econ final Flashcards
scarcity
the demand for a good or service is greater than the availability of the good or service
opportunity cost
money or benefits lost by not selecting a particular option during the decision-making process
utility
the usefulness or enjoyment a consumer can get from a service or good
factors of production
the resources people use to produce goods and services
capital goods
physical assets a company uses to produce goods and services for consumers
3 questions all economies should answer
what will be produced, how will it be produced, and how will the output society produces be distributed?
triditional economy strengths/weaknesses
strengths
-hand made
-quality>quantity
-environmental/ healthy
-unique/not mass produced
-needs>wants
-You have a job (family pass down)
-skilled labor
weaknesses
-less sanitary
-no luxury
-no expansion
-takes time and energy
-expensive
-pressure for role
-little to no education
-isolationism
market economy strengths/weakness
strengths
-more innovation
-incentivized system
-purchase for wants/needs
-accumulation of wealth
-job flexibility
-self-reliance
-globalization
-prices change
-education
weaknesses
-unemployment
-monopolies
-low wages
-prices high at any time
-economy is cynical
-inequality/individualism (trapped)
externalities (positive)
positive: occurs when a benefit spills over
ex: when a company tears down an abandoned building and constructs a new office or apartment building that enhances the surrounding community
externalities (negative)
negative: occurs when a transaction has a cost that neither the buyer nor the seller are forced to pay
ex: air pollution
public goods
a commodity or service that is made available to all members of society paid for by governments and paid by tax
What is economics?
the branch of knowledge concerned with the production, consumption, and transfer of wealth
4 factors of production
land, labor, capital, and entrepreneurship
Sole Proprietorship (Advantage)
advantages:
easy to open or close
few regulations
freedom and control,
owner keeps the profits
Sole Proprietorship (Disadvantage)
Unlimited liability.
Lack of continuity.
Lack of money.
Limited management skills.
Difficulty in hiring employees
partnership (advantage)
Easy to establish
There is an increased ability to raise funds when there is more than one owner
Wider pool of knowledge, skills, and contacts
Improved management with more than one owner
Easier to attract investors because limited partners have limited liability to the business debts
partnership (disadvantage)
unlimited liability
have to share profits between owners
less control of business
disputes over workload/roles
problems if partners disagree over direction of business
partnership ends when one of the partners die
any decisions one partner makes is legally binding on the others even bad ones
corporation (advantage)
Corporation can raise more money than a proprietorship or partnership
A corporation has a continuous life
The transfer of a corporate ownership is easy
There is no mutual agency among the stockholders and the corporation
Stockholders have limited liability
Ownership and management are often separated.
corporation (disadvantage)
Initial cost. Incorporations may cost thousands of dollars and require expensive lawyers and accountants
Extensive paperwork
Double taxation
Two tax returns
Size
Difficulty of termination
Possible conflict with stockholders and board of directors
nonprofit organization
a group organized for purposes other than generating profit and in which no part of the organization’s income is distributed to its members, directors, or officers
multinational
conduct business in two or more countries
conglomerate
a corporation made up of several different, independent businesses
horizontal merger
a merger or business consolidation that occurs between firms that operate in the same industry.
vertical merger
occurs when two companies previously selling to or buying from each other combine under one ownership
Securities Exchange Commission (SEC)
a U.S. government oversight agency responsible for regulating the securities markets and protecting investors
command economy strengths
low levels of inequality and unemployment, and the common good replacing profit as the primary incentive of production
command economy weaknesses
The price mechanism is unable to operate leading to. an inefficient allocation of resources e.g. shortages, excess supply.
A lack of competition leads to. inefficiency and low productivity.
Less choice. of products and jobs for workers.
Lack of financial incentive because. …
Under performance of command economies as
Role of government (protector)
the U.S. government makes laws such as those against false and misleading advertising, unsafe food and drugs, environmental hazards, and unsafe automobiles
Role of government (provider)
Provide goods and services that markets are unable or unwilling to provide
Role of government (regulator)
requirements the government imposes on private firms and individuals to achieve government’s purposes
Role of government (consumer)
The government buys most of its goods and services directly from private businesses
bond
issued by governments and corporations when they want to raise money
coupon rate
the rate of interest paid by bond issuers on the bond’s face value
maturity
the date on which the life of a transaction or financial instrument ends, after which it must either be renewed or it will cease to exist
principal
the money that you originally agreed to pay back
bond rating
a way to measure the creditworthiness of a bond, which corresponds to the cost of borrowing for an issuer
