Economics Vocabulary

Flashcards for Unit 3 and Unit 5 lectures

Sole Proprietorship

The smallest form of business, owned and operated by one person.

Partnership

Owned by two or more people and can be general, limited, or an LLC.

Corporation

Recognized as separate legal entities with rights of an individual that require permission to form from the national or state government.

Franchise

Renting the name, business profile, and way of doing business from the owner.

Income Statement

A report that shows a businesses sales, expenses, net income and cash flow for a period of time.

Depreciation

A noncash charge for the general wear and tear on capital goods.

Merging

A combination of two or more businesses to form a single firm.

Conglomerates

Firms that have at least four businesses that make unrelated products

Multinational Corporations

Can move resources, goods, and capital across national borders.

Start-up Incubators

Places where potential entrepreneurs can get training and potential financing.

Venture Capitalists

Lend investment funds to new businesses for a share of ownership.

Angel Investors

People who lend start-up money informally

Crowdfunding

Using social networking to appeal to potential investors.

Bulk-losing Industries

Industries that want to be situated near raw materials so they can remove heavy material before shipping.

Bulk-gaining Industries

Industries that prefer to have factories closer to consumers.

Nonprofit Organizations

They work in a businesslike way to promote the collective interests of their members instead of seeking financial gain for the owners.

Civic Organizations

They aim to improve life for members and are similar to profit-making businesses but do not issue stock or pay dividends.

Cooperatives

Nonprofit associations performing some kind of economic activity for the benefit of its members

Consumer Cooperatives

Buys bulk amounts of goods and sell to members at prices lower than regular businesses.

Service Cooperatives

Provides services such as insurance, credit, or child care to its members.

Producer Cooperatives

Made up of producers and helps members promote or sell their products directly to markets, consumers, or companies that use the members’ products

Labor Unions

Represent member interests in various employment matters and participates in collective bargaining.

Professional Associations

Consist of people in a specialized occupation who are interested in improving working conditions, skills, and public perceptions of the profession.

Business Associations

Formed to promote the collective interests of businesses.

Direct Role

Government agencies that produce and distribute goods and services.

Indirect Role

Government that acts as an umpire to help the market economy operate smoothly

Craft (Trade) Union

A union of workers with a common skill.

Industrial Union

A union of workers from a particular industry.

Strike

A work stoppage by union members to put pressure on an employer.

Boycott

Refusal to buy products from or deal with a company.

Lockout

When management closes the doors of a business to keep employees from working.

Right-to-Work Laws

A state law making it illegal to require a worker to join a union.

Collective Bargaining

An attempt to get employers to recognize and bargain with the union

Noncompeting Categories of Labor

Unskilled labor, semi-skilled labor, skilled labor, and professional labor

The Market Theory of Wage Determination

that the supply and demand for a worker’s skills and services determine the wage or salary.

The Theory of Negotiated Wages

The bargaining strength of organized labor helps determine wages.

The Signaling Theory

Employers are willing to pay more to people with certificates, degrees, and other indicators that “signal” superior knowledge or ability.

Mediation

A neutral third party recommends a compromise to disputing sides.

Arbitration

Disputing sides agree to a third party whose decision will be accepted as final.

Fact-Finding

A neutral third party that collects facts about the dispute and presents nonbinding recommendations.

Injunction

A court order not to act that can be issued to a union (not to strike) or a company (not to lock out workers).

Givebacks and Two-Tier Wage Systems

Union wages have been renegotiated in recent years through these.

Government Set-Aside Contract

A guaranteed contract that is reserved for a targeted group, such as minority-owned businesses.

Indexing

Linking the minimum wage to the annual inflation rate.

Savings

Makes funds available for others to use.

Financial Assets

All documents that represent income claim including stocks, savings, CD, Treasury bills, and Mortgages.

Financial System

Includes savings, financial intermediaries, borrowers, and financial assets

Capital Formation

Depends on saving and borrowing.

Macroeconomics

Uses comprehensive measures in the National Income and Product Accounts (NIPA). •

Gross Domestic Product (GDP)

The most comprehensive measure of national output

Real GDP

Measured with a set of constant base year prices.

GDP per capita

Determined by dividing the real GDP by the population.

Gross National Product (GNP)

Measures the dollar value of all finals goods, services, and structures produced in one year with labor and property supplied by a country’s residents.

Net National Product (NNP)

The GNP minus depreciation.

National Income (NI)

The income that is left after all taxes except corporate profits tax are subtracted from the NNP.

Personal Income (PI)

Equals the total amount of income that goes to consumers before income taxes are subtracted.

Disposable Personal Income (DPI)

The total income that goes to consumers after personal income taxes are subtracted.

Consumer Sector

Consists of all the people who live in households and receives its income in the form of disposable personal income.

Investment Sector

Consists of proprietorships, partnerships, and corporations that produce the nation’s output.

Government, or Public Sector

Includes all local, state, and federal levels of government.

Net Foreign Sector

Includes all consumers and producers outside the United States.

Output-Expenditure Model

Says that the GDP is equal to the sum of aggregate demand for output by the consumer, investment, government, and net foreign sectors.

Recession and Expansion

The two phases of a business cycle.

Recession

Begins when the economy reaches a peak, and ends when it reaches a trough.

Expansion

A period of recovery from a recession

Inflation

A general rise in prices that can cause instability in the economy.

Consumer Price Index (CPI)

Tracks monthly changes in prices paid by urban consumers for a representative “market basket” of goods and services.

Demand-pull Inflation

Prices are driven up when all sectors of the economy try to buy more goods and services than the economy can produce.

Cost-push Inflation

Rising costs of production inputs drive up the cost of products for manufacturers, thus causing inflation.

Wage-Price Spiral

Workers are paid higher wages, which producers try to recover by charging higher prices, which in turn forces workers to ask for higher wages

Excessive Monetary Growth

The money supply grows faster than the real GDP.

Civilian Labor Force

Consists of everyone age 16 and above who is employed or seeking employment

Unemployment Rate

The number of unemployed divided by the total number in the civilian labor force.

Frictional Unemployment

Occurs when workers are between jobs while searching for a new one.

Structural Unemployment

Occurs when changes in the economy reduce the demand for some workers and their skills.

Technological Unemployment

Occurs when workers are replaced by machines or automated systems that make their skills obsolete.

Cyclical Unemployment

Directly related to swings in the business cycle.

Seasonal Unemployment

Results from seasonal weather changes or other seasonal factors.

GDP Gap

A measure of the economic cost of unemployment

Misery Index (Discomfort Index)

The sum of the monthly inflation and unemployment rates.

Incidence of a Tax

Is the person or company who actually pays it

Sin Taxes

Encourage or discourage certain types of activities

Flat Tax

Proportional to individual income after a threshold is reached, without exemptions or deductions.

Value-Added Tax (VAT)

Tax would tax a product at every stage of production on a national basis.