Economy Final

economics

the social science studying how societies manage scarce resources to produce, distribute, and consume goods and services,

Division of Labor

the social science studying how societies manage scarce resources to produce, distribute, and consume goods and services,

Opportunity costs

the loss of potential gain from other alternatives when one alternative is chosen.

Factor Market

the factors of production—land, labor, capital, and entrepreneurship—are bought and sold, distinct from product markets (goods/services); in these markets, businesses demand resources, while households supply them, with wages, rent, interest, and profit serving as payments for their use, all driven by supply and demand principles. 

Wants

desires for goods and services that improve life but aren't essential for survival,

Specialization

when individuals, firms, or countries focus on producing specific goods or services they do best, leading to greater efficiency, productivity, and output through the division of labor and comparative advantage, ultimately benefiting from trade to get what they don't produce

Invisible hand

a metaphor from economics, coined by Adam Smith, describing how individuals pursuing their own self-interest in free markets unintentionally benefit society by creating efficient resource allocation, supply, and demand, as if guided by an unseen force, reducing the need for government intervention. It explains how a baker making bread for profit provides for customers, and how competition keeps prices fair and quality high, leading to overall economic well-being

Product Market

: in economics, it refers to the marketplace where final goods and services are sold to consumers; in business strategy, it commonly refers to

Value

the worth or benefit an individual or society derives from a good or service, often measured by the maximum they're willing to give up (usually money) for it, distinct from its market price, and is rooted in subjective preferences and scarcity, not just production cost

Paradox of Value

the economic puzzle explaining why essential items like water have low market (exchange) value despite high usefulness (use value), while non-essential items like diamonds have high exchange value despite low use value

Utility

the satisfaction, usefulness, or value a consumer gets from consuming a good or service

Resource

a field studying the allocation, management, and valuation of these, especially natural resources like water, minerals, and forests, considering their scarcity, sustainability, and economic value beyond market prices, to balance human needs with environmental protection. 

John M. Keynes

The father of modern macroeconomics, a British economist whose 1936 book, The General Theory of Employment, Interest and Money, established macroeconomics as a distinct field by focusing on aggregate demand and advocating government intervention to stabilize economies, especially during downturns like the Great Depression

Free Market System

an economic model where prices, production, and the distribution of goods and services are determined by the decentralized interactions of buyers and sellers, with minimal or no government intervention.

Equity

the fair and just distribution of economic resources, opportunities, and outcomes, balancing fairness with efficiency,

Traditional economy

an economic system where customs, beliefs, and historical precedents dictate what, how, and for whom goods are produced, relying heavily on subsistence farming, hunting, and bartering, with roles passed down through families, focusing on community survival over profit or innovation

Laissez Faire

an economic and political philosophy advocating minimal government interference in the free market

Wealth of Nations

Adam Smith's seminal 1776 book arguing for free markets, specialization, and self-interest to drive prosperity, and more broadly to a nation's total economic resources

Adam Smith

(1723-1790) was a Scottish philosopher and economist, widely considered the father of modern economics, famous for his book The Wealth of Nations

Command economy

an economy in which production, investment, prices, and incomes are determined centrally by a government.

Efficiency

means using scarce resources optimally to produce the maximum possible output or benefit, minimizing waste (inputs) for a given result (output), essentially getting the most value for the least cost

Profit motive

the fundamental drive for individuals and businesses to engage in activities with the primary goal of achieving monetary gain, meaning earning more revenue than the costs incurred, which fuels entrepreneurship, investment, and market activity in capitalist systems.

Socialism

a system where the community (often the government or workers collectively) owns and controls the "means of production" (factories, resources, etc.) to ensure equitable distribution of wealth, meet basic needs, and reduce inequality

Consumer sovereignty

the principle that consumers' wants and needs ultimately dictate what goods and services are produced in a market economy

Karl Marx

a philosopher and economist known for his critiques of capitalism, the development of Marxism, and advocating for a classless society. Karl Marx (1818-1883) was a philosopher, author, social theorist, and economist. He is famous for his theories about capitalism, socialism, and communism.

