Business Chapter 3 Review

Expansionary fiscal policy

Government increases spending, decreases taxes, or does both to encourage economic growth and help the economy recover from a recession.

Contractionary fiscal policy

Government decreases spending, increases taxes, or does both to reduce inflation and slow down the economy.

Economics

The study of the production, distribution, and consumption of goods and services.

Resources

Inputs used to produce goods and services.

Factors of Production

Resources used to produce goods and services, including land, labor, capital, entrepreneurship, and knowledge.

Land

Natural resources and raw materials used in production.

Labor

The physical and mental work people contribute to producing goods and services.

Capital

Buildings, equipment, vehicles, and money used in the production process.

Entrepreneurship

The skill, creativity, and drive needed to combine resources and create goods or services.

Input Markets

Markets where businesses obtain resources, such as labor, land, and capital, from households.

Output Markets

Markets where businesses sell goods and services to consumers.

Households

Individuals or groups that provide resources to businesses and consume goods and services.

Economic System

The way a society organizes the allocation of resources and distribution of goods and services.

Planned System

An economic system in which the government controls some or all of the allocation and distribution of goods and services.

Communism

An economic system in which the government owns most or all enterprises and centrally controls production and distribution.

Socialism

An economic system in which the government may own essential industries and uses central planning to distribute resources and wealth.

Free Market System (Capitalism)

An economic system in which most businesses are privately owned and competition influences the allocation of goods and services.

Private Property Rights

The rights of business owners to own property and keep most of their profits, apart from taxes.

Mixed Market Economy

An economic system that uses both markets and government involvement to allocate resources.

Privatization

The process of transferring government

Nationalization

The process of transferring privately owned industries into government control.

Laissez

Faire

Perfect Competition

A market with many buyers and sellers offering standardized products, where no single seller can control the price.

Demand

The quantity of a product that buyers are willing to purchase at various prices.

Demand Curve

A graph showing the quantity of a product buyers are willing to purchase at different prices.

Law of Demand

As price increases, the quantity demanded generally decreases; as price decreases, quantity demanded generally increases.

Supply

The quantity of a product that sellers are willing to sell at various prices.

Supply Curve

A graph showing the quantity of a product sellers are willing to sell at different prices.

Law of Supply

As price increases, the quantity supplied generally increases; as price decreases, quantity supplied generally decreases.

Equilibrium Price

The price at which the quantity demanded equals the quantity supplied.

Shortage

A situation in which demand exceeds the available supply.

Surplus

A situation in which supply exceeds demand.

Monopolistic Competition

A market with many sellers offering differentiated products that serve similar purposes.

Product Differentiation

Making products distinct through differences in quality, style, convenience, location, or brand.

Oligopoly

A market dominated by a small number of sellers, each supplying a large portion of the products sold.

Monopoly

A market with only one seller.

Natural Monopoly

A monopoly that exists when one provider can supply a product or service more efficiently because the industry requires large investments, such as electricity or gas utilities.

Legal Monopoly

A monopoly created when a company receives exclusive rights to an invention or process through a patent.

Patent

A legal right granting exclusive use of an invention or process for a limited time, generally 20 years.

Economic Growth

An increase in the production of goods and services in an economy.

Gross Domestic Product (GDP)

The market value of all final goods and services produced domestically in a given year.

Business Cycle

The recurring ups and downs of economic activity, including expansion and contraction.

Prosperity

A phase of the business cycle when the economy expands, unemployment is low, incomes rise, and consumers buy more.

Recession

A period of declining economic activity characterized by falling GDP and rising unemployment.

Recovery

A phase of the business cycle in which the economy begins growing again after a recession.

Depression

A prolonged and severe economic downturn with very high unemployment and greatly reduced production.

Full Employment

A condition in which everyone who wants to work has a job; in practice, approximately 95% employment.

Unemployment Rate

The percentage of the labor force that is unemployed and actively seeking work.

Price Stability

A condition in which the average prices of goods and services change very little.

Inflation

An increase in the overall price level of goods and services.