ECONOMICS: KEY TERMS Demand, Supply and Market Forces Definition What that Change in demand Demand curve shifts because people are now willing to buy different amounts at the same prices Shifts to the left – less people want it Shifts to the right – more people want it Complements Products that increase the value of other products Products related in such a way that an increase in the price of one reduces the demand in both When and demand match up (higher price = lower demand) Demand The desire, ability, and willingness to buy a product How much stuff the customer wants Demand curve A graph showing the quantity demanded at each and every price that might prevail in the market A graph of how much a customer would by at each price Demand schedule A listing that the various quantities demanded of a particular product at all prices that might prevail in the market at a given time A list of how much a customer would buy at each price Elastic A given change in price causes a relatively larger change in quantity demanded When the price affects the demand If people don’t really need a product, the demand is elastic Elasticity A measure of responsiveness that tells us how a dependent variable such as quantity responds to a change in an independent variable such as price Whether or not a price change will change the demand for a product
Equilibrium The point at which prices are relatively stable, and the quantity of goods or services supplied is equal to the quantity demanded When supply and demand are in agreement The point at which a company is producing an item at a price the customer is willing to pay Inelastic A change in price causes a relatively smaller change in the quantity demanded When the does not affect the demand Inputs Factors of production (land, labor, capital, entrepreneurship) Anything that production increase Market demand curve Demand curve that shows the quantities demanded by everyone who is interested in purchasing a product The total demand for a product in the market Market supply The supply that shows the quantities offered at various prices by all firms that offer the product for sale in a given market How much supply all companies in the country have (not just one company) Price ceiling Maximum price that can be charged for a product You can’t charge more than a legal limit for something you sell Price floor Lowest legal price that can be charged for a product You can’t charge less than a legal limit for something you sell Shortage Situation quantity supplied is less than quantity demanded at a given price When the supply is less than the demand When you sell out of something Substitutes Products used in of other products A product that can be bought instead of another product (ex – Coke or Pepsi) Supply The amount of a product that would be offered How much stuff the business has
for sale at all possible prices that could prevail in the market Surplus Situation where quantity supplied is greater than quantity demanded at a given price When you have more stuff than people will buy Business Organizations and Market Structure Image Definition What that means Perfect competition many buyers and sellers, and prices reflect supply and demand Not real – just the ideal that no one company would ever
control the market Market structure The collection of factors that determine how buyers and sellers interact in a market, how prices change, and how different levels of the production and selling processes interact of markets (perfect, monopolistic, oligopoly, duopoly, monopoly) Imperfect competition a competitive market situation where there are many sellers, but they are selling slightly different goods Real – Everything other than perfect competition Monopolistic competition a market structure in firms have many competitors, but each one sells a slightly different product Many places selling a similar product Like pizza places Oligopoly a particular market is controlled by a small group of firms Few places selling a similar product Monopoly a single company or owns all or nearly all of the market for a given type of product or service One company controls the market for a product (this is illegal) Natural monopoly A type of monopoly that exists as a result of the high fixed or costs of operating a business in a particular industry Companies that a govt regulates Utilities, for example Geographic monopoly A condition that exists in a local area or region wherein one company is the sole provider of a good or service When one business offers services without competition in a town Ex: bait shop Technological monopoly A monopoly that occurs when a single firm controls manufacturing methods necessary to produce a certain product One company has all the technology to control market Government monopoly A company that is operating as a monopoly under a government A company that the govt allows & monitors Ex., Post office Market failures a situation where free markets fail to allocate resources efficiently During Great Depression, many
Greenbacks a fiat currency issued during the American Civil War Money printed during Civil War that eventually became worthless Gold certificates A physical document resembling a bank note that entitles the holder to a specified value of gold A piece of paper that says you own gold Silver certificates Former legal tender (paper currency) issued by the U.S. government beginning in 1878 A piece of paper that says you own silver Treasury coin notes paper currency issued by the Treasury that was redeemable in both gold and silver Money that you could trade for gold or silver Gold standard A monetary system in which a country's government allows its currency unit to be freely converted into fixed amounts of gold and vice versa A concept where money is by (equal to) an amount of gold Federal Reserve notes paper currency backed by fiat money (govt declaration that they were legal) Dollar National Bank notes US currency banknotes issued by National banks usually backed by US bonds the bank in the Treasury backed by US bonds Demand deposit accounts Funds held in an account from which deposited funds can be withdrawn at any time without any advance notice to the depository institution Checking or savings accounts Federal Reserve System central bank of the United States Made of committee that discusses economic issues Central bank The entity responsible for overseeing the monetary system for a nation (or group of nations) Main bank (like Fed Reserve) that monitors economy National banks a commercial bank chartered by the comptroller of the currency of the U.S. Treasury Private banks that US govt monitors
State banks a financial institution that is chartered by a state. Private banks that states monitor Macroeconomics Key Definition What that Aggregate demand The total quantity of goods and services demanded at different price levels Total demand for a country Aggregate supply The total value of goods and services that all firms would produce in a specific period of time at various price levels Total supply for a country Business cycle Systematic changes in real GDP marked by alternating periods of expansion and contraction The up and down of business Capital expenditures Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment Money spent to improve the business Commodity a raw material or primary agricultural product that can be bought and sold, Something that can be traded
