ILTS - Terms, Concepts, World History Knowts Additions, US History Knowts Additions, etc.

Cost of Production

• The total of fixed costs and variable costs

Fixed Costs

• Type of cost that is constant and does not depend on the amount of production

• Examples include physical plants and heavy equipment, which must be paid for even if production is zero

• Examples include land and equipment

Variable Costs

• Type of cost tied directly to the production of finished goods and services

• As more goods are produced, these costs rise

• Examples include raw materials used in the production process, extra labor needed in peak production periods, and additional capital if expansion is needed

• Examples include labor

Elasticity

• In the context of a market economy, this refers to how the quantity of a particular product responds to the price demanded for that product

Elastic

• When the quantity of a product responds quickly to changes in price, this describes the supply / demand for that product

Inelastic

• When the quantity of a product responds slowly to changes in price, this describes the supply / demand for that product

Market Efficiency

• Occurs when a market is capable of producing output high enough to meet consumer demand

Microeconomics

• Focuses on economic factors such as the way consumers behave, how income is distributed, and output and input markets

• Studies are limited to the industry or firm level rather than an entire country or society

• Elements studied include factors of production, costs of production, and factor income

• Markets are classified when considering five conditions:

  • Existence of competition

  • Number and size of suppliers

  • Influence of suppliers over price

  • Variety of available products

  • Ease of entering the market

• Markets are classified according to

  • their structure

  • the nature of compeition within them

Market Failure

• Status of a market when any of the elements for a successfully competitive market are missing

• There are five major types:

  • Inadequate competition

  • Inadequate information

  • Immobile resources

  • Negative externalities, or side effects

  • Failure to provide public goods

Externalities

• Positive or negative side effects of a market that affect third parties

Inputs / Factors of Production

• Certain resources every good and service requires including:

  • Labor

  • Capital

  • Land

  • Entrepreneurship

Factor Income

• Associated with each factor of production:

  • Labor - earns wages

  • Capital - earns interest

  • Land - earns rent

  • Entrepreneurship - earns profit

• Determined by how scarce each factor is and the weight of its contribution to the overall production process

Contribution

• In a market economy, each factor of income is not guaranteed to be equal and has a certain amount of this

Perfect Competition

• Market structure in which

  • all existing firms sell an identical product

  • firms are not able to control the final price

  • there is a very low barrier to entry

• Examples include the agriculture industry

Barrier to Entry

• The higher this is, the harder it is to enter or leave a market via an industry or firm

Monopolistic Competition

• Market structure in which

  • a number of firms sell similar products, but they are not identical

  • there are low barriers of entry

• Examples include brands of clothes or food

Natural Monopoly

• Type of monopoly in which a single supplier has a distinct advantage over the others

Geographic Monopoly

• Type of monopoly in which only one business offers a product in a certain area

Technological Monopoly

• Type of monopoly in which a single company controls the technology necessary to supply the product

Government Monopoly

• Type of monopoly in which a government agency is the exclusive provider of a specific good or service

1890 - Sherman Anti-Trust Act (All Facts)

• Policy which prohibited trusts, monopolies, and any other situations which eliminated free market competition

1914 - Clayton Anti-Trust Act (All Facts)

• Policy which prohibited price discrimination

1934 - Securities and Exchange Commission (All Facts)

• Founded under the FDR administration

• Required companies that provide public stock to provide financial reports on a regular basis

1936 - Robinson-Patman Act (All Facts)

• Policy which

  • required business to offer the same pricing on products to any customer

  • strengthened provisions of the Clayton Anti-Trust Act

Utility

• The ability of a product or service to satisfy the need of a consumer

Form Utility

• Type of Utility in which a product’s desirability lies in its physical characteristics

Place Utility

• Type of Utility in which a product’s desirability is connected to its location and convenience

Time Utility

• Type of Utility in which a product’s desirability is determined by its availability at a certain time

Ownership Utility

• Type of Utility in which a product’s desirability is increased because ownership of the product passes to the consumer

Market Plan

• Its four major elements are

  • Product - this includes any elements pertaining directly to the product, such as packaging, presentation, or services to include along with it

  • Price - this calculates the cost of production, distribution, advertising, etc. as well as the desired profit to determine the final price

  • Place - this determines which outlets will be used to sell the product, whether through traditional outlets such as brick and mortar stores or through direct mail or internet marketing

  • Promotion - this involves ways to let consumers know the product is available, through advertising and other means

• Once these elements all have been determined, the producer can proceed with production and distribution of their product

Income Distribution

• Determined by ranking family incomes from lowest to highest

• These rankings are divided into five sections called quintiles, which are compared to each other

• This becomes uneven when there are higher levels of education and ability in the upper classes, but also in scenarios were there is discrimination and/or existing monopolies

