Economics Mr.

Barber Terms and Concepts Spring 2012 Of the eighteen chapters in the book, you will be expected to read and take a quiz on ten chapters. For the remaining six chapters, Mr. Barber will lecture over the main points. It is still important, however, to read through those chapters as well. Moreover, it is also recommended that, for your own benefit when reading the chapters on which you will be quizzed, you answer the assessment questions at the end of each section. This is especially the case for Chapters 4, 5, and 6, since these chapters are more theoretical and abstract. Below is a list of terms and concepts for Chapters 1-18. Chapter 1: What is Economics? Section 1: Scarcity and the Factors of Production Difference between a need and a want Definition of economics Goods and services Scarcity Factors of production: land, labor, capital-physical and human capital Entrepreneurs Section 2: Opportunity Cost Chapter 2: Economic Systems Section 1: Answering The Economic Questions Economic system The economic questions 1) What goods and services should be produced? 2) How should these goods and services be produced? 3) Who consumes these goods and services? Traditional economies Command economies Mixed economies How traditional, market, command, and mixed economies would answer the three economic questions Section 2: The Free Market Importance of specialization Households and firms Circular flow model of a market economy Adam Smith The self-regulating nature of the marketplace: self-interest, competition, and the invisible hand Advantages of the free market Section 3: Centrally Planned Economics How the government controls resources and the factors of production Socialism vs. communism Problems of centrally planned economics Section 4: Modern Economies The limits of laissez faire economics Constitutional protections of private property Circular flow model of mixed economy The continuum of mixed economies Trade offs (guns or butter) Opportunity cost Thinking at the margin

Chapter 3: American Free Enterprise Section 1: Benefits of Free Enterprise Profit motive Open opportunity and legal equality Private property rights Benefits of competition Public disclosure laws Ways in which the government protects the public interest Negative effects of regulation Section 2: Promoting Growth and Stability The difference between macroeconomics and microeconomics Gross domestic product Indicators of economic stability The role of technology in the economy Governments role in growing the economy Section 3: Providing Public Goods Characteristics of public goods Public sectors vs. private sector The free-rider problem Market failure Externalities: positive and negative How the government encourages the creation of positive externalities How the government attempts to limit negative externalities Chapter 4: Demand Section 1: Understanding Demand Law of demand Substitution effect Income effect Demand schedule / market demand schedule Demand curve Section 2: Shifts of the Demand Curve Ceteris paribus What a left shift of the demand curve means What a right shift on the demand curve means Normal goods vs. inferior goods Factors that cause a shift in the demand curve Income Consumer expectations Consumer tastes and advertising Complements and substitutes Section 3: Elasticity of Demand Elasticity of demand Elastic demand vs. inelastic demand Factors affecting elasticity Availability of substitutes Relative importance of a good or service Necessities vs. luxuries Change over time How elasticity of demand affects a firms revenue

Chapter 5: Supply Section 1: Understanding Supply Law of supply Supply schedule / market supply schedule Supply curve / market supply curve Elasticity of supply Elasticity of supply in the short run Elasticity of supply in the long run Section 2: Costs of Production Marginal product of labor Increasing marginal returns Decreasing marginal returns Negative marginal returns Production costs: fixed and variable (and total) Marginal cost, marginal revenue, and finding the best level of output Section 3: Changes in Supply The effect of rising costs of input Why advances in technology can lower production costs The way in which the U.S. government can influence supply Subsidies Taxes Regulation How what happens in foreign countries can effect supply in the United States The influence of future expectations on prices How location can effect supply Chapter 6: Prices Section 1: Combining Supply and Demand Equilibrium (and what it looks like on a graph) Disequilibrium Excess demand Excess supply Price ceiling and the cost of price ceilings Price floors and the minimum wage Section 2: Changes in Market Equilibrium How the equilibrium is effected by shifts in supply How the equilibrium is effected by shifts in demand The problem of excess demand Section 3: The Role of Prices The advantage of prices As an incentive As signals Flexibility Price system is free Supply shock and rationing Black market Spillover costs

