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CST
Economics
| Question | Answer |
|---|---|
| Economics | is the study of the ways specific societies allocate resources to individuals and groups within that society, also important are the choices society makes regarding what efforts or initiatives are funded and which are not |
| Economic System and what drives an individual society | what goods are produced, how those goods are produced, who acquires the goods or benefits from them |
| Two main categories of Economics | macroeconomics and microeconomics |
| Macroeconomics | which studies larger systems, looks at economic trends and structures on a national level, variables studied in macroeconomics include: output, consumption, investment, government spending, net exports |
| Microeconomics | which studies smaller systems, focuses on economic factors such as they way consumers behave, how income is distributed and output and input markets, studies are limited to the industry or firm level, rather than an entire country or society, among the e |
| Market Economy | is based on supply and demand, and supply and demand are determined by consumers, Market Economy is defined as- elasticity, market efficiency, comparative advantage |
| Demand | has to do with what customers want and need as well as what quantity those consumers are able to purchase based on other economic factors |
| Supply | refers to how much can be produced to meet demand, or how much suppliers are willing and able to sell |
| Market Equilibrium Price | where the needs of consumers meet the needs of the suppliers, this price varies depending on many factors, including the overall health of a society’s economy, overall beliefs and considerations of individual society |
| Elasticity | this is based on how the quantity of a particular product responds to the price demanded for the product, if quantity responds quickly to changes in price, the supply/demand for that product is said to be elastic, if it does not respond quickly then the |
| Market Efficiency | this occurs when a market is capable of producing output high enough to meet consumer demand, that market is efficient |
| Comparative Advantage | in the field of international trade, this refers to a country focusing on a specific product that it can produce it more efficiently and more cheaply or at a lower opportunity cost, than another country, thus giving it a comparative advantage in productio |
| Planned Economy | a public entity or planning authority makes the decisions about what resources will be produced, how they will be produced, and who will be able to benefit from them, the means of production such as factories are also owned by a public entity rather than |
| Market Socialism | the economic structure falls somewhere between the market economy and the planned economy, planning authorities determine allocation of resources at higher economic levels, while consumer goods are driven by a market economy |
| Classify Markets | the conditions prevailing in a given market are used to classify a market, these conditions are existence of competition, number and size of suppliers, influence of suppliers over price, variety of available products, ease of entering the market, once the |
| Market Failure | when any of the elements for a successfully competitive market are missing this can lead to a market failure, certain elements are necessary to crete what economists call “perfect competition,” if one of these factors is weak or lacking the market is clas |
| Five Major Types of Market Failure | inadequate competition, inadequate information, immobile resources, negative externalities or side effects, failure to provide public goods |
| Externalities | are side effects of a market that affect third parties, these effects can be positive or negative |
| Factor of Production | every good and service requires certain resources or inputs, these inputs are referred to as factors of production |
| Four factors of production | labor, capital, land, entrepreneurship, these factors can be fixed or variable and can be produce fixed or variable costs |
| Fixed Costs | examples include land and equipment |
| Variable Costs | include labor |
| Cost of Production | the total of fixed and variable costs |
| Factor Income | factors of production each have an associated factor income, factors that earn income include labor, capital land, entrepreneurship |
| Labor | earn wages |
| Capital | earn interests |
| Land | earns rent |
| Entrepreneurship | earns profit |
| Contribution | each factor’s income is determined by its contribution, in a market economy this income is not guaranteed to be equal, how scarce the factor is and the weight of its contribution to the overall production process determines the final factor income |
| Four Kinds of Market Structures in an Output Market | perfect competition, monopoly, monopolistic competition, oligopoly |
| Perfect Competition | all existing firms sell an identical product, the firms are not able to control the final price, in addition there is nothing that makes it difficult to become involved in or leave the industry, anything that would prevent entering or leaving an industry |
| Monopoly | a single seller controls the product and its price, barriers to entry such as prohibitively high fixed cost structures, prevent other sellers from entering the market |
| Monopolistic Competition | a number of firms sell similar products but they are not identical such as different brands of clothes or food, barriers to entry are low |
| Oligopoly | only a few firms control the production and distribution of products, such as automobiles, barriers to entry are high, preventing large numbers of firms from entering the market |
