235 ECONOMICS KEY TERMS

Terms
outsourcing scarcity economics

Definitions
the movement of the production of a business' goods and the labor that produces them to a foreign country. when the ammount of desire for something is greater than the resources of it allow for. the science behind the choices individuals and groups use to meet their goals in times when certain resources are found to be scarce.

economic model market marginal marginal benefit barginal cost revenue marginal analysis

a scaled-down version of reality that is used in the analysis of real-world economic conditions. any group of buyers and sellers of a given good or service and the method by which they amass to trade. a term used by economists that means an added benefit or cost of a decision. the added benefit of making a decision the added cost, or downside, of making a decision the money that a company receives after their goods and services have been purchased by consumers the balancing of marginal benefit and marginal cost to make the the best possible economic decision for the circumstances

trade-offs

due to scarcity in society, the production of a larger amount of a good or service will lead to the lower production of another good or service

opportunity cost

the alternative of a good or service's production that may have been given up, in its highest value, in order to produce that good or service.

centrally planned economy market economy

a type of economy where the government determines the distribution of economic resources.

a type of economy where the distribution of economic resources is controlled by consumers and sellers in a given market.

mixed economy

a type of economy that combines aspects of market and centrally-planned economies. Most economic decisions result from interactions between consumers and sellers, but the government has a significant role in the allocation of resources.

productive efficiency allocative efficiency

achieved when a good or service is produced at the lowest possible cost an economic state in which production runs in accordance with consumer preferences, and every good or service provides marginal benefits that equal the marginal cost

voluntary exchange equity behavioral assumptions

when, in markets, both the buyer and consumer of a product have benefited from the transaction a fair, unbiased distribution of economic benefits to individuals when using economic models, these include assumptions that consumers will purchase goods and services to maximize their satisfaction and well-being.

hypothesis economic variable casual relationship scientific method

a hypothetical (could go either way) statement in an economic model that could be correct or incorrect. a measurable economic fluctuation that can consist of different values, such as wages. the relationship between two given economic points that are directly correlated to one another the commonly-used procedure that involves developing models, testing hypotheses, and altering models based upon experimental findings.

positive analysis normative analysis social science

the analysis of an economic model that is concerned with what is actually occuring in it. the analysis of an economic model that isconcerned with what ought to be happening in the model any field of science that applies the scientific method to a study of interactions between individual humans. Economics is an example of this field.

microeconomics

the study of the decisionmaking of housefolds and firms, how they interact in their markets, and how the government

influences the decisions of each. macroeconomics entrepreneur innovation technology firm goods services profit household factors of production the study of the overall economy, taking into account inflation, unemployment, and economic growth. an individual who starts, owns, and operates a business. the practical application of any invention the processes a firm uses to produce the goods and services it sells. an organization that produces goods and services tangible merchandise, such as books and computers, that is physically made activities carried out for the personal benefit of others, such as getting a haircut or investment advice. the difference between a firm's revenue and its operating costs. the collection of humans who occupy a given home. factors used by firms to produce goods and services. These include labor, capital, human capital, natural resources and land, and entrepreneurial ability. capital human capital production possiblities frontier (PPF) attainable efficient a type of investment holding-- either physical or financial. relates to the overall training level and amount of specialized skills posessed by workers. given the available resources and technology, a curve displaying the best (largest) combinations of two products that are possible meaning something, usually a goal, is achievable the state of a given process when all resources are being used in their entirety, and the fewest possible amount of them are being used to produce a set amount of product. inefficient unattainable economic growth trade absolute advantage the state of a given process when the maximum amount of output is not being reached by the available resources. meaning something, such as a goal, that cannot be achieved with the current resources. an economy's ability to increase their production of goods and services, over time. the actions of buying and selling between firms and consumers. The fundamental element of the markets. the ability of a business, individual, or nation to increase the production of a given good or service beyond their competitors' while using the same amount of resources. comparative advantage the ability of a business, individual, or nation to produce a given good or service at a lower opportunity cost to them than their competitors can. The basis of international trade. labor natural resources entrepreneurial ability includes any type of work any raw materials from nature, such as water, oil, mineral ores, and land used for building. the ability of an entrepreneur to bring factors of production together to sell and produce goods and services sucessfully. circular-flow diagram financial system a type of economic model that shows how different parts of a market are linked. the overall system through which financial and tangible resources flow including households, product markets, firms, factor markets, banks, and stock and bond markets. guild system a system that prevailed in the medieval ages, in which the government appointed councils of producers to control a good's production legal environment a set of law-based circumstances that can allow a market to suceed or fail, given by private property protection and the establishment of independent court systems to enforce laws. property rights rights posessed by an individual or firm for the exclusive use of their property, as well as the right to buy and sell any of it. intellectual property rights patent personal property protected by patents. Essentially, idealized properties such as books, films, software, and ideas for new products or production methods. a document granted by the federal government that gives the inventor (often a firm) the right to exclusively sell and produce the patented product for twenty years from the invention date.

