economics summer

Scarcity -

fundamental economic problem of meeting people's virtually unlimited needs and wants with scarce resources

Economics -

social science dealing with how people satisfy seemingly unlimited and competing needs and wants with the careful use of scarce resources

Need -

basic requirement for survival, including food, clothing, and shelter

Want -

something we would like to have but is not necessary for survival

Good -

tangible economic product that is useful, transferable to others, and used to satisfy wants and needs

durable good -

good that lasts for at least three years when used regularly

Consumer good -

good intended for final use by consumers other than businesses

Nondurable good -

item that wears out, is used up, or lasts for fewer than three years when used regularly

Capital good -

tool, equipment, or other manufactured good used to produce other goods and services

Service -

a factor of production service work or labor performed for someone; economic product that includes haircuts, home repairs, and forms of entertainment

Value -

a factor of production service work or labor performed for someone

Paradox of value -

apparent contradiction between the high value of a nonessential item and the low value of an essential item

Utility -

ability or capacity of a good or service to be useful and give satisfaction to someone

Wealth -

sum of tangible economic goods that are scarce, useful, and transferable from one person to another

Gross domestic product (GDP) -

monetary value of all final goods, services, and structures produced within a country's national borders during a one-year period

traditional economy -

economic system in which the allocation of scarce resources and other economic activity is the result of ritual, habit, or custom

economic system -

organized way a society provides for the wants and needs of its people

command economy -

economic system characterized by a central authority that makes most of the major economic decisions

Socialism -

economic system in which government owns some factors of production and has a role in deciding what and how goods are produced

Market -

meeting place or arrangement through which buyers and sellers interact to determine price and quantity of an economic product; may be local, regional, national, or global

Market economy -

economic system in which supply, demand, and the price system help people allocate resources and make the WHAT, HOW, and FOR WHOM to produce decisions; same as free enterprise economy

Capitalism -

economic system in which private citizens own and use the factors of production in order to generate profits

production possibilities curve -

diagram representing all possible combinations of goods and/or services an economy can produce when all productive resources are fully employed

efficiency -

all goods and factors of production in an economy are distributed or allocated to their most valuable uses

marginal benefit -

the advantage of gaining each additional unit of an economic good

marginal cost -

the cost of gaining each additional unit of an economic good

marginal utility -

what satisfaction of needs/wants (utility) is gained when consuming each additional unit of an economic good

explicit costs -

costs calculated in terms of money (out of pocket costs)

implicit costs -

opportunity costs of a decision (foregone benefits) that is not defined in terms of money

financial institution -

group that channels savings to investors; includes banks, insurance companies, savings and loan associations, credit unions

Savings -

the dollars that become available for investors to use when others save

interest payment -

made for the use of borrowed money; usually paid at periodic intervals for long term bonds or loans

interest rate -

the price of credit to a borrower

Federal Reserve System (Fed) -

privately owned, publicly controlled, central bank of the United States

Federal Deposit Insurance Corporation (FDIC) -

the U.S. government institution that provides deposit insurance on the depositor's account

credit union -

nonprofit service cooperative that accepts deposits, makes loans, and provides other financial services

demand deposit account (DDA) -

account whose funds can be removed from a bank or other financial institution by writing a check or using a debit card

Creditors -

persons or institutions to whom money is owed

Collateral -

something of value that a borrower lets the lender claim if a loan is not repaid

secured loan -

a loan that is backed up by collateral

unsecured loan -

a loan guaranteed only by a promise to repay it

demand -

combination of desire, ability, and willingness to buy a product

microeconomics -

branch of economic theory that deals with behavior and decision making by small units such as individuals and firms

demand schedule -

listing showing the quantity demanded at all possible prices that might prevail in the market at a given time

incentive -

something that motivates

demand curve -

graph showing the quantity demanded at every possible price that might prevail in the market at a given time

