years when used regularly

capital goods

tools, equipment, or other manufactured goods used to produce other goods and services

service

a factor of production service work or labor performed for someone; economic product that includes haircuts, home repairs, and forms of entertainment

value

a factor of production service work or labor performed for someone

paradox of value

apparent contradiction between the high value of a nonessential item and the low value of an essential item

utility

ability or capacity of a good or service to be useful and give satisfaction to someone

wealth

sum of tangible economic goods that are scarce, useful, and transferable from one person to another

gross domestic product (GDP)

monetary value of all final goods, services, and structures produced within a country's national borders during a one-year period

traditional economy

economic system in which the allocation of scarce resources and other economic activity is the result of ritual, habit, or custom

economic system

organized way a society provides for the wants and needs of its people

command economy

economic system characterized by a central authority that makes most of the major economic decisions

socialism

economic system in which government owns some factors of production and has a role in deciding what and how goods are produced

market

meeting place or arrangement through which buyers and sellers interact to determine price and quantity of an economic product; may be local, regional, national, or global

market economy

economic system in which supply, demand, and the price system help people allocate resources and make the WHAT, HOW, and FOR WHOM to produce decisions; same as free enterprise economy

capitalism

economic system in which private citizens own and use the factors of production in order to generate profits

production possibilities curve

diagram representing all possible combinations of goods and/or services an economy can produce when all productive resources are fully employed

efficiency

all goods and factors of production in an economy are distributed or allocated to their most valuable uses

marginal benefit

the advantage of gaining each additional unit of an economic good

marginal cost

the cost of gaining each additional unit of an economic good

marginal utility

what satisfaction of needs/wants (utility) is gained when consuming each additional unit of an economic good

explicit costs

costs calculated in terms of money (out of pocket costs)

implicit costs

opportunity costs of a decision (foregone benefits) that is not defined in terms of money

financial institution

group that channels savings to investors; includes banks, insurance companies, savings and loan associations, and credit unions

savings

the dollars that become available for investors to use when others save

interest payment

made for the use of borrowed money; usually paid at periodic intervals for long term bonds or loans

interest rate

the price of credit to a borrower

Federal Reserve System (Fed)

privately owned, publicly controlled, central bank of the United States

Federal Deposit Insurance Corporation (FDIC)

the U.S. government institution that provides deposit insurance on the depositor's account

credit union

nonprofit service cooperative that accepts deposits, makes loans, and provides other financial services

demand deposit account (DDA)

account whose funds can be removed from a bank or other financial institution by writing a check or using a debit card

creditors

persons or institutions to whom money is owed

collateral

something of value that a borrower lets the lender claim if a loan is not repaid

secured loan

a loan that is backed up by collateral

unsecured loan

a loan guaranteed only by a promise to repay it

demand

combination of desire, ability, and willingness to buy a product

microeconomics

branch of economic theory that deals with behavior and decision making by small units such as individuals and firms

demand schedule

listing showing the quantity demanded at all possible prices that might prevail in the market at a given time

incentive

something that motivates

demand curve

graph showing the quantity demanded at every possible price that might prevail in the market at a given time

Law of Demand

rule stating that more will be demanded at lower prices and less at higher prices; inverse relationship between price and quantity demanded

market demand curve

the demand curve that shows the quantities demanded by everyone who is interested in purchasing a product at all possible prices

marginal utility

satisfaction or usefulness obtained from acquiring one more unit of a product

change in quantity demanded

movement along the demand curve showing that a different quantity is purchased in response to a change in price

income effect

that portion of a change in quantity demanded caused by a change in a consumer's income when the price of a product changes

substitution effect

the portion of a change in quantity demanded caused by a change in price that makes other products more or less costly

change in demand

consumer demand for different amounts at every price, causing the demand curve to shift to the left or the right

substitutes

competing products that can be used in place of one another; products related in such a way that an increase in the price of one increases the demand for the other complements - products that increase the use of other products; products related in such a way that an increase in the price of one reduces the demand for both

supply

amount of a product offered for sale at all possible prices in a market at a given point in time

