econ review
economics - the study of how individuals, families, businesses, societies, and countries use their limited resources to satisfy their needs and wants
scarcity - there is never an unlimited supply of anything (choices must be made)
supply and demand - basic law of economics
demand - the desire to own something and the ability to pay for it (downward curve)
supply - the amount of goods and services available at a given price (upward curve)
property rights - protected by the 4th and 5th amendment
Gross Domestic Product (GDP) - the sum of all goods and services produced in a country in a year, big picture/total wealth, most common
Per Capita Income (PCI) - shows individuals “share of wealth”, more accurate when deciding if countries are rich or poor, less common
recession - when the GDP fails to grow for 2 consecutive quarters
Measurements of Stock Market - Dow Jones, SP 500, Russell 2000
Bull Market - stock market is increasing in value
Bear Market - stock market is decreasing in value
traditional economy - hunter/gatherer, free economic transactions (barter), individuals and small familial groups answer the 4 economic questions
feudal economy - economic co-dependence, 98% of people work in agriculture, landowners answer the 4 economic questions
command economy (socialism) - “top-down” central planning by bureaucrats, government officials will make the best economic decisions, labor is #1 factor of production, government answers the 4 economic questions
market economy (capitalism) - factors of production are privately held, the “market” answers the 4 economic questions, and markets will reach an equilibrium on their own
4 economic questions
- What to produce?
- How much to produce?
- How much to charge?
- Who gets what is produced?
Factors of production
- land - anything from the Earth
- labor - any sort of unskilled work
- physical capital - anything man-made that can be used to create a good or service
- human capital - education, knowledge, training
mixed economy - private and public
private sector - part of the economy owned by individuals
public sector - part of the economy owned by the government
“Let the market decide” - the market decides what a product is worth
price floor - prices are not allowed to go below a certain point
price ceiling - prices are not allowed to above a certain point
opportunity costs - the price for choosing one thing over another
elastic demand - price increase is a drop in demand, wants or non-essential items, items with a substitute
inelastic demand - price increase does not change demand, needs or essential items, items with no substitute
law of demand - when a good or service’s prices are lower, then consumers will demand more of it
law of supply - an increase in the price of goods or services results in an increase of supply
goods - physical objects
services - actions or activities that one person provides to another
Karl Marx - created a variety of command economy, wrote the Communist Manifesto and Das Kaptial
“From each according to his own ability, to each according to his needs.” - Karl Marx
Adam Smith - “father of capitalism”, wrote the Wealth of Nations
“It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from the regard to interest.” - Adam Smith
commodity money - has value in and of itself (gold, silver)
representative money - represents something of value (gold certificates)
fiat money - has value because the government says it has value (U.S. Currency)
corporations - founded to protect shareholders from liability, often sold to the public in attempt to raise capital, divided up into pieces called “shares”, governed by a Board of Directors
Wall Street - headquarters of the New York Stock Exchange
capital gains - an increase in the value of an asset when it is sold
mutual fund - an investment fund consisting of a portfolio of stocks and/or bonds and overseen by a professional money manager
401K - workplace savings plan to invest for retirement
fiscal policy - the government uses taxes and spending to influence the economy
monetary policy - the manipulation of interest rates and the reserve rate by a central bank to influence the economy
Federal Reserve - the central banking system of the U.S., “bank of all banks”
equilibrium point - trade-off between supply and demand