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ECON312
Weeks 1 through 8
| Question | Answer |
|---|---|
| Capital | All means of production (mainly plant and equipment) created by people. |
| Capitalism | An economic system in which most economic decisions are made by private owners and most of the means of production are privately owned. |
| Change in Demand | A change in the quantity demanded of a good or service at at least one price that is caused by demand factors other than a change in the price of that good or service. |
| Change in Supply | A change in the quantity supplied of a good or service at at least one price that is caused by supply factors other than a change in the price of that good or service. |
| Circular Flow Model | Goods and services flow from business firms to households in exchange for consumer expenditures, while resources flow from households to business firms in exchange for resource payments. |
| Communism | An economic system characterized by collective ownership of most resources and central planning. |
| Demand | A schedule of quantities of a good or service that people will buy at different prices; represented by D. |
| Demand Curve | A graphical representation of the demand schedule showing the inverse relationship between price and quantity demanded. |
| Economic Growth | An outward shift of the production possibilities frontier [PPF or PPC] brought about by an increase in available resources and/or a technological improvement. |
| Economics | The efficient allocation of the scarce means of production toward the satisfaction of human wants. |
| Economic Problem | When we have limited resources available to fulfill society's relatively limitless wants. |
| Entrepreneurial Ability [E] | Ability to recognize a business opportunity and successfully set up a business firm to take advantage of it. |
| Equilibrium Price | The price at which quantity demanded [Qd] is equal to quantity supplied [Qs]. |
| Factors of Production | The resources of land, labor, capital, and entrepreneurial ability. |
| Land | Natural resources used to produce goods and services. |
| Law of Increasing Costs | As the output of one good expands, the opportunity cost of producing additional units of this good increases. |
| Mixed Economy | An economy in which production and distribution is done partly by the private sector and partly by the government. |
| Opportunity Cost | The forgone value of what you give up when you make a choice. |
| Production Possibilities Frontier (PPF) | A curve representing a hypothetical model of a two-product economy operating at full employment. |
| Scarcity | The inability of an economy to generate enough goods and services to satisfy all human wants. |
| Socialism | An economic system in which the government owns most of the productive resources except labor; it usually involves the redistribution of income. |
| Equilibrium Price | The price at which quantity demand [Qd] is equal to quantity supplied [Qs]. |
| Inelastic Demand | A demand relationship in which a given percentage change in price results in a smaller percentage change in quantity sold. |
| Inferior Goods | Goods for which demands decrease when people's incomes rise. |
| Normal Good | A good whose demand varies directly with income |
| Perfectly Elastic Demand Curve | A perfectly horizontal demand curve; the firm can sell as much as it wishes at that price. |
| Perfectly Elastic Supply Curve | A perfectly horizontal supply curve; the slightest decrease in price causes the quantity supplied to fall to zero. |
| Perfectly Inelastic Demand Curve | A perfectly vertical demand curve; no matter what the price is, the quantity demanded remains the same. |
| Perfectly Inelastic Supply Curve | A perfectly vertical supply curve; quantity supplied remains constant no matter what happens to price. |
| Price Ceiling | Government-imposed maximum legal price. |
| Price Floor | Government-imposed minimum price (used almost exclusively to keep agricultural commodity prices up). |
| Rent Control | Government-set price ceiling on rent. |
| Substitute Goods | Products or services that can be used in place of each other. When the price of one falls, the demand for the other falls, and conversely with an increase of price. |
| Accounting Profit | Sales minus explicit cost. Implicit costs are not considered. |
| Barrier to Entry | Anything that prevents the entry of new firms into an industry. |
| Break-Even Point | The low point on the firm's average total cost curve. If the price is below this point, the firm will go out of business in the long run. |
| Cartel | A group of firms behaving like a monopoly. |
| Collusion | The practice of firms to negotiate price and/or market share decisions that limit competition in a market. |
