Untitled Flashcards Set

CHAPTER #1
Economics

The study of how people and societies use limited resources to satisfy unlimited wants and needs.

Scarcity
There are not enough resources to satisfy everyone’s wants.

Factors of Production
Resources used to make goods and services: land (natural resources), labor (workers), capital (money and tools), and entrepreneurship (business ideas).

Opportunity Costs
The value of what you give up when you make a choice.

Production Possibilities Curve
A graph that shows the different combinations of goods a country can produce with its limited resources.

CHAPTER #2
Three Basic Questions

1. What goods and services should we produce?
   
   

2. How should we produce them?
   
   

3. Who gets to use them?
   
   

Traditional Economy
People make economic decisions based on customs, habits, and traditions.

Command Economy
The government makes all decisions about what to produce, how, and who gets it.

Economic System
The way a country organizes its economy is to answer the three basic questions.

Market Economy
People and businesses decide what to produce, how to produce, and who gets it, based on supply and demand.

Circular Flow Model of Income & Output
A diagram showing how money, goods, and services move between households and businesses.

Mixed Economy
A mix of market and government control in economic decisions.

Laissez Faire/Adam Smith (all over text)
Adam Smith believed the government should leave the economy alone, and the “invisible hand” of the market would guide it.

Market Economy Characteristics/Advantages
Encourages competition, innovation, efficiency, choice, and freedom.

Socialism
The government controls key industries and tries to reduce income differences.

CHAPTERs #4, 5 & 6
Demand
How much consumers are willing and able to buy at different prices.

Supply
How much producers are willing and able to sell at different prices.

Law of Supply
As the price of a product goes up, producers will supply more.

Law of Demand
As the price of a product goes up, consumers will buy less.

Real Income Effect
When prices rise, people’s income buys less stuff.

Substitution Effect
When prices go up, people switch to cheaper alternatives.

Marginal Utility
The extra satisfaction a person gets from consuming one more unit of a good.

Law of Diminishing Marginal Utility
Each extra unit of a product gives less additional satisfaction than the one before.

Determinants of Demand (5)

1. Consumer income
   
   

2. Consumer tastes and preferences
   
   

3. Prices of related goods (substitutes and complements)
   
   

4. Consumer expectations about the future
   
   

5. Number of buyers in the market
   
   

Elasticity of Demand
How much demand changes when the price changes?

Inelasticity of Demand
When demand barely changes, even if the price changes.

Determinants of Supply (4)

1. Cost of resources
   
   

2. Technology improvements
   
   

3. Government taxes and subsidies
   
   

4. Number of producers
   
   

Law of Diminishing Returns
Adding more of one resource (like workers) will eventually produce less extra output.

Shortage
When demand is higher than supply at a given price.

Surplus
When supply is higher than demand at a given price.

Price Floor
A legal minimum price that can be charged, like minimum wage.

Price Ceiling
A legal maximum price that can be charged, like rent control.

CHAPTER #7
Market Structure
How industries are organized based on competition.

Perfect Competition
A market with many sellers, identical products, and no single seller controls the price.

Monopoly
A market with only one seller controlling prices and supply.

Oligopoly
A few large firms dominate a market and can control prices.

Monopolistic Competition
Many sellers sell similar but not identical products, with some control over price.

Antitrust Regulation
Laws to prevent companies from creating monopolies and to promote fair competition.

Horizontal Merger
Two companies in the same business combine to form one.

Conglomerate
A company that owns businesses in unrelated industries.

CHAPTER #8
Sole Proprietorship
A business owned and run by one person.

Partnership
A business owned by two or more people who share profits and responsibilities.

Limited Partnership
A partnership where some owners contribute money but don't manage the business and have limited liability.

Corporation
A business that is a separate legal entity from its owners, offering limited liability but subject to more regulations.

Franchise
A business where individuals can operate under a larger company's name and system, like fast-food chains.

