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The American Economy
PES
| Question | Answer |
|---|---|
| Economics | Study of choices made by people when there is scarcity. |
| Scarcity | Situation in which resources are limited in quantity and can be used in different ways. |
| Factors of Production | Resources used to produce products. |
| Entrepreneurship | Effort used to coordinate production and sale of goods and services. |
| Microeconomics | Study of choices made by households, firms, and the government, and how these choices affect the market for goods and services. |
| Macroeconomics | Study of the nations economy as a whole. |
| Variable | Measure of something that can have different values. |
| What economic variables have direct relationships? What economic variables have inverse relationships? | Direct: Hours Worked & Wages Earned Inverse: Supply & Demand |
| How does supply affect demand and price? | Supply + | - Demand + | - Price - | + |
| How does demand affect supply and price? | Demand + | - Supply + | - Price + | - |
| How does price affect supply and demand? | Price + | - Supply + | - Demand - | + |
| Stable Prices | A stow, steady, and predictable rate of inflation. |
| Low Unemployment | A low (but not 0) percentage of workforce (those willing and able to work) who are not working. |
| Better Goods and Services | A result of competition and demand by consumers for better products. |
| Adequate Social Benefits | Given in a way to help those in need but to encourage self-reliance. |
| Economic School of Thought | An area in which a large number of economists agree. |
| What are the 2 opposing economic schools of thought and what does each believe? | Adam Smith: 1. The less government the better (Lasseiz-Faire) 2. Competition guided economy John Maynard Keynes: 1. The more government the better 2. Giving handouts to deal with inflation and unemployment |
| Opportunity Cost | What is sacrificed in order to obtain something. |
| Marginal Benefit | Additional benefit of of an activity resulting from a small increase in that activity. |
| Marginal Cost | Additional cost of an activity resulting from a small increase in the activity. |
| Fixed Costs | Costs that remain constant. |
| Variable Costs | Costs that vary. |
| Diminishing Return | Suppose output is produced with 2 or more inputs and one input is increased while the other inputs remain fixed. Beyond some point lies the point of diminishing returns, output increases at a decreasing rate. |
| Marginal Product of Labor | Change in output when 1 additional worker is added. |
| Short Run | Period of time over which one or more factors of production is fixed. In most cases, this is a period of time during which a firm cannot modify an existing facility or build a new one. |
| Long Run | Period of time long enough that a firm can change all the factors of production. In other words, a firm can modify its existing production facility or build a new one. |
| Nominal Value of Money | Face value of an amount of money. |
| Real Value of Money | Value of an amount of money in terms of the quantity of goods the said amount of money can buy. |
| Absolute Advantage | Ability of one person or nation to produce a particular good at a lower absolute cost than that of another person or nation. |
| Comparative Advantage | Ability of one person or nation to produce a good at an opportunity cost that is lower than the opportunity cost of another person or nation. |
| Imports | Good produced in another country and purchased by residents of the home country. |
| Exports | Good produced in the home country and sold in another country. |
| Exchange Rate | Price at which different currencies exchange for each other. |
| Mixed Economy | Market based economic system in which the government plays an important role. This includes regulation of markets, where most economic decisions are made. |
| Protectionist Policies | Rules that restrict the free flow of goods between nations. |
| Examples of Protectionist Policies | Examples: Tariffs: Taxes on imports Quotas: Limits on total imports Voluntary Export Restraints: Agreements between governments to limit imports Non-Tariff Trade Barriers: Subtle practices that hinder trade |
| Spillover | Cost or benefit experienced by people who are external to the decision about how much of a good to produce or consume. |
| Spillover Principle | For some goods the costs or benefits associated with producing or consuming those goods are not confined to the person or organization producing or consuming them. |
| Increasing Returns as it Pertains to a Company's Decision Making | Grow business. |
| Diminishing Returns as it Pertains to a Company's Decision Making | Do not grow business; wait until the business betters or worsens. |
| Increasing Returns (Chart Definition) | Input + Output + Output/Unit of Input + Marginal Output + |
| Diminishing Returns (Chart Definition) | Input + Output + Output/Unit of Input - Marginal Output - |
| Negative Returns (Chart Definition) | Input + Output - Output/Unit of Input - Marginal Output - |
| Describe the 2 parties depicted in a circular flow chart. | Factor or Input Market: Sell inputs to organizations to make profits Product or Output Market: Organizations that make products from resources provided by the input market. |
| List and describe the benefits of a market economy. | 1. Lasseiz-Faire 2. Right to private property (Possessions, wealth, trademarks) 3. Right to own business 4. Profit motive 5. Competition |
| Law of Demand | Higher price, smaller demand Smaller price, higher demand |
| Law of Supply | Higher price, more supplied Smaller price, less supplied |
| Substitution Effect | Change in consumption resulting from a change in the price of one good relative to the price of other goods. |
| Income Effect | Change in consumption resulting from an increase in the real income of customers. |
| Market Equilibrium | A situation in which a quantity of a product demanded is equal to the quantity supplied, so there is no pressure to change the price. |
| Elasticity of Demand | A measure of responsiveness of customers to the quantity demanded with respect to the change in price. |
| Elasticity of Supply | A measure of responsiveness of customers to the quantity supplied with respect to the change in price. |
| Elastic Demand | A property of products if a small change in the price results in a large change in demand. |
| Inelastic Demand | A property of products if changes in the price does not affect the demand. |
| What is the connection between the freedom to voluntarily exchange, supply, and demand in the American marketplace? | Supply and demand does not become a part of the American marketplace without the freedom of people in the economy to exchange what they have for what they want or need. |
Created by:
bmaze
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