Mixed economy

a system blending capitalism and socialism, allowing private enterprise and free markets alongside government intervention, ownership of some industries (like utilities), and social welfare programs (like unemployment benefits) to balance efficiency with social equity

Economic growth

the sustained, long-term increase in an economy's capacity to produce goods and services, typically measured as the percentage rise in Real Gross Domestic Product (GDP) per capita

Private property rights

the legal and social rules granting individuals exclusive control to use, benefit from, transfer, or exclude others from their resources (like land, goods, or ideas), fostering incentives for investment, innovation, and efficient resource allocation within market systems

Market economy

is an economic system where the production and distribution of goods and services are guided primarily by the interactions of individual citizens and privately owned businesses in the marketplace, rather than by a central government. Economic decisions are driven by the forces of supply and demand. 

Certificate of deposit

a safe, fixed-term savings account where you deposit money for a set period (term) and earn a fixed interest rate

Stocks (Securities)

a type of security that gives stockholders a share of ownership in a company

Pyramid Scheme

an illegal, fraudulent business model where participants earn money primarily by recruiting new members, not by selling actual products or services to the public, multi level marketing

Roth IRA

a retirement savings vehicle where you contribute after-tax money, allowing your investments to grow tax-free and qualified withdrawals in retirement to be completely tax-free. Key benefits include no taxes on earnings and tax-free withdrawals (after 59½ and 5 years), plus the ability to withdraw contributions anytime

401K

retirement savings plan

Interest

the cost of borrowing money or the reward for saving or lending it. 

Dividend

a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits

Ponzi scheme

investment fraud where early investors are paid returns using money from new investors, rather than from actual profits, creating the illusion of high returns with little risk. The scheme requires a constant flow of new money and inevitably collapses when new investors dry up or too many people try to cash out,

Email phishing

cyberattack that uses fraudulent communications, typically emails designed to look like they are from a legitimate source, to trick individuals into revealing sensitive information

Insurance premium

amount of money you pay to your insurance company regularly—in exchange for an active insurance policy and coverage

Yield

refers to the income or return generated by an investment, expressed as a percentage of its cost or current value, helping investors compare profitability, with common types

Mutual fund

professionally managed investment vehicle that pools money from many investors to buy a diversified portfolio of stocks, bonds, or other securities,

Credit Union

member-owned, non-profit financial cooperatives that pool member savings (shares) to provide low-cost loans and services, returning profits (dividends) to members through better rates, not to outside shareholders,

Multi-level marketing

is a sales strategy where individuals sell products and recruit others to sell, earning commissions on their own sales and a percentage from their "downline's" sales, but legitimate ones focus on product sales to consumers,

Junk Bond

is a debt security with a credit rating below investment grade.

Market Saturation

means a product or industry has reached its maximum potential customer base, with most people who want it already having it, leading to slow growth, intense competition, and lower profit margins, forcing companies to innovate, cut costs, or find new markets to gain share.

Law of Supply

as the price of a good or service increases, the quantity suppliers are willing to provide also increases, and vice versa,

Production possibility curve

a graph showing the maximum combinations of two goods an economy can produce with fixed resources and technology, illustrating fundamental concepts like scarcity, opportunity cost, trade-offs, efficiency, and economic growth

Elasticity of demand

measures how much the quantity demanded for a product changes in response to a price change, income change, or other factors, with price elasticity

Surplus

an amount of something left over after the need or demand has been met

Diminishing returns

proportionally smaller profits or benefits derived from something as more money or energy is invested in it.

Fixed cost

business expenses that remain constant regardless of production or sales volume

Law of Demand

price of a good or service rises, the quantity demanded falls, and as the price falls, the quantity demanded rises

Equilibrium

a state in which opposing forces or influences are balanced

Elasticity of supply

measures how responsive the quantity of a good supplied is to a change in its price

Real income effect

how changes in a consumer's purchasing power, caused by price shifts (or actual income changes), alter the demand for a good or service

Shortage

a situation where the demand for something (goods, services, staff) is greater than the available supply

Diminishing utility

an economic principle stating that as you consume more of a good or service, the extra satisfaction (marginal utility) you get from each additional unit decreases, even if total satisfaction rises for a while.

