Term
| Economic Rights and Responsibilities |
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Definition
| Economic rights of individuals include the right to work, guaranteed by the Taft-Hartley Act of 1947, which allowed states to formulate laws making it illegal to require workers to join unions. Another economic right of individuals is the right to own private property, that is, the right to hold and exchange goods and services. This is defined and protected by government legislation. Economic rights of businesses include the right to participate in markets for the purpose of exchanging goods and services. This right is also defined and protected by government. Economic responsibilities of individuals include making effective decisions in comparing economic alternatives of consumption, investment, and allocation of goods and services. Economic responsibilities of businesses include engaging in fair labor practices and fair competition. Both contribute to the economic health of an economic community. |
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Definition
| land, labor, and capital; the three groups of resources that are used to make all goods and services |
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| a phrase that refers to the trade-off that nations face when choosing whether to produce more or less military or consumer goods |
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Definition
| all human-made goods that are used to produce other goods and services; tools and building |
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Definition
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Term
| centrally planned economy |
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Definition
| economic system in which central government makes all decisions on the production and consumption of goods and services |
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Term
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Definition
| the struggle among producers for the dollars of consumers; the rivalry among sellers to attract customers while lowering costs |
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Term
| process of specialization |
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Definition
| the concentration of the productive efforts of individuals and firms on a limited number of activities |
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Term
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Definition
| the financial gain made in a transaction |
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Definition
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Definition
| economist system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services |
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Definition
| a private organization that tries to persuade public officials to act or vote according to group members interests |
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Definition
| the total value of all final goods and services produced in a particular economy; the dollar value of all final goods and services produced within a country's borders in a given year |
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Definition
| someone who would not choose to pay for a certain good or service, but who would get the benefits of it anyway if it anyway if it were provided as a public good |
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Definition
| the desire to own something and the ability to pay for it |
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Definition
| a good that consumers demand less of their income increases |
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Term
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Definition
| economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets |
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Term
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Definition
| economic law that states the consumer buy more of a good when its price decreases and less when its price increases |
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Term
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Definition
| a maximum price that can be legally charged for a good or service |
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Term
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Definition
| the point at which quantity demanded and quantity supplied are equal |
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Term
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Definition
| a system of allocating scarce goods and services using criteria other than price |
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Definition
| a minimum price that an employer can pay a worker for an hour of labor |
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Term
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Definition
| a price ceiling placed on a rent |
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Term
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Definition
| Profit motive is the force which motivates people and organizations to improve their material well-being. The profit motive is a characteristic of the free-enterprise system and capitalism and is the main reason people start businesses. To a business, profit means the difference between revenues and costs. The free-enterprise system uses supply, demand, and the profit motive to determine the answers to the four basic economic questions: "what to produce," "how to produce," "how many to produce," and "for whom to produce." |
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Term
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Definition
| Buyers and sellers are free to engage in market transactions with few outside restrictions. Voluntary exchange is a characteristic of the free-enterprise system and capitalism, and through this market mechanism, consumers control the market. |
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Term
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Definition
| Private property includes goods like automobiles and homes as well as personal skills and knowledge. The right and the privilege to control personal possessions is a feature of capitalism and the free enterprise system. People can sell or give their property away as they wish. This encourages investment and use of the property and thus stimulates the economy. The rights of private property owners are guaranteed in the 5th and 14th Amendments to the U. S. Constitution. |
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Term
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Definition
| Pure competition is a market structure consisting of a large number of independent and well-informed buyers and sellers of an identical product. None of the buyers or sellers is powerful enough to influence the price, and more buyers and sellers are able to enter the market easily. This is an idealistic situation. There are no examples of a pure competition, although market gardeners and truck farmers operate in a market which is close to it. See also Monopolistic Competition. |