| Diminishing Returns | If units of a resource are added to a fixed proportion of other resources, marginal output will eventually decline. |
| Diseconomies of Scale | An increase in average total cost as output rises. |
| Economic Profit | Sales minus explicit costs and implicit costs. |
| Economies of Scale | Reductions in average total cost as output rises. |
| Explicit Costs | Dollar costs incurred by business firms, such as wages, rent, and interest. |
| Implicit Costs | The firm's opportunity costs of using resources owned or provided by the owner. |
| Kinked Demand | The demand curve for a noncollusive oligopolist, which is based on the assumption that rivals will follow a price decrease and will ignore a price increase. |
| Long Run | When all costs become variable costs and firms can enter or leave the industry. |
| Marginal Physical Product (MPP) | The additional output produced by one more unit of input. |
| Normal Profits | The return to the business owners for the opportunity cost of their implicit inputs. |
| Price Discrimination | Occurs when a seller charges two or more prices for the same good or service. |
| Price Leadership | One firm, often the dominant firm in an oligopolistic industry, raises or lowers price, and the other firms quickly match the new price. |
| Short Run | The length of time it takes all fixed costs to become variable costs. |
| Shut-Down Point | The low point on the firm's average variable cost curve. If price is below the shut-down point, the firm will shut down in the short run. |
| Variable Costs | These vary with output. When output rises, variable costs rise; when output declines, variable costs fall. |
| Anticipated Inflation | The rate of inflation that we believe will occur; when it does, we are in a situation of fully anticipated inflation. |
| Cost-Push Inflation | Rising costs of doing business push up prices. |
| Cyclical Unemployment | When people are out of work because the economy is operating below the full-employment level. It rises sharply during recessions. |
| Deflation | A decline in the price level for at least two years. |
| Demand-Pull Inflation | Inflation caused primarily by an increase in aggregate demand; too many dollars chasing too few goods. |
| Discouraged Workers | People without jobs who have given up looking for work. |
| Expenditures Approach | A way of computing GDP by adding up the dollar value at current market prices of all final goods and services. |
| Frictional Unemployment | Refers to people who are between jobs or just entering or reentering the labor market. |
| Gross Domestic Product (GDP) | The nation's expenditure on all the goods and services produced in the country during the year at market prices; represented by GDP. |
| Gross Investment | A company's total investment in plant, equipment, and inventory. Also, a nation's plant, equipment, inventory, and residential housing investment. |
| Hyperinflation | Runaway inflation; in the United States, double-digit inflation. |
| Inflation | A general rise in the price level. |
| Real GDP | GDP corrected for inflation; actual production. |
| Recession | A decline in real GDP for two consecutive quarters. |
| Recovery | Phase of business cycle during which real GDP increases from trough level to level of previous peak. |
| Stagflation | A period of either recession or stagnation accompanied by inflation. |
| Structural Unemployment | When people are out of work for a couple of years or longer. |
| Transfer Payment | Payment by one branch of government to another or to an individual. Largest transfer payment is Social Security. |
| Unanticipated Inflation | A rate of inflation that is either higher or lower than expected. |
| Unemployment | The total number of people over 16 who are ready, willing, and able to work, who have been unsuccessfully seeking employment. |
| Aggregate Demand | The sum of all expenditures for goods and services. |
| Aggregate Demand | Curve showing planned purchase rates for all goods and services in the economy at various price levels. |
| Aggregate Supply | The nation's total output of goods and services. |
| Aggregate Supply | Curve showing the level of real GDP produced at different price levels during a time period, ceteris paribus. |
| Automatic Stabilizers | Programs such as unemployment insurance benefits and taxes that are already on the books to help alleviate recessions and hold down the rate of inflation. |
| Budget Deficit | When federal tax receipts are less than federal government spending. |
| Budget Surplus | When federal tax receipts are greater than federal government spending. Business Cycle*Increases and decreases in the level of business activity that occur at irregular intervals and last for varying lengths of time. |
| Crowding-Out Effect | Large federal budget deficits are financed by Treasury borrowing, which then crowds private borrowers out of financial markets and drives up interest rates. |
