Intro to Business- Chapters 1 and 2

Economic Resources

Things available to be used to produce goods and services; also known as Factors of Production. All economic resources are limited.

Natural Resources

Raw materials supplied by nature used in production, such as oil, minerals, and crops.

Human Resources

The people that produce goods and services.

Capital Resources

Tools, equipment, buildings, and money used in the production of goods and services.

Basic Economic Problem

The mismatch between limited economic resources and unlimited wants and needs, such as wanting to buy something but lacking the money.

Scarcity

Not having enough resources to satisfy every need; affects some people more than others.

Trade-off

When you give up something to have something else.

Opportunity Cost

The value of the next best alternative that is given up when making a choice.

Economic Decision Making

The six-step process of choosing which needs and wants will be satisfied: define the problem, identify choices, evaluate advantages and disadvantages (pro/con list), choose the best alternative, act on your choice, and review your decision.

Economic Systems

The method a country uses to answer the three economic questions: what goods and services will be produced, how they will be produced, and what needs and wants will be satisfied with them.

Traditional Economy

An economic system in which goods and services are produced the way they always have been; typical of less developed countries not integrated into the global economy.

Command Economy

An economic system in which resources are owned and controlled by the government, which decides how resources are used; also known as communism.

Market Economy

An economic system where resources are owned and controlled by the people, and goods and services exchange hands on the marketplace; also known as capitalism.

Mixed Economy

An economic system that combines elements of both command and market economies.

Private Property

An economic right in the U.S. economy allowing individuals and businesses to own, use, and sell land.

Freedom of Choice

A principle of the U.S. economic system where people and businesses have the right to make their own economic decisions.

Profit

The money left over from sales after all operating expenses are paid.

Competition

The rivalry between companies that sell similar goods and services.

Consumer

A person or group who buys and uses goods and services.

Producer

Individuals and organizations that determine what products and services will be available for sale.

Demand

The quantity of a good or service that consumers are willing and able to buy, depicted by a curve with a negative correlation.

Elastic vs. Inelastic Demand

The responsiveness of demand to price changes: elastic demand changes faster, whereas inelastic demand changes slower.

Supply

The quantity of a good or service that businesses are willing and able to provide, depicted by a curve with a positive correlation that shifts based on production costs.

Equilibrium Point

The intersection where the supply and demand lines cross, establishing the ideal market price.

Gross Domestic Product (GDP)

The total value of all final goods and services produced in a country during one year, excluding intermediate parts and self-performed services.

GDP per capita

The output value per person, calculated as total GDP divided by the total population.

Unemployment Rate

The portion of people in the labor force who are not working, but are actively looking for work and willing to work.

Natural Unemployment Rate

The benchmark natural level of unemployment in the economy, identified as $4.2\%$.

Productivity

The production output in relation to a unit of input (the amount of work done per worker), which increases with equipment, technology, and training.

Personal Income

The total income received by individuals, consisting of salaries, wages, investment income, and government payments.

Retail Sales

The sales of goods bought by consumers, serving as an indicator where increases point to economic growth.

Business Cycle

The recurring movement of the economy from one condition to another and back again through four distinct phases.

Prosperity

A business cycle phase in which most people who want work are working, wages are good, and the rate of GDP growth increases.

Recession

A period of economic slowdown where unemployment begins to rise and GDP growth slows for $2$ or more quarters of the calendar year.

Depression

A prolonged period of high unemployment and business failures during which GDP rapidly falls, such as the Great Depression ($1930\text{--}1940$).

Recovery

A business cycle phase where unemployment begins to drop and GDP increases.

Inflation

An increase in the general level of prices that decreases buying power; $0.5\%\text{--}2\%$ is considered good, $2\%\text{--}3\%$ signals a growing economy, and $>4\%$ is considered bad.

Consumer Price Index (CPI)

An economic indicator used to measure changes in price levels and track inflation.

Deflation

A decrease in the general level of prices that typically occurs during economic recessions and depressions.

Capital Projects

Business investments involving spending for large-scale items such as land, buildings, equipment, and new products.

Personal Saving

Money saved by individuals for which they receive interest, which is subsequently borrowed by businesses for investment.

Stock

A financial security that represents an ownership share (equity) in an organization.

Bonds

A debt security representing a loan to a business, where the purchaser/owner of the bond acts as the creditor.

Interest Rates

The cost to borrow money, which varies between businesses, individuals, and differing intended uses.

Discount Rate

The benchmark interest rate set by the Federal Reserve (The FED) for commercial banks to borrow money at.

Monetary Policy

Policy set by the Federal Reserve, independent of politics, that raises interest rates to keep inflation in check or lowers them to stimulate GDP when growth declines.

Private Companies

Organizations whose stock is not traded on a public stock exchange, but which issue shares to bring in new owners and generate an influx of cash.

Public Companies

Corporations whose shares are traded on a stock exchange at prices set by supply and demand, where issuing more stock raises cash but dilutes/lowers the stock price.

Budget Surplus

A fiscal condition where a government spends less than the revenue it takes in, such as the U.S. federal surplus from $1998\text{--}2001$.

Budget Deficit

A fiscal condition where a government spends more money than it takes in as revenue.

National Debt

The total cumulative amount of money owed by the government.