Chapter 1

Aggregate Output

Total quantity of goods and services produced in an economy over a given period; key component in calculating GDP.

Gross Domestic Product (GDP)

Total market value of all final goods and services produced within a nation’s borders in a year; primary indicator of economic health.

GDP per Capita

GDP divided by the population; measures average economic output per person, indicating the economic well-being of each resident.

Gross National Product (GNP)

GDP plus income earned by residents from overseas investments minus income earned within the domestic economy by foreign residents.

Real GDP

GDP adjusted for inflation, providing a more accurate picture of economic growth by removing the effects of price level changes.

Nominal GDP

GDP measured in current prices, not adjusted for inflation; reflects the total value of goods and services produced at current prices.

Economic Indicators

Statistics used to assess the health of the economy (e.g., GDP, CPI, unemployment) to understand current conditions and predict future trends.

Consumer Price Index (CPI)

Measures changes in the price level of a market basket of consumer goods and services; used to measure inflation.

Inflation

A general increase in prices across an economy which reduces the purchasing power of money.

Deflation

A general decrease in prices across an economy that can decrease economic activity as consumers delay purchases.

Purchasing Power Parity (PPP)

Compares different countries’ currencies through a market 'basket of goods' approach to compare real purchasing power.

Capitalism

Economic system with private ownership and free markets, where resources are allocated through market mechanisms.

Communism

System where all property is publicly owned and each person works and is paid according to abilities and needs.

Socialism

Economic system where major industries are owned by the government, balancing individual freedoms with social equality.

Planned Economy

Government controls production and distribution decisions, determining what goods and services are produced.

Market Economy

Economic decisions made by individuals or the open market, with prices determined by supply and demand.

Mixed Market Economy

Combination of free-market and some government control, seeking to balance market efficiency with government intervention.

Private Enterprise

Economic system with private ownership, choice, and competition, fostering innovation and economic growth.

Stability

Condition in which an economy has low inflation and full employment, promoting investment and long-term growth.

Recession

Decline in GDP for two consecutive quarters, characterized by decreased economic activity and rising unemployment.

Depression

Severe and prolonged downturn in economic activity with devastating effects on individuals and the economy.

Surplus

When supply exceeds demand or revenues exceed expenditures, potentially leading to lower prices and reduced profits.

Shortage

When demand exceeds supply, leading to higher prices, rationing, and potential dissatisfaction among consumers.

Demand

The willingness and ability of buyers to purchase a good, constrained by income and prices.

Supply

The willingness and ability of producers to offer a good for sale, dependent on production costs and other factors.

Law of Demand

As price decreases, quantity demanded increases (and vice versa); depicted by a downward-sloping demand curve.

Law of Supply

As price increases, quantity supplied increases (and vice versa); depicted by an upward-sloping supply curve.

Demand and Supply Schedule

Table showing quantities demanded or supplied at different prices, providing a snapshot of market conditions.

Demand Curve

Graph showing the relationship between price and quantity demanded, illustrating how much product consumers will buy.

Equilibrium Price (Market Price)

Price at which quantity demanded equals quantity supplied; where demand and supply curves intersect.

Competition

Rivalry among businesses for consumer dollars, promoting innovation, efficiency, and lower prices.

Perfect Competition

Many sellers offer identical products with no market control; prices determined solely by supply and demand.

Monopoly

One producer dominates a market and controls prices, often leading to higher prices and reduced output.

Oligopoly

A few large firms dominate a market, often engaging in strategic behavior like price fixing to maintain market power.

Factors of Production

Land, labor, capital, and entrepreneurship used to produce goods/services; resources must be allocated efficiently.

Capital

Tools, equipment, and facilities used in production to enhance productivity and expand production capabilities.

Labor (Human Resources)

The physical and mental effort used in production; essential for transforming raw materials into finished goods.

Physical Resources

Tangible things like buildings and machinery that provide necessary infrastructure for production.

Information Resources

Data and knowledge inputs that improve efficiency and inform decision-making in businesses.

Entrepreneur

A person who risks time and money to start and manage a business, driving innovation and economic growth.

Domestic Business Environment

Conditions in the home country affecting business, including economic factors, regulations, and social norms.

Global Business Environment

International forces affecting a business such as trade agreements, exchange rates, and cultural differences.

Economic Environment

Conditions of the economic system, including growth, inflation, interest rates, and consumer confidence.

Technological Environment

Innovations influencing how businesses operate, impacting development, processes, and customer service.

Political-Legal Environment

Relationship between business and government encompassing regulations and rules for businesses.

Sociocultural Environment

Customs, values, and demographic characteristics shaping consumer preferences and social responsibility.

Fiscal Policies

Government decisions on taxation and spending to stabilize and influence the economy.

Monetary Policies

Central bank policies controlling the money supply and interest rates, influencing economic activity.

Stabilization Policy

Using fiscal and monetary policy to reduce economic fluctuations and prevent extreme business cycles.

Privatization

Converting government-owned businesses to private ownership to improve efficiency and competition.

Profits

Financial gain from operations (Revenue – Expenses), indicating business health and sustainability.

Productivity

Output per unit of input, reflecting how efficiently resources are utilized and affecting competitiveness.

Balance of Trade

Difference between a country’s exports and imports; indicates trade surplus or deficit.

Standard of Living

Level of wealth and access to goods/services; reflects overall well-being influenced by various factors.