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Econ Final Exam
| Term | Definition |
|---|---|
| market equilibrium | A condition of price stability where the quantity demanded equals the quantity supplied. |
| equilibrium price | The price at which the quantity demanded and the quantity supplied are equal. (This is also known as Market Clearing Price) |
| surplus | When the quantity supplied is greater than the quantity demanded. |
| a surplus is represented by any point ... | above the equilibrium price. |
| The horizontal distance between the surplus point and the demand curve is the ... | quantity of the surplus |
| shortage | When the quantity demanded is greater than the quantity supplied. |
| a shortage is represented by any point ... | below the equilibrium price. |
| The horizontal distance between the shortage point and the demand curve is the ... | the quantity of the shortage |
| price ceiling | an artificial price set below the equilibrium price |
| price floor | an artificial price set above the equilibrium price |
| price control | when a government intervenes to regulate prices |
| supply curve | a graph of the relationship between the price of a good and the quantity supplied |
| supply schedule | a table that shows the relationship between the price of a good and the quantity supplied |
| Law of Supply | producers offer more of a good as its price increases and less as its price falls |
| Change in the cost of factors of production | If the prices of natural resources |
| Change in technology | New technology often reduces producers' costs |
| Change in profit opportunities producing other products | If a seller has an opportunity to produce a different product that brings in more profit |
| Change in producers price expectations | Producers expectations about the future price of the product they sell influence current supply. |
| Change in the number of sellers in the market | There is a direct relationship between the number of sellers of a good and the quantity that good that is produced |
| quantity supplied | the amount of a good or service that a firm is willing and able to supply at a given price |
| supply | The quantity of something that producers have available for sale at every price |
| Demand | Consumer willingness and ability to buy products |
| Law of demand | consumers buy more of a good when its price decreases and less when its price increases |
| Demand Schedule | table that lists a quantity of a good that a person will purchase at various prices in the market |
| Demand Curve | a graphic representation of a demand schedule |
| non-price determinant | Some factor that causes a shift in the Demand curve |
| Quantity Demanded | the amount of a good or service that consumers want at a given price (represented by a point on the curve) |
| production possibilities curve | A curve showing the different combinations of two goods or services that can be produced in a full-employment |
| Traditional Economy | economic system that relies on habit |
| market economy | Economic decisions are made by individuals or the open market. |
| command economy | An economic system in which the government makes all economic decisions. |
| mixed economy | an economic system combining private and public enterprise. |
| Adam Smith | Scottish moral philosopher and a pioneer of political economics. Seen today as the father of Capitalism. Wrote On the Wealth of Nations (1776) One of the key figures of the Scottish Enlightenment. |
| Karl Marx | 1818-1883. 19th century philosopher |
| marginal cost | the cost of producing one more unit of a good |
| marginal benefit | the additional benefit to a consumer from consuming one more unit of a good or service |
| thinking at the margin | the process of deciding whether to do or use one additional unit of some resource |
| goods | the physical objects that someone produces |
| Services | Actions or activities that one person performs for another; intangible |
| land | all natural resources used to produce goods and services |
| labor | the effort that people devote to a task for which they are paid |
| Capital | any human-made resource that is used to produce other goods and services |
| Entrepreneur | people who decide how to combine factors of production to create new goods and services |
| Trade-off | an alternative that we sacrifice when we make a decision |
| opportunity cost | the most desirable alternative given up as the result of a decision |
| trade | the action of buying and selling goods and services. |
| Barriers to trade | government rules that block or inhibit international trade between countries. |
| absolute advantage | the ability of an individual |
| comparative advantage | the ability of an individual |
| Specialization | the concentration of the productive efforts of individuals and firms on a limited number of activities |
| Depreciated Value | The original value of a property minus depreciation |
| exchange rate | the value of a currency in one country compared with the value in another |
| Imports | goods and services purchased from other countries |
| Exports | Goods and Services sold to other countries |
| Tariff | A tax on imported goods |
| revenue tariff | tax on imports used primarily to raise government revenue without restricting imports |