copyright

similar to a patent, but is applied to books, films, music, and software. The rights to use something copyrighted are granted to the creator for his or her lifetime, and to his or her heirs for 50 years from the creator's death.

perfectly competitive market demand schedule quantity demanded demand curve market demand law of demand substitution effect income effect

a market that has many buyers and sellers, and has every firm selling identical products, and free entering of firms into the market. a data table showing the relationship between a product's price and the demand for it. the quantity of a good or service that consumers are able and willing to purchase at a specific price. a graph of a demand schedule-- showing the relationship between the quantity demanded and the price. the total market-based demand of all who consume a given product. an economic rule that says whem the price of a product falls, its demand will increase. The corrolary is also true. the resulting change in demanded quantity following a change in its price. the resulting change in quantity demanded following an effect of a change in a good's impact on consumer purchasing power.

ceteris paribus

when holding and analyzing the relationship between two variables, all other economic variables must be held constant.

normal good inferior good substitute complement demographics quantity supplied supply schedule supply curve law of supply technological change productivity substitutes in production market equillibrium equilibrium price equilibrium quantity surplus shortage world price tariff imports exports autarky terms of trade differentiated product technology process technology external economies

a good for which demand increases as income levels rise, and demand decreases as they falls. a good for which demand increases as income levels fall, and demand increases as they rise. any good or service that serves the same purpose as another any good or service that is used in conjunction with one or more other goods or services the large array of characteristics in a population, such as age, race, and gender. the quantity of a good or service that a firm is able and willing to produce, at a set price. a data table showing the relationship between the price of a given product and its supplied quantity. a graphical representation of the relationship between product price and its respective quantity supplied. an economic rule that states, as price increases, quantity supplied increases, and vice-versa. either a positive or negative change in a firm's ability to produce a given level of output with a given level of input. the amount of output workers and machines can produce with a given level of input. products that a firm could produce as alternatives to their current ones. occurs when quantity demanded equals quantity supplied the good or service's price where market equilibrium occurs. the quantity at which a good or service's market equilibrium occurs. occurs when the quantity supplied is greater than the quantity demanded. occurs when the quantity supplied is less than the quantity demanded the price at which a given good or service can be purchased on the world market a tax imposed upon imports by the federal government any good or service that is produced outside of the country and is bought by those inside the country. any good or service produced domestically but sold internationally a policy type in which a given nation choses not to trade with other nations an agreement of a ratio at which a country can trade its exports for imports from other countries a term used to describe two products that serve different purposes technology used to develop newly innovative products the use of technology to improve the production process of existing products any reductions in a firm's costs that result from an increase inb the general industry's size.

quota voluntary export restraint (VER) multilateral negotiations World Trade Organization (WTO) globalization protectionism

a quantitative limit, set by the federal government, of how much of a good can be imported into the country a trade agreement involving two countries that limits the amount of a good that can be imported into one country from another. economic negotiations taking place between three or more nations (trade rounds) an internationally-presiding organization that oversees trade agreements between countries. Replaced GATT in 1995.

the long-term process of a nation becoming increasingly open to international trade. essentially, shielding domestic business from foreign ones using trade barriers, thus eliminating all foreign competition.

