Business Chapter 3 and 4

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1

Economics

Social science that analyzes the choices that individuals, groups, and governments make in allocating scarce resources.

2

Microeconomics

study of small economic units, such as individual consumers, families, and businesses.

3

Macroeconomics

study of a nation's overall economic issues, such as how an economy uses its resources and how national governmental policies affect people's standard of living.

4

Demand

willingness and ability of buyers to purchase goods and services at different prices.

5

Supply

amount of goods and services for sale at different prices.

6

Demand Cuve

graph of the amount of a product that buyers will purchase at different prices.

7

Supply Curve

graph that shows the relationship between different prices and the quantities that sellers will offer for sale, regardless of demand.

8

Equilibrium Price

prevailing market price at which you can buy an item.

9

Pure Competition

market structure in which large numbers of buyers and sellers exchange homogenous products and no single participant can significantly influence price.

10

Monopolistic Competition

market structure in which large numbers of buyers and sellers exchange heterogeneous products so each participant has some control over price.

11

Oligopoly

market situation in which relatively few sellers compete and high start-up costs serve as barriers to new competitors.

12

Monopoly

market situation in which a single seller dominates trade of a good or service for which buyers can find no close substitutes.

13

Regulated Monopoly

market situation in which a local, state, or federal government grants exclusive rights in a certain market to a single firm.

14

Planned Economy

economic system in which government controls determine business ownership, profits, and resource allocation to accomplish government goals rather than those set by individual firms.

15

Socialism

economic system characterized by government ownership and operation of major industries such as communications.

16

Communism

economic system in which all property would be shared equally by the people of a community under the direction of a strong central government.

17

Mixed Market Economy

economic system that mixes both private enterprise systems and planned economies.

18

Privatization

conversion of government-owned and operated companies into privately held businesses.

19

Recession

cyclical economic contraction that lasts for six months or longer.

20

Depression

prolonged recession or one that causes a significant drop in GDP

21

Productivity

relationship between the goods and services produced in a nation each year and the inputs needed to produce them.

22

Gross Domestic Product

sum of all goods and services produced within a country's boundaries.

23

Inflation

economic situation characterized by rising prices caused by a combination of excess consumer demand and increases in the costs of raw materials, component parts, human resources, and other factors of production.

24

Deflation

occurs when prices continue to fall.

25

Consumer Price Index

measurement of the monthly average change in prices of goods and services.

26

unemployment Rate

percentage of the total workforce actively seeking work but are currently unemployed.

27

Frictional Unemployment

experienced by member of the workforce who are temporarily not working but are looking for jobs.

28

Cyclical Unemployment

people who are out of work due to contraction in the economy.

29

Structural Unemployment

people who remain unemployed for long periods of time, often with little hope of finding a new job like their old one.

30

Monetary Policy

government actions to increase or decrease the money supply and change banking requirements and interest rates to influence bankers willingness to make loans.

31

Expansionary Monetary Policy

government actions to increase the money supply in an effort to cut the cost of borrowing, which encourages business decision makers to make new investments, in turn stimulating employment and economic growth.

32

Restrictive Monetary Policy

government actions to reduce the money supply to curb rising prices, overexpansion, and concerns about overly rapid economic growth.

33

Fiscal Policy

government spending and taxation decisions designed to control inflation, reduce unemployment, improve the general standard of living, and encourage economic growth.

34

Budget

organization's plan for how it will raise and spend money during a given period of time.

35

Budget Deficit

situation in which the government spends more than the amount of money it raises through taxes.

36

National Debt

money owed by government to individuals, businesses, and government agencies who purchase Treasury bills, Treasury notes, and Treasury bonds sold to cover expenditures.

37

Budget Surplus

excess funding that occurs when government spends less than the amount of funds raised through taxes and fees.

38

Balanced Budget

situation in which total revenues raised by taxes equal the total proposed spending for the year.

39

Absolute Advantage

The ability to produce more goods using fewer resources than other providers.

40

Comparative Advantage

the ability to produce one good at a relatively lower opportunity cost than other goods.

41

Opportunity cost

the highest valued alternative forgone in the pursuit of an activity.

42

Balance of Trade

difference between a nation's exports and imports.

43

Trade Surplus

the positive difference between what a country exports compared to what it imports.

44

Trade Deficit

the negative difference between what a country exports compared to what it imports.

45

Balance of Payments

overall flow of money into of out of a country

46

Exchange Rate

the rate at which a nation's currency can be exchanged for the currencies of other nations.

47

Devaluation

drop in a currency's value relative to other currencies or to a fixed standard.

48

Tariff

tax, surcharge, or duty on foreign products.

49

Quota

limit set on the amounts of particular products that countries can import during specified time periods.

50

Dumping

selling products abroad at prices below production costs or below typical prices in the home market to capture market share from domestic competitors.

51

Embargo

total ban on importing specific products or a total halt to trading with a particular country.

52

General Agreement on Tariffs and Trade

international trade accord that substantially reduced worldwide tariffs and other trade barriers.

53

World Trade Organization

153-member international institution that monitors GATT agreements and mediates international trade disputes.

54

World Bank

organization established by industrialized nations to lend money to less developed countries.

55

International Monetary Fund

organization created to promote trade, eliminate barriers, and make short-term loans to member nations that are unable to meet their budgets.

56

North American Free Trade Agreement

agreement among the United States, Canada, and Mexico to break down tariffs and trade restrictions.

57

Central American-Dominican Republic Free Trade Agreement

agreement among the United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua to reduce tariffs and trade restrictions.

58

European Union

28-nation European economic alliance.

59

Subcontracting

international agreement that involves hiring local companies to produce, distribute, or sell goods or services in a specific country or geographic region.

60

Joint Venture

partnership between companies formed for a specific undertaking.

61

Multinational Corporation

firm with significant operations and marketing activities outside its home country.

62

Core inflation rate

an economy's inflation rate after food and energy prices are removed.

63

Demand-Pull Inflation

asserted to arise when aggregate demand in an economy outpaces aggregate supply. It involves inflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve.

64

Direct Investment

The purchase or acquisition of a controlling interest in a foreign business by means other than the outright purchase of shares.