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Term
| production-possibilties curve |
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Definition
| A production-possibilities curve is a diagram which shows the maximum production of goods and/or services which an economy can attain if all productive resources are fully employed. For instance, a country can produce 2,000 tons of iron if all resources are concentrated on the production of iron, but the population would starve if some were not growing wheat for food. Therefore, economists can figure the amount of productive resources used to plant and harvest wheat and develop a formula which shows the relationship of the production of wheat compared to iron. The difference between concentrating all resources on iron and dividing them between iron and wheat is called an opportunity cost. That is the cost in money, time, or resources when one choice is made rather than another. For instance, if the country grows wheat to satisfy food demands, the opportunity cost is the income it will not receive for the iron it is not producing. The production-possibilities curve is used by economists to chart the relationship of choices and costs. |
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Term
| Opportunity Costs and Scarcity |
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Definition
| When an economist considers the cost of an item, he or she considers more than the price tag. Economists also consider the opportunity cost or the cost of the next best alternative use of money, time, or resources when one choice is made over another. For instance, a student with $25 to spend can choose between several options, a CD, a new shirt, movie tickets, or restringing a tennis racket. The student decides that restringing the racket is the most important need at the moment. The opportunity cost includes the items and activities the student gave up when he or she did not buy tickets to the movies, a favorite CD, or new clothes. Economists also consider the relationship of the scarcity of a good or service to its cost. In economics, scarcity is the condition of not being able to have all of the goods and services one wants. Resources do not exist in sufficient quantities to satisfy all desires to use them. Scarce items may have a higher value and the value may fluctuate depending on availability. People recognize scarce items carry a higher opportunity cost; they give up more alternatives to purchase shrimp off-season than they would during the shrimping season. |
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Term
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Definition
| In the circular-flow model, money flows through the system one way and goods, services, and factors of production flow the other. Economists use the circular-flow model to visualize the interdependent relationship of buyers and sellers within a market. Whether the market is local, regional, national, or global, the activity of the market follows a circular flow with individuals earning their income in factor markets and spending it in product markets. The markets link individuals with business organizations and other economic institutions. |
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Term
| Supply, demand, and price |
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Definition
| Supply is the amount of goods available. Demand is the desire to own something and the ability to pay for it. The time of year affects the supply and the demand of some goods. For instance, watermelons ripen in the summer at the same time people crave them. The two forces of supply and demand combine in the laws of supply and demand: more will be bought at lower prices and less at higher prices and more will be offered for sale at high prices than at lower prices. The laws are presented visually in supply and demand graphs. A supply curve illustrates the relationship of supply and price based on the way a business distributes goods. When the price of a good is low, supply is limited; as prices increase, the supply increases. A demand curve illustrates the relationship of demand and price. As price decreases, demand increases. A demand schedule shows the quantity demanded at a range of market prices at a given time. The relationship of supply and demand is presented in a supply-and-demand graph depicting equilibrium or market-clearing price. This is the price at which the supply curve and the demand curve will intersect. This is the price at which all that is supplied will be bought and all that is demanded will be offered. The law of supply and demand applies only in a market free from price regulations imposed by government. |
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Term
| Determinates of Supply and Demand |
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Definition
| Non-price determinates of demand are those things which are not related to the price of a good or service but which alter our ability or willingness to purchase the item. These defy the law of demand and cause the demand curve to shift, thus changing the equilibrium price. Change in our income either increases or decreases our ability and willingness to purchase. If our income increases we tend to purchase more products and we tend to purchase more expensive products. The price of related goods affects our demand. If the price of steak increases, we may instead purchase chicken, or if the price of hot dog buns decreases, we tend to buy hot dogs to go with them! Our tastes and preferences determine our demand. We may buy name brands instead of the cheaper generic brands. The number of buyers in the market affects demand when we buy fad items. Our expectations of price increases or decreases will also alter demand. Non-price determinates of supply are those things which are not related to price but do alter supply. They cause the supply curve to shift and thus change the equilibrium price. When the costs of inputs increase, a business can not produce the same number of items at the same price. When the number of suppliers increase, more items will be produced. Years ago there were only a few computer manufacturers and now there are many in the market. Taxes and subsidies also alter the costs of production and therefore the number of items produced. |
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Term
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Definition
| A sole proprietorship is an unincorporated business which is owned and managed by one person. The sole proprietor enjoys the rights to all profits and bears the responsibility for all debts and other liability. It is the most common form of business organization in the United States and is the easiest to start and stop. |
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Term
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Definition
| A partnership is an unincorporated business owned and operated by two or more people who share the profits and have unlimited liability for the debts and obligations of the firm. A partnership is easy to start and if partners cooperate, it is easy to manage. Partners share financial and legal responsibilities for the business, and the business legally ceases to exist if a partner leaves. |