Limited/Unlimited Liability
Limited liability means owners are not personally responsible for business debts; unlimited liability means they are.

Mechanization
Using machines to do work that was previously done by people.

Division of Labor
Breaking down production into smaller tasks, with each worker focusing on one task, to increase efficiency.

Automation
Using machines and technology to perform tasks without human intervention.

Robotics
The use of robots to perform tasks, especially in manufacturing and production.

CHAPTER #12

GDP
Gross Domestic Product: the total value of all goods and services produced in a country in a year.

Formula for GDP (Know each letter represents)
C: Consumer spending
I: Business investments
G: Government spending
X: Net exports (exports minus imports)

Real GDP
GDP adjusted for inflation, showing the true value of goods and services produced.

Counting the Population (Why do we do this?)
To determine representation in government and allocate funding for public services.

U.S. Census Bureau:
The agency is responsible for collecting and analyzing data about the U.S. population.

Future Population Growth (Measurements we use):
Birth rates, death rates, and migration patterns.

Poverty:
The state of having insufficient income to meet basic needs like food, shelter, and clothing.

Reasons for income inequality:
Differences in education, experience, job types, and access to opportunities.

Chapter #13

Business Cycle (AKA – Business Fluctuations)
The natural rise and fall of economic growth over time, including periods of expansion and contraction.

Model of the Business Cycle (Draw & Label):
[Typically includes Expansion, Peak, Contraction (Recession), Trough, and Recovery phases.]

The five causes of the business cycle (pages 367-368):

1. Changes in consumer and business confidence
   
   

2. Fluctuations in investment spending
   
   

3. Government fiscal and monetary policies
   
   

4. External shocks (like oil price changes)
   
   

5. Technological innovations
   
   

The Great Depression & The Great Recession:
Severe economic downturns: the Great Depression occurred in the 1930s, and the Great Recession occurred in 2008.

Legislative Reforms:
Laws and regulations were enacted to prevent future economic crises and protect consumers.

Inflation
A general increase in prices reduces the purchasing power of money.

Deflation
A general decrease in prices increases the purchasing power of money.

Consumer Price Index
A measure that examines the average price of a basket of goods and services over time.

Base Year
A reference year used for comparison in economic measures like the CPI.

Market Basket
A collection of goods and services used to track changes in prices for the CPI.

Types of Inflation

Demand-Pull Inflation
Occurs when demand for goods and services exceeds supply, driving prices up.

Cost-Push Inflation
Happens when production costs increase, leading businesses to raise prices.

Consumer Price Index (CPI):
An index measuring the average change in prices paid by consumers for goods and services over time.

Unemployment:
The condition of being without a job while actively seeking work.

Frictional unemployment
Short-term unemployment occurs when people are between jobs or entering the workforce.

Seasonal unemployment
Unemployment is linked to seasonal work, like holiday retail or agricultural jobs.

Cyclical unemployment
Unemployment is caused by economic downturns or recessions.

Structural unemployment
Unemployment results from a mismatch between workers' skills and job requirements.

Full Employment
The level of employment where nearly everyone who wants a job has one, with some natural unemployment.

Stagflation
A situation where the economy experiences stagnant growth, high unemployment, and high inflation simultaneously.

CHAPTER #14

Budget Deficit
Occurs when government spending exceeds its revenue.

Budget Surplus
Occurs when government revenue exceeds its spending.

National Debt
The total amount of money the government owes from borrowing to cover deficits.

Understand how deficits and national debt are related, but not the same
Deficits are yearly shortfalls; national debt is the accumulation of all past deficits.

Current size of the national debt and our debt-to-GDP ratio
As of 2024, the U.S. national debt is approximately $36 trillion, with a debt-to-GDP ratio of about 124.3%.

Types of Taxes
Progressive
Tax rate increases as income increases; higher earners pay a larger percentage.

Proportional
Everyone pays the same percentage of their income, regardless of earnings.

Regressive
Lower-income individuals pay a higher percentage of their income compared to higher earners.

