Economics Module 2 Review: Markets and You

Comprehensive vocabulary flashcards covering circular flow, market structures, production costs, revenue, profit maximization, externalities, and government regulation from Economics Module 2.

Government

Any lawmaking body (local, state, or national) that collects taxes and provides services to individuals and businesses, such as the Mayor's Office, IRS, or Federal Government.

Households

Individuals like you and those living in the same home, including your family and neighbors.

Business Firms

Any company type that earns income from the sale of goods and services, such as ZephyrHills or PepsiCo.

The World

The sector that represents economic interactions with households, business firms, and governments in foreign countries, such as France or England.

Product Market

The arena for the buying and selling of finished goods and services, such as Walmart or John's Groceries.

Factor Market

The exchange of the factors of production, including components of land, labor, and capital (e.g., Van-der-pool Farms, Jimmy Shrimps, or a mine).

Financial Market

The stock market and banking services, including the loans that all other economic players use to meet their goals (e.g., Federal Reserve, Wells Fargo, or PNC Bank).

Entrepreneurship

A factor of production wherein an individual takes a risk by putting his/her money and ideas into starting a new business.

Capital Goods

Manufactured items used in the production of other goods and services, such as a truck, computer, or cash register.

Land

Natural resources used in the production process, such as oil, wood, and water.

Labor

The workers who provide human effort, time, and skills to produce goods and services.

Fixed Costs

Expenses that do not change from month to month regardless of production levels, such as rent.

Variable Costs

Expenses that change monthly depending on the level of output or usage, such as wages and electricity.

Sole Proprietorship

A business structure with one owner; it represents the most popular form of business.

Partnership

A business owned and operated jointly by two or more owners.

Limited Liability Company (LLC)

A type of corporation where the owner has no worry of having to use personal assets to pay off business debts and avoids the problem of double taxation.

Corporation

A business structure owned by stockholders and bondholders that is easy to expand and raise money for, but hard to start and stop.

Merger

An event that occurs when two separate businesses combine to form one single company.

Horizontal Merger

When a business buys its direct competitor in order to reduce or eliminate competition (e.g., Lowe’s buying Home Depot).

Vertical Merger

When a business buys companies that supply the products it sells in order to lower production costs (e.g., Lowe’s buying companies that produce lumber, paint, and/or lawn mowers).

Advertising

A non-price way to compete where a company promotes its products to increase sales rather than lowering prices.

Monopoly

The least competitive market structure, characterized by a single firm with price-setting ability and consumers having only one option.

Oligopoly

A market structure where a few dominant firms can collaborate to control the market, making it very difficult for non-dominant firms to grow and compete.

Monopolistic Competition

A market structure where consumers have more choices, but it is difficult for firms to present their products as unique.

Pure Competition

The most competitive market structure, where consumers have plenty of knowledge of similar products and firms have little to no control of the market.

Law of Diminishing Returns

The economic principle explaining why the marginal cost curve slopes downward and then upward, reflecting that it costs less to produce output only up to a certain point.

Total Revenue

The total amount of money earned from selling output, calculated as $\text{Total Revenue} = \text{Quantity} \times \text{Price}$.

Total Cost

The total expense incurred by a business to produce goods or services, calculated as $\text{Total Cost} = \text{Fixed Cost} + \text{Variable Cost}$.

Profit or Loss

The financial gain or deficit of a business, calculated as $\text{Profit or Loss} = \text{Total Revenue} - \text{Total Cost}$.

Marginal

An economic term meaning 'additional' or one more unit.

Marginal Revenue

The additional revenue generated from selling one more unit, computed by taking the difference between two sequential total revenue quantities ($\text{Total Revenue of pair } 2 - \text{pair } 1$).

Marginal Cost

The additional cost incurred by producing one more unit, computed by finding the difference between two sequential total cost quantities ($\text{Total Cost of pair } 2 - \text{pair } 1$).

Profit Maximization

The business objective where a firm produces output where marginal cost is closest to marginal revenue without exceeding it.

Labor Market

The market where individuals offer their labor as supply and employers represent the demand for workers.

Production Possibilities Curve

A graphical representation showing the alternative combinations of goods (e.g., pizza and spaghetti) a business or economy can produce with its available resources.

Externalities

The costs or benefits that third parties (people who did not make the initial choice) experience as a result of an economic action.

Negative Externality

Undesirable and unwelcome consequences or costs imposed on third parties, such as people getting sick or needing water filters due to a store dumping trash in a river.

Positive Externality

Desirable and welcome effects experienced by third parties, such as previously unemployed people earning income when hired by the city to clean up a contaminated river.

Free Resources

Productive ingredients that exist naturally in quantities greater than people need or want for production, such as air and rivers.

Free Riders

People who benefit from a good or service without paying for its costs, such as not getting a flu shot while benefiting from herd immunity because everyone else did.

Commons

Goods and property that everyone owns equally, such as a public park or school, which people have fewer incentives to maintain than privately owned goods.

Eminent Domain

The legal power of a government to pay for and take private property for alternative public use without the owner's consent, such as acquiring front-yard land to widen a highway.

Government Regulation

Rules and interventions enforced by the government designed to promote growth, full employment, and price stability.

Minimum Wage

A government-imposed minimum price level in the labor market that forces businesses to pay workers at least that specified amount.

Agricultural Subsidies

Government payments made to farmers of certain commodities to supplement income, manage supply and price fluctuations, and protect against losses from uncontrollable events like weather.

Surplus

A market condition occurring when the price is set above equilibrium, causing businesses to produce more quantity than consumers demand.

Shortage

A market condition occurring when the price is set below equilibrium, causing businesses to supply less quantity than consumers demand.

Natural Monopoly

An industry where government regulation is highly beneficial for ensuring efficiency and fair prices, such as electricity, highways, police and fire protection, and U.S. currency regulation.

Rational Decision-Making Model

A five-step process for making choices: 1. Define the situation or problem; 2. Identify criteria; 3. Consider all alternatives; 4. Calculate consequences versus criteria; 5. Choose the best option.