PF Intro to Business Ch2 Vocab

Question 1

Economics

Answer 1

study of how society chooses to employ resources (5 factors of production) to produce goods and services and distribute them for consumption among various competing groups and individuals

Question 2

Two types of economic study

Answer 2

macroeconomics & microeconomics

Question 3

Macroeconomics

Answer 3

study of the operation of a nation’s economy as a whole

looks at how many jobs exist in the whole economy

Question 4

Microeconomics

Answer 4

study of the behavior of people and organizations in particular markets
looks at how many people will be hired in a particular industry or region of a country

Question 5

Resource Development

Answer 5

study of how to increase resources and to create the conditions that will make better use of those resources

Question 6

Economic Theorists

Answer 6

Thomas Malthus, Adam Smith

Question 7

Thomas Malthus

Answer 7

theorized that there are too many people in the world and that the solution to poverty is birth control, which includes measures as limits on the number of children people can have

Question 8

Adam Smith

Answer 8

one of the first people to imagine a system of creating wealth and improving the lives of everyone

Question 9

Invisible Hand

Answer 9

theory developed by Adam Smith that says self-directed gain turns into social and economic benefits for all

Question 10

Supply

Answer 10

• refers to qty of products that manufacturers or owners are willing to sell at different prices at a specific time
• amount will increase as the price increases because sellers can make more money with a higher price

Question 11

Demand

Answer 11

• refers to qty of products that people are willing and able to buy at different prices at a specific time
• qty demanded will increase as the price decreases - or as price increases the demand for the product decreases

if the does not go up and the demand is still high, the process will then increase because there isn’t enough of the product to meet the need of the customers

oil industry is an example of supply and demand - more and more people purchase cars there is a greater need for fuel - because demand has increased gas prices continue to rise

Question 12

Equilibrium Point

Answer 12

place where qty demanded and supplied meet…market price will tend toward this

ideal economic situation is amount of goods sought by buyers is equal to the amount of goods produced by suppliers

Question 13

Business Cycle

Answer 13

denotes a common pattern where there is a period of rapid growth (recovery & prosperity) in the economy when supply and demand stimulate each other - alternating with a period of decline with diminishing demand and supply - also called economic cycle

Question 14

Free Market

Answer 14

where decisions about what to produce and in what quantities are made by the market, by buyers and sellers negotiating prices for goods and services

Question 15

4 Types of Competition

Answer 15

Perfect Competition, Monopolistic Competition, Oligopoly, Monopoly

Question 16

Perfect Competition

Answer 16

xists when there are many sellers in a market, no seller is larger enough to dictate the price of a product, and the products are similar
no true examples of perfect competition

Question 17

Monopolistic Competition

Answer 17

exists when a large number of sellers product products that are very similar but are perceived by buyers as different

Question 18

Oligopoly

Answer 18

a form of competition where just a few sellers dominate the market

Question 19

Monopoly

Answer 19

occurs when there is only one seller for a product or service

Question 20

Socialism

Answer 20

an economic system based on the premise that some, if not most, basic businesses such as steel mills, coal mines, and utilities should be owned by the government so that profits can be evenly distributed among all the people.

socialist countries charge a value-added tax - like a sales tax on most goods purchased

socialists acknowledge the major benefit of capitalism - wealth creation

Question 21

Benefits of Socialism

Answer 21

• Social equality because income is taken from the wealthier people in the form of taxes and redistributed to the poorer members of the population through various government programs
• Workers in socialist countries usually get longer vacations than those in capitalist countries
• Tend to work fewer hours per week
• More employee benefits - such as sick leave

Question 22

Negative Consequences of Socialism

Answer 22

• takes away from businesspeople’s incentives and enthusiasm to start work early and leave late
• takes away incentives to start new businesses or market new ideas
• often many leave socialist countries for more capitalistic ones with lower taxes
• generally discourages the best from working as hard as they can

Question 23

Brain Drain

Answer 23

loss of best and brightest people to other countries

Question 24

Communism

Answer 24

an economic and political system in which the state (government) makes almost all economic decision and owns almost all the major factors of production

Karl Marx - wrote the communist manifesto, founder of communism

Negative of communism is that the gov’t has no way of knowing what to produce because prices don’t reflect supply and demand as they do in free markets. Gov’t must guess what the economic needs of the people are.