Law of Supply

principle that more will be offered for sale at high prices than at lower prices

supply curve

a graph that shows the quantities supplied at each and every possible price in the market

market supply curve

the supply curve that shows the quantities offered at various prices by all firms that sell the product in a given market

quantity supplied

amount offered for sale at a given price; point on the supply curve

change in quantity supplied

change in amount offered for sale in response to a price change; movement along the supply curve

change in supply

different amounts offered for sale at each and every possible price in the market; shift of the supply curve

subsidy

government payment to encourage or protect a certain economic activity

supply elasticity

responsiveness of quantity supplied to a change in price

price

the monetary value of a product

rationing

system of allocating goods and services without prices

economic model

simplified version of a complex concept or behavior expressed in the form of a graph, figure, equation, or diagram

equilibrium price

the price where quantity supplied equals quantity demanded

equilibrium quantity

the quantity of output supplied that is exactly equal to the quantity demanded at the equilibrium price

surplus

situation where quantity supplied is greater than quantity demanded at a given price

diminishing marginal utility

decrease in satisfaction or usefulness as additional units of a product are acquired

complements

products that increase the use of other products; products related in such a way that an increase in the price of one reduces the demand for both

supply schedule

a table showing the quantities produced or offered for sale at each and every possible price in the market at a given point in time

shortage

situation where quantity supplied is less than quantity demanded at a given price

market structure

market classification according to number and size of firms, type of product, and type of competition; nature and degree of competition among firms in the same industry

perfect competition (perfectly competitive market)

theoretical market structure characterized by a large number of well-informed, independent buyers and sellers who exchange identical products and have freedom of entry and exit

monopolistic competition (monopolistically competitive market)

market structure having all conditions of pure competition except for identical products; a form of imperfect competition

product differentiation

real or imagined differences between competing products in the same industry

nonprice competition

competition based on a product's appearance, quality, or design, rather than its price

oligopoly market

market structure in which a few large sellers dominate and have the ability to affect prices in the industry; form of imperfect competition

collusion

illegal agreement among producers to fix prices, limit output, or divide markets

price fixing

illegal agreement by firms to charge a uniform price for a product

monopoly market

market structure characterized by a single producer; form of imperfect competition laissez-faire - philosophy that government should not interfere with business activity

natural monopoly

market structure in which average costs of production are lowest when all output is produced by a single firm

geographic monopoly

market structure in which a firm has a monopoly because of its location or the small size of the market

technological monopoly

market structure in which a firm has a monopoly because it owns or controls a manufacturing method, process, or other scientific advantage

government monopoly

monopoly created and/or owned by the government

pure competition

a theoretical market structure that requires three conditions: very large numbers of buyers and sellers, identical products, and freedom of entry and exit industry group of firms producing similar or identical products

laissez-faire

philosophy that government should not interfere with business activity

gross domestic product (GDP)

dollar value of all finished goods, services, and structures produced within a country's national borders during a one-year period

intermediate products

products that are components of other final products already included in the GDP; for example, new tires and radios for use on new cars

secondhand sales

sales of used goods; category of activity not included in GDP computation

nonmarket transactions

economic activity not taking place in the market, and therefore, not included in GDP; examples include services of homemakers and work done around the home

underground economy

unreported legal and illegal activities that do not show up in GDP statistics

real GDP

gross domestic product after adjustments for inflation; same as GDP in constant dollars

real GDP per capita

gross domestic product on a per person basis

gross national product (GNP)

the market value of goods and services produced by labor and property supplied by U.S. residents net national product

business cycles

systematic changes in real GDP marked by alternating periods of expansion and contraction

business fluctuations

changes in real GDP marked by alternating periods of expansion and contraction that occur on an irregular basis

recession

decline in real GDP lasting at least two quarters or more

peak

point in time when real GDP stops expanding and begins to decline