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Term
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Definition
| A corporation is a business which is recognized by law as a separate legal entity with all the rights and responsibilities of an individual including the right to buy and sell property, enter into legal contracts, and to sue and be sued. Those seeking to form a corporation seek permission from the state and may issue stock and pay dividends. It is easy to raise financial capital for a corporation by selling stock or issuing bonds. The business can continue even if the ownership changes, and transferring ownership is relatively easy. Corporations can be expensive to start, and stockholders have little control in the operation beyond the election of a board of directors. Corporations are also subject to governmental regulations. |
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Term
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Definition
| Pure competition is a market structure consisting of a large number of independent and well-informed buyers and sellers of an identical product. None of the buyers or sellers is powerful enough to influence the price, and more buyers and sellers are able to enter the market easily. This is an idealistic situation. There are no examples of a pure competition, although market gardeners and truck farmers operate in a market which is close to it. See also Monopolistic Competition. |
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Term
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Definition
| Monopolistic competition is a market structure similar to that of pure competition except that all products are not identical. A monopolistic competitor will modify the product to appeal to more customers and thereby monopolize a part of the market. Breakfast cereals are similar but when one competitor frosts flakes and captures a part of the market, the producer participates in monopolistic competition. The monopoly continues until other companies frost their flakes. The same is true in the fast food industry. The products -- tacos, hamburgers, or chicken -- are different, but the producers capture hungry customers by charbroiling or adding seasonings or sauces. This process of changing a product is called product differentiation. Grocery chains are also monopolistic. Even though they offer similar products, the chains can sell for less and offer more services or greater variety, thus undercutting sole proprietorships. See also Pure Competition. |
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Term
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Definition
| An oligopoly is a market situation dominated by a few large producers who can affect prices in the industry. The firms in an oligopoly so dominate the market that changes made by one firm can cause the industry to change output, sales, and prices. The American automotive and airline industries are oligopolies dominated by firms with an international reputation. The soft drink industry is the same. Oligopolies can differentiate products or can standardize them. All members of an oligopoly are powerful, and entry into the market is difficult. |
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Term
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Definition
| A monopoly is a market situation dominated by one firm which sets prices for the product. It is nearly impossible for competitors to enter the market. A pure monopoly does not exist, but producers of electricity are close to monopolizing the market. |
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Term
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Definition
| Economic systems are organized sets of procedures used within or between communities to govern the production and distribution of goods and services. Economists identify three types of economic systems: traditional (known as subsistence), command (also known as planned), and market (commercial). In a traditional economy, goods and services are produced by a family for their personal consumption. There is little surplus and little exchange of goods. There is only a limited need for markets (places to buy and sell goods and services). This is the type of economy found in less developed nations, usually in rural areas. The economy reflects the customs, habits, laws, and religious beliefs of the area, and these control decisions. Most less developed nations today are a mix of traditional and either market or command economies. In a command economy, the government regulates economic activity, making decisions about what and how much to produce, where to locate economic activities, and what prices to charge for goods and services. These economic decisions are often made to further social goals. Communism is one example of a command economy; socialism is another. In a command economy, the price of goods including agricultural products are controlled by the government, not market forces. Production costs are not reflected in prices. For example, it may cost $1.00 to produce a loaf of bread, but the price may be set at $.25 to ensure customers are able to afford adequate provisions. The price also may be set over production costs given demand. In a market economy, elements of which may be considered a free enterprise economic system, the laws of supply and demand and "the market" determine decisions about what and how much to produce, where to locate economic activities, and what prices to charge for goods and services. Profit drives decisions in a market economy. A mixed economy combines elements of these three systems. |
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Term
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Definition
| In a free enterprise economy, consumers ultimately determine what goods or services are produced. Their choices depend on several factors including income, personal and family needs, debt, advertising, and culture. The economic choices they make depend on their abilities to spend, save, lease, invest, insure, and/or use credit financing. Producers prosper if consumers choose to buy the product, and they fail if their product has no appeal. They strive to entice consumers to invest in their companies, save at their banks, or spend money on their products. Consumers determine the amount they can invest and the type of investment, either expendable goods or services, low-risk saving options, or high-risk exchanges. Each choice has an economic impact on the consumer, not all of which are obvious when the decision is made. |
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Term
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Definition
A stock is a certificate of ownership in a corporation. If the corporation is profitable, stockholders are paid a dividend, or their portion of corporate earnings. A bond is a formal contract to repay borrowed money and interest on the borrowed money at regular future intervals. Stocks and bonds are two ways that businesses and industry can finance operations. |
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Term
