ACDEC: Econ
Terms
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- scarcity
- wants are greater than resources
- TANSTAAFL
- There Ain't No Such Thing As A Free Lunch
- opportunity cost
- real costs measurable in terms of value forgone when a choice is made (the value of what you gave up)
- production possiblities
- many different combinations of goods or services that can be produced with the same resources
- "guns vs. butter"
- representation of an economic choice--in wartime, making weapons means that consumer goods are not made
- factors of production
- types of resources: land, labor, capital, and entrepreneurial
- land resources
- natural resourses (trees, minerals, ect)
- labor resources
- human capital, skills and knowledge of people
- capital resources
- "real capital" or "capital goods"--goods produced to later be used to make final goods and services for consumption
- entrepreneurial resources
- decision-making that brings together the other resources
- competition
- sellers' efforts to attract buyers, results when markets are free of entrance and exit barriers, results in lower prices and/or better quality
- complementary goods
- two goods that depend on one another (french fries and ketchup)
- ceterius paribus
- "all other things being equal"
- margin
- difference between the costs of two alternatives or the difference between the two benefits
- positive economics
- economic analysis based upon what is
- normative economics
- economic analysis based on what should be
- microeconomics
- study of individual parts of economy, the actions of individuals and firms
- macroeconomics
- study of economy as whole, focuses on aggregate behaviors of producers and comsumers
- market systems
-
(free enterprise, capitalism, private enterpries, or free market)
economic systems in which the rights of individuals and private ownership are most highly valued - planned/command system
- a group makes economic decisions as a whole, or government makes decisions in the name of society (command if by absolute ruler)
- traditional system
- not dominant today, relies on reciprocity and other traditional values
- mercantilism
- economic practices of Europe in the 16-18th centuries, central planning, strong government control, and a heavy reliance on exports to build wealth in gold and silver reserves
- socialism
- systems in which a group voluntarily shares their resources for the good of all
- communism
- political/economic movement associated with the writings of Karl Mark. NOT SAME AS SOCIALISM, necessarily
- laissez-faire
- government does not interfere with private choices
- market
- any situation in which resources, goods, or services are exchanged
- price
- common language that makes comparison of two or more abstract values easier, signals for producers and consumers
- law of supply
- quantity supplied is directly related to the price (price increases, supply increases)
- law of demand
- quantity demanded is inversely related to the price (as price increases, demand decreases)
- utility
- use
- marginal utility
- additional utility of consumption of an additional unit of a good or service (at some point, will go to 0 because you can only use so much of anything)
- equilibrium price
- price at which supply equals demand, aka "market-clearing price"
- inelastic demand
- a change in price results in little or no change in the quantity demanded (insulin, salt)
- elasticity
- relationship of the change in price to the change in demand
- price elasticity of demand
- percentage of change in quantity demanded over percentage change in price
- cross-price elasticity
- relationship between demand for one product and the price of another, helps determine complimentary and substitute goods
- variable cost
- cost that changes with level of production
- marginal revenue
- increase in total revenue from sale of next unit
- marginal cost
- cost of next unit of production
- point of diminishing reterns
- adding more production factors results in a smaller and smaller output
- perfect competition market
- market with many buyers and sellers, unrestrained entry and exit, identical goods or services, and equal access to market info for all competitors (no advantages)
- monopoly
- non-competitve market in which production/price is controlled by a single producer
- patent
- gvt. grant of the exclusive right to make, use, and/or sell something for a specific time period
- copyright
- legal right of the creator to exclusive control of an original literary or artistic product
- regulated monopolies
- monopolies with strict price controls and universal service requirements
- monopolistic competetive market
- significant number of sellers with different products and few barriers to entry
- oligopoly
- market controlled by a few firms, barriers to entry, products identical or slightly different
- price ceiling
- maximum legal price--increases demand and reduces supply
- shortage
- situation when demand exceeds supply at the market price
- price floor
- minimum legal price, decreases demand, increases supply (to help producers)
- surplus
- suply exceeds demand
- explicit costs
- actual expenditures for resources used for production
- implicit costs
- opportunity costs of time and capital resources foregone
- total product
- number of units produced
- average product
- number of units of output per unit of input
- marginal product
- additional output from the addition of a unit of input
- diminishing marginal product
- marginal output will increase more slowly or even decrease
- productivity
- measure of output per unit of input, measure of efficiency
- labor productivity
- measure of labor resource efficiency
- aggregate
- overall levels
- circular flow model
- represents constant flow of resources from their owners to the producers and the flow of goods and services from producers to consumers
- consumer sovereignty
- consumers are driving force in the market
- Say's Law
- supply creates its own demand, demand must equal production value
