Economics final flashcards

Factors of production

Land (natural resources used to produce goods), labor, and capital (human made resources used to create other goods)

Trade-offs

All the alternatives that we sacrifice when we choose one action over others

Advantages and disadvantages of free market versus centrally planned economy

Free market- economic, efficiency growth, freedom, wider variety of goods, but producers struggle for the dollars of consumers (competition)

Centrally planned- strongest at achieving economic equity and security, but government decides what to produce, how, and how much to charge

Mixed Economy

A system that combines private enterprise and a free market mechanism

Laissez faire

No government intervention in free markets

Microeconomics vs. Macroeconomics

Micro- how individual people and businesses make decisions about allocating scarce resources

Macro- studies economy as a whole focusing on things like inflation, unemployment, and economic growth

Adam Smiths “The Wealth of Nations”

National prosperity is driven by free markets, specialization, and minimal government intervention

Equilibrium

Supply=demand ; no surplus or shortage

Substitutes vs. compliments

Substitutes- goods used in place of one another

Compliments- two goods that are bought and used together

Elasticity of supply and demand

Elastic= equals supply and demand very responsive to changes in price. Less elastic equals supply and demand not very responsive to changes in price.

Marginal cost

The cost of producing one more unit of a good

Fixes cost vs. variable cost

Fixed- a cost that doesn’t change regardless of how much a goods produced

Variable- costs that rise and fall, depending on how much is produced

Price ceiling vs. floor

Ceiling- a max price that can be legally charged for a good

Floor- minimum price set by government that must be paid for a good or service

Shortage vs. surplus

Shortage- quantity demanded is greater than quantity supplied

Surplus- quantity supply is greater than quantity demanded

Why government uses subsidies?

It’s a Payment that supports a business or market, which causes a supply of a good to increase

Positive effects of technology

Lowers cost, increases efficiency and supply

Perfect competition

Market structure in which a large number of firms all produce the same products

Monopolistic competition

Many companies compete in an open market to sell products that are similar, but not identical

Oligopoly

A market dominated by 2 to 4 large firms selling over 70% of the output

Monopoly

A market dominated by a single seller

Natural monopoly

A market that runs most efficiently when one large firm produces all the output

Patent

A government granted, temporary monopoly over an invention. It gives an inventor exclusive rights to make, use, or sell an innovation.

No price competition

A way to attract customers through style, service level, or location but not lower price

Price discrimination

The division of customers into groups based on how much they will pay for a good

Deregulation

The removal of some government controls over a market

Commodity

Products of no differences between them when made by different suppliers

Advantages and disadvantages of sole proprietorship

Advantages – ease of startup, few regulations, sole proprietorship, gets all the profit, full control over business, easy to just discontinue for profit.

disadvantages – can have limited access to resources, human capital can be limited, unlimited personal liability

Fringe benefits

Non-wage forms of compensation to employees in addition to their salaries, such as health insurance and paid time off

Franchise

A semi independent business that pays fees to a parent company in return for the exclusive rate to sell a certain product or service in a given area

When does the government allow corporate mergers?

As long as it won’t lessen competition or create monopolies

Nonprofit organization

An entity that operates primarily to serve the public interest rather than generate profit

Bear market vs. bull market

Bear Market- period of falling prices

Bull Market- period of rising prices

Assets

Money and other valuables

Equities

Ownership in a company usually represented by shares of stock

Capital gains

Profit you make when you sell a capital asset such as a stock for a higher price than you originally paid for it

Munipical bond

Loans one makes to state or local governments to fund public projects like roads, schools, and water systems

Mutual fund

When money is pooled together from many people to easier buy diversified portfolio of stocks, bonds, etc.

Securities and exchange commission

SEC, a government agency that regulates an overseas the stock market to protect investors ensure for trading

Dow Jones industrial average

The stock market index that tracks the performance of 30 large well-known US companies the show how the overall market is doing

S&P 500

Stock market index that tracks the performance of 500 leading companies in the US

Mortgage

Long-term loan used to purchase or refinance real estate

Credit union

Nonprofit financial institution owned by its members that offers checking and saving accounts, loans, and credit cards. They usually have lower loan rates and fees.

