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Understanding Business Chapter 2

Definitions 1. 2. 3. 4. 5. 6. 7. 8.
Economics: Study of how society employs resources and distributes them. Macroeconomics: Looks at the operation of a nation's economy as a whole. Microeconomics: Looks at behavior of people and organizations in particular markets. Resource development: Study of how to increase resources and to create the conditions that will make better use of those resources. Invisible Hand: Turns self-directed gain into social and economic benefits for all. Capitalism: Economic system in which most of factors of production are privately owned. Supply: Quantity of products that manufacturers are willing to sell at different prices at a specific time. Demand: Quantity of products that people are willing to buy at different prices at a specific time. Market Price: Price determined by supply and demand (equilibrium point).

9. 10. Perfect Competition: Market situation in which there are many sellers and no seller is large
enough to dictate the price of a product. 11. Monopolistic Competition: Market situation in which a large number of sellers produce products that are very similar but that are perceived by buyers as different i.e. shirts. 12. Oligopoly: Few sellers dominate the market b/c initial investment is tremendous i.e. aircraft.

13. Monopoly: Only one seller for a product or service. 14. Socialism: Econ system that says basic businesses should be owned by the government so
that profits can be distributed. 15. Brain Drain: Loss of the best and brightest people to other (capitalistic) countries.

16. CommunismEcon and political system in which the government makes almost all econ
decisions and owns almost all of the major factors of production. 17. Free-Market EconomiesMarket largely determines what goods and services get produced, who gets them, and how the econ grows. 18. Command Economiesgovernment decides what goods and services get produced, who gets them, and how the econ grows. 19. Mixed EconomiesSome allocation of resources is made by the market and some by the government. 20. GDPTotal value of final goods and services produced in a country in a given year.

21. Unemployment RateNumber of civilians at least 16 years who have been trying to find a
job within the prior four weeks. 22. InflationGeneral rise in the prices of goods and services over time.

23. DeflationPrices are declining. 24. DisinflationPrice increases are slowing. 25. Consumer Price IndexMonthly stats that measure the pace of inflation/deflation. 26. Producer Price IndexIndex that measures prices at wholesale levels. 27. Business CyclesPeriodic rises and falls that occur in all economies over time. 28. RecessionTwo+ consecutive quarters of decline in the GDP. 29. DepressionA severe recession. 30. Fiscal PolicyFederal government efforts to keep economy stable by increasing or
decreasing taxes or government spending. 31. National DebtSum of government deficits over time.

32. Monetary policyManagement of money supply and interest rates. 33. StagflationEcon is slowing but prices are going up anyhow.