| Absolute and Comparitive Advantage |
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Definition
| International trade is based on resources or products which one country needs and another can provide. A country has an absolute advantage when it can produce more of a given product than other countries using a given amount of resources. A country has a comparative advantage in the product that it can produce most efficiently given all of the products it could choose to produce. Each country must determine if it is reasonable to try to produce the product. To do so, the country assesses the opportunity cost and if it is low, it may choose to produce instead of import. Therefore, countries specialize in the goods they can produce most efficiently. The United States markets wheat and farm tractors, not items it cannot produce such as coffee or diamonds. |
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Term
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Definition
| In international finance, foreign currency is called foreign exchange and the currency is bought and sold on a foreign exchange market. The rate of exchange is based on the amount of foreign currency in circulation. For instance, if the United States seeks to import Volvos from Sweden, the importer pays for the automobile with U.S. dollars. If the car costs 35,000 kroner (Swedish currency) but the U.S. dollar is worth six Swedish kroner, the Volvo costs approximately $5,100. As more U.S. currency enters the Swedish market, and as the demand for Volvos increases, the Swedish kroner becomes more valuable when compared to the U.S. dollar. Thus the foreign exchange rate changes from $1.00 = 6 K to $1.00 = 4.5 K. The car now costs an American importer approximately $7,000. Exchange rates are published in major newspapers. |
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Term
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Definition
| Nations seek to maintain a balance of trade with values of imports equal to exports. By balancing trade, a nation can protect the value of its currency on the international market. If a trade imbalance continues, with one country importing more than it is exporting, the value of its currency falls. In the 1980s the United States imported considerably more than it exported, and the foreign exchange market was glutted with dollars. As the value of the dollar fell, the prices of imports increased and consumers paid more for the goods. The imbalance can be corrected by limiting imports or increasing the number and/or quality of exports. Both of these actions affect trading partners which may retaliate by raising tariffs. Maintaining a balance of trade requires international cooperation and fair trade. |
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Term
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Definition
| Barriers to trade include quotas of imports and protective tariffs. Health and safety regulations and requirements are often used by governments as more subtle trade barriers. |
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Term
| international free-trade agreement |
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Definition
| An international free-trade agreement results from cooperation between at least two countries to reduce trade barriers and tariffs and to trade with each other. Developing countries have designated free-trade areas which do not set uniform tariffs for nonmembers. The North American Free Trade Agreement (NAFTA) is the largest free-trade area in the world. Other countries have formed customs unions, agreements which abolish tariffs and trade restriction among union members, and which adopt uniform tariffs for nonmember countries. The most successful example of a regional customs union currently is the European Union (EU). A cartel is also a union of producers or sellers who limit production or sales to control prices. The Organization of Petroleum Exporting Countries (OPEC) is an example of a cartel. |
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Term
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Definition
| Fiscal policy is the use of government spending and revenue collection to influence the economy. These policies are used to achieve economic growth, full employment, and price stability. Two automatic stabilizers which stimulate the economy include unemployment insurance and federal entitlement programs including social welfare, pensions, and Social Security. |
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Term
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Definition
| Local, state, and national governments generate revenue by charging taxes. A tax levied on a person's earnings is an income tax. Income taxes provide the largest source of revenue to the national government. A general revenue tax levied on the manufacture or sale of items such as cigarettes, gasoline, or alcohol is called an excise tax. Property tax is levied on property owners in local communities to offset expenses of services provided including street construction or maintenance. School tax is also collected on the local level to help pay for public education. Tariffs are another form of tax levied against importers of goods. Some goods and income are tax-exempt (not subject to a local, state, or federal tax). |
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Term
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Definition
| The Federal Reserve System is the privately owned, publicly controlled central bank of the United States. It was created in 1913 by Congress to lend to other banks in times of need. Each national bank is required to join the Federal Reserve System (FRS), and state-chartered banks are allowed to do so. The member banks own the FRS. The Federal Reserve regulates the supply of money in the economy through interest notes or by altering the reserve requirement, discount rate, and open-market options. The Federal Reserve also supplies paper currency, called Federal Reserve Notes, holds banks' reserves, provides check clearing services, and supervises member banks. |
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Term
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Definition
| John Maynard Keynes, an economist at Cambridge University in England, questioned the standard economic theory of the 1920s and 1930s. Most economists supported the notion that national economic growth related directly to expansion in land (capital accumulation), labor (population growth), and capital (technology). He rejected the notion that growth was essential to maintain an equilibrium in the flow of goods and income. In circular flow theory, according to Say's Law, supply equaled demand. Yet, Keynes argued that an economy could be balanced even if it was stagnant. He argued that the demand, the purchases of capital goods, did not reflect the propensity to consume. For him, the depression of the 1930s resulted from over investment in production followed by underconsumption of the manufactured goods. His solution depended on increasing consumer spending by public spending. In hard times, when private investment declined, government spending should expand to stimulate employment and consumption. In good times, when private investment increased, public spending should decrease and taxes should be increased. Thus government assumed responsibility for managing economic growth. Keynes published his classic study, The General Theory of Employment, Interest, and Money in 1936 and its influence on New Deal taxation and spending policies in the United States became evident in 1937. Keynesianism continues to influence government spending programs. |
