Econ Midterm

need

necessary for survival

want

desire, not necessary for survival

goods

objects that have value and are produced by man or nature

services

something done by someone in exchange for something

scarcity

needs and wants are unlimited, but goods, services, and resources are limited. The concept that things are limited.

economics

the study of how people seek to satisfy needs and wants by making choices and trade-offs

factors of production

land, labor, capital

land

place to start business (physical or digital)

labor

workers, does not include skills, just people

capital

anything that makes production more efficient, physical or human

human capital

training, skills that help improve production

physical capital

machinery or technology that boosts production

trade-off

the act of giving up one thing to get another

opportunity cost

most desireable alternative someone gives up as a result of a choice

“guns and butter”

guns: national defense, military

butter: social programs, healthcare

production possibilities curve

a graph that shows all of the different combinations of output that can be produced given current resources and technology

production possibilities frontier

maximum production

efficiency

maximizing the output of goods and services

inefficiency/underutilization

not working to full potential

law of increasing costs

when a supplier increases the production of a good, the opportunity cost of producing additional goods also increases.

3 basic economic questions

What to produce? How to produce? Who to produce for?

economic system

groups of people organize their economy differently

traditional economy

based on tradition, decisions made by elders, ritual, hunter gatherers

free market economy

based on choice and competition, driven by consumers buying stuff

command economy

based on government control

market

actual and potential sellers

adam smith

believed wealth was created through productive labor

incentive

financial motivations for people to take certain actions

competition

companies competing for more sales/success

communism

classless society, everyone shares the benefits of labors, state controls property and wealth

capitalism

country’s trade and industry are controlled by private owners for profit

socialism

public ownership of property and natural resources as opposed to private

authoritarianism

principle of blind submission to authority, as opposed to individual freedom of thought and action

laissez faire

the government should not intervene in the economy except to protect individuals' inalienable rights

mixed economy

an economic system combining private and public enterprises

economic transition

a community changing from one type of economic system to another

privatization

transfer of ownership and control of government or state assets, firms, and operations to private investors

macroeconomics

the part of economics concerned with large scale or general economic factors (interest rates and national productivity)

microeconomics

the study of individual economic decisions (households and people)

gross domestic product (GDP)

the dollar value of final goods or services produced in a country’s borders within a year

public good

a good or service provided to people without profit to all of society, for the benefit or well being of the public

public sector

part of an economy that is controlled by the government

private sector

not under direct government control

market failure

insufficient distribution of goods that causes an economic downturn

externality

side effect of industrial or commercial activity. Positive externality or negative externality.

poverty threshold

determines the poverty status

demand

consumers desire or willingness to buy a product or service at a given period of time

law of demand

when a good or service has a low price, the quantity demanded of that good or service will increase

substitution effect?

the decrease in sales for a product that can be attributed to consumers switching to alternatives

income effect?

the change in demand for a good due to a change in a consumer’s purchasing power due to a change in income

non-price determinants

factors other than price that shift demand: income, consumer expectations, demographics, consumer taste, advertising, price of related goods.

normal goods

when income increases people demand more normal goods, and less normal goods when income decreases

inferior goods

people demand more inferior goods when income decreases, and less inferior goods when income increases

consumer expectations

if a consumer expects a price of a good to increase in the near future, the short term demand for the product will increase. And if a consumer expects the price of a good to decrease in the near future, the short term demand for the product will decrease.

demographics

statistical characteristics of a population, age, gender, race, occupation

consumer taste

what people like, immeasurable

complements

two goods often bought and used together. Price of good increases , demand for complement decreases.

