econ review

economics

the study of how individuals, families, businesses, societies, and countries use their limited resources to satisfy their needs and wants

scarcity

there is never an unlimited supply of anything (choices must be made)

supply and demand

basic law of economics

demand

the desire to own something and the ability to pay for it (downward curve)

supply

the amount of goods and services available at a given price (upward curve)

property rights

protected by the 4th and 5th amendment

Gross Domestic Product (GDP)

the sum of all goods and services produced in a country in a year, big picture/total wealth, most common

Per Capita Income (PCI)

shows individuals "share of wealth", more accurate when deciding if countries are rich or poor, less common

recession

when the GDP fails to grow for 2 consecutive quarters

Measurements of Stock Market

Dow Jones, SP 500, Russell 2000

Bull Market

stock market is increasing in value

Bear Market

stock market is decreasing in value

traditional economy

hunter/gatherer, free economic transactions (barter), individuals and small familial groups answer the 4 economic questions

feudal economy

economic co-dependence, 98% of people work in agriculture, landowners answer the 4 economic questions

command economy (socialism)

"top-down" central planning by bureaucrats, government officials will make the best economic decisions, labor is 1 factor of production, government answers the 4 economic questions

market economy (capitalism)

factors of production are privately held, the "market" answers the 4 economic questions, and markets will reach an equilibrium on their own

land

anything from the Earth

labor

any sort of unskilled work

physical capital

anything man-made that can be used to create a good or service

human capital

education, knowledge, training

mixed economy

private and public

private sector

part of the economy owned by individuals

public sector

part of the economy owned by the government

"Let the market decide"

the market decides what a product is worth

price floor

prices are not allowed to go below a certain point

price ceiling

prices are not allowed to above a certain point

opportunity costs

the price for choosing one thing over another

elastic demand

price increase is a drop in demand, wants or non-essential items, items with a substitute

inelastic demand

price increase does not change demand, needs or essential items, items with no substitute

law of demand

when a good or services prices are lower, then consumers will demand more of it

law of supply

an increase in the price of goods or services results in an increase of supply

goods

physical objects

services

actions or activities that one person provides to another

Karl Marx

created a variety of command economy, wrote the Communist Manifesto and Das Kaptial

Adam Smith

"father of capitalism", wrote the Wealth of Nations

commodity money

has value in and of itself (gold, silver)

representative money

represents something of value (gold certificates)

fiat money

has value because the government says it has value (U.S. Currency)

corporations

founded to protect shareholders from liability, often sold to the public in attempt to raise capital, divided up into pieces called "shares", governed by a Board of Directors

Wall Street

headquarters of the New York Stock Exchange

capital gains

an increase in the value of an asset when it is sold

mutual fund

an investment fund consisting of a portfolio of stocks and/or bonds and overseen by a professional money manager

401K

workplace savings plan to invest for retirement

fiscal policy

the government uses taxes and spending to influence the economy

monetary policy

the manipulation of interest rates and the reserve rate by a central bank to influence the economy

Federal Reserve

the central banking system of the U.S., "bank of all banks"

equilibrium point

trade-off between supply and demand