Intro to Economics Vocab 2010

Shortage vs Scarcity Shortages are when the supply of a product is temporarily low and Scarcity is the lack of an unlimited supply of all resources. 75% of the beef in the US is recalled and prices go up. Once the supply of beef goes back to normal, prices come back down The earth does not contain an unlimited supply of oil

Goods & Services A good is a product you purchase Ex = Shoes, Car, A service is something you pay for. Ex = Oil Change, Paying someone to do your taxes, mow your lawn.

Factors of Production 1. Land 2. Labor 3. Capital (investment) not Capitol (building/location)

Technology Helps firms (businesses) produce more. Increase production Create more economic Growth EX = Computer, Car, Planes, Cell Phones

Economic Systems Method societies use to distribute goods and services in a countries economy. How you the consumers are able to buy your goods and pay for services.

Safety Net Programs the state and federal govt’s put in place to help you during a period of financial difficulties. Social Security Unemployment Medicare & Medicaid

Standard of Living Your current financial life style. The amount of money you make, house you live in, car you drive, etc.

Market Economy A market economy is one in which all decisions are made by individuals and are based on trade or exchange.

Command Economy All economic decisions are made by the central government.

Free Market Land Labor and Capital are owned by individuals and businesses they get to make what they want and buy what they want.

Socialist v Comminust Economy Socialist = Democratic means should be used to distribute wealth evenly throughout a society. Communist = A central government owns all the businesses and determines what is made and who will consume it and how much will be consumed.

Role of the Gov’t Government pays for and provides certain goods and services in the economy because the private sector (businesses) will make no money (there’s no profit) Roads, Bridges, Canals, Schools,

Business Cycle Expansion = Economic Growth Peak = Maximum point of economic growth Contraction = Slow down of economic growth, or negative economic growth Trough = lowest point of economic contractiont.

GDP (Gross Domestic Product) GDP = Total sum of all goods and services produced during each given year in a countries economy. 2008 GDP = $14.4 trillion dollars of goods and services produced.

Public Sector vs. Private Sector Public Sector = When the government is providing goods or services/jobs by means of tax dollars. EX = Teachers, education, construction of roads and bridges, work for the state of federal government Private Sector = Working for companies that do not use tax dollars to pay employees. Transactions made by individuals and businesses

Demand vs Supply Demand = The desire to want something and having the ability to pay for it Supply = How much of a good is produced by a business and is available.

Law of Demand and Supply Law of Demand = Consumers will buy more of a good when the price decreases and less of a good when the price increases. Law of Supply = Businesses will supply more of a good when prices are high and less of a good when prices are low.

Role of Prices Prices move land, labor and capital into the hands of producers and then the finished goods into the hands of the consumers.

Monopoly & Their Ban When a market is dominated by a SINGLE company. No other company is able to compete with this one dominate company.

Role of Banks Store Money Provide a way to pay bills (checking accounts) Invest ones money Make loans Provide credit cards Create money in the economy

Interest Amount an individual owes for borrowing money from a financial institution (Loans) Credit Card Company, Bank

Credit Cards A line of credit (money) given to an individual from a financial institution that allows one to make purchases and make monthly payments on such purchases. Consumers will be charged interest on purchases Some purchases can be made interest free from stores on the stores credit card as long as the items are paid within the specified time frame. EX 36 months interest free.

Debit Cards Your OWN MONEY used to make purchases by using a plastic card that withdraws the money from YOUR OWN checking account.

Investing of Money Banks Bonds Stocks Pensions 401K IRA’s

Unemployment Frictional = individual takes time to find a job Cyclical = unemployment that rises during economic downturns, falls during economic booms. Seasonal = occurs when seasons change, companies shut down for a period of time Structural = workers skills no longer match the jobs available.

Inflation Increase in prices over a period of time. Different types of inflation depending on how quickly prices increases. Opposite of inflation is deflation. When prices drop. Gas was .79cents per gallon in 1999, then in 2008 gas was over $4.00 per gallon.(Inflation) Later in 2008, gas dropped to $1.75 per gallon (deflation)

Interest Rate and Consumers Lower Interest Rates = More consumers and businesses borrow money. It’s cheaper to borrow money. Higher Interest Rates = Fewer consumers and businesses borrow money. It’s more expensive to borrow money.

Income Distribution How the income in this country is divided up between the citizens. Which types of careers pay what and why Who determines which careers pay what and why?

Tax Payment made to the government (local, state, federal). Several types of taxes

Tax Base Income, property or good that is subject to a tax. Individual Income Tax Sales Tax Property Tax Corporate Income Tax

Fiscal Policy The Federal Governments policy on spending and taxation to effect the economy. Spend more or less tax dollars Cut taxes or increase taxes.

Budget Deficit When the government (Federal, state or local) spend more money in a given year than what it collected in taxes/revenue.

Federal Reserve System The federal gov’ts central bank. It’s the federal governments checking account. (pays the federal gov’t’s bills) Monitors the national economy Determines if interest rates need to be increased or lowered Tries to control inflation/deflation Regulates Banks Monitors the money supply in the economy.

Monetary Policy The policies put into place by the Federal Reserve to increase/decrease the nations money supply. Increase/decrease interest rates Easy/Tight money policy Money supply up/interest rates down Money supply down/interest rates up

Trade When countries exchange goods. Some countries specialize in the production of certain goods and send them to countries that do not and need those goods Allows for more competition in an economy.

Export Goods produced in the country and sent out to other countries. Ford vehicles produced in the USA and sent to Germany

Import Goods that are produced in another country and brought into the country. Toyotas from Japan into the USA

Tariff Tax on an imported good into the country The USA imposes a very small tariff on most goods. The USA can select certain goods and impose a higher tariff. (Chinese tires)

European Union (pg455) Regional trade organization made up of European nations. Protect and promote the economies of member nations

NAFTA North American Free Trade Agreement Promote free trade between the USA, Mexico and Canada. Promote and grow all three nations economies

Exchange Rate Taking currency and changing it to another countries currency. Going rate for each currency. Example = $1.00 US dollar = 10 Mexican Pesos. $1.00 US dollar = 0.67cents of a Euro $1.00 Euro = $1.67 US dollar