| Four Types of Monopolies | natural monopoly, geographic monopoly, technological monopoly, government monopoly |
| Natural Monopoly | a single supplier has a distinct advantage over the others |
| Geographical Monopoly | only one business offers the product in a certain area |
| Technological Monopoly | a single company controls the technology necessary to supply the product |
| Government Monopoly | a government agency is the only provider of a specific good or service |
| Sherman Antitrust Act | (1890), this prohibited trusts, monopolies, and any other situations that eliminated competition |
| Clayton Antitrust Act | (1914), this prohibits price discrimination |
| Robinson-Patman Act | (1936), this strengthened provisions of the Clayton Antitrust Act, requiring businesses to offer the same pricing on products to any customer |
| Securities and Exchange Commission (SEC) | requires companies that provide public stock to provide financial reports on a regular basis, because of the nature of their business, banks, are further regulated and required to provide various information to the government |
| Marketing | consists of all of the activity necessary to convince consumers to acquire goods, one major way to move products into the hands of consumers is to convince them that any single product will satisfy a need |
| Utility | the ability of a product or service to satisfy the need of a consumer in relation to acquiring and using a good or service, providers of goods and services will stress utility to convince consumers they want the products being presented |
| Four Types of Utility | form utility, place utility, time utility, ownership utility, marketing behavior will stress any or all of these types of utility when marketing to the consumer |
| Form Utility | a product’s desirability lies in its physical characteristics |
| Place Utility | a product’s desirability is connected to its location and convenience |
| Time Utility | a product’s desirability is determined by its availability at a certain time |
| Ownership Utility | a product’s desirability is increased because ownership of the product passes to the consumer |
| Successful Marketing | depends not only on convincing customers they need the product, but also on focusing the marketing towards those who already have a need or desire for the product before releasing the product into the general marketplace, many producers will test markets |
| The Three Step Product Market evaluation | market research, market survey, test marketing |
| Market Research | this involves researching a market to determine if it will be receptive to the product |
| Market Survey | a part of market research, market surveys ask consumers specific questions to help determine the marketability of a product to a specific group |
| Test Marketing | this includes releasing the product into a small geographical area to see how it sells, often test marketing is followed by wider marketing if the product does well |
| Four Major Elements of a Marketing Plan | product, price, place, promotion, once these elements have all been determined, the producer can proceed with production and distribution of their products |
| Product | this includes any elements pertaining directly to the product, such as packaging, presentation, or services to include along with it |
| Price | this calculates cost of production, distribution, advertising, etc., as well as the desired profit to determine the final price |
| Place | this determines which outlets will be used to sell the product, whether traditional outlets such as brick and mortar stores or through direct mail or internet marketing |
| Promotion | this involves ways to let consumers know the product is available, through advertising and other means |
| Distribution Channels | determine the route a product takes on its journey from producer to consumer, and can also influence the final price and availability of the product, there are two major forms of distribution: wholesale and retail |
| Wholesale Distributor | buys in large quantities and then resells smaller amounts to other businesses |
| Retailers | sell directly to consumers rather than to businesses |
| Modern Marketplace | additional distribution channels have grown up with the rise of markets such as club warehouse stores as well as purchasing through catalogs or over the internet |
| Newer Distribution Channels | bring products more directly to the consumer, eliminating the need for middlemen |
| Income Distribution | the distribution of income in any society ranges from poorest to richest, in most societies, income is not distributed evenly, to determine income distribution, family incomes are ranked from lowest to highest |
| Quintiles | these rankings of income are divided into five sections called quintiles, which are compared to each other |
| Uneven distribution of income | is often linked to higher levels of education and ability in the upper classes, but can also be due to other factors such as discrimination and existing monopolies |
| The Income Gap | in America continues to grow, larger due to growth in the service industry, changes in the American family unit and reduced influence of labor unions |
| Poverty | is defined by comparing incomes to poverty guidelines |
| Poverty Guidelines | determine the level of income necessary for a family to function, those below the poverty line are often eligible for assistance from government agencies |
| Gross Domestic Product | (GDP), the overall economic condition of a nation is defined by this, measures a nation’s economic output over a limited period of time, such as a year |
