economic final

Economics

the study of the decisions and motivation

Economic product

goods and service that are useful scares and transferable

Consumer goods

final use by customer

Capital goods

produces other goods and services

Durable goods

last 3 years or more

Nondurable goods

last less than 3 years

Paradox of value

a problem exists between the idea of necessities and value

Economic growth

output of goods and service increase overtime

Factors of production

land, labor, capital, human, physical

Land

natural resources

Labor

workforce

Capital

amount of monetary resources a potential buyer and/ or loan applicant has available

Physical

tools building machines and money

Human

people acquire skill and knowledge from experience and education, increase in need as technology advances

Entrepreneurs

a risk taker in search of profits, start new businesses or bring new product to market

Decision making grid

helps analyze the cost and benefits of your options and make the right choice

GDP (Gross Domestic Product)

large amount of product

Production Possibilities Frontier (PPF)

shows the possible combination of goods and services that can be produced when all resources are used. Illustrates concept or idea of opportunity cost

Economic interdependence

a condition in which countries have strong economic ties and depend on each other for resources, technology, trade, & investments

Command economics

economic system with a central authority that makes the major economics decisions

Economic & social goals

economic freedom, economic efficiency, economic equity, economic security, fill employment, price stability, economic growth

Role of the consumer

consumer sovereignty, determine what products are to be produced

Consumer sovereignty

ruler of the market, the customer is always right, determine what are product are produces

Determine what products are to be produced

opinions/ attitudes are always changing

Modified free enterprise economy

economic freedom, voluntary exchange, private property right, profit motive, competition, minimal government, interference

Minimum wage

a minimum price that on employee can pay a worker for an hour of labor

Mixed economy

government is a promoter

Voluntary exchange

the act of buyers and sellers freely and willingly engaging in market transaction

Stocks

basic ownership of corporation

Preferred stock

dividend guarantee

Common stock

basic ownership of corporation

Limited liability

business can operate after death of owner

Partnerships

businesses with two or more owners

Nonprofits corporations

provides people work

Dividends

earning distributed to stockholders

Corporate profit

income that goes back into corporation as a whole

Taxes

owner’s income profits

Limited partnerships

1 partner is not involved

SEC (Securities & Exchanged Commission)

makes and enforces rules for the stock market

Corporations

businesses that are owner by many investors who buy shares of stocks

Types of mergers

horizontal (same firms) & vertical (different)

Role of government in the US economy

protector, provider, consumer, regulator, promoter

Marginal utility

extra satisfaction someone get from acquiring or using one more unit of a product

Law of demand

the quantity of demand varies inversely with its price

Demand price

high – demand is low

Complements

an increase in the price of one lowers demand of other

Substitutes

some products can be used in place of another. If the price of one goes up, demand of the will increase

Income effect

as the price of product decrease, consumers are left with extra

Elastic

change in price causes a large change in demand

Inelastic

change in price causes a small change in demand

Unit elastic

change in price cause a proportional change in demand

Items that effect elasticity of demand

when a product commands a large portion of income

Law of supply

suppliers will normally offer more for sale at higher preces and less at lower price. Suppliers are motivated by profit

Productivity

output increases and input remains the same

Fixed cost

incurred even if a plant is idle and output is zero (ex

Variable cost

change when the rate of operation or output changes (ex

Marginal cost

extra cost incurred when a business produces one additional unit of product (per-unit) increase in variable

Items that effect supply

1 cost of supply

2 productivity

3 technology

4 taxes

5 subsides

6 expectations

7 govt regulations

8 number of sellers

The main determinants of supply

resource prices, conditions of production, price of related goods, producers’ expectations, and number of suppliers

Change in supply

this is when suppliers offer different amounts of products for sale at all possible prices

Profit maximum quantity of output

marginal cost and marginal revenue are equal

Price as signals

the ability of prices, and changes in prices, to communicate information to consumers & producers, on this basic of which they make economic decisions

Surplus

situation in which the quantity supplied is greater than the quantity demanded at given price, small surplus – small drop in prices

Shortage

situation in which the quantity demanded is greater than the quantity supplied at given price

Prices ceilings

a legal maximum on the price at which a good can be sold (ex: rent control)

Price floor

prices are considered too low, and steps are taken to keep them higher (ex: minimum wage)

Rationing

an agency decides who gets what

Market equilibrium

occurs when prices are stable, and the quantity of goods/ services supplied is equals to the quantity demanded at a given price

Risk

poor credit rating

Return relationship

output not certain, higher return for higher risk

Bonds

long term obligations that pay rate of interest over a number of years

Bond rating

a grade given to bonds that indicates their credit quality

Junk bonds

a lower rated potentially higher paying bond (high risk)

401K plan

a tax deferred investment and savings plan that acts as a personal pension fund for employees

Investment plan

the process of matching your financial goals and objectives with your financial resources. simplicity consistency

Efficient market hypothesis

over time prices will even out, so it doesn’t matter what you buy

Stock exchange

NYSE, OTC

Credit

borrowing capacity of an individual or company

Credit cards

means of access to preapproved lines of credit granted by a bank or finance company

Credit reports

determines who receives credit and how much is obtained

Credit scores

3 digits number that represents how likely a borrower is to repay debt

Annual percentage rat (APR)

the yearly interest rate charged on borrowed money

Adv of credit cards

buy and enjoy expensive items, convenience traveling, financial emergencies, student loans purchase of vehicles & homes

Dis of credit cards

increase in cost, overspending, frisk, future earnings are earmarked, frenzies, poor purchase, predatory lending, living beyond ones means or income

Credit rating

a measure of a person’s ability and willingness to make credit payment on time

Information available in crdit reports

payment tendencies, amount of debt, loans, bankruptcy, residency, aliases

Creditworthiness

a measure of your ability and willingness to repay a loan; character, collateral, capacity

Ways to establish credit

open checking or saving account, bank loans, crdit card, cell phone or internet in name, membership to credit union

Minimum payment

the amount you are required to pay each month on a crdit account

3 types of business organizations

sole proprietor, partnership, corporation

Sole proprietorship

a business owned by one person

Adv of sole proprietorship

ease up start and close management, no income tax

Dis of sole proprietorship

owner has limited capability, hard to raise capital, inventory, trouble finding employees

General partnership

all management involved in management and finance

Adv of partnership

ease of start management, no special tax, easier to raise capital, finding employee

Dis of partnership

responsible for each other’s actions, bankruptcy

Corporation

business organization recognized by law a separate legal entity

Adv of corporation

capital, bonds, principal and interest, professionals, run firms limited liability, life of business of unlimited

Dis of corporation

charter is expensive, ownership and management are separate, shareholders have little say, corporate income is taxed twice, subject to government regulation

Types of demand elasticity

elastic, inelastic, unit elastic