Econ Finals review

Factors of Production

resources used to make all goods and services, CELL, Capital, Entrepreneurship, Land, Labor

Opportunity Cost

The cost of the next best alternative forgone, A guns or butter decision

PPF

A great way to look at Opportunity Cost, moving on a PPF means gaining more of one while giving up another, a PPF shifting to the right shows Growth, the left is the opposite

Underutilization

On a PPF, it is anything under the curve, meaning that not all resources are being used efficiently

Physical Capital

Tools, equipments, factories used to create goods and services

Human Capital

knowledge and skills

Financial Capital

The money used to buy the other capital to create goods and services

Demand Curve

People buy more when the price is lower
A change in QD is a movement along the curve caused by the price of the product

Demand Curve Shifts

IRDL(Increase Right Decrease Left)
Caused by ITS PUCE
Non price of the product events

Supply Curve

Sellers want to sell more when the price is high
A change in QS is a movement along the curve caused by price

Supply Curve Shifts

IRDL(Increase Right Decrease Left)
Caused by CPTN ST SEGR
Non price of the product events

Surplus

When supply exceeds demand
Can be caused by a price floor
Causes price to drop

Shortage

When demand exceeds supply
Can be caused by a Price ceiling
causes prices to rise

Equilibrium

When Supply and Demand are totally equal, No surplus or shortage
the market is cleared

Price Floor

The lowest legal price that can be charged for an item, Example Minimum Wage
causes surplus,

Price Ceiling

The highest legal price that can be charged
causes a shortage

Elastic Demand

A more than proportional reaction to a change in price, More on wants instead of needs

Inelastic Demand

A less than proportional reaction to a change in price
price does not have a big impact on your buying habits. More on NEEDS rather than wants

inferior goods

demand rises for these when income drops
demand falls when income rises

normal goods

demand rises when income rises
demand falls when income drops

Profit

what motivates an entrepreneur
found by subtracting total costs from total revenue

variable costs

costs that rise or fall with production

fixed costs

costs that do not change with production

marginal cost

the extra cost associated with the production of one more unit

competition

struggle among producers for the consumer's business

economic system

the method by which goods and services are produces, distributed and consumed

incentive

making profits on sales
The hope of reward or fear of punishment

Karl Marx

advocated communism as an economic system (command)

Adam Smith

Free market philosopher, wrote the Wealth of Nations

Socialism

associated with mixed systems, cradle to the grave security

Capitalism

associated with market systems

Communism

associated with command/centrally planned systems

Market Economy

decisions are made by the consumers and producers

Command/Centrally Planned Economy

decisions are made by the government

Traditional Economy

Choices are decided based on what was done in the past

Social and Economic Goals (SPEFGEF)

Security, price stability, efficiency, equity, freedom, full employment, growth

Positive Externality

a positive side effect caused by a market decision

Negative Externality

an undesirable side effect caused by a market decision

Mixed Economy

sometimes called Free Enterprise
the gov't and private enterprise coexist as major players

Monopoly

a single seller

Oliogopoly

A few sellers dominate
like the soft drink industry

Monopolistic Competition

many sellers, differentiated products

Pure Competition

Identical products
many farmers with the same crop like Wheat

FICA

Federal Insurance Contributions Act, allowed for Social Security 6.2% and Medicare 1.45% to be collected directly via paycheck

Benefits Received Principle of Taxation

those who benefit should pay for them

income tax

Tax paid to the state, federal, and local governments based on income earned over the past year. Largest tax collected for the Federal Gov't

property tax

a tax based on real estate and other property. Largest tax collected for local gov't, pays for public schools

FDIC

Federal Deposit Insurance Corporation: a federally sponsored corporation that insures accounts in national banks and other qualified institutions. Up to $250,000

mandatory spending

Required govt spending by permanent laws like Social Security and Medicare

discretionary spending

Federal spending on programs that are controlled through the regular budget process. Can be increased or decreased like the military and education

progressive tax

A tax for which the percentage of income paid in taxes increases as income increases. based on the more you make, the more you pay

proportional tax

a tax for which the percentage of income paid in taxes remains the same for all income levels

regressive tax

A tax whereby people with lower incomes pay a higher fraction of their income than people with higher incomes. Harder on the poor

fractional reserve banking

a banking system in which banks hold only a fraction of deposits as reserves

government savings bonds

savings bonds that are paper-based or paperless, considered a safe investment backed by the full faith and credit of the USA