Chapter 7: Market Structures Section 1: Perfect Competition The four conditions for perfect competition Many buyers and sellers Identical products Informed buyers and sellers Free market entry and exit Barriers to entry and imperfect competition Start-up costs How technology can be a barrier to entry Prices in a perfectly competitive market Section 2: Monopoly Monopoly The problem with monopolies Economies of scale Natural monopoly Government monopoly How patents, franchises, and licenses give monopoly powers Section 3: Monopolistic Competition and Oligopoly Monopolistic competition Four conditions of monopolistic competition Many firms Few artificial barriers to entry Slight control over price Differentiated products Differentiation Nonprice competition and its several forms Oligopoly Barriers to entry in an oligopoly Cooperation and collusion in an oligopoly Cartels Section 4: Regulation and Deregulation Predatory pricing Antitrust laws The ways in which government can regulate against monopolistic practices Deregulation Chapter 8: Business Organizations Section 1: Sole Proprietorships Sole proprietorship The various advantages of sole proprietorships The various disadvantages of sole proprietorships Liability Section 2: Partnerships General partnerships Limited partnerships Limited Liability partnerships (LLP) The various advantages of partnerships

Uniform Partnership Act (UPA) The various disadvantages of partnerships

Section 3: Corporations, Mergers, and Multinationals Corporation Closely held (private) corporations Publicly held (public) corporations The various advantages of incorporation The various disadvantages of incorporation Certificate of incorporation (corporate charter) Horizontal mergers vs. vertical mergers Conglomerates Multinational corporations (MNCs) The various advantages of multinationals The various disadvantages of multinationals Section 4: Other Organizations Business franchise The various advantages of franchises The various disadvantages of franchises Cooperatives and the different kinds of cooperatives Nonprofit organizations Professional organizations Business associations Trade associations Chapter 9: Labor Section 1: Labor Market Trends Labor force Defining employment and unemployment Bureau of Labor Statistics How shifts in the job market have impacted the U.S. economy over time Learning effect Screening effect Women in the labor force Contingent employment Why some companies rely on contingent employment Section 2: Labor and Wages Productivity Equilibrium wage Four levels of labor skills Unskilled labor Semi-skilled labor Skilled labor Professional labor Wage discrimination against women and the reasons for it Glass ceiling Other factors affecting wages Minimum wage laws Safety laws How employers respond to wage levels Unions Section 3: Organized Labor

Right to work laws Blue collar vs. white collar workers Collective bargaining Resolving labor disputes: mediation and arbitration

Chapter 10: Money and Banking Section 1: Money Money as a: medium of exchange, a unit of account, a store of value The six characteristics of money Commodity money Representative money Fiat money Section 2: The History of American Banking The gold standard, and the advantages of adopting one The Federal Reserve System, and how it reorganized the federal banking system Banking reforms during the Great Depression Causes of the Savings and Loan Crisis of the 1980s Section 3: Banking Today The money supply Liquidity M1 and M2, and different examples of each The four main ways that banks offer for people to save money Fractional reserve banking Simple interest and compound interest Characteristics of certain types of financial institutions Commercial banks Credit unions Finance companies Chapter 11: Financial Markets Section 1: Saving and Investing Investment Diversification, and the reasons why people diversify Return on an investment and risk Section 2: Bonds and Other Financial Assets Bonds, and the three components of bonds How investors earn money from bonds The five different types of bonds Savings bonds Treasury bonds, bills, and notes Municipal bonds Corporate bonds Junk bonds Securities and Exchange Commission (SEC) Certificates of deposit Money market mutual funds Capital markets / money markets Section 3: The Stock Market Shares, equities The two ways that stockholders can earn a profit The risks of buying stock

The New York Stock Exchange (NYSE) and the kinds of transactions it handles The OTC market and the Nasdaq Bull market / bear market The Dow Jones Industrial Average The S & P 500

