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The American Economy

PES

QuestionAnswer
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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