| A | B |
|---|
| basic problem of economics | scarcity |
| want | anything other than a need |
| need | food, clothing, shelter |
| opportunity cost | what you give up when you choose something else |
| production possibilities curve | shows all of the things that could be made with the resources available |
| economic models | used to show how people react to changes in the economy |
| factors used in making economic models | price of the item, income of the average buyer, and price of alternative items |
| Adam Smith | founder of modern economics who coined the "invisible hand" theory |
| command economy | government controls the factors of production |
| market economy | factors of production are controlled by individuals |
| Karl Marx | father of communism |
| disposable income | money a person has left after paying taxes |
| discretionary income | money left after taxes and fixed expenses |
| bait and switch | illegal advertising tactic used to get you in the store and then to buy a more expensive item |
| consumerism | movement to educate buyers about purchases they make so that they demand better products |
| principal | amount of money originally borrowed |
| interest | money paid for the privilege of borrowing money |
| installment debt | paid in equal amounts over a set period of time |
| compounding interest | can work for or against you, depending on if you are the lender or the borrower |
| stock | purchasing part ownership of a company |
| utility | amount of satisfaction you receive from a good or service |
| law of demand | as price increases, demand decreases and vice versa |
| diminishing marginal utility | the decreasing satisfaction you receive from each additional unit of a good (ex. hershey kisses) |
| real income effect | limits the ability to demand to those who can afford an item |
| substitution effect | if one product increases in cost, a similiar product's demand will increase |
| complementary goods | two products that are usually sold together (PB and jelly) |
| elasticity of demand | how much price affects the demand for an item |
| inelastic goods | items that must be purchased despite the price (gas, milk, etc) |
| demand curve shifts left | population decrease, income deceases, etc |
| demand curve shifts right | holiday shopping, fads, population increase, income increase, etc. |
| law of supply | as price goes up, more products are supplied |
| law of diminishing returns | adding more workers will eventually not increase output |
| factors of production | land, labor, capital, and sometimes teachnology |
| equilibrium price | point at which supply and demand are the same |
| surplus | more is supplied than being demanded |
| shortage | more is demanded than being supplied |
| 4 elements of business | expenses, advertising, receipts and record keeping, and risk |
| sole proprietorship | a business owned by one person, most common form in the US |
| small business incubator | assists start-up businesses by providing low-rent building, management advice, etc. |
| partnership | 2 or more owners of a business |
| unlimited liability | disadvantage of sole proprietorship or partnership |
| limited liability | advantage of a corporation where you cannot be sued for personal belongings |
| corporation | business that sells shares of stock to investors |
| franchise | buying into a chain of businesses that already exist nationwide |
| perfect competition | does not exist in the real world |
| monopoly | a single supplier controls a market |
| oligopoly | an industry where a few suppliers control the industry |
| monopolistic competition | large number of sellers provide similiar, but slightly different products |
| deregulation | removal of government intervention into business practices |
| civilian labor force | the total number of people age 16 or older who are working or actively seeking employment |
| labor union | organization of workers organized to improve working conditions and wages |
| collective bargaining | done between management and unions to determine conditions of employment |
| mediation | a neutral person intervenes in labor negotiations to try to help reach an agreement |
| arbitration | labor and management agree to abide by the decision of this neutral party |
| right-to-work laws | made closed and union shops illegal |
| closed shop | only union members can be hired |
| union shop | new people hired must join the union |
| Gross domestic product (GDP) | a measure of all the final goods and services produced in the nation during a single year |
| determinants of GDP | consumer goods, business goods, government goods, and net exports |
| personal income | an alternate way of measuring the economy (as opposed to GDP). It measures the money available to be spent within a year. |
| inflation | a prolonged rise in the general price level of goods and services |
| deflation | a prolonged decline in the general price level of goods and services |
| purchasing power | affect inflation or deflation has on the dollar |
| business cycle | changes in the level of production of the economy |
| peak or boom | the top of the business cycle, a period of prosperity |
| recession | any period of at least 2 quarters (6 months) where GDP does not grow |
| depression | a prolonged recession |
| trough | lowest point in the business cycle |
| expansion or recovery | when GDP begins to grow again after a recession/depression |
| money | anything used as a medium of exchange, a unit of accounting, and a store of value |
| barter | to exchange goods |
| characteristics of money | durable, portable, divisible, stable in value, scarce, accepted |
| Federal Reserve | sets monetary policy by raising and lowering the interest rate among other ways |
| invisible hand | theory that said that competition is good for the economy |