“Overhead”

ongoing business expenses not directly tied to producing a specific product or service

Supply

is the total amount of a specific product or service that producers are willing and able to offer for sale at various prices during a given time period, showing a direct relationship where higher prices generally lead to a higher quantity supplied

Marginal cost

the extra cost incurred by a firm for producing one more unit of a good or service, calculated as the change in total cost divided by the change in quantity

Unit elastic

a situation where the percentage change in quantity demanded or supplied is exactly equal to the percentage change in price, resulting in an elasticity value of 1

Marginal product

the extra output gained from adding one more unit of a variable input (like labor or raw material) while keeping other inputs fixed

Production function

shows the maximum output a firm can make from given inputs

a cost that varies with the level of output.

Variable cost

Total cost

the overall expense to produce goods or services, calculated by adding up all fixed costs (like rent, machinery) and variable costs (like raw materials, labor) for a specific output

Business cycles

natural fluctuations in overall economic activity, alternating between periods of expansion (growth) and contraction (recession), moving through four key phases: expansion, peak, contraction (recession), and trough (recovery)

Recession

a significant, widespread, and prolonged downturn in economic activity, marked by falling GDP, rising unemployment, declining income, and reduced consumer spending

The Federal Reserve

the central bank of the United States

Keynesian economics

argues that government intervention, primarily through fiscal policy (spending and taxes), is essential to stabilize economies, especially during downturns, by boosting aggregate demand (total spending) to combat recessions and unemployment

Easy money policy

when a central bank increases the money supply and lowers interest rates to stimulate borrowing, spending, and economic growth, often during recessions, making credit cheaper for consumers and businesses.

Prime rate

the benchmark interest rate banks charge their most creditworthy customers, serving as a base for setting rates on various loans like credit cards…

Supply Side policies

economic strategies focused on boosting an economy's ability to produce goods and services by improving efficiency, increasing productivity, and incentivizing investment

Creeping Inflation Expansion/recovery

a slow, gradual, and steady rise in prices, typically around 1% to 3% annually

Expansion / recovery

the economic phase where an economy grows out of a recession, characterized by rising GDP, job creation, and increased spending

Trough

the lowest point of the business cycle, marking the end of a recession and the beginning of an economic recovery, where economic activity, GDP, and employment hit their weakest levels before starting to rise again

Fiscal Policy

a government's strategy of using spending and taxation to influence the economy, aiming for stable growth

Entitlements

government programs providing mandatory benefits (money, goods, services) to individuals meeting specific legal criteria, forming a social safety net like Social Security, Medicare, and food stamps, where funding follows eligibility, not discretion

Automatic Stabilizers

built-in government policies, like progressive taxes and unemployment insurance, that automatically adjust government spending and tax revenues to stabilize the economy during business cycles

Open Market Operations

a central bank's primary tool for implementing monetary policy

Discount Rate

an interest rate used to find the present value of future money, reflecting the time value of money

Contraction

a phase of the business cycle where overall economic activity slows down, marked by falling Gross Domestic Product (GDP)

Deflation

is a sustained decrease in the general price level of goods and services

Real GDP”

the inflation-adjusted measure of a country's total economic output, reflecting the value of all final goods and services produced

Laffer Curve

a theory in economics showing that government tax revenue rises as tax rates increase from 0%, hits a maximum at some optimal rate, and then falls as rates go to 100%

Federal Open Market Committee

the U.S. central bank's (Federal Reserve) key policymaking body that sets monetary policy, primarily by targeting the federal funds rate through open market operations (buying/selling securities) to achieve maximum employment and stable prices

Hyperinflation

an extremely rapid, out-of-control rise in prices, usually defined as over 50% inflation per month

Jerome Powell

American investment banker and lawyer who has been the 16th chair of the Federal Reserve since 2018