How banks make most of their profit

Net interest income- they borrow money from depositors at a low interest rate and lend that money to borrowers at a higher rate

GDP

The dollar value of all goods and services produced within a countries borders in a given year

Economy is strongest when which are high or low – GDP, unemployment, inflation

GDP high and unemployment and inflation low

Leading indicators

Key economic variables economists use to try and predict a new phase of a business cycle

Business Cycle

A macroeconomic period of expansion (increasing real GDP) followed by a period of contraction

Recession

A prolonged economic contraction

Parameters for being unemployed

You have no job and are a minor/full-time student, retired, and/or not trying to get a job

Normal unemployment percentage range

4 to 6%

Consumer price index

CPI- measurement meant to show how the average price of a standard group changes overtime. Measures price of standard group of goods meant to represent the typical Market Basket of an urban customer.

Fixed income

Income that doesn’t increase even when prices go up

Progressive tax

A tax for which the percent of income paid in taxes increases as income increases

Withholding

When employers take tax payments out of an employees pay before he or she receives it

Tax deduction

Variable amounts that you can subtract from your gross income before taxes

Tax return

A form on what you declare your income to the government and determine your taxable income

Federal, state, and local governments – the major source of revenue for each

Federal – individual income tax

State – sales tax

Local – property taxes

Mandatory versus discretionary spending

Mandatory – money law makers are required by a law to spend on certain programs or to use for interest payments on the national

Discretionary: spending which government planners can make choices

Social Security

AKA FICA (Federal insurance contributions act)

A federal retirement fund

Medicare vs Medicaid

Medicare- national health insurance program that helps pay for healthcare for people over 65 and/or people with certain disabilities

Medicaid- medical benefits to low income families

Balanced budget, budget deficit, budget surplus

Balanced budget: Budget in which revenue = spending

Budget deficit: expenses exceed revenue

Budget surplus: revenue exceeds expenses

National debt

Total amount of money the federal government owes

Expansionary vs. contractionary fiscal policy

E- fiscal policies designed to increase output

C- fiscal policies designed to decrease output

Classical economics vs. Keynesian economics

C- idea that markets regulate themselves

K- idea that government should actively try to influence the economy

Supply-side economics

Stresses the influence of taxation on economy. Lowering taxes will benefit the economy because producers will have more money to increase production, hire more workers, innovate, etc.

Treasury bond

A long term bond where government pays you back at a much later date- usually 20-30 years- when the bonds matured

Discount rate

The interest rate the bank pays to borrow money from the Fed

Tight money policy vs. loose money policy

T- decreasing money supply to contested the economy and fight inflation

L- aka easy money policy, increasing money supply to expand economy

Open market operations

Buying or selling of government securities (such as treasury bonds) to alter the money supply

Who appoints the Federal Reserve governors

The president

How interesting rates effect consumer spending and saving

Higher interest rates make borrowing money expensive and saving it rewarding.

Low interest rates make borrowing money cheap but saving it less profitable.

The main role of Federal Reserve district banks

Monitor and report on economic activity in their districts

Balance of trade, trade deficit, trade surplus

Balance of trade- Relationship between a nations imports and exports

Td- nation imports more than it exports

Ts- nation exports more than it imports

USMCA (NAFTA), European Union

Organizations that try to eliminate trade barriers between groups of countries

Protectionism definition aswell as advantages and disadvantages

Use of trade barriers to protect nations industries from foreign competition

A- protecting jobs, safeguarding national security

D- local businesses lose incentive to make goods cheaper

Factors limiting development

Resource distribution, physical capital, colonial dependency, government corruption, political instability, debt

Brain drain

The loss of educated citizens to the new world. Smart people from other countries enticed to the benefits of living in a developed nation.

Infrastructure

Developed nations have solid infrastructure. Services and facilities needed for an economy to function

International Monetary Fund and The World Bank

IMF- Primarily offers policy advice and technical assistance to LDCS. Also lender of last resort (emergency credit)

WB- Largest provider of development assistance. Offers loans, advice, and other resources to LDCS.

World Trade Organization

Founded to negotiate new trade agreements and resolve trade disputes