econ 2
Terms
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- Opportunity Cost
- cost of the next best alternative use of money, time, or resources when one choice is made rather than another; the cost of the thing you gave up
- Public Goods
- products that are collectively consumed by everyone, and whose use by one individual does diminish the satisfaction or value available to others
- Interpreting a Production Possibilities Frontier
- Diagram that represents the combinations of goods/services an economy can produce when all resources are employed
- Stocks
- Uncertain percentage of return. Price based on supply and demand. Demand based on perceived company health and future profitability. Money is made only when the company pays dividends or when you sell the stock. Offered in both public and private companies.
- Price Discrimination
- when sales of identical goods are transacted at different prices from a single vendor
- Inelastic Supply
- Company cannot change their product easily
- Law of Supply
- The higher the price the more people want to supply it
- WTO
- World Trade Organization, supports global free trade
- Real interest rate
- The current interest rate minus the current inflation rate.
- Changes on Consumer Taste Effect on Demand
- When a product is popular, there is greater demand for it. If consumer taste changes, there is less demand for that product.
- Current rate of inflation in the USA
- 3%
- Cost-benefit Analysis
- the process you go through to select the option that gives you the most benefit; compares the costs of an action to the benefits recieved
- How is the value of the US dollars determined
- It is determined based on inflation
- Socialism
- government owns some factors of production
- Role of shares in corporate governance (selection of board members)
- A share of stock is a slice of ownership in the company. Each share equals a vote. Votes elect a board of directors. The board of directors, not the shareholders, pick the CEO. If a company wants to control another it becomes the majority shareholder, giving it sway over the board of directors.
- Incentives
- Something that motivates us
- How do increased taxes effect the economy?
- it decreases economic growth and consumer spending
- circular flow
- relationship between money income and and spending as an economy as a whole
- How is the value of the US dollars determined
- It is detrmined based on inflation
- What are the economic gains because of immigration?
- efficient, pay more taxes than benefits received,
- What are the economic losses because of immigration?
- immigrants occupy native worker's jobs, lower wages,
- How can a country benefit even when there is a trade deficit?
- When we bought more than we sold. so that more goods/services are available.
- Calculate PE Ratio
- (Stock Price)/(EPS)
- US total national debt
- 9 trillion
- How is the value of the US dollars determined
- It is determined based on inflation
- Mutual Funds
- A pool of money invested by a fee-based professional in a group of stocks. Can in some cases be controlled automatically by a formula (not fee-based.) to track a segment of the market. Price is based on the value of the pooled investment divided by the number of mutual fund shares. You make money on dividends or shares sold.
- Tariff
- tax placed on an imported product
- Bonds
- Documents used to borrow money that asure to pay the money back with interest.
- Voluntary Export Restraint
- Asking foreign countries to limit the number of items they export to your country
- Identify Shortage on a Supply & Demand Chart
- situation in which the quantity demanded is greater than the quantity supplied at a given price; area below crossed point of lines on chart
- Identify Surplus on a Supply & Demand Chart
- situation in which the quantity supplied is greater than the quantity demanded at a given price; area above crossed point of lines on chart
- Factors that create monopolies
- NATURAL: resource is put to best use by having only one firm produce it, GEOGRAPHIC: a monopoly based on the absence of other sellers in a certain geographic area, TECHNOLOGICAL: based on ownership or control of a manufacturing method, process, or other scientific advance (patent protects ideas, copyright protects words), GOVERNMENT: a monopoly the government owns and operates
- Who benefits from a weak US dollar?
- American consumers and FOREIGN companies benefit from a weak US dollar.
- Why do people invest in a company with a high PE ratio?
- Try to sell the stocks as the stock price continues to rise.
- Profit Margin
- the ratio of gross profits divided by net sales
- What is the significance of the low and high PE ratio?
- Low PE ratio - Lower stock price, higher earnings per share. High PE ratio - Higher stock price, lower earnings per share.