| Two Major Types of Consumers | marginal propensity and utility |
| Marginal Propensity | to consume defines the tendency of consumers to increase spending in conjunction with increases in income, in general, individuals with greater income will buy more, as individuals increase their income through job changes or growth of experience, they wi |
| Two Ways to measure GDP | expenditures approach and income approach |
| Expenditures Approach | calculates the GDP based on how much money is spent in each individual sector |
| Income Approach | calculates the GDP based on how much money is earned in each sector |
| Four Economic Sectors that make up Country’s Marco-economy | consumers, business, government, foreign sectors |
| Income Factors | several factors must be considered in order to accurately calculate the GDP using the incomes approach they are wages paid to laborers, or compensation of employees, rental income derived from land, interest income derived from invested capital and entrep |
| Entrepreneurial Income | consists of two forms: proprietor’s income and corporate profit |
| Proprietor's Income | is income that comes back to the entrepreneur them self |
| Corporate Profit | is income that goes back into the corporation as a whole, corporate profit is divided by the corporation into corporate profit taxes, dividends, and retained earnings |
| Indirect Business Taxes | including property and sales taxes |
| Gross National Product | GNP, are generally measured per capita, if a country’s economic productions is low, but the population is high, the income per individual will be lower than if the income is high and the population is lower, also if the population grows quickly and the in |
| Economic Growth | population growth can also affect overall economic growth, economic growth requires both that consumers purchase goods and workers produce them, a population that does not grow quickly enough will not supply enough workers to support rapid economic growth |
| Aggregate Supply | the amount of national output, equal to the aggregate demand |
| Aggregate Demand | the amount of the output that is purchased |
| Economic Phases | boom, recession, trough, recovery, these phases tend to repeat in cycles that are not necessarily predictable or regular |
| Boom | GDP is high and the economy prospers |
| Recession | GDP falls, unemployment rises |
| Trough | the recession reaches its lowest point |
| Recovery | unemployment lessens, prices rise, and the economy begins to stabilize again |
| Inflated | when demand outstrips supply, prices are driven artificially high, this occurs when too much spending causes an imbalance in the economy, in general inflation occurs because an economy is growing too quickly |
| Surplus | when there is too little spending and supply has moved far beyond demand, a surplus of product results, companies cut back on production, reduce the number of employees, and unemployment rises as people lose their jobs |
| Government Intervention | may be necessary to stabilize an economy when either inflation or unemployment becomes too serious |
| Forms of Unemployment | frictional, structural, cyclical, seasonal, technological, any of these factors can increase unemployment in certain sectors |
| Frictional | when workers change jobs and are unemployed while waiting for new jobs |
| Structural | when economic shifts reduce the need for workers |
| Cyclical | when natural business cycles bring about loss of jobs |
| Seasonal | when seasonal cycles reduce the need for certain jobs |
| Technological | when advances in technology results in elimination of certain jobs |
| Types of Inflation | creeping inflation, walking inflation, galloping inflation, hyperinflation |
| Creeping Inflation | this is an inflation rate of about 1-3% annually |
| Walking Inflation | this is an inflation rate of 3-10% annually |
| Galloping Inflation | this is a high inflation rate of more than 10% but less than 1000% annually |
| Hyperinflation | this is an inflation rate over 1000% per year, hyperinflation usually leads to complete monetary collapse in a society as individuals become unable to generate sufficient income to purchase necessary goods |
| Government Fiscal Policy | can take several forms, including contractionary policy, expansionary policy and monetary policy |
| Contractionary Policy | helps counteract inflation, these include increasing taxes and decreasing government spending to slow spending in the overall economy |
| Expansionary Policy | increase government spending and lower taxes in order to reduce unemployment and increase the level of spending in the economy overall |
| Monetary Policy | can take several forms, and affects the amount of funds available to banks for making loans, regulates the amount of money available in the American banking system, policies implemented by the Fed are part of the expansionary or contractionary monetary po |
| Populations | are studied by size, rates of growth due to immigration, the overall fertility rate, and life expectancy |
| Population of the US | is considerably larger than it was two hundred years ago, the rate of population growth has decreased greatly, from about three percent per year to less than one percent per year, in the US, the fertility rate is fairly low, with most choosing not to have |
| Money | is used in three major ways as and accounting unit, as a store of value, as an exchange medium, in general money must be acceptable throughout a society in exchange for debts or to purchase goods and services, money should be relatively scarce, its value |
| Basic Types of Money | commodity, representative, fiat |
| Commodity Money | includes gems or precious metals |