such as copper or coffee Consumer price index Index used to measure price changes for a market basket of frequently used consumer items Looking at how much something used to cost compared to Creeping inflation Relatively low rate of inflation, usually 1 to 3 percent annually Expected rate of inflation Current GDP Domestic Product measured in current prices, unadjusted for inflation GDP without inflation Cyclical unemployment Unemployment directly related to swings in the business cycle When demand is low and workers are not needed Deflation Decrease in the general level of the prices of goods and services Prices drop Depreciation Gradual wear on capital goods during production Cost of something goes down over time Depression State of the economy with large numbers of unemployed, declining real incomes, overcapacity in manufacturing plants, general economic hardship Extremely low economic growth Estate tax Tax on the transfer of property when a person dies Tax paid when property is transferred death) Excise tax General revenue tax levied on the manufacture or sale of selected Tax on specific things (just paper, etc) – usually things not needed Expansion Period of growth of real GDP; recovery from recession Economy grows External An event that produces a significant change within an economy, despite occurring outside of it Unpredictable change in economy War, natural disaster FICA Federal Insurance Contributions Act; tax levied on employers and employees to support Social Security and Medicare that pay Social Security & Medicare
Flat tax Proportional tax on individual income after a specified threshold has been reached Limit to how much income tax that people have to pay Benefits the wealthiest tier Frictional unemployment Unemployment caused by workers changing jobs or waiting to go to new ones When people are in between jobs Full employment A situation in which all available labor resources are being used in the most economically efficient way. all of the workers are employed Galloping inflation Relatively intense inflation, usually ranging from 100 to 300% annually Period of high inflation Gross Domestic Product (GDP) The most complete measure of total output How much money a country makes Hyperinflation Extremely rapid or out of control inflation Almost slang – inflation out of control Implicit GDP deflator used to measure price changes in Gross Domestic Product How GDP changes are measured Inflation Rise in the general level of prices Prices go up Innovation knowledge, technology, entrepreneurship, and innovation are positioned at the center of the model rather than seen as independent forces Innovation (making new things) at center of economic – not side factor Luxury tax Tax on good that has low supply and high demand Tax on luxury items (expensive cars, jewelry) Mandatory spending Federal spending authorized by law that continues without the need for annual approvals of Congress Govt spending that need approval every year Soc Sec, vet benefits Marginal tax rate Tax rate that applies to the next dollar of taxable income Tax rate increases when income increases The more you make, the more taxes you pay Medicare Federal health-care program for senior citizens, regardless of income Health care for elderly
Seasonal unemployment Unemployment caused by annual changes in the weather or other conditions that prevail at certain times of the year Some workers have less work during certain seasons (construction, etc) Sectors of macro economy (4) Consumer, investment, government, foreign sectors GDP = C + I + G + F Parts of the economy that control how much money a country makes Structural unemployment Unemployment caused by a fundamental change in the economy that reduces the demand for some workers When workers lose jobs because they are not needed (skills outdated, products no longer needed) Technological unemployment Unemployment caused by technological development or automation that make some workers’ skills obsolete When workers are replaced by machines/computers Trough Point in time when real GDP stops declining and begins to expand When GDP stops declining Unemployment rate Ratio of unemployed individuals divided by total number of persons in the civilian labor force, expressed as a percentage People out of work divided by number of able workers Welfare Government or private agency programs that provide general economic and social assistance to needy individuals Govt agency that gives $$ to people in need Fiscal & Monetary Policy Image Definition What that means Monetary policy Changes in the money supply of a nation in order to influence its economy Bank actions Changing supply of money in order to change the economy Fiscal policy Expenditures, and borrowing made by a government in Government actions
order to influence an economy Changing supply of money in order to change the economy Federal Reserve System (‘The Fed’) Nation’s central bank Housed in 12 banks across the country Ensures that money placed in US banks will not disappear if they go out of business of Federal Reserve Control inflation Curb recessions Wants to stabilize the economy Government securities Things Fed uses to meet goals by buying and selling them in the open market Sell - decreases money supply (takes cash out) Buy - increases money supply (puts cash in) Open market operations Buying and selling government securities Immediately affects supply, which will change interest rate Discount rate Interest rate that the Fed charges on it makes to banks Low - encourages banks to borrow money (give more loans, put more money in economy) High - discourages to borrow money (give less loans, put less money in economy) Factors that affect the national economy Taxes, expenditure, borrowing GDP = C+I+G+Xn Things that can change the economy Taxes affects (C) & (I) Reduce - boosts GDP (consumers buy more, producers increase supply) Government spending Affects G Increase - boosts GDP FOMC Federal Open Market Committee 7 members of Board of Governors 5 presidents of district Decides monetary policy Reserve Requirement Percentage of cash that have to keep in reserve (now 12%) Gives Fed control over money supply
International Economics Image Definition What that means Absolute advantage A producer can produce a output by using fewer inputs than any competing producer Same input, more output more stuff produced Comparative advantage A producer can produce one product with a smaller amount of inputs than the competition Less input, same output Same amount of stuff produced for a cheaper price rate System under which the value of currencies were fixed in relation to one another The exchange rate system in effect until 1971 Rate that does NOT change based on supply & demand (China) Floating rate System that relies on supply & demand to determine the value of one currency in terms of another Exchange rate system in effect 1971 Rate that changes on supply & demand Protective tariff Tax on an imported product designed to protect less efficient domestic producers Protects domestic businesses Revenue tariff Tax placed on imported goods to raise revenue designed to increase all revenue &bring more money in
Set world oil prices since they are so large Foreign exchange rate Price of one country’s currency in terms of another currency When exchange place btwn residents of country, one money has to be exchanged for another Balance of payments Summary of payments to foreigners for imports and receipts from foreigners for exports Current – involve trade Capital – involve financial assets Deficit an excess of expenditure or liabilities over income or assets in a given period Paying out more abroad than we take in Imports more than exports Price of currency will rise Depreciation of US dollar Surplus Situation where quantity supplied is greater than quantity demanded at a given price Receiving more from abroad than we are spending Exports larger than imports Appreciation of US dollar & depreciation of foreign currency Appreciate An increase in the value of an asset over time. Value goes up depreciate Gradual wear on capital goods during production goes down