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Term
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Definition
| Karl Marx was an economist, revolutionary, philosopher, sociologist, and historian whose ideas formed the basis for the Communist party. He completed coursework at the University of Berlin and received his Ph.D. from the University of Jena in 1841. Unable to secure a teaching position, he wrote for the Rheinische Zeitung and became editor in October 1842. He used the paper to express his views ranging from freedom of the press to communism, an ideology which did not favor private property. He married, moved to Paris, and co-edited the German-French Yearbook through which he met Friedrich Engels in 1845. He and Engels became lifelong collaborators. Marx was ordered out of France in 1845 and he and his family moved to Brussels where he first concentrated on organizing workers. Engels joined him later and they eventually co-wrote The Communist Manifesto, which was published in pamphlet form in 1848. It served as the political program for German immigrants working in London who formed the secret Communist League. The manifesto was a plan of action, not a philosophy of communism. It argued that all history consisted of class struggles, clashes between the oppressors, the "bourgeoisie" who owned the means of production, and the oppressed, the "proletarians" or workers. He predicted that the workers would revolt against the bourgeoisie and would establish a communist society. It served as a call to workers to organize. His views worried governments and manufacturers and it was difficult for him to gain support even from left-wing groups. The Marx family lived in poverty and suffered personal disappointment partially due to the marginal conditions in which they lived. Marx refused unemployment benefits and his political views worried prospective employers. His personality also alienated him from his peers. He published the first edition of Das Capital in 1867. The hardships under which workers toiled changed in some nations due to unionization, the advent of social security, labor laws, and the growth of a middle class. These ensured the accumulation of private property by those not controlling the means of production and spread the benefits of capitalism to the worker as well as the owner, thereby disarming the appeal of communism. |
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Definition
| A professor of moral philosophy at the University of Glasgow, Adam Smith completed the influential An Inquiry into the Nature and Causes of the Wealth of Nations in 1776. It became one of the most influential books in western civilization for the new theories of political economy it proposed. By 1800 translations appeared in all west-European languages except Portuguese. Smith argued that nations could increase their wealth by reducing barriers which hindered growth. In an age when the strength of European powers related to the size of their empires, Smith argued that empires were not essential for economic power. He opposed mercantilism and preferred free trade undertaken by private interests without government interference. In the old system, government was a "visible hand" regulating exchange for the benefit of a few. Smith argued that mutual exchange between the enlightened, though conducted for personal gain, ultimately benefited the self-interest of millions of people. Shared participation within a system of free exchange resulted in general improvement for all, and these common goals worked as an "invisible hand" to further national wealth. His theories continue to influence economic theory. |
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Definition
| There are two phases of business cycles. Recession is a period of decline gauged by changes in real Gross Domestic Product (GDP). A recession occurs when the real GDP declines over two quarters or six months. It begins when the GDP reaches its highest point prior to a steady decline over at least six months. A recession continues until the GDP reaches a low point, the trough. The second phase of a business cycle, expansion, starts when the GDP rebounds after hitting a trough. |
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Definition
| Each society identifies values that everyone within the society is expected to uphold. Societal values vary among cultures within nations and among nations. These influence public behavior including business dealings. For instance, some cultures expect to barter as a part of normal business transactions while others may view bartering as insulting. Business people must understand the societal values of all trading partners to be most effective. |
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Term
| Economic Activity Patterns |
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Definition
| Five major economic activities are producing, exchanging, consuming, saving, and investing. Patterns of production, distribution, and use develop as the economic activities become concentrated in urban, industrial, or agricultural areas. Geographic and human factors also influence patterns of economic activity. Ski resorts develop in the mountains, farming in the valleys, and mining where there are ore deposits. Saving and investment also follow patterns, becoming concentrated in areas of potential growth. |
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Definition
| division of customers into groups based on how much they will pay for a good |
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Definition
| a market structure in which many companies sell products that are similar but not identical |
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Definition
| a way to attract customers through style, service, and location, but not a lower price |
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Term
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Definition
| a license that gives the inventor of a new product the exclusive right to sell it for a certain period of time |
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Term
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Definition
| a market structure in which a large number of firms all produce the same product |
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Definition
| a market that runs most effeciently when one large firm supplies all of the output |
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Definition
| A market structure in which a few large firms dominate a market |
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Definition
| a business owned and managed by a single individual |
