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| Economics | study of how people seek to satisfy their needs and wants by making choices |
| Scarcity | limited quantities of resources used to meet unlimited wants |
| Factors of production | The resources such as land, labor, and capital which are used to make goods |
| land | all natural resources |
| capital | physical capital includes buildings and tools |
| entrepreneurs | ambitious leader who combines land, labor, and capital to create and market new goods and services |
| opportunity cost | the most desirable alternative given up as the result of a decision |
| guns or butter | a phrase that refers to the trade-offs that nations face when choosing whether to produce more or less military or consumer goods |
| Production Possibilities Curve | graph showing alternative ways to use an economy's resources |
| 3 Economic Questions | what goods and services should be produced; how should these goods be produced; who consumes these goods. An economic system must answer these 3 questions |
| market economy | economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets |
| command economies | the central government alone decides how to answer all three key economic questions |
| mixed economies | market-based economic systems in which government plays a limited role |
| Law of Demand | consumers buy more of a good when its price decreases and less when its price increases |
| demand curve | curve moves downward from left to right |
| elasticity of demand | a measure of how consumers react to a change in price |
| Law of supply | tendency of suppliers to offer more of a good at a higher price |
| supply curve | curve that moves upward from left to right |
| equilibrium | the point at which quantity demanded and quantity supplied are equal |
| perfect competition | a market structure in which a large number of firms all produce identical products |
| monopoly | a market dominated by a single seller |
| natural monopoly | a market that runs most efficiently when one large firm supplies all of the output |
| government monopoly | a monopoly created by the government |
| monopolistic competition | market structure in which many companies sell products that are similar but not identical |
| oligopoly | market structure in which a few large firms dominate a market |
| sole proprietorships | a business owned and managed by a single individual, most common form of business organization |
| partnerships | a business organization owned by two or more persons who are personally liable for debt of the company |
| corporation | a legal entity owned by individual stockholders |
| CPI | consumer price index; measures inflation; the average prices paid by urban consumers for a market basket of goods and services |
| coupon rate | interest rate on a bond |
| Treasury bond | bond issued by U.S. Treasury Department when U.S. must borrow money |
| dividend | profit issued to the stockholders of a corporation |
| bank | serves as a financial intermediary getting savers and borrowers together |
| money | anything that serves as a medium of exchange, a unit of account, and a store of value |
| commodity money | consists of objects that have value in and of themselves and that are also used as money |
| fiat money | has value because the government says it is an acceptable means to pay debts. |
| Federal Reserve System | the nation's central banking system |
| FDIC | Federal Deposit Insurance Corporation; government agency that insures customer deposits if a bank fails |
| M1 | represents money that people can gain access to easily and immediately to pay for goods and serviced. Currency and checkable deposits |
| Financial system | system that allows the transfer of money between savers and borrowers; banks act as financial intermediaries in the financial system |
| mutual fund | fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, and other financial assets |
| financial portfolios | a collection of financial assets |
| bonds | loans that represent debt that the government or a corporation must repay to an investor, called debt financing |
| junk bonds | a lower-rated, potentially higher-paying bond, high risk investment |
| stocks | also called equity financing, claims of ownership in the corporation |
| stock exchanges | markets where stocks are bought and sold (New York Stock Exchange) |
| Bull market | a steady rise in the stock market over a period of time |
| bear market | a steady drop in the stock market over a period of time |
| Gross Domestic Product | the dollar value of all final goods and services produced within a country's borders in a given year |
| recession | GDP falls for at least 6 months or more |
| stagflation | a decline in real GDP combined with a rise in the price level (inflation) |
| 1040 | name of a federal tax return |
| business cycle | The contraction and expansion of an economy; the parts of a business cycle include the peak, recession, trough, recovery. The cycle last from a peak to the next peak |
| FICA taxes | Social Security taxes and medicare taxes that are deducted from your pay check |
| Progressive tax | tax rate increases as income increases; income taxes are progressive taxes |
| capital gain | Price of stock increases from original purchase price of stock |
| municipal bond | bonds issued by cities; they are tax exempt |
| potential GDP | the amount of GDP an economy could produce if it were producing at full employment |
| full employment | equals the sum of frictional, structural, and seasonal unemployment; an economy is at full employment when it is experiencing only natural unemployment |
| natural unemployment | includes only frictional, structural, and seasonal unemployment |
| trade barrier | designed to make imports more expensive in order to protect domestic industry; tariffs and quotas are examples |
| tariff | tax on imports |
| trade quotas | limit on the amount of imports of a particular product |
| peak | the highest point in a business cycle |
| trough | lowest point in a business cycle |
| comparative advantage | it is the basis of trade with foreign countries; a country should produce those goods in which it has a comparative advantage or lowest opportunity cost |
| subsidy | a payment from the government to a producer of a product |
| marginal cost | the cost of producing one more unit of a good or service |
