Economics Review Flashcards

Flashcards to review key vocabulary and concepts from economics lecture notes.

Scarcity

One of the most important principles of economics referring to limited resources.

Renewable Resources

Resources like solar and wind power that can be replenished.

Inflation

A sharp increase in the average price of goods.

Equilibrium

The point businesses try to establish to avoid surplus or shortage.

Supply Curve

Shows the quantity of a product or service a supplier is willing to sell across a range of prices.

Equilibrium Price

Represents how much a business should charge for an item.

Globalization

Removing political, social, and economic barriers helps make nations more open to each other.

Scarcity

Means there is never enough of everything to satisfy everyone completely.

Telecommunications Advancements

More international trade is now possible than in the past because of advancements in this area.

Economics

The study of how people produce, distribute, and use goods and services.

Economists

Professionals who use mathematical tools and equations to measure the health of the economy.

Price

Supply and demand have a direct impact on the price of goods and services.

Equilibrium Point

The point where the supply curve and the demand curve meet.

Factors of Production

Land, labor, and capital are the main factors of production.

Capital (benefit)

Using capital leads to more productivity.

Globalization (problem)

One problem with globalization is increased interdependence.

Market Research

Companies spend money on this to figure out what people want and need.

Standard of Living

To improve its standard of living, a nation's economy must grow through innovation.

Traditional Economies

Usually small, close communities that avoid change and new technology.

Economic Question: How to Produce

The ways in which factors of production are combined determines the answer to this economic question.

Distribution of Income

How a society determines who will get what is produced.

Factors of Production Supply

People supply land, labor, or capital in return for factor payments.

Self-Sufficiency

People need to buy and sell products or services because no one is self-sufficient.

Factor of Production Ownership

Households own the factors of production.

Negative Incentive

Consumers will purchase less of a good if there's a higher price.

Competition

The invisible hand that regulates the free market economy.

Free Market Economic Growth

Attained because competition encourages innovation.

Independent (Economy)

People need to buy and sell goods or services because no one is completely independent.

Innovation

Competition encourages this in a free market.

Command Economy

A socialist society has a more flexible version of this.

Soviet Union Economy

The government discouraged competition by determining prices, wages, and products.

Heavy Industry

The products of this provide material for many other industries.

Economic Freedom

The Chinese government allows far more of this compared to Soviet Russia.

Mixed Economy

The United States economy is of this type; based on a free market, but allowing some government intervention.

Government Intervention

Useful because governments are more able to meet some needs and wants of modern society.

Promote General Welfare

The United States government intervenes in the economy in order to promote this.

Investment Options

Handled by individuals in a free market economy instead of the government.

Three Key Economic Questions

What goods and services should be produced, how, and for whom?

Economic Growth

One of the most important advantages of a free market is that it encourages this.

Economic Growth

One of the most important advantages of a free market is that it encourages this.

Making Profits

The main incentive for a manufacturer to sell a product.

Adam Smith

Philosopher who argued that a free market would regulate itself with little government involvement.

Product Market

The market in which households purchase the goods and services that firms produce.

Federal Reserve System

Has a high degree of political independence.

Nationally Chartered Banks

These banks must join the Federal Reserve System.

Federal Reserve Act

Passed in order to decentralize the banking system.

Panic of 1907

Congress passed the Federal Reserve Act of 1913 to respond to banking problems caused by this.

All national banks

These banks are required to become members of the Federal Reserve System.

Borrowing money from the Fed

A service the Fed provides to all banks.

Functions of Federal Reserve

NOT to loan money to individuals and small businesses, but to process checks, regulate money supply and clear checks.

U.S. Paper Currency

Issued by the district Federal Reserve Banks.

High interest rates

Discourage people from holding their money in cash because they can get interest for it when it is invested.

Federal Government

The Federal Reserve's biggest customer.

Inflation

Too much money in the economy would lead to this.

Reserve Requirements

The Fed rarely changes these because it can be disruptive to the whole banking system.

Creates Money

Depositing money into a checking account does this.

Economy Slowing Down

The Fed might decide to lower reserve requirements if this is happening.

Monetary Policy

Use this to lower interest if the economy is slowing.

Business Investment

Low interest rates encourage this by making it easier to borrow money.

"Lender of Last Resort"

The Federal Reserve is called this because The Fed makes loans that allow banks to maintain required reserves.

Interest Rates

As interest rates increase, demand for cash decreases.

Lending Money

Banks create money by lending money they are not required to hold in reserve.

Reserve Requirements

Prior to the passage of the Federal Reserve Act of 1913, reserve requirements were difficult to enforce and difficult for banks to maintain on their own.

Federal Reserve Districts

The geographic areas into which the Federal Reserve Act divided the United States.

Banker

The Federal Reserve is the federal government's banker.

Amount of Money in Circulation

The Federal Reserve regulates the required reserve ratio in order to control this.

Government Service

The Fed serves as the Treasury Department's checking account.

Inflation

If the economy is slowing but the Fed increases the money supply, this could happen.

Federal Reserve Controls

Federal Reserve member banks control the Federal Reserve System.

Market Demand Schedule

An economist creates this to predict how people will change their buying habits when prices change.

Law of Demand Example

Demand for pizza rises when the price of pizza falls.

Prices Rise/Income Stays the Same

Fewer goods are bought.

Substitution Effect

Consumers buy the item as a substitute for other things.

Market Demand Schedule

An economist creates this to predict how all people will change their buying habits when prices change.

Demand

You are willing and able to buy the good at the given price.

Prices Rise/Income Stays the Same

Fewer goods are bought.

Expectations About the Future

Immediate demand for a good will rise if its price is expected to rise.

Increased Demand

If goods are used together, increased demand for one will increase demand for the other.

Demand Curve Shift

The entire curve shifts to the right if the population increases.

Shift in Demand Curve

Caused by a change in an area other than price.

Elasticity of Demand

Measures how buyers will cut back or increase their demand when price rises or falls.

Luxury Affect on Demand

If a good is perceived as a luxury, demand becomes elastic.

Inelastic

Demand for milk is considered this because it is considered a necessity, not a luxury.

Inelastic Demand

Medicine is a product with this.

Ceteris Paribus Assumption

Means that all things other than price hold constant.

Prices of the Good

Will remain the same in demand schedule for individual and market.

Inferior Good

John gets a raise and decides to start buying enriched pasta instead of cheaper instant noodles. For John, instant noodles are examples of this.

Profit

Determined by total revenue minus total cost.

Total Revenue

If total revenue is greater than operating cost a factory that is losing money would keep operating.

Increases Supply, Lowers Cost

Describes how new technology generally affects production.

Subsidies

European governments protect the growing of food with these to have food in case imports are ever restricted.

Government's Goal

To keep prices from going down is the government's goal in buying excess crops or other agricultural products.

Essential Goods

Governments place price ceilings, such as rent control, on some of these to keep the goods from becoming too expensive.

The Wealth of Nations

Main principle is business prospers by finding out what people want and providing it.

China

The country who first invented paper money.