Econ Fall Final Terms

Aggregate Demand

Aggregate Demand

The total demand for goods and services in an economy at a given price level and time period. It includes consumption, investment, government spending, and net exports.

Aggregate Supply

The total supply of goods and services that firms in an economy are willing to produce at a given price level and time period. It reflects production capacity and cost factors.

Asymmetric Information

A situation where one party in a transaction has more or better information than the other, leading to market inefficiencies. Common examples include adverse selection and moral hazard.

Break-even Point

The level of production or sales at which total revenue equals total costs. At this point, a business neither makes a profit nor incurs a loss.

Business Cycles

The fluctuating levels of economic activity in an economy over time, characterized by periods of expansion and contraction. Phases include peak, recession, trough, and recovery.

Capital

Man-made resources, such as machinery and tools, used in the production of goods and services. It is one of the factors of production

Ceteris Paribus

A Latin term meaning "all other things being equal." Used to isolate the relationship between two variables by assuming other factors remain constant.

Circular Flow

A model that shows the flow of goods, services, and money between households, businesses, and the government in an economy. It illustrates the interdependence of economic actors.

Command Economies

Economic systems where the government controls production, allocation, and pricing of goods and services. Examples include centrally planned economies like the former Soviet Union.

Complements

Goods that are often consumed together, such as coffee and sugar. An increase in the price of one typically decreases the demand for the other.

Corporations

Legal entities that are separate from their owners, offering limited liability and the ability to raise capital through stock issuance. They are common forms of business organization.

Cyclical Unemployment

Unemployment caused by economic downturns or recessions when demand for goods and services decreases. It typically disappears as the economy recovers.

Demand

The quantity of a good or service that consumers are willing and able to purchase at various price levels. It is influenced by factors like income, preferences, and prices of related goods.

Demerit Goods

Goods that have negative externalities and are considered harmful to individuals or society, such as cigarettes. Governments often discourage consumption through taxes or regulation.

Diminishing Marginal Utility

The decrease in satisfaction or utility that a consumer derives from consuming additional units of a good or service. It explains why demand curves slope downward.

Discouraged Worker

An individual who has stopped looking for work because they believe no jobs are available for them. They are not counted in the labor force or unemployment rate.

Economics

The study of how individuals, businesses, and governments allocate scarce resources to satisfy wants and needs. It examines production, distribution, and consumption.

Elasticity

A measure of how responsive quantity demanded or supplied is to changes in price, income, or other factors.

Entrepreneurship

The process of organizing, managing, and assuming the risks of a business to generate profit. They combine land, labor, and capital to create value.

Externalities

Costs or benefits of an economic activity experienced by third parties, not reflected in market prices. Examples include pollution (negative) and education (positive).

Factors of Production

Resources used to produce goods and services, including land, labor, capital, and entrepreneurship. They are the building blocks of economic activity.

Fixed Costs

Costs that do not change with the level of output, such as rent or salaries. They are incurred even when production is zero.

Frictional Unemployment

Short-term unemployment caused by the time it takes individuals to find new jobs that match their skills and preferences. It is a natural part of a healthy labor market.

GDP (Gross Domestic Product)

The total value of all final goods and services produced within a country in a given time period. It is a key indicator of economic performance.

Income Effect

The change in quantity demanded of a good due to a change in the consumer’s real income. For example, higher income allows consumers to purchase more.

Indirect Taxes

Taxes imposed on goods and services, such as sales tax or VAT. They are paid by consumers but collected by sellers on behalf of the government.

Inflation

The rate at which the general level of prices for goods and services rises over time, reducing purchasing power. normal in growing economies.

Intermediate Goods

Goods used as inputs in the production of final goods, such as steel used in car manufacturing. They are not included in GDP to avoid double counting.

Investment

Spending on capital goods that can be used to produce goods and services in the future, such as machinery or buildings. It is a component of aggregate demand.

Labor

The human effort, including physical and mental, used in the production process. It is one of the four factors of production.

Land

Natural resources used in production, such as minerals, forests, and water. It is one of the factors of production.

Law of Increasing Opportunity Cost

The principle that as production of one good increases, the opportunity cost of producing additional units rises. This occurs because resources are not equally suited for all tasks.

