BST106: Quizzes 1 & 2 Study Guide

Business

Any activity that seeks to provide goods and services to others while operating at a profit

Goods

Tangible products (computers, food, clothing, cars)

Services

Intangible products (education, health care, insurance, travel)

Entrepreneur

A person who risks time and money to start and manage a business

Revenue

Total money a business takes in during a period by selling goods/services

Profit

Money a business earns above what it spends

Loss

When expenses exceed revenue

Risk

The chance an entrepreneur takes of losing time/money on a business that may not be profitable

Standard of living

Amount of goods/services people can buy with the money they have

Quality of life

General well-being of society — political freedom, environment, education, health care, safety, leisure

Stakeholders

All people who stand to gain or lose from a business's policies/activities

Outsourcing

Contracting with other companies (often abroad) to do some business functions

Insourcing

Foreign companies opening offices/factories in the U.S.

Nonprofit organization

An organization whose goals do not include personal profit for owners; uses gains for social/educational goals

Five Factors of Production

1. Land (natural resources), 2. Labor (workers), 3. Capital, 4. Entrepreneurship, 5. Knowledge

Technological Environment

Technology improves productivity and includes growth of e-commerce and risks like identity theft.

Competitive Environment

Businesses compete by exceeding customer expectations and through empowerment.

Social Environment

managing diversity and inclusion of demographics

Global Business Environment

Driven by globalization, efficient distribution/communication, and challenges like war/terrorism and climate change.

Resource

Anything used to produce goods/services (money, land, labor, capital, entrepreneurship)

Scarcity of Recources

The underlying condition making economics necessary

Allocation

The process of deciding how limited resources are distributed among competing uses.

Malthusian Theory of Population/Malthusian Trap

Mismatch where population growth outpaces resources, leading to poverty and suffering.

David Ricardo's Counterargument to Malthusian Trap

Technological progress and productivity gains can offset population pressure and beat the Malthusian trap.

Core Beliefs of Adam Smith

Freedom to own land/property and the right to keep business profits are essential to a successful economy.

Market Economy

System where individuals own most resources and control their use via voluntary market decisions.

Self-Interest

Pursuing personal gain; not inherently greedy, drives economic activity.

Competition

Rivalry among sellers that checks self-interest, benefiting consumers.

Invisible Hand

Smith's metaphor for how self-interest and competition coordinate economic activity to benefit society.

How does money move through the economy?

Spending circulates through the economy generating value; hoarding cash halts economic activity.

Capitalism

A free market system where the means of production are privately owned and operated for profit.

State Capitalism

Hybrid system where government owns a stake in certain enterprises alongside private ownership.

Four Basic Rights under Free-Market Capitalism

Right to own property, own a business, competition, and freedom of choice.

Price Signaling

In a free market, prices indicicate what and how much to produce.

Supply Curve

Graph showing quantity producers will supply at various prices; upward-sloping.

Demand Curve

Graph showing quantity consumers will buy at various prices; downward-sloping.

Equilibrium

Point where supply and demand curves intersect, determining price and quantity.

Gross Domestic Product (GDP)

Total market value of all final goods and services produced within a country's borders in a given year.

Unemployment rate

Share of people 16+ jobless who actively searched for work

Frictional unemployment

Voluntary joblessness from switching/leaving jobs.

Structural unemployment

Joblessness from permanent industry/company change.

Cyclical unemployment

Joblessness tied to the business cycle/profitability.

Seasonal unemployment

Joblessness tied to seasonal hiring patterns.

Inflation

Sustained rise in prices economy-wide.

Deflation

Sustained fall in prices economy-wide.

Depreciation

Decline in value of a specific asset over time.

CPI (Consumer Price Index)

Tracks retail/consumer 'basket of goods' price changes.

PPI (Producer Price Index)

Tracks wholesale/producer-level input price changes.

Law of Demand

Price ↑ → quantity demanded ↓.

Law of Supply

Price ↑ → quantity supplied ↑.

Normal good

Demand rises as income rises.

Inferior good

Demand falls as income rises.

Substitute goods

Goods that can replace each other.

Complementary goods

Goods commonly consumed together.

Opportunity cost

Value of the next-best alternative given up.

Tariff

Tax on imported goods; raises producer cost, passed to consumers.

Subsidy

Government support that lowers producer cost, increasing supply.

Factors That Shift Demand

1. Income; 2. Population; 3. Tastes/Preferences; 4. Price of Related Goods; 5. Expectations.

Factors That Shift Supply

1. Technological innovation; 2. Input prices; 3. Taxes and subsidies; 4. Entry/exit of producers; 5. Opportunity cost; 6. Expectations.