homework

1. economics the study of how people use their scarce resources to satisfy their
unlimited wants
exhaustible resources does not renew itself and so is available in a limited
amount
normative economic statement an economic statement that reflects someone's
opinion
positive economic statement an economic statement about the reality and can
be supported or rejected by reference to the facts
sunk costs a cost you have already paid and cannot recover, regardless of what
you do now
Three economic questions 1. What goods and services will be produced?
2. How will they be produced?
3. For whom will they be produced?
pure market economy an economic system with no government so that private
firms account for all production
PPF curve shows the possible combinations of two types of goods that can be
produced when available resources are employed efficiently
household the most important economic decision maker, consisting of all those
who live together under one roof
firm a business unit or enterprise formed by a profit-seeking entrepreneur who
combines resources to produce goods and services
specialization occurs when individual workers focus on single tasks, enabling
each worker to become more efficient and productive
law of comparative advantage the worker, firm, region, or country with the lowest
opportunity cost of producing an output should specialize in that output
secured loan loan for which property is pledged to back its repayment, such as
home mortgage
insurance protection you purchase against losses beyond your ability to
withstand
opportunity cost the value of the best alternative passed up for the chosen item
or activity
credit scoring a system that assigns a number, or score, to each consumer,
indication whether this person is a good or bad credit risk
savings the act of choosing not to spend current income

2. demand curve a curve or line showing the quantities of a particular good
demanded at various prices during a given time period, other things constant
supply curve a curve, or line, showing the quantities of a particular good supplied
at various prices during a given time period, other things constant
elasticity another word for responsiveness
profit=total revenue - total cost profit formula
economies of sale forces that reduce a firm's average cost as the firm's size
increases in the long run
diseconomies of sale If the firm's long-run average cost increases as production
increases
shortage at a given price, the amount by which quantity demanded exceeds
quantity supplied; this usually forces the price up
surplus at a given price, the amount by which quantity supplied exceeds quantity
demanded; this usually forces the price down
monopoly the sole supplier of a product with no close substitutes
oligopoly a market structure with a small number of firms whose behavior is
interdependent
GDP measures the market value of all final goods and services produced in a
country during a given time period, usually a year
nominal GDP GDP based on the prices when the output is produced; current
dollar GDP
real GDP GDP adjusted with inflation; measured in terms of the goods and
services produced
green GDP an index of economic growth with the environmental consequences
of that growth factored into a country's conventional GDP
recognition lag the time is takes to recognize an issue and determine how
serious it is
decision-making lag when policy makers take time to deciding what to do about
the issue they discovered
implementation lag once a decision is made, a new policy is introduced and
executed
effectiveness lag once the fiscal policy is implemented, it takes between 9-18
months to register its full effect
venture capitalists individuals and firms that specialize in financing start-up
firms
perfect competition a market structure with many fully informed buyers and
sellers of an identical product and ease of entry; so small relative to the size of the
market that the firm's quantity decision has no effect on the market price

3. monopolistic competition barriers to entry are so low that any short-term profit
attracts new competitions and this will erase profit in the long run; has some market
power
oligopoly a market that is dominated by just a few firms; meaning few sellers;
firms are interdependent
monopoly the sole supplier of a product with no close substitutes
frictional unemployment doesn't last long; usually results in a better match
between workers and jobs
structural unemployment when job seekers do not have the skills demanded or
required for the job
seasonal unemployment unemployment that is caused by seasonal changes in
labor demanded during the year
cyclical unemployment the increase in unemployment caused by the recession
phases of the business cycle
full employment when the unemployment is somewhere between 5-6%
# employed / # in the labor force = unemployment rate unemployment rate
interest rate the price of borrowing
equilibrium interest rate the only interest rate at which the quantity of loans
demanded equals the quantity of loans supplied
microeconomics study of economic behavior in particular markets, such as the
market for computers or for unskilled labor
consumption household purchases on final goods and services
federal reserve system Established in 1913 as the central bank and monetary
authority of the United States
service something not physical that requires scarce resources to produce and
satisfy human wants
good an item you can see, feel, and touch that requires scarce resources to
produce and satisfy human wants
scarcity a condition facing all societies because there are not enough productive
resources to satisfy people's unlimited wants
productive resources the inputs used to produce the goods and services that
people want
entrepenuer a profit seeker who develops a new product pr process and
assumes the risk of profit loss
opportunity cost the value of the best alternative passed up for the chosen item
or activity
law of comparative advantage the worker, firm, region, or country with the lowest
opportunity cost of producing an output should specialize in that output