Blue Chip Stock

the stock of a large, well-established and financially sound company that has operated for many years

stock split

the division of each single share of a company's stock into more than one share. Often done when a stock price gets too high

reserve requirement

the percentage of deposits that banking institutions must hold in reserve. amount the FED requires banks to keep on reserve, a reduction in the RR increases excess reserves which EXPANDS the money supply (LOOSE), the opposite is TIGHT

Federal Reserve System

the central bank of the United States balances inflation and recession using various tools, 12 districts in the US, each district bank distributes coin and currency and operates a nationwide payments system

discount rate

rate the Federal Reserve charges for loans to commercial banks. Tool of the Fed, rate they charge member banks to borrow money, increasing the rate contracts the money supply (TIGHT)

entitlement programs

Government benefits that certain qualified individuals are entitled to by law, regardless of need. As in Social Security and Medicare

open market operations

the buying and selling of government securities to alter the supply of money

FOMC (Federal Open Market Committee)

the branch of the Federal Reserve Board that determines the direction of monetary policy

federal budget

a plan for the federal government's revenues and spending for the coming fiscal year. Begins with the President and OMB

Difference between a change in demand and a change in QD

A change in D is from ITS PUCE, it is a shift of the entire demand curve. A Change in QD is a movement from one thing ONLY! PRICE of the product!

Dow Jones Industrial Average (DJIA)

an index of 30 representative stocks used to monitor price changes in the overall stock market

expansionary fiscal policy

An increase in government purchases of goods and services, a decrease in net taxes, or some combination of the two for the purpose of increasing aggregate demand and expanding real output

contractionary fiscal policy

Fiscal policy used to decrease aggregate demand or supply. Deliberate measures to decrease government expenditures, increase taxes, or both. Appropriate during periods of inflation.

deficit spending

Government practice of spending more than it takes in from taxes

national debt

the total amount of money that a country's government has borrowed, by various means. Measured in trillions

growth stock

A stock from a company which has a consistent record of relatively rapid growth and earnings in all economic conditions. Currently growing and therefore reinvesting its earnings rather than paying out regular dividends

income stock

pays higher-than-average dividends compared to other stock issues

junk bonds

High-risk, high-interest bonds, VERY HIGH RISK!

total revenue

Price x Quantity

guns or butter

a phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods

unit elastic

a given change in price causes a proportional change in quantity demanded, also called Unitary Elasticity

Specialization

the concentration of the productive efforts of individuals and firms on a limited number of activities. Makes production more efficient

barter

Exchange goods without involving money.

public goods

goods and services provided by the government and consumed by the public as a group as in highways, schools, military etc

General Partnership

partnership in which partners share equally in both responsibility and liability, many doctor offices are these

bank run

widespread panic in which great numbers of people try to redeem their paper money, take more out than bank has on hand

mortgage

a specific type of loan that is used to buy real estate

credit card

a small plastic card issued by a bank, business, etc., allowing the holder to purchase goods or services on credit. Card issuer pays store and then you pay the card issuer plus interest if applicable

Sole Proprietorship

a business owned and managed by a single individual. Lack of permanence

subsidy

government payment to encourage or protect a certain economic activity

circular flow model

A diagram that traces the flow of resources, products, income, and revenue among economic decision makers

demand schedule

a table that shows the relationship between the price of a good and the quantity demanded

vertical merger

the combination of two or more firms involved in different stages of producing the same good or service

horizontal merger

mergers among firms in the same industry ex. Delta/ Northwest airlines (a merger of firms in exactly the same industry)

product market

the market in which households purchase the goods and services that firms produce

factor market

market in which firms purchase the factors of production from households. Where we make our $

Three economic questions

What to produce? How to produce? For whom to produce?

inferior good

a good that consumers demand less of when their incomes increase

normal good

a good that consumers demand more of when their incomes increase

substitute goods

Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.

complementary goods

Goods that are commonly used with other goods

Inflation

a general increase in prices and fall in the purchasing value of money.

Inflation is caused by

rapid growth of the money supply

Recession

a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

stock broker

a broker who buys and sells securities on a stock exchange on behalf of clients.