- Globalization
- to extend to other or all parts of the globe; make worldwide
- Protectionism
- Protection of a country's production with trade barriers that make it more difficult for foreign companies to be competitive
- Elastic Supply
- Comany can change production easily
- Concept of Scarcity
- Everything is in limited supply
- Why is it more likely the government will regulate businesses who sell products with inelastic demand
- because no matter what, these products are always necessary and demanded and the gov just wants to make sure that everyone has access to the products no matter what the price is
- Price Equilibrium
- price that leaves neither a surplus nor a shortage at the end of the trading period
- Why were new currencies backed by valuable goods like gold
- to build trust and make people believe money is worth something
- GDP
- Market value for total number of final goods/services produced within a country (US GDP is 13 trillion)
- Oligopolies
- a few large sellers dominate the industry
- What are the main type of taxes collected by the city government
- property and sales tax
- how many euros can $1 buy right now?
- .68
- Difference between paying interest and paying principle
- paying principle is to pay the amount borrowed, paying interest is to pay a certain rate for borrowing the money
- Short Selling
- Selling a stock you don't own, you'll buy the stock later to pay off the brokerage
- GDP per Capita
- GDP/person; shows how many goods are produced per person (US GDP per Capita: 43 thousand)
- How do governments and business use the power of incentives?
- All rational people seek to maximze thier benefit/profit
- Why does government fund basic science
- to advance society even if it is not directly profitable
- Dividends
- Company profits divided by the # of shares. Company can choose not to give dividends and put profits back in company growth. Investors who receive a dividend can choose to reinvest it elsewhere.
- Business Cycle
- Economy goes through ups and downs as a natural cycle
- What power do unions have?
- They can act as a unified group, and defend one another against bigger corporations.
- Effects of Inflation
- Debtors' debt gets smaller; savings get wasted; it makes future investments unpredictable.
- Inflation
- The increase in the price of goods and services in a given economy over a period of time.
- What are the main type of taxes collected by the California government
- income, sales, and property tax
- Communism
- Owned/Directed by state/government
- Substitutes
- A product that can be replaced by another product. (ex. butter and margerine)
- Who benefits from a strong US dollar?
- American companies and FOREIGN consumers benefit from a strong US dollar.
- Compliments
- A product that is usually bought with another. (ex. hot dogs and hot dog buns)
- productivity and its connection to economic growth
- what is produced to what is required to produce, it measures the production efficiency. if you have more to sell, than you gain more money.
- Calculating EPS (earnings per share)
- (Net Income)/(shares circulating). Higher is better, more earnings per share
- What is inelastic demand
- demand for the item will not change much as the price increases. more steep more inelsastic
- Real GDP growth
- 3%
- How do we make a dollar stronger?
- trade surplus and/or raise interest rates
- Price Ceiling
- maximum legal price that can be charged for a product
- What is elastic demand
- Item that quantity demanded at price levels drops rapidly as price changes. Sign we don't need it
- Productivity's Effect on Supply
- THe more pruduct is produced, the the number of quantity offered at all price points changes
- Calculating Market Cap
- (stock price) x (shares circulating). This shows how big the company is
- Dumping
- selling products in other countries at cheaper prices than it takes to produce them in your own country
- Utility
- relative satisfaction from consumption of goods
- Negative Externality
- the harm, cost, or inconvenience the 3rd party suffers because of others' actions
- Quota
- Limit on the amount of a good allowed into a country
- Price Floor
- Law banning price below a certain price. effect of inelasticity; makes price rise and fall faster
- Marginal Utility
- the same object has different marginal utilities for different people
- How do banks make a profit?
- Banks make a profit by charging interest rated on loans.
- Floating Currency
- Flexible money that can be changed in value based on foreign rates
- Technology Effect on Supply
- Inventions make work faster and changed the quantity offered at all price points
- Comparative Advantage
- Making a product where you have the lowest opportunity cost. Doing what you are best at.
- Sunk Cost
- Cost you can never recover
- Subsidies Effect on Price
- government pays supplies money that allow supplies to drop prices at all price points
- Cost of input changes effect on supply
- if the raw materials of a product costs more, the supply will decrease. if the raw material costs less, then the supply will increase
- Trade-offs
- alternative choices (things you give up to get something else)
- Market Failure
- when any of the 4 conditions required for a competitive free enterprise economy is NOT met
- Earned income tax credit
- Tax refund given to poor who work
- NAFTA
- trade agreement between U.S., Mexico, and Canada
- What is Economics?
- Unlimited/competing wants with use of scarce resources
- Maquiladora
- Mexico border factories for the US
- Income Transfer
- transfer of income from the rich to the poor
- What are the main type of taxes collected by the federal government
- income tax