Q1 Econ Terms

opportunity cost

value of the most important things given up when a decision is made (the next best alternative); (highest) value tradeoff

trade off

what you give up every time to make a choice

scarcity

all resources are limited

“thinking at the margin”

Post choice, people think about _____ benefits & costs when adding units of something
(deciding to go to college: how many credit hours do i want to take, and what do i get out of it?)

command

all economic decisions are made by the government, historically usually a dictator, king/queen, or emperor; Usually requires citizens to work certain jobs or build things that benefit the ruler or ruling class, Prioritizes economic stability; socialist countries theoretically prioritize economic equity and security at the cost of economic freedom and growth

mixed

•  All economic decisions are made by the government AND individuals; most modern economies fall into this category, with leaning characteristics of either market or command

  • Government usually oversees or regulates markets (ex: food safety, fair wages) and providing some goods & services, while individuals have a degree of choice

traditional

custom, ritual, and tradition determines what is produced, how it’s made, and who consumes it; usually hunter-gatherer type societies, work divided along gender lines

Often prioritize economic stability and security, at cost of growth or freedom

market

all economic decisions are made by individuals and businesses, with no government regulation

Adam Smith’s “invisible hand” describes how goods and services are efficiently allocated without a government overseeing distribution

Prioritizes economic freedom, growth, and efficiency at the cost of economic equity

cost benefit analysis

a systematic approach to calculate and compare the benefits and costs of a decision, project, or policy

incentive

___ can very much change & motivate our behavior and actions

sunk cost fallacy

the mindset that you can make back money or time already invested into something considered a waste of time

Tradegy of the commons

a situation in which individuals, acting independently according to their self-interest, deplete shared resources leading to negative outcomes for the group

land

refers to all natural resources: perpetual (resources we’re unlikely to use up like sunlight), renewable (resources that, as they are used, can also be replaced like forests and fish), and nonrenewable (resources that are used and then gone completely like oil and coal)

labor

the effort and time put into production for which someone is paid

human capital

the expertise, experience, specific skills, education, and knowledge of laborers

physical capital (goods)

physical, man-made tools, machines, and resources involved in the production process (ex: an assembly line and a factory)

“The Wealth of Nations”

‘76 work about free mark economics and the benefits of specialization and division of labor by Adam Smith

Production Possibilties Frontier (PFP

model for understanding the tradeoffs an economy must make when dedicating its scarce resources; limited to two resources on a graph, and tests possibilities & efficiencyof production under maximum efficiency and opportunity costs.

• When inside the line: inefficient

• When outside the line: unattainable

• changes with acquired technology; left shift indicates lesser production & poor economy, right shift indicates the opposites

market

a location that allows goods & services to be exchanged between buyers and sellers

perfect competition

theoretical market with unlimited # of producers (no entry barriers) selling identical products to meet the consumers’ demand (farmers’ market)

monopolistic (imperfect) competitions

easy to enter market with a large number of producers, consisting of slightly different products, and limited price control (gas stations?)

oligopoly

3-5 top sellers dominating a hard to enter market, with near price control (Luxottica!)

monopoly

market controlled by one producer and are the price stetters (USPS?)

Sole Proprietorship

a single person owns and runs one business, in charge of all operation.

• can be set up essentially anywhere in the world w/ little no entry barriers - quick decision making - you get to keep more profit with no partner

• responsibility can weigh on you - usually doesn’t last for long - can have limited capital & enticing employee benefits

• EX: lemonade stand

Partnership

at least two people own a business, with responsibilities and proceeds usually split up somehow (limited or general), cemented by legal contracts signed by all sides

• little entry barriers - limited income tax - usually are slightly bigger in capital & employee talent

• losses are spread among both partners - limited partners can lose investments - dies when one leaves - partners can have conflicting views

• EX: shopping malls (limited), lemonade stand (together, general)

corporation

separate legal entity that is essentially a person, approved by the government w/a charter, and owned by investors through stock shares; these investors may or may not hold a vote in deciding directors for the company

• stock can be sold to other investors leading to more capital - responsibility for failures is split a lot, and stockholders are not necessarily responsible for recovery - usually long lifetimes - ownership transfers easily

• profits are double taxed - can be difficult to get a charter - shareholders don't have much say day-to-day - open to more regulations and approval from the (US) government

business franchise

business investment that involves renting or leasing another successful business model

Cooperative

nonprofit association performing some kind of economic activity for the benefit of its members

nonprofit

economic institution that operates like a business but does not seek financial gain; schools, churches, and community-service organizations are examples

entrepreneurs

risk-taking individuals who introduce new products or services in search of profits; one of the four factors of production

union

organization that works for its members’ interests concerning pay, working hours, health coverage, fringe benefits, and other job-related matters

closed shop

when employees MUST be members of a union to be hired; they must remain union members to stay employed; these are illegal under the Taft-Hartley Act (1947)

union shop

all workers must become union members after they are hired; this is legal

right-to-work laws

some states have passed these laws (known as right-to-work states); they outlaw union membership as a requirement for workers, making union shops illegal

Collective Bargaining

unions, who represent workers, negotiate and work with employers to obtain better wages or conditions for workers

Bread-and-Butter Unionism

rather than focusing on social issues, these unions focus on economic concerns such as better pay and benefits

externalities

economic side effects that affect an uninvolved third party

EX:

public good

economic products that are paid for and consumed collectively, such as highways, national defense, police and fire protection

market fallure

condition where any of the requirements for a competitive market—usually adequate competition, knowledge of prices and opportunities, mobility of resources, and competitive profits— leads to an inefficient allocation of resources characterized by too much or too little being produced

stock market

A set of exchanges and other venues where ownership shares of publicly held companies are bought and sold, raising money w/o borrowing.

outsourcing

When firms have a job that was once done within their own company completed by an outside contractor; usually done because the firm thinks the contractor can do the job more efficiently or for a lower cost

EX: An oil company outsources its environmental compliance to an engineering firm

unskilled labor

Jobs that do not require any specialized training; job tasks can be learned in less than 30 days; usually earn a low or minimum wage

EX: Server (bussing tables)

semiskilled labor

Jobs that require some specialized training, usually more than 30 days of training but less than skilled laborers need

EX: construction workers, delivery drivers

skilled labor

Jobs that require highly specialized skills; often requires more education or training such as a trade school degree or apprenticeship; usually paid an hourly wage

EX: police officers, plumbers

professional labor

Jobs that require a higher educational degree and advanced training; usually referred to as “white collar” jobs; paid a salary wage rather than an hourly wage

EX: teachers, engineers

labor force

Anyone aged 16 and over who is looking for a job or already has one; Does not include: military personnel, volunteers, homemakers, prison inmates

human capital

Training, expertise, knowledge, and skillset required to perform a job; typically a higher level of human capital means a higher wage

EX: teachers need a 4-year degree, a teaching credential (usually), life skills, knowledge of the world, the ability to interview well, public speaking skills, and a strong work ethic to be hired or retain their job