BUS 101 - Chapter 4: Economics for Business

Factors of production

Consists of four categories: land, labor, capital, and entrepreneurial ability

Demand curve

A graph showing how the demand for a commodity or service varies with changes in its price

Complementary goods

A good whose use is related to the use of an associated or paired good

Substitute goods

A good as a result of changed conditions, may replace each other in use (or consumption).

Normal good

Good for which demand (consumption) increases as consumer income rises, but at a rate slower than the rate of increase in income

Inferior good

A good that decreases in demand when consumer income rises (or rises in demand when consumer income decreases), unlike normal goods, for which the opposite is observed

Tastes and preferences

Consumer preferences are defined as the subjective (individual) tastes, as measured by utility, of various bundles of goods

Quantity demanded

Quantity demanded is a term used in economics to describe the total amount of goods or services demanded at any given point in time

Ceteris paribus

Constraint introduced into an argument or assertion to allow one variable to change while keeping other variables constant, such as, "If we reduce our prices by X percent, ceteris paribus, our sales revenue should go up by Y percent."

Law of demand

Observation that, as a general rule, the demand for a product varies inversely with its price; lower prices stimulate demand and higher prices dampen it

Supply curve

Depicts how a business responds to changing market prices of a good or service

Quantity supplied

This is how much a business or corporation produces to meet the demand of the consumers

Law of supply

An economic theory which states that a company faced with constant demand will be able to raise prices inversely to shrinking available supply; conversely, the company may lower prices inversely to increased supply. If demand fluctuates, the corresponding price of supply will move in the opposite direction to the demand. Opposite of law of demand.

Market equilibrium

A situation in which the supply of an item is exactly equal to its demand. Since there is neither surplus nor shortage in the market, price tends to remain stable in this situation.

Competitive market economies

Primarily made up of privately owned, for-profit businesses and organizations that provide goods and services to others

Mixed economy

An economic system in which both the private enterprise and a degree of state monopoly (usually in public services, defense, infrastructure, and basic industries) coexist. All modern economies are mixed where the means of production are shared between the private and public sectors. Also called dual economy.

Centrally planned economies

A national financial system where the country's government operates, owns and manages production facilities. Most communist countries have attempted to operate using a centrally planned economy model, although the huge bureaucracy typically created to manage it has led to considerable criticism of the model as inefficient by free market economists.

Business cycle

The irregular and largely unpredictable fluctuations in economic activity

Gross domestic product

The sum of the market value of all final goods and services produced within a country in a given period of time

Real gross domestic product (GPD)

Informs the reader that the market value of the economic product calculations are adjusted for changes in the price level (i.e., for changes in inflation or deflation)

Nominal gross domestic product (GPD)

Equals the market value of the final goods and services produced at current year prices

Economic contraction

The negative movement from peak to trough

Economic expansion

The positive movement from trough to peak

Consumption

Made up of all the final goods and services that are ultimately bought and used by households, except for newly constructed buildings

Investment

Made up of all the final goods and services that become part of the business or residential capital stock, including newly constructed buildings

Government expenditure

Made up of all the final goods and services bought by the government

Exports

Any goods or services produced within the domestic country, but sold in a foreign country

Imports

Any goods or services produced in a foreign country but purchased domestically

Price level

Composite measure reflecting the prices of all goods and services in the economy relative to prices in a base year

Consumer price index (CPI)

Measures changes over time in the cost of buying a "market basket" of goods and services purchased by a typical family

Inflation rate

The percentage change in the cost of the market basket from one month to the next

Unemployment rate

A key indicator of economic performance and it is one of the most widely reported government statistics

Frictional unemployment

Occurs because it takes time for workers to search for the jobs that best suit their tastes and job skills

Structural unemployment

Occurs because the number of jobs available in a labor market is insufficient to provide jobs for all of those who want a job

Cyclical unemployment

Unemployment that occurs because of declines in the economy's GDP during economic contractions and recessions

Exchange rate

The rate at which you can exchange one currency for another

Appreciates

When its price increases in terms of another currency

Fiscal policy

The government's plans for taxing and spending

Monetary policy

The actions of a central bank to effect interest rates and supply of money