substitutes

two goods that serve the same purpose and can be used in place of each other

elasticity of demand

changes in price have a small impact on consumer demand, changes in price have large impact on consumer demand

inelastic demand

raising price by certain percent will decrease the quantity sold by lesser percent. Price=inelastic, so company gains revenue if it tries to raise prices

elastic demand

raising price will decrease quantity sold by greater percent. Price=elastic, so company will lose revenue if it raises prices

supply

the amount of a good or service that is available overall, the total amount that exists

law of supply

an increase in the price of goods or services results in an increase in their supply

quantity supplied

amount of good or service a producer is willing to sell at a specific price. Producer provide more goods and services at a high price and less goods or services at a low price.

elasticity of supply

measures the responsiveness of the supply of a good or service after a change in its market price

marginal product of labor

a company’s total output increase when it adds a single unit of labor and production factors don’t change

increasing marginal returns

when adding additional units of labor results in greater marginal product of labor

diminishing marginal returns

when adding addition units of labor results in less marginal product of labor

negative marginal return

when adding additional units of labor results in a reduction of marginal products of labor

fixed costs

a cost that does not change regardless of how much is produced, rent mortgage, taxes

variable costs

a cost that rises or falls according to the amount of products produced, materials and resources needed to make a product, cloth, metal, electricity

total cost

fixed + variable

marginal cost

variable cost associated when 1 more is added

marginal revenue

the additional income acquired by selling 1 more

operating cost

day to day costs of running a business

subsidy

direct or indirect payment to individuals or firms, usually cash payment from government or tax cut

excise tax

tax put on certain products (cigarettes)

regulation

rules that companies have to follow put in place by the government

equilibrium

theoretical, when supply and demand are perfectly balanced and equal

disequilibrium

the market falling out of balance

shortage

when the quantity demanded exceeds the quantity supplied

surplus

the amount of an asset or resource that exceeds the portion that's actively utilized, when you have more of something than you need or plan to use

price ceiling

a price limit, keeps a price from going over a certain point

price floor

the lowest legal price that can be paid for goods, services, and labor (minimum wage)

minimum wage

the lowest a worker can be paid for doing a job

supply shock?

an unexpected event that changes the supply of a product or commodity, resulting in a sudden change in price

rationing

the limiting of goods or services that are high in demand and short in supply

french and indian war

French v.s. Brittish in war over new world colonies. Brittish win but spend a lot of money. Decide to tax american colonies to pay off war debt.

townshend act

British taxed on colonies to pay for common items like glass, paint, oil, lead, paper… and TEA. Colonists have no say in the passing of this act, bitter over taxation without representation

boston massacre

angered colonists in boston protest. British soldiers fire on crowd.

boston tea party

in response to townshend act, boston colonists dump tea from the british east india company into boston harbor

intolerable acts

after the boston tea party, british government shuts down boston harbor. Also, prevents colonists from putting british soldiers and officials on trial. British are sent back to england for trial.

firs continental congress

colonists are angry about new acts and taxes, while congress is in session massachusetts militia clash with british soldiers at lexington and concord.

olive branch petition

Representatives from colonies meet to draft a formal letter of greivances to parliament.

lexington and concord

“the shot heard round the world”, the first clash between british troops and american colonists (massachusetts malitia and the sons of liberty). start of the american revolution.

second continental congress

2nd meeting of colonial representatives. colonial/continental army created under leadership of general George Washington. Formal proposal put forth for independence from brittain, byt Henry Lee of VA.

declaration of independence

written by thomas jefferson as a justification for america’s indeprendence. Outlining birtish violations of the colonists’ rights

articles of confederation

first government of the united states, drafted quickly after the declaration of independence. A loose agreement between states on how they would act as a united country. States work together for common benefit. National government established, but has little control under the Articles of Confederation. More power in the hands of the states.

treaty of paris

formally ends american revolution. Britain very generous with land given to U.S. in hopes of establishing a trade relationship\[ in the future.

shay’s rebellion

farmers in boston rebel when they can’t afford taxes. Revolutionary soldiers unable to be paid their due salaries because national government under the articles can’t raise money through taxes. National government under the articles can’t raise army to meet shay and his rebels.