CHAPTER #15

Fiscal Policy (What is it, how is it used?)
Government decisions on spending and taxation influence the economy.

Social Insurance Programs (What are they, and examples)
Programs funded by payroll taxes provide benefits like Social Security and Medicare.

Public Assistance Programs (What are they, and examples)
Government-funded programs to aid those in need, such as food stamps and Medicaid.

Public-Works Projects
Government-funded construction projects, like roads and bridges to stimulate the economy.

Public Goods
Services or goods provided by the government for free use, like parks and street lighting.

CHAPTER #10

Functions of Money (3)

1. Medium of Exchange – used to buy and sell goods and services.
   
   

2. Store of Value – retains value over time.
   
   

3. Unit of Account – a standard measure for pricing goods and services.
   
   

Types of Money (3)

1. Commodity Money – has intrinsic value (e.g., gold).
   
   

2. Fiat Money has value because the government says so (e.g., paper currency).
   
   

3. Representative Money – represents a claim on a commodity (e.g., gold certificate).
   
   

Characteristics of Money (6)

1. Durable – lasts over time.
   
   

2. Portable – easy to carry.
   
   

3. Divisible – can be broken into smaller units.
   
   

4. Uniform – all units are the same.
   
   

5. Limited Supply – not easily reproduced.
   
   

6. Acceptable – widely accepted for transactions.
   
   

Money Supply (M1 & M2)
M1: Cash, checking deposits, and other liquid assets.
M2: M1 plus savings accounts and small time deposits.

The Gold Standard (advantages & disadvantages):
Advantages: Limits inflation, provides currency stability.
Disadvantages: Limits monetary policy flexibility, can lead to deflation.

Why the Fed was created:
To provide a stable monetary and financial system in the U.S.

CHAPTER #16

The Federal Reserve System (structure)
The central bank of the U.S. consists of 12 regional banks and a Board of Governors.

Responsibilities of the Fed
Regulate banks, manage the money supply, and set interest rates to promote economic stability.

Monetary Policy
The Fed's actions to control the money supply and interest rates influence the economy.

Limits
Monetary policy can't fix all economic problems and may have delayed effects.

Fractional Reserve System
Banks keep a fraction of deposits on hand and lend out the rest.

Jerome Powell
The current Chair of the Federal Reserve.

Reserve Requirement
The minimum amount of reserves a bank must hold against deposits.

Discount Rate
The interest rate the Fed charges banks for short-term loans.

Federal Funds Rate
The interest rate banks charge each other for overnight loans.

Open Market Operations
The Fed's buying and selling of government securities influence the money supply.

CHAPTER #17

Imports
Goods and services bought from other countries.

Exports
Goods and services are sold to other countries.

Foreign Exchange Rate
The value of one currency compared to another.

Flexible Exchange Rate
Exchange rates are determined by market forces without government intervention.

Balance of Trade
The difference between a country's exports and imports.

Tariff
A tax on imported goods.

Protective
Tariffs are designed to protect domestic industries from foreign competition.

Revenue
Tariffs are intended to generate income for the government.

Free Trade Movement:
Efforts to reduce trade barriers and promote international trade.

NAFTA 2.0
The updated trade agreement between the U.S., Canada, and Mexico, also known as USMCA.

TPP
The Trans-Pacific Partnership, a trade agreement among Pacific Rim countries.

WTO
The World Trade Organization oversees international trade rules and disputes.

CHAPTER #18

Developed Nations
These countries with high income levels, advanced technology, and strong infrastructure.

Developing Nations
Countries with lower income levels and less industrialization.

Obstacles to development
Issues like poor education, political instability, and lack of infrastructure.

Financing Economic Development (foreign aid, foreign investment)
Providing funds or investments to help developing countries grow economically.

Global Integration (globalization)
The increasing interconnectedness of economies and cultures worldwide.

Global Institutions
Organizations like the IMF and World Bank support global economic stability and development.