Question 25

Mixed Economics

Answer 25

Nations of the world are divided between those that have followed concepts of capitalism and those that have followed or adopted concepts of communism or socialism economies where some allocation of resources is made by the market and some by the government US is a mixed economy

Question 26

Free Market Economies

Answer 26

market largely determines what goods and services get produced who gets them and how the economy grows

Question 27

Command Economies

Answer 27

government largely decides what goods and services get produced, who gets them and how the economy grow

Question 28

Economic Indicators (3 major indicators)

Answer 28

1. gross domestic product (GDP) 2. unemployment rate 3. price indexes

Question 29

Gross Domestic Product (GDP)

Answer 29

total value of final goods and services produced in a country in a given year either a foreign or domestic may produce the goods and services included in the GDP as long as the companies are located within the country’s boundaries one way to measure GDP is per capita - GDP number divided by population

Question 30

Gross National Product (GNP)

Answer 30

similar to GDP, but only counts americans producing products in the country not other foreign nationals major influence on growth of GDP is how productive the workforce is - how much output workers create with a given amount of input

Question 31

Unemployment Rate

Answer 31

number of civilians at least 16 years old who are unemployed and who have tried to find a ob within the prior four weeks

Question 32

Types of unemployment

Answer 32

frictional structural cyclical season

Question 33

frictional unemployment

Answer 33

occurs when people are between jobs

Question 34

structural unemployment

Answer 34

something within industries has changed that results in unemployment

Question 35

cyclical unemployment

Answer 35

not enough jobs for people who want to work and is usually a result of political or economic forces

Question 36

seasonal unemployment

Answer 36

might occur in construction jobs for example

Question 37

Price Indexes

Answer 37

indexes of the changes in goods and prices of goods and services based on the prices of the same goods and services from a previous period they help to measure the health of the economy by measuring the levels of inflation, deflation and stagflation

Question 38

Consumer Price Index (CPI)

Answer 38

measures the prices of products from month to month so economists can measure inflation measures price change from the purchaser’s perspective

Question 39

Inflation

Answer 39

refers to general rise in prices of goods and services over time

Question 40

Hyperinflation

Answer 40

phenomenon where the cost of goods is rising so quickly that it renders the currency virtually worthless many believe that inflation of over 50% is hyperinflation

Question 41

Stagflation

Answer 41

occurs when both inflation and unemployment are high and occurring at the same time cause may be misguided fiscal and monetary policy harmful to a country because it means prices are rising while people are losing their jobs or don’t have jobs

Question 42

Deflation

Answer 42

prices are actually declining occurs when countries produce so many goods that people cannot afford to buy them all - means that demand and supply are out of balance

Question 43

Producer Price Index (PPI)

Answer 43

measures prices at the wholesale level | measures price change from the perspective of the seller

Question 44

Fiscal Policy

Answer 44

federal gov’t efforts to keep the economy stable by increasing or decreasing taxes or gov’t spending - first half of fiscal policy involves taxation high taxation tends to slow economy because it draws money away from the private sector and puts it into the gov’t - second half of fiscal policy involves gov’t spending

Question 45

National Debt

Answer 45

sum of gov’t deficits over time

Question 46

Recession

Answer 46

when GDP falls for two consecutive quarters | prices fall, people purchase fewer products and businesses fail

Question 47

Depression

Answer 47

is a severe recession A depression usually occurs during times of deflation and A depression usually occurs during times of deflation and unemployment and is extremely serious.

Question 48

Recovery

Answer 48

occurs when the economy stabilizes and starts to grow again

Question 49

Monetary Policy

Answer 49

ultimately what adds or subtracts money from the economy is the management of the money supply and interest rates and this is what helps control the growth or slowing of the economy Monetary policy is controlled by the federal Reserve system most obvious role of the federal Reserve is the raising and lowering of interest rates. When the economy is booming, the fed tends to raise interest rates, which makes money more expensive to borrow. The opposite is true when the fed lowers interest rates. Businesses tend to borrow more, and the economy takes off