dumping multinational enterprises foreign direct investment foreign portfolio investment exchange-rate risk

the act of selling a product for less than it costs to produce. Allowable, but controversial under WTO agreements. any business that conducts itself in more than one country. when a domestic company builds or purchases a facility in any other nation. occurs when a person or firm purchases stocks or bonds issued in a foreign nation.

the risk that is applicable to multinational companies-- their profits are vulnerable to fluctuations in international currency values.

business cycle

concerned with alternating periods of recession and expansion that occur in the United States and other nations with industrial economies.

expansion recession inflation rate gross domestic product (GDP) final good or service intermediate service double counting

the portion of a business cycle during which total production and employment are on the rise. the portion of a business cycle during which total production and employment are falling. the percentage increase in price level from one year to the next the sum of all market values of products and services produced in a country for a given time period, often a year.

any product purchased by its final user, that is not used for further production of goods. a good or service that is put into another good or service that has yet to be produced. the act of accounting for an intermediate product in a nation's GDP when it has already been accounted for with the final good with which it is included.

transfer payments consumption nondurable goods durable goods investment business fixed investment residential investment government purchases net imports value added

any payment made from a government to an individual that does not involve the purchase of a good or service. any spending by households on goods and services, excluding the purchase of new homes. any type of good that doesn't last a relatively long time, such as food and clothing. any type of good that lasts a relatively long time, such as cars and furniture. spending by firms on new facilities and inventory additions, and the spending by households on new homes. spending by firms of new facilities and machinery used to produce further goods. any spending by a household related to the purchase of a new home. spending by all types of government on the goods and services they provide. the net productivity of a nation, relative to other nations it trades with. Imports minus exports. any additional market value given to a product by its producing firm. This is equal to the market price of the good minus the price the company paid for any intermediate goods added onto it.

household production underground economy

includes any goods or services incorporated into a household that are produced and used only in that household. the buying and selling of goods that has been concealed from the government because the products and services are illegal, or its producers and consumers are attempting to evade taxation.

real GDP per capita

a recalculation of GDP that gives an approximate value of money per individual in the country. Found by dividing GDP per population.

real GDP

shows a change in the quantity of goods produced over a year, by holding the price level constant from a base year.

nominal GDP

the "actual" GDP, not adjusted for inflation or to a base year. The total value of goods and services produced in one year, total.

price level GDP deflator

a representation of the average relative prices of goods and services in the economy a measurement of price level, calculated by dividing nominal GDP by real GDP and multiplying by 100, given as a percentage.

national income accounting (NIA) consumption of fixed capital indirect business taxes wages interest rent misery index

methods used by the BEA to monitor total production and total income in the economy.

in terms of GDP and how it is calculated, the removal of worn-out equipment that needs to me replaced.

sales taxes represented in NIPA tables including all compensation by an employer received by its employees, including benefits, insurance, etc. the overall, net interest received by households on bank accounts, bonds, etc. any rent received by a household a term coined by Lydon Johnson's top economic advisor that adds together the unemployment and inflation rates to give a rough measurement of how the economy is doing.

household survey

a survey conducted by the census bureau each month to compute the unemployment rate--sample of 60,000 different, randomly-chosen households.

employed

a term used to describe an individual, as a subject of the household survey, who has worked in the week prior to the survey, or were away due to illness, strike, or a vacation.

unemployed

a term used to describe an individual, as a subject of the household survey, who has not worked in the week prior to the survey, are available to work, and have actively searched for work in the past four weeks.

labor force unemployment rate discouraged workers

the sum of the employed and the unemployed. the percentage of the labor force that is unemployed individuals who could potentially work, but haven't searched for a job in the month prior to the survey because they believe no job opportunities exist for them.

labor-force participation rate establishment survey

the percentage of a nation's working-age population that is in the labor force.