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| a legal entity owned by individual stockholders |
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Definition
| the process in which union and company representatives meet to negotiate a new labor contract |
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| unemployment that occurs when people take time to find a job |
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Definition
| an organized work stoppage intended to force an employer to address union demands |
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Definition
| the direct exchange of one set of goods or services for another |
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Definition
| something that keeps its value if it is stored rather than used |
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Definition
| Federal Deposit Insurance Corporation-the government agency that insures customer deposits if a bank fails |
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Term
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| system-the nation's central banking system |
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| a specific type of loan that is used to buy real estate |
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Definition
| the ability to be used as, or directly converted, cash |
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Definition
| widespread panic in which great numbers of people try to redeem their paper money |
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Definition
| a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services |
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Definition
| institutuin that helps channel funds from savers to borrowers |
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Definition
| spreading out investments to reduce risks |
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| the annual rate of return on a bond if the bond were held to maturity |
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Definition
| a bond issued by a state or local government or municipality to finance such improvements as highways, state buildings, libraries, parks, and schools |
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Term
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Definition
| working at a job for which one is overqualified, or working part-time when full-time work is desired |
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| a person who wants a job but has given up looking |
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| theory that inflation occurs when producers raise prices to meet increased costs |
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Definition
| theory that inflation occurs when demand for goods and services exceeds existing supplies |
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Definition
| inflation that is out of control; very high inflation |
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Term
| expansionary fiscal policy |
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Definition
| fiscal policies, like higher spending and tax cuts, that encourage economic growth |
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Term
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Definition
| a situation in which the government takes spends more than it takes in |
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Definition
| a situation in which the government takes in more than it spends |
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Term
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Definition
| all the money the federal government owes to bondholders |
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Term
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Definition
| land, labor, and capital; the three groups of resources that are used to make all goods and services |
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Term
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Definition
| two goods that are bought and used together |
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Term
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Definition
| a minimum price for a good or service |
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Definition
| a measure than bans mandatory union membership |
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Definition
| a collection of financial assests |
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Definition
| the relationship between a nation's imports and exports |
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| a means of preventing a foreign product or service from freely entering a nation's territory |
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| a regional trade organization made up of European nations |
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Definition
| agency within the U.S. department of the Treasury responsible for interpretation and application of federal tax law |
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Term
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Definition
| old-age, survivors, and disability insurance |
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Term
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Definition
| taxes that fund Social Security and Medicare |
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Term
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Definition
| a national health insurance program that helps pay for health care for people over age 65 or who have certain disabilities |
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Term
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Definition
| income, property, good, or service that is subject to a tax |
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Term
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Definition
| a tax on the value of a property |
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Term
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Definition
| set amount that you subtract from your gross income for yourself, your spouse, and any dependents |
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Term
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Definition
| form used to file one's income taxes |
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Definition
| a tax on the dollar value of a good or service being sold |
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Term
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Definition
| a period of macroeconomics expansion followed by a period of contraction |
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Term
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Definition
| the ability to produce more of a given product using a given amount of resources |
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Term
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Definition
| the ability to produce a product most effeciently given all the other products that could be produced |
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