Poverty

• Defined by comparing incomes to poverty guidelines

Poverty Guidelines

• Determine the level of income necessary for a family to function

Macroeconomics

• Studies economic trends and structures on a national level

• Variables studied in it include

  • Output

  • Consumption

  • Investment

  • Government spending

  • Net exports

Gross Domestic Product (GDP)

• Defines the overall economic condition of a nation

  • It is often used as a measurement of a country’s economic health

• Measures a nation’s economic output over a limited period of time, such as a year

  • Consists of the total value of all the goods and services produced within a country during a certain period of time, such as a year

• Measured in one of two ways

  • Expenditures Approach

  • Income Approach

• Measurement whose calculation can be affected by changes in a country’s population, as it is a measurement “per capita”

  • If a country’s economic production is low but its population is high, the income per individual will be lower than if the income is high and the population is lower

  • Also, if the population grows slowly, individual income will remain low or even drop drastically

  • Population growth can affect overall economic growth, which requires both that consumers purchase goods and workers produce them

  • A population that does not grow quickly enough will not supply enough workers to support rapid economic growth

• There are problems with equating this measurement with economic well-being, as several economic factors may interfere with equating the two including

  • There being a significant allocation of assets that are used to combat the negative effects of economic growth, such as the destruction of natural habitats and air and water pollution

  • Moreover, economic growth increases such intangibles as the increase in community, which affects quality of life

  • This also does not account for a significant amount of domestic production, such as child-raising and home-making

• Numerous markets are left out of this including

  • Black markets

  • Criminal activity

  • Alternative economies

  • Volunteer activities

  • DIY tasks

• These omissions thus fail to give an accurate picture of individual well-being with the namesake measurement

Indirect Tax

• Examples include property taxes

Taxes

• They have

  • caused revolutions

  • overturned governments

  • become a social and political issue of controversy and debate throughout history including

    • who should pay them

    • how much should be paid

    • the use of the revenue gained from

• Public Finance is a branch of formal economics which concerns itself with this

Consumer Behavior

• Consumers in macroeconomics behave in accordance with either

  • Marginal Propensity to Consume (MPC)

  • Utility

Marginal Propensity to Consume (MPC)

• Defines the tendency of consumers to increase spending in conjunction with increases in income

• In general, individuals with greater income will buy more

  • As individuals increase their income through job changes or growth of experience, they will also increase their spending

Utility

• Term that describes the satisfaction experienced by a consumer in relation to acquiring and using a good or service

• Providers of goods and services will stress utility to convince consumers they want the products being presented

Expenditures Approach

• Calculates the GDP based on how much money it spent in each sector

Income Approach

• Calculates the GDP based on how much money is earned in each sector

• Income Factors, considered in order to accurately calculate the GDP using this approach, include

  • Wages paid to laborers, or compensation of employees (abbr. CE)

  • Rental income derived from land

  • Interest income derived from invested capital

  • Entrepreneurial income, which exists in two forms

    • Proprietor’s income

    • Corporate profit

• Two other figures must be subtracted when using th is approach including

  • Indirect Business taxes (inc. property and sales taxes)

  • Depreciation

• This computes national income by totaling all income received by individuals, businesses, and governments, to arrive at a total national income

Economic Sectors

• Entities which make up a country’s macro-economy including

  • Consumers

  • Business

  • Government

  • Foreign Sector

Proprietor’s Income

• Income that comes back to the entrepreneur himself

Corporate Profit

• Income that goes back into the corporation as a whole

• Divided by the corporation into

  • corporate profits taxes

  • dividends

  • retained earnings

Aggregate Supply

• Amount of national output equal to the aggregate demand that, ideally, makes an economy function efficiently

Aggregate Demand

• Amount of national output that is purchased that is equal to the aggregate supply, which, ideally, makes an economic function efficiently

Phases of an Economy

• Economic typically go through four phases

  • Boom - GDP is high and the economy prospers

  • Recession - GDP falls and unemployment rises

  • Trough - lowest point of the Recession

  • Recovery - unemployment lessens, prices rise, and the economy begins to stabilize again

• These phases tend to repeat in cycles that are not necessarily predictable or regular

National Income

• Defined as the aggregate figure of all consumption, individual, business, and governmental income, plus total investments and the balance of trade accounts for a country

• Calculated by

  • Total expenditures

  • Total value of production

  • Aggregate consumption figures for a country

Expenditure Method

• Aggregate number derived from adding all consumption, individual, business, and governmental income plus total investments and the balance of trade accounts for a country

Production Accounting

• Calculation used to determine the national income to account for all the goods and services produced in a country during a fixed period

Price index / Consumer Price Index

• Used as a measuring tool to compare prices at different times

• A fictional “market basket” of commonly consumed staples is measured and charted over a period of time (usually a year)

Inflation

• Occurs when the price of the representative market basket has gone up

• For example, if a typical basket costs $500 this year as compared to $400 last year for the same basket, this has risen over a year

• This reduces the buying power of money, and, if uncontrolled, can threaten the entire economy

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