intro to business chap 2

understanding economics and how it affects business

economics

study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals

macroeconomics

part of economics study that looks at the operation of a nation’s economy as a whole

microeconomics

part of economics study that looks at the behavior of people and organizations in particular markets

resource development

study of how to increase resources and to create the conditions that will make better use of those resources

invisible hand

process that turns self-directed gain into social and economic benefits for all; coined by Adam Smith

capitalism

all or most of factors of production and distribution are owned by individuals

state capitalism

a combination of freer markets and some government control

market price

determined by supply and demand; price toward which the market will trend

perfect competition

many sellers in a market and none is large enough to dictate the price of a product

monopolistic competition

a large number of sellers produce very similar products that buyers nevertheless perceive as different

oligopoly

a degree of competition in which just a few sellers dominate a market

monopoly

one seller controls the total supply of a product or service, and sets the price

socialism

an economics system based on the premise that some, if not most basic businesses should be owned by the government so taht profits can be more evenly distributed among the people

communism

an economic and political system in which the government makes almost all economic decisions and owns almost all the major factors of production

free-market economies

economic systems in which the market largely determines what goods and services get produced, who gets them, and how the economy grows

command economies

economic systems in which the government largely decides what goods and services will be produced, who will get them, and how the economy will grow

mixed economies

economic systems in which some allocation of resources is made by the market and some by the government

gross domestic product (GDP)

total value of final goods and services produced in a country in a given year

gross output (GO)

a measure of total sales volume at all stages of production

unemplyment rate

percentage of civilians at least 16 years old who are unemployed and tried to find a job within the prior four weeks

inflation

a general rise in the prices of goods and services over time

disinflation

price increases are slowing

deflation

prices are declining

stagflation

economy is slowing but prices are going up anyhow

consumer price index (CPI)

monthly statistics that measure the pace of inflation or deflation

core inflation

CPI minus food and energy costs

producer price index (PPI)

measures the change in prices at the wholesale level

frictional unemployment

people who have quit work because they didn’t like the job, the boss, or the working conditions and who haven’t yet found a new job

structural unemployment

unemployment caused by the restructuring of firms or by a mismatch between the skills of job seekers and the requirements of available jobs

cyclical unemployment

occurs because of a recession or a similiar downturn in the business cycle

seasonal unemployment

unemployment because demand for labor varies over the year, as with harvesting of crops

Keynesian economic theory

theory that a government policy of increasing spending and cutting taxes could stimulate the economy in a recession

monetary policy

management of money supply and interest rates by the Federal Reserve Bank