A survey of 300,000 individual business establishments that gives the total number of persons employed (on the payroll) and measures total employment in the economy.

job search frictional unemployment seasonal unemployment structural unemployment cyclical unemployment full employment

the search, by a member of the labor force, for a job. short-term unemployment resulting from matching workers with new jobs. unemployment arising from reasons such as weather, tourism, and events. any unemployment due to a consistent mismatch between the characteristics of workers and the requirements of jobs. any unemployment brought about by a recession in the business cycle the state of a nation's workforce when cyclical unemployment equals zero, and only frictional and structural unemployment remain-- occurs in expansions.

natural rate of unemployment unemployment insurance

the rate of unemployment that is related to the sum of frictional and structural unemployment.

benefit payments that are given to the unemployed by the governments of the United States and most industrial nations, usually equal to about half the average wage.

social insurance

programs set up to give unemployed citizens benefits and compensation even after they become ineligible for unemployment benefits.

labor unions efficiency wage consumer price index (CPI)

organizations of workers that negotiate higher wages and better working conditions with employers. a wage that is of higher-than-market value, given to workers to increase their motivation and productivity. the average prices of goods when purchased by the typical urban-set household of two adults and two kids.

producer price index (PPI)

the average prices of an average of the prices received by producers of goods and services at all stages of the production process.

substitution bias increase in quality bias new product bias

assumptions that consumers always purchase the same amount of products in the market basket. the fact that most products in the market basket increase in quality over time. the fact that new products usually aren't included in the market basket when they are first introduced, because the basket is only updated every ten years.

outlet bias nominal variable real variable real wage nominal wage nominal interest rate real interest rate deflation menu cost mortgage loans market for loanable funds

the fact that the market basket does not include products purchased at outlet or wholesale prices. any economic variable calculated at current year prices. any economic variable adjusted for the effects of inflation, to give a relative representation of economic change. the inflation-adjusted average hourly wage. the actual average hourly wage, calculated without inflation adjustment. the stated, non-inflation-adjusted interest rate on a loan. the inflation-adjusted interest rate on a loan; equal to the nominal interest rate minus the inflation rate. a rare occurrence, when the inflation rate is negative and price level has fallen over time. any costs incurred by a firm by changing their prices. a loan taken out to purchase a home. The borrower is committed to making a fixed monthly payment. the dynamic flow of money between households and firms, pertaining to loans taken out to purchase goods and services.

long-run economic growth average annual growth rate rule of 70

the process through which standard of living is increased by an increase in productivity.

an economic measure used to display values over an extended period of time. Often an average of change in GDP over a number of years. an easy way to determine how long it will take for real GDP per capita to double. (Dividing 70 by the average annual growth rate)

labor productivity capital stock human capital potential GDP retained earnings financial market stock bond financial intermediaries

the number of goods and services that are producable by one worker, or by one hour of work. the total amount of physical capital available in a country. the accumulation of knowledge and skills that workers acquire from education, training, and life experiences. the level of GDP that can be attained when all of a country's firms are working at their maximum outputs. any profits kept for reinvestment in the firm, as supposed to being paid to the owners of the company any market on which financial securities (such as stocks and bonds) are bought and sold. a financial security that represents the partial ownership of a publically-traded corporation. a financial security that represents a promise to repay a fixed amount of funds. a buffer in-between savers and borrowers--firms like mutual funds, banks, and insurance companies--funds are borrowed from savers and lent to borrowers.

mutual fund

a firm that sells its shares to savers and uses the money to buy stocks, bonds, mortgages, and other financial securities.

risk liquidity

the chance that the value of a financial security will change contrary to how you expect it to. the ease with which financial securities can be exchanged for money. Provided by the financial system, which provides markets.

closed economy private saving public saving

an economy that prohibits trading, lending, and borrowing with foreign nations. what funds remain in households after buying goods and services and paying their taxes. the amount of tax revenue retained by the government after making transfer payments (i.e. social security benefits) and purchasing government needs.

balanced budget

occurs when the government spends the same amount as it collects from taxes

budget deficit budget surplus crowding out consumption tax

occurs when the government spends more than it collects in taxes, and public saving is negative. occurs when the government spends less than it collects in taxes, and public saving is positive. a decline in private purchases resulting from an increase in government purchases. a proposed idea that would replace an income tax: instead of taxing all the money households earn, only the money they spend would be taxed.