| Deflationary Gap | Occurs when equilibrium GDP is less than full-employment GDP. |
| Fiscal Policy | Manipulation of the federal budget to attain price stability, relatively full employment, and a satisfactory rate of economic growth. |
| Full-Employment GDP | That level of spending (or aggregate demand) that will result in full employment. |
| Inflationary Gap | Occurs when equilibrium GDP is greater than full-employment GDP. |
| Keynesian Economics | As formulated by John Maynard Keynes, this school believed the private economy was inherently unstable and that government intervention was necessary to prevent recessions from becoming depressions. |
| Marginal Propensity to Consume (MPC) | Change in consumption divided by change in income. |
| Marginal Propensity to Save (MPS) | Change in saving divided by change in income. |
| Multiplier | Any change in spending (C, I, or G) will set off a chain reaction leading to a multiplied change in GDP. Equation is 1/ (1 / MPC). |
| Public Debt | The amount of federal securities outstanding, which represents what the federal government owes (the accumulation of federal deficits minus surpluses over the last two centuries). |
| Real Balance Effect | The influence a change in household purchasing power has on the quantity of real GDP that consumers are willing to buy. |
| Supply-Side Economics | Main tenets - economic role of federal government is too large; high tax rates and government regulations hurt the incentives of individuals and business firms to produce goods and services. |
| Discount Rate | The interest rate charged by the Federal Reserve to depository institutions. |
| Excess Reserves | The difference between actual reserves and required reserves. |
| Federal Funds Rate | The interest rate banks and other depository institutions charge one another on overnight loans made out of their excess reserves. |
| Federal Open Market Committee (FOMC) | The principal decision-making body of the Federal Reserve, conducting open market operations. |
| Federal Reserve Note | Paper money issued by the Federal Reserve. |
| Federal Reserve System | Central bank of the United States, whose main job is to control our rate of monetary growth. |
| Fiat Money | Paper money that is not backed by or convertible into any good; it is money because the government says it is money. |
| M1 | Currency, checking deposits, and checkable deposits. |
| M2 | M1 plus savings deposits, small-denomination time deposits, and money market mutual funds. |
| Open-Market Operations | The purchase or sale of Treasury securities by the Federal Reserve; main monetary policy weapon. |
| Required Reserve Ratio | Percentage of deposits that must be held as vault cash and reserve deposits by all depository institutions. |
| Absolute Advantage | The ability of a country to produce a good at a lower cost than its trading partners. |
| Appreciation | An increase in t An increase in the value of a currency in terms of other currencies. |
| Balance of Payments | The entire flow of U.S. dollars and foreign currencies into and out of the country. |
| Balance of Trade | The difference between the value of our imports and our exports. |
| Capital Account | The section of a nation's international balance of payments statement in which the foreign purchases of that nation's assets and that nation's purchases of assets abroad are recorded. |
| Comparative Advantage | Total output is greatest when each product is made by the country that has the lowest opportunity cost. |
| Current Account | The section of a nation's international balance of payments that records its exports and imports of goods and services, its net investment income, and its net transfers. |
| Depreciation | A fall in the price of a nation's currency relative to foreign currencies. |
| Exchange Rates | The price of foreign currency; for example, how many dollars we must give up in exchange for marks, yen, and pounds. |
| Fixed Exchange Rate | A rate determined by government and then maintained by buying and selling quantities of its own currency on the foreign exchange market. |
| Floating Exchange Rate | An exchange rate determined by the demand for and the supply of a nation's currency. |
| Foreign Exchange Market | A market in which currencies of different nations are bought and sold. |
| Free Trade | The absence of artificial (government) barriers to trade among individuals and firms in different nations. |
| GATT (General Agreement on Tariffs and Trade) | An agreement to negotiate reductions in tariffs and other trade barriers. |
| Tariff | A tax on imported goods. |
| World Trade Organization (WTO) | The successor organization to GATT, which handles all trade disputes among member nations. |
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