| A | B |
|---|
| capital resources | capital goods - manufactured resources and consumer goods - finished products |
| consumers | people who buy things |
| factors of production | natural, human, capital resources and entrepreneurship |
| macroeconomics | study of entire economies - examples of issues - unemployment, poverty rate, inflation |
| microeconomics | consists of choices made by individuals/companies/individual markets |
| natural resources | sunlight, coal |
| opportunity cost | the cost of the trade-off the value of the next best alternative that is given up to obtain the preferred item |
| producers | people who make things |
| production possibilities curve | all of the possible combinations of two given two assumptions: (1) amount of avail. resources don't change (2) all resources are used most efficiently |
| scarcity | limited economic resources and unlimited wants/most basic problem of economics/people are forced to use resources effectively |
| utility | usefulness to a person/one person may find a product useful while another may not |
| Adam Smith | economist the explained how the market regulates economic activity - invisible hand theory |
| capitalism | individual owns factors of production and answers economic questions (United States/Canada) |
| command economy | when the government answers the 3 basic economic questions (Zhou Dynasty) |
| market economy | economy in which the individual answers the economic questions |
| mixed economy | economy that combines elements of traditional, market, and command economies |
| pure market model | no longer exists - where individuals answers all the economic questions - no government involvement |
| traditional economy | based on a society's values - it's customs and traditions - Aborigines |
| complimentary good | good used another good - paintbrushes and paint |
| demand | amount of a good or service that a consumer is willing and able to buy at various possible prices during a given time period |
| demand curve | shows the relationship between price of a product and quantity demanded |
| demand schedule | lists the quantity of goods that consumers are willing and able to buy at a series of possible prices |
| determinants of demand | factors that shift the demand curve to the right or left |
| Examples of determinants of demand | (1) consumer tastes and preferences (2) market size (3) income (4) prices of related goods (5) consumer expectations |
| elastic demand | a small change in a good's price causes a major change in the quantity demanded (pizza, sandwiches) not necessity/lots of substitutes/cost represents a large portion of income |
| inelastic demand | a change in a good's price has no effect on demand/ soap, flour/necessity/virtually no substitutes/cost is a small portion of income |
| purchasing power | the amount of money or income that people have available to spend on goods or services |
| substitute good | goods used to replace a similar good (butter/margarine) |
| costs of production | wages, rent, interest on loans |
| determinants of supply | nonprice factors that can shift the supply curve |
| Examples of Determinants of Supply | (1) Prices of resources (2) government tools - taxes, subsidies, regulations (3) technology (4) competition (5) prices of related goods (6) producer expectations |
| elastic supply | a small change in price caues a major change in quantity supplied - tee shirts/hats the products can be made quickly and inexpensively |
| fixed costs | production costs that don't change - rent/loans |
| profit | amount remaining after producers have paid all of their costs |
| marginal product | the change in output generated by adding one more unit of input |
| total product | total output/all the product a company makes in a given period of time |
| law of diminishing returns | as one input is added to a fixed supply - productivity increase to a point but eventually falls off and there are negative returns |
| inelastic supply | a change in a good's price has little impact on quantity supplied - products require a great deal of time and money/resources aren't readily available |
| law of supply | producers supply more when they can sell it at higher prices; they supply less when they must sell at lower prices |
| supply curve | plots information from a supply schedule |
| variable costs | costs that change as the level of output changes - raw materials and wages |
| What are the benefits of the price system? | information, incentives, choice, efficiency, flexibility |
| black market | goods exchanged at higher prices - usually illegal exchanges |
| positive externalities | when someone who doesn't buy or sell a product, but benefits from its production |
| negative externalities | when someone who doesn't make or consumer a certain product still bears part of the cost of production |
| price ceiling | maximum price of a good - rent controls |
| price floor | minium level for prices - minimum wage |
| public good | consumer by all members of a group - national defense, law enforcement |
| rationing | government/institution decides how to distribute a product |
| shortage | when demand exceeds supply |
| subsidies | payment by the government to encourage someone to do something (agriculture) |
| surplus | when quantity supplied exceeds quantity demanded |
| buyers | consumers |
| collusion | illegal - sellers secretly agree to set production levels or prices |
| monopolistic competition | sellers offer different rather than identical products |
| 4 kinds of monopolies | natural, geographic, technological, government |
| geographic monopoly | remotely located store |
| technological monopoly | one company builds exclusive product |
| government monopoly | water and sewer services |
| oligopoly | most noncompetitive market in the US |
| nonprice competition | ways sellers differientiate their products |
| sellers | producers |
| Characteristics of Oligopolies | (1) only a few large sellers (2) sellers offer identical/similar products |
| perfect competition | no one buyer or seller controls demand, supply or prices |
| Characteristics of Perfect Competition | (1) buyers and sellers act independently (2) sellers offer identical products (3) buyers are well-informed about products (4) sellers can enter/exit the market easily |
| product differentiation | pointing out differences in products which can be real or can seem real |
| purpose of antitrust legislation | ensure competition and protect consumers |