- aggregate demand
- total demand in an economy
- aggregate supply
- total supply in an economy
- leading economic indicators
- orders, stock prices, ect: numbers that indicate the direction the economy will take in the future
- current economic indicators
- employment, income, output, sales: indicate current economic activity
- lagging economic indicators
- length of unemployment, consumer debt: indicate past levels of economic activity
- Index of Leading Economic Indicators
- weighted index of 12 crucial measurements that generally indicate the direction of the economy
- Humphrey-Hawkins Act
- 1978 Full Employment and Balanced Growth Act: Congress and executive must design and implement public policies that pursue the goals of growth of output, full employment, and price stability
- Employment Act of 1946
- gvt must endeavor to promote maximum employment, production, and purchasing power
- interest rates
- tool used to stimulate or slow growth, job creation, and moderate price increases, cost of using money
- gross domestic product
- total value of all final goods and services produced within a period of time in a nation. GDP=Consumption+Investment+Gvt Purchases+(or -) Net Exports
- Gross National Product
- involves value of production of nation's permanent residents regardless of where they work
- externalities
- external and unintended benefits or costs of an economic activity
- nominal GDP
- GDP expressed in terms of current dollar value
- per capita gross domestic product
- GDP divided by the population
- Real GDP growth rate
- measure of growth after adjusting for inflation
- consumer price index
- measurement of the change in the cost of a fixed basket of products and services
- producer price index
- measures wholesale price levels
- GDP price deflator
- measures changes in price level relative to the growth of GDB yearly
- cost-push inflation
- caused by a rise in the costs of factors of production
- demand-pull inflation
- casued by consumer demand bidding up the prices of goods and services
- labor force
- number of people 16 and older employed plus the number of people seeking employment
- unemployment rate
- number of unemployed divided by the labor force (supposed to be under 4%)
- recession
- GDP does not grow or declines over two consecutive quarters
- depression
- severe and long-term recession with significant unemployment
- expansion
- sustained period of growth
- business cycle
- model of the predictable increases and decreases in economic activity and output
- theory of rational expectations
- people's expectation about future economic states will guide their behavior so that that state happens (self-fulfilling prophecy )
- Index of Consumer Confidence
- tracks optimisim and pessimism of consumers, fairly new
- money
- tool ("grease") that facilitates trade. Medium of exchnge, unit of account (measure of value), mechanism to store value
- demand deposits
- checking account transactions
- interest rate
- cost of using money or credit
- Gresham's Law
- "good" money (people want to keep) is replaced in the market by "bad" money--explains hoarding
- monetary policy
- actions that influence the money supply and interest rates
- Federal Reserve System
- established 1913, Board of Governors and 12 FR banks, implements monetary policy
- quantity theory of money
- equation of exchange: money*velocity=price*quantity
- open market operations
- buying and selling of government securitites
- Federal Open Market Committee
- determines targets for key interest rates, esp the Fed Funds Rate (rate at which banks borrow overnight from other banks)
- discount rate
- rate at which FR Banks loan funds to member banks in the event that they require more reserves
- money multiplier
- reciprocal of the reserve requirement, determines total increase or decrease in the money supply
- wealth effect
- when people feel wealthier they increase demand for goods and services, and prices increase
- real interest rate
- rate charged over and above the anticipated rate of inflation
- prime rate
- interest rate banks charge best customers for short-term loans
- fiscal policy
- use of gvt spending and taxation to influence the level of economic activity
- national/public debt
- net of gvt deficits and surpluses over the years
- expansionary policies
- spending and taxation policies meant to stimulate economic growth
- contractionary policies
- used to reduce economic activity
- Keynsian theory
-
government spending could be used to
"replace" public spending during a recession to stimulate the economy - Smoot-Hawley Act
- brought about high tarriffs, in the 30s
- Phillips curve
- theoretical trade-off between inflation and unemployment: proved wrong by 70s and 90s
- stagflation
- combination of high unemployment and high inflation (in the early 80s)
- developed countries
- US, ect, have large industrial production base, lots of technology, and skilled workforce, GDP over 10,000
- Developing countries
- Algeria, Mexico: more dependent on agriculture than developed, lack widespread technology, GDP 3,000-10,000
- Less-developed countries
- Afghanistan, have enough natural and human resouces but depend on external capital for development, GDP less than 3000, usually politcal or cultural barriers
- comparative advantage
- choice to produce one or more goods for which opportunity cost is low (specialization)
- exchange rate
- price of one nation's currency in terms of another's currency
- tariff
- tax on imports
- quota
- limit on the quantity or value of good that can be imported or exported
- General Agreement on Tariffs and Trade
- ongoing discussion in rounds to reduce tariffs and promote free trade
- World Trade Organization
- created in 1995, 140 members, created to enforce rules of tarde
- North American Free Trade Agreement
- effective Jan 1 1994, pact that aims to establish free trade zone containing US, Mexico, and Canada
- European Union
- free trade organization in Europe, common currency the euro