4. pure market economy an economic system with no government so that private
firms account for all production; ex: farmers make food to feed themselves in the old
days
pure command economy an economic system in which all resources are
government-owned and all production is directed by the central plans for
government; communism
mixed economy an economic system that mixes central planning with
competitive markets
market economy describes the U.S. economic system, where markets play a
relatively large role
trademark establishes property rights to unique commercial marks and symbols;
Nike Swoosh
private property rights legal claim that guarantees an owner the right to use a
resource or to charge others for its use
public goods goods that, once produced, are available to all but the producer
cannot easily exclude non-payers; mesquito spray
credit history a person's record of paying bills and debts over time
identity theft crime in which one person fraudulently uses another's identity to
obtain credit or to access financial accounts
payments by check provides safety because you do not have to carry around
large sums of cash; can be useful when you evaluate your budget; sometimes
standard interest rate
forms of investment stocks, bounds, etc.
real income your income measured in terms of how much it can buy
inferior goods demand decreases as income increases (used clothes/furniture)
normal goods demand decreases as income increases (new items)
substitutes products that can be used in place of each other (pizza and tacos)
determinants of supply i. The cost of resources used to make the good
ii. The price of other goods these resources could make
iii. The technology used to make the good
iv. Producer expectations
v. The number of sellers in the market
shifts of supply (left to right) increases or decreases in supply resulting from a
change in one of the determinants of supply other than the price of the goof
shifts of demand (left to right) increase or decrease in demand resulting from a
change in one of the determinants of demand other than the price of the good
price floor a minimum legal price below which a product cannot be sold
price ceiling a maximum legal price below which a product cannot be sold

5. perfect competition a market structure with many fully informed buyers and
sellers of an identical product and ease of entry
corporation a legal entity with an existence that is distinct from the people who
organize, own, and run it
sole proprietorship the simplest form of business organization; a firm that is
owned and run by one person who sometimes hires other workers
strike a labor union's attempt to withhold form a firm
conglomerate one firm combines with another in a different industry
horizontal merger all the same function or stage in production
vertical merger different stages of production
double counting counting an item's value more than once
aggregate total
CPI consumer price index; measure or inflation based on the cost of a fixed
"market basket" of goods and services purchased by a typical family
recession a decline in total production lasting at least two consecutive quarters,
or at least six months
expansion the phase of economic activity during which the economy's total
output increases
depression a sharp reduction in the nation's total production lasting a few years
of accompanied by high unemployment
deflation decrease in price level
inflation an increase in economy's price level; reduces value of a dollar
hyperinflation extremely high inflation
stagflation a decline, or stagnation, of a nation's output accompanied by a rise,
or inflation, in the price level
regressive tax the tax as a percentage of income decreases as income increases
progressive tax the tax as a percentage of income increases as income increases
flat tax tax as a percentage of income remains constant as income increases
debt ceiling a limit on the amount of money the federal government can legally
borrow
Keynes suggested that the government shock the economy out of its depression
by increasing aggregate demand by increasing its own spending or by cutting taxes
to stimulate consumption and investment; demand side economics focuses on how
changes in aggregate demand could promote full employment
commodity money anything that serves both as money and as commodity; such
as gold
fiat money money with no value in itself and not convertibale into gold, silver, or
anything else of value; declared money by the government decree

6. electric money money in the bank represented by a debit card
prime rate the interest rate lenders charge for loans to their most trustworthy
business borrowers