| Representative Money | can be exchanged for items such as gold or silver which have inherent value |
| Fiat Money | or legal tender has no inherent value but has been declared to function as money by the government, it is often backed by gold or silver but not necessarily on a one-to-one ratio |
| M1 | currency, checkable deposits and traveler’s checks |
| M2 | is calculated by adding savings deposits, CDs and various other monetary deposits |
| The Federal Reserve System | also known as the Fed, implements all monetary policy in the US, the Fed can decrease or increase the amount of available money for loans thus helping regulate the national economy |
| The Discount Rate | is an interest rate charged by the Fed when banks borrow money from them, a lower discount rate leads banks to borrow more money, leading to increased spending, a higher discount rate has the opposite effect |
| How Banks earn Money | banks earn their income by loaning out money and charging interest on this loans, if less money is available, fewer loans can be made which affects the amount of spending in the overall economy, while banks function by making loans they are not allowed to |
| Reserve Ratio | the amount of money the bank must maintain in reserve, if the reserve ratio is raised =, less money is available for loans and spending decreases, a lower reserve ratio increases available funds and increase spending, this ratio is determined by the Feder |
| Open Market Operations | the Federal Reserve System can also expand or contract the overall money supply through open market operations, in this case the Fed can buy or sell bonds it has purchased from banks or individuals, |
| Fed Buying Bonds | when the Fed buys a bond more money is put into circulation creating as expansionary situation to stimulate the economy |
| Fed Selling Bonds | when the Fed sells bonds, money is withdrawn from the system, creating a contractionary situation to slow an economy suffering from inflation |
| International Financial Markets | American banks often borrow and lend money in markets outside the US, by shifting their attention to international markets, domestic banks and other businesses can circumvent whatever contractionary policies the Fed may have put into place |
| International Trade | can take advantage of broader markets, bringing a wider variety of products within easy reach, by contrast it can also allow individual countries to specialize in particular products that they can produce easily such as those for which they have easy acce |
| Characteristics of a developing nations | low GDP, rapid growth of population, economy that depends on subsistence agriculture, poor conditions including high infant mortality rates, high disease rates, poor sanitation, insufficient housing, low literacy rates |
| Developing Nations | often function under oppressive governments that do not provide private property rights and withhold education and other rights from women, also often feature an extreme disparity between upper and lower classes, with little opportunity for the lower clas |
| Three Stages of Economic Development | agricultural stage, manufacturing stage, service sector stage |
| International Monetary Fund/World Bank | international organizations to aid developing countries with investments or other foreign aid, having developed countries provide monetary, technical, or military assistance can help developing countries move forward to the next stage in their development |
| Obstacles that Developing Nations Face | rapid uncontrolled population growth, trade restrictions, misused resources often perpetrated by the government, traditional beliefs that can slow or reject change |
| Corrupt Oppressive Governments | often hamper the economic growth of developing nations, creating huge economic disparities and making it impossible for individuals to advance in turn preventing overall growth |
| Capital Flight | government sometimes export currency called capital flight which is detrimental to a country’s economic development |
| Rapid Growth | throughout the world leaves some nations behind and sometimes spurs their government to move forward too quickly into industrialization and artificially rapid economic growth |
| Four Major Problems of Rapid Industrialization | use of technology not suited to the products or services being supplied, poor investment of capital, lack of time for the population to adapt to new paradigms, lack of time to experience all stages of development and adjust to each stage |
| The Internet | has brought many changes to our society not the least of which os the modern way of business |
| E-Commerce | makes it possible for nearly any individual to set up a direct market to consumers, as well as direct interaction with suppliers, can provide nearly instantaneous gratification, with a wide variety of products |
| Knowledge Economy | is a growing sector in the economy of developed countries and includes the trade and development of data, intellectual property, technology especially in the area of communications |
| Information Age | knowledge as a resource is steadily becoming more and more important, may prove to bring about changes in life and culture as significant as those brought on by the Agricultural and Industrial Revolutions |
| Cybernomics | or economics driven by e-commerce and other computers based markets and products marketing has changed dramatically with the growth of cyber communication |
| Cyber Communication | allowing suppliers to connect one-on-one with their customers |
| Cybernetic Issues | secure online trade, intellectual property rights, rights to privacy, bringing developing nations into the fold |
Created by:
Mr. Rafferty