model of economic growth industrial revolution long-run economic growth compounding high-income countries

an economic model that portrays the the increase rates in a nation's real GDP per capita over a relatively long period of time. the craze that began in England around 1750, in which mechanical power was applied to the production of goods. sustained increases in real GDP per capita that lead to an increase in the living standards.

the process of receiving interest on original investment plus already-earned interest also called industrial countries. Any country that has experienced high growth rates in the past and has high real GDP per capita.

developing countries newly industrializing countries technological change

any relatively poorer country that has a relatively low real GDP per capita. countries that are on their way to becoming high-income countries, and have experienced high rates of real GDP per capita growth in the past. a change in the quantity of a firm's output given that input remains the same. There are three main sources: better machinery, human capital improvement, and better management/organization of production.

per-worker production function law of diminishing returns new growth theory

the relationship between real GDP per hour worked and capital per hour worked when technology level is held constant. an economic law that states "as we add more of one input source, output increases by smaller, additional amounts and it is added to other, fixed inputs." a long-run economic growth model which relies on the premise that technological change is influenced by economic incentives and is determined by how the market system functions.

knowledge capital trade secret venture capital firm

the resource of intelligence within a firm, built up upon when firms engage in research and development. a secret of a firm's product research that is hidden from the public eyes of the patent. a firm that lends money to start-up businesses who exist to bring new products to the market, in exchange for its partial ownership of the start-up business.

catch-up

the prediction by economic model that the level of GDP per capita will increase faster in poor countries than wealthy countries.

rule of law corruption

the ability of a government to enforce the country's laws, especially in protecting private property and contracts. the undermining of the rule of law and property rights by the government's failure to execute the law. Occurs more often in developing countries.

brain drain

the movement of smart, highly-educated individuals from the developing countries of their birth to higher-income countries such as the United States. Poses a problem to developing countries. This is reduced by very rapid economic growth.

investment tax credits aggregate expenditure

tax credits granted to firms for the investmens they make. Increases incentives for businesses to invest. the total amount of spending in an economy. The sum of consumption (C), planned investment (I), government purchases (G), and net exports (NX).

aggregate expenditure model planned investment

an economic model used in macroeconomics that relates aggregate expenditure and real GDP, while holding price level constant. any meditated spending by firms on capital goods such as tools and buildings. Additionally, spending by households on new homes.

net exports inventories macroeconomic policies

the spending by foreign buyers on domestic goods minus the spending by domestic buyers on foreign goods. a group of goods that has been produced, but not yet sold. large-scale economic policies implemented by the federal government, meant to increase expenditure and keep the economy out of recession.

current disposable income household wealth expected future income consumption function marginal propensity to consume (MPC) marginal propensity to save (MPS) expectations of future profitability corporate income tax cash flow

any income available for a household's use after income tax has been paid, necessities purchased, and transfer payments received. the value given to a household that is equal to its assets minus its liablities the expected amount of money made in one year. Usually fluctuates, depending on career. the relationship between consumption expenditures and disposable income. the slope of the consumption function. The essential amount by which consumption expenditures change when disposable income changes. the change in national saving divided by the change in national or disposable income.

a firm is unlikely to invest in capital to further the production of a good unless they're positive that their product will sell well for many years to come. a tax placed on the profits that a corporation earns. When reduced, corporate investment often increases. the difference between any cash revenues a firm gains and cash spending by a firm (given that cash is "non-borrowed funds")

Keynesian cross

another name for the 45-degree line diagram-- based upon the analysis of John Maynard Keynes. Used to illustrate macroeconomic equilibrium (between aggregate expenditure and real GDP)

autonomous expenditure multiplier aggregate demand curve

any expenditure that doesn't depend on the current level of GDP. any increase in equilibrium real GDP divided by the increase in autonomus expenditure A graphed representation of the relationship between the price level and the level of planned aggregate expenditure.

http://quizlet.com/4722463/economics-key-terms-test-one-flash-cards/