| Protective Tariff | A tax on imported goods that raises the price of imports so people will buy domestic goods |
| Quota | A limit placed on the quantities of a product that can be imported |
| Embargo | an official ban on trade or other commercial activity with a particular country. |
| fiscal policy | the use of government spending and revenue collection to influence the economy |
| Inflation | a general increase in prices and fall in the purchasing value of money. |
| progressive tax | A tax graduated so that people with higher incomes pay larger fraction of their income than people with lower incomes. |
| proportional tax | a tax for which the percentage of income paid in taxes remains the same for all income levels |
| regressive tax | A tax in which the burden falls relatively more heavily on low-income groups than on wealthy taxpayers. |
| demand-pull inflation | increases in the price level (inflation) resulting from an excess of demand over output at the existing price level |
| cost-push inflation | a sustained rise in the price level caused by a leftward shift of the aggregate supply curve (increase in cost of production) |
| Recession | a period of temporary economic decline during which trade and industrial activity are reduced |
| Depression | A long-term economic state characterized by unemployment and low prices and low levels of trade and investment |
| mandatory spending | Federal spending required by law that continues without the need for annual approvals by Congress. |
| discretionary spending | Federal spending on programs that are controlled through the regular budget process |
| social insurance programs | government programs that pay benefits to retired and disabled workers |
| public assistance programs | government programs that make payments to citizens based on need |
| monetary policy | managing the economy by altering the supply of money and interest rates |
| federal funds rate | Interest rate banks charge each other for loans |
| open market operations | the buying and selling of government securities to alter the supply of money |
| fractional reserve banking | a banking system that keeps only a fraction of funds on hand and lends out the remainder |
| discount rate | the minimum interest rate set by the Federal Reserve for lending to other banks. |
| expansionary monetary policy | Federal Reserve system actions to increase the money supply |
| reserve requirement | This is the percentage of their deposits that member banks must keep available in a Federal Reserve Bank. |
| contractionary monetary policy | the Federal Reserve's policy of increasing interest rates to reduce inflation |
| M1 | The most narrowly defined money supply |
| M2 | All of M1 + less immediate (liquid) forms of money to include savings |
| M3 | The broadest component of the money supply. Equal to M2 plus large time deposits. |
| GDP | Gross Domestic Product- the total market value of all final goods and services produced annually in an economy |
| CPI | (consumer price index) a measure of the overall cost of the goods and services bought by a typical consumer |
| unemployment | Measures the number of people who are able to work |
| Sole Proprietorship | a business owned and managed by a single individual |
| Partnership | a business organization owned by two or more persons who agree on a specific division of responsibilities and profits |
| Corporation | A business owned by stockholders who share in its profits but are not personally responsible for its debts |
| horizontal merger | the combination of two or more firms competing in the same market with the same good or service |
| vertical merger | the combination of two or more firms involved in different stages of producing the same good or service |
| conglomerate | a group of diverse companies under common ownership and run as a single organization |
| publicly held corporation | a type of corporation that sells stock on the open market |
| corporate charter | a legal document that the state issues to a company based on information the company provides in the articles of incorporation |
| articles of incorporation | a written legal document that defines ownership and operating procedures and conditions for the business |
| stock | A share of ownership in a corporation. |
| perfect competition | the degree of competition in which there are many sellers in a market and none is large enough to dictate the price of a product |
| monopolistic competition | a market structure in which many companies sell products that are similar but not identical |
| Oligopoly | a state of limited competition |
| Monopoly | A market in which there are many buyers but only one seller. |
| barriers to entry | obstacles to competition that prevent others from entering a market |
| Nash Equilibrium | a situation in which economic participants interacting with one another each choose their best strategy given the strategies that all the others have chosen |
| game theory | Evaluates alternate strategies when outcome depends not only on each individual's strategy but also that of others. |
| payoff matrix | a table that shows the payoffs that each firm earns from every combination of strategies by the firms |
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