Law of Demand -

rule stating that more will be demanded at lower prices and less at higher prices; inverse relationship between price and quantity demanded

market demand curve -

the demand curve that shows the quantities demanded by everyone who is interested in purchasing a product at all possible prices

marginal utility -

satisfaction or usefulness obtained from acquiring one more unit of a product

diminishing marginal utility -

decrease in satisfaction or usefulness as additional units of a product are acquired

change in quantity demanded -

movement along the demand curve showing that a different quantity is purchased in response to a change in price

income effect -

that portion of a change in quantity demanded caused by a change in a consumer's income when the price of a product changes

substitution effect -

the portion of a change in quantity demanded caused by a change in price that makes other products more or less costly

change in demand -

consumer demand for different amounts at every price, causing the demand curve to shift to the left or the right

substitutes -

competing products that can be used in place of one another; products related in such a way that an increase in the price of one increases the demand for the other

complements -

products that increase the use of other products; products related in such a way that an increase in the price of one reduces the demand for both

market structure -

market classification according to number and size of firms, type of product, and type of competition; nature and degree of competition among firms in the same industry

pure competition -

a theoretical market structure that requires three conditions: very large numbers of buyers and sellers, identical products, and freedom of entry and exit industry group of firms producing similar or identical products

perfect competition (perfectly competitive market) -

theoretical market structure characterized by a large number of well-informed, independent buyers and sellers who exchange identical products and have freedom of entry and exit

monopolistic competition (monopolistically competitive market) -

market structure having all conditions of pure competition except for identical products; a form of imperfect competition

product differentiation -

real or imagined differences between competing products in the same industry

nonprice competition -

competition based on a product's appearance, quality, or design, rather than its price

oligopoly market -

market structure in which a few large sellers dominate and have the ability to affect prices in the industry; form of imperfect competition

collusion -

illegal agreement among producers to fix prices, limit output, or divide markets

price fixing -

illegal agreement by firms to charge a uniform price for a product

Monopoly market -

market structure characterized by a single producer; form of imperfect competition

laissez-faire -

philosophy that government should not interfere with business activity

natural monopoly -

market structure in which average costs of production are lowest when all output is produced by a single firm

geographic monopoly -

market structure in which a firm has a monopoly because of its location or the small size of the market

technological monopoly -

market structure in which a firm has a monopoly because it owns or controls a manufacturing method, process, or other scientific advantage

government monopoly -

monopoly created and/or owned by the government

gross domestic product (GDP) -

dollar value of all finished goods, services, and structures produced within a country's national borders during a one-year period

intermediate products -

products that are components of other final products already included in the GDP; for example, new tires and radios for use on new cars

secondhand sales -

sales of used goods; category of activity not included in GDP computation

nonmarket transactions -

economic activity not taking place in the market, and therefore, not included in GDP; examples include services of homemakers and work done around the home

underground economy -

unreported legal and illegal activities that do not show up in GDP statistics

real GDP -

gross domestic product after adjustments for inflation; same as GDP in constant dollars

real GDP per capita -

gross domestic product on a per person basis

gross national product (GNP) -

the market value of goods and services produced by labor and property supplied by U.S. residents net national product

business cycles -

systematic changes in real GDP marked by alternating periods of expansion and contraction

business fluctuations -

changes in real GDP marked by alternating periods of expansion and contraction that occur on an irregular basis

recession -

decline in real GDP lasting at least two quarters or more

peak -

point in time when real GDP stops expanding and begins to decline

trough -

point in time when real GDP stops declining and begins to expand

expansion - period of uninterrupted growth of real GDP, industrial production, real income, and employment lasting for several years or more; recovery from recession trend line

depression -

state of the economy with large numbers of unemployed, declining real incomes, overcapacity in manufacturing plants, and general economic hardship

inflation -

sustained rise in the general level of prices of goods and services

deflation -

sustained decrease in the general level of the prices of goods and services

price index -

statistical series used to measure changes in the price level over time

consumer price index (CPI) -

index used to measure price changes for a market basket of frequently used consumer items

market basket -

representative collection of goods and services used to compile a price index

base year -

year serving as point of comparison for other years in a price index or other statistical measure

creeping inflation -

relatively low rate of inflation, usually 1 to 3 percent annually

hyperinflation -

abnormal inflation in excess of 500 percent per year; last stage of monetary collapse

stagflation -

combination of stagnant economic growth and inflation

creditors -

persons or institutions to whom money is owed

debtors -

persons or institutions that owe money

free enterprise -

an economic system in which privately owned businesses have the freedom to operate for a profit with limited government intervention

voluntary exchange -

economic action done or brought about by free choice

private property rights -

fundamental feature of capitalism, which allows individuals to own and control their possessions as they wish; includes both tangible and intangible property