Leakages

Outflows from the circular flow of income, such as savings, taxes, and imports. They reduce the overall level of economic activity.

Liability

A legal obligation to repay debts or settle claims. In business, it refers to what a company owes to external parties.

Market Equilibrium

The point at which quantity demanded equals quantity supplied, resulting in no surplus or shortage. It determines the market price.

Market Failure

A situation where the free market fails to allocate resources efficiently, leading to overproduction or underproduction. Examples include externalities and public goods.

Merit Goods

Goods that provide positive externalities and are beneficial to society, such as education or healthcare. Governments often subsidize or provide these goods.

Mixed Economies

Economic systems that combine elements of both market and command economies. Most countries, including the U.S.

NI (National Income)

The total income earned by a nation's residents from production of goods and services. It includes wages, profits, rent, and other earnings.

NNP (Net National Product)

The total market value of goods and services produced by a country’s residents, minus depreciation of capital assets. It reflects sustainable income levels.

Nominal GDP

The total value of all final goods and services produced in a country, measured at current prices. It does not account for inflation.

Oligopoly

A market structure dominated by a few large firms, where each firm’s decisions affect the others. Examples include the airline and automobile industries.

Opportunity Cost

The value of the next best alternative foregone when a choice is made. It reflects the trade-offs in decision-making.

Partnerships

Business organizations owned by two or more individuals who share profits, losses, and responsibilities. can be general or limited.

Per Capita GDP

The average economic output per person, calculated by dividing GDP by the population. It is used to compare living standards across countries.

Phillips Curve

A theoretical relationship between inflation and unemployment, suggesting a trade-off between the two in the short run. In the long run, this relationship may not hold.

PI (Personal Income)

The total income received by individuals, including wages, dividends, and transfer payments. It reflects money available for spending and saving.

PPI (Producer Price Index)

A measure of the average change in prices received by producers for their goods and services. It is an indicator of inflation at the production level.

Price Controls

Government-imposed limits on the prices that can be charged for goods and services. Examples include price ceilings and price floors.

Price System

A mechanism where prices serve as signals to allocate resources efficiently in a market economy. It relies on supply and demand to determine prices.

Production Possibilities Curve

A graphical representation of the maximum output combinations of two goods that an economy can achieve with given resources and technology. It illustrates opportunity costs and efficiency.

Public Good

A good that is non-excludable and non-rivalrous, such as national defense or clean air. These goods are often provided by governments to avoid underproduction.

Real GDP

GDP adjusted for inflation, reflecting the true value of goods and services produced. It provides a more accurate measure of economic growth.

Regressive Taxes

Taxes that take a larger percentage of income from low-income earners than from high-income earners. Sales taxes are an example.

Scarcity

The fundamental economic problem of having limited resources to meet unlimited wants and needs. It necessitates choice and prioritization.

Seasonal Unemployment

Unemployment that occurs due to patterns in demand, such as agricultural or holiday-related work. It is temporary and predictable.

Sole Proprietorship

A business owned and operated by one individual, who assumes all profits and liabilities. It is the simplest form of business structure.

Spending Multiplier

The effect of an initial increase in spending on overall economic output, amplified through repeated cycles of spending. It reflects the interconnectivity of economic activity.

Structural Unemployment

Unemployment caused by a mismatch between workers’ skills and job requirements. It often results from technological changes or shifts in the economy.

Subsidies

Financial assistance provided by the government to encourage production or consumption of certain goods and services. Examples include for renewable energy or education.

Substitutes

Goods that can replace each other, such as tea and coffee. An increase in the price of one typically increases demand for the other.

Substitution Effect

The change in consumption patterns due to a relative price change, where consumers switch to cheaper alternatives. It complements the income effect.

Supply

The quantity of a good or service that producers are willing and able to offer at various price levels. It is influenced by production costs and technology.

Total Costs

The sum of fixed and variable costs incurred in production. It determines profitability when compared to total revenue.

Traditional Economies

Economic systems based on customs, traditions, and beliefs. They rely on subsistence agriculture, barter, and community-oriented decision-making

Unemployment

The condition of being willing and able to work but unable to find a job. It is a key indicator of economic health.

Variable Costs

Costs that change with the level of output, such as raw materials and labor directly involved in production. They rise as production increases.