Chapter 12: Gross Domestic Product and Growth Section 1: Gross Domestic Product Gross Domestic Product (GDP) Dollar value Final goods and services (vs. intermediate goods) Nominal GDP; real GDP Economic activities that GDP does not take into account Section 2: Business Cycles The four phases of the business cycle Recession & depression; stagflation How the following four economic variables affect the business cycle Business investment Interest rates and credit Consumer expectations External shocks Leading indicators that help economists predict changes in a business cycle Business cycles since the early 1990s Section 3: Economic Growth Real GDP per capita, and why it is a good starting point for measure a nations quality of life How the following causes of technological progress help lead to economic growth Scientific research Innovation Scale of the market Education and experience Natural resource use Chapter 13: Economic Challenges Section 1: Unemployment The four different kinds of unemployment: frictional, seasonal, structural, and cyclical Full employment and a normal unemployment rate during a period of full employment Underemployed, discouraged workers Section 2: Inflation Definition of inflation and hyperinflation The Consumer Price Index The range of a low inflation ratewhere inflation does not cause problems for the economy Theories of the causes of inflation Quantity Theory Demand-Pull Theory Cost-Push Theory Effects of inflation on: purchasing power, income, interest rates Section 3: Poverty The definition of poverty threshold, and where it was in 2004 How the poverty rate differs by groups: racially, types of families, children, inner city Why there are such differences in income among Americans Examples of the different government antipoverty policies, and how they are designed to fight poverty

Chapter 14: Taxes and Government Spending Section 1: What Are Taxes? The two ways in which the Constitution limits the power to tax The three different tax structures: proportional, progressive, and regressive taxes Four characteristics of a good tax Measuring the fairness of a tax: the benefits-received principle vs. the ability-to-pay principle Section 2: Federal Taxes Pay-as-you-earn taxation The 2005 Federal Income Tax Rateswhat percentage in taxes would a single person pay at an annual income of: $25,000 $56,000 $147,000 $2.3 million How would the above numbers be adjusted for a married couple filing jointly? FICA taxes Different kinds of taxes Social Security Taxes Medicare Taxes Unemployment Taxes Excise Taxes Estate and Gift Taxes Tariffs Which of the above taxes are specifically designed to affect behavior? Section 3: Federal Spending Mandatory vs. Discretionary spending Entitlements The purpose of the following programs and the people that receive benefits: Social Security Medicare Medicaid Why the cost of the social security program is expected to increase in the upcoming decades Examples of discretionary spending items The top six spending categories of the federal budget in 2004 (see figure 14.6, p. 371) Chapter 15: Fiscal Policy Section 1: Understanding Fiscal Policy Fiscal policy and the federal budget The role of the Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) The role of Congress in assembling a budget Appropriations bills Two examples of expansionary fiscal policies Two examples of contractionary fiscal policies Section 2: Fiscal Policy Options Productive capacity Demand-side economics

Keynesian economics; how Keynes believed fiscal policy should be used to fight recessions and inflation Supply-side economics, and their theory regarding the impact of tax cuts Economic policies during World War II, and in the 1980s

Section 3: Budget Deficits and the National Debt Budget surplus vs. budget deficit; balanced budget If a government runs deficits, the two basic actions it can take to pay for the extra spending Treasury bills, Treasury notes, and Treasury bonds The national debt, and how it differs from a deficit The two main problems of running a national debt Gramm-Rudman-Hollings Act Why federal deficits turned into surpluses in the late 1990s, and why we had a return to deficits in recent years Chapter 16: The Federal Reserve and Monetary Policy Section 1: The Federal Reserve System Federal Reserve Act of 1918 Board of Governors of the Federal Reserve Monetary policy Federal Reserve Districts Federal Open Market Committee (FOMC) Section 2: Federal Reserve Functions The ways in which the Federal Reserve serves as banker and financial agent for the U.S. government Check clearing A bank holding company Federal Reserve as a lender of last resort and the discount rate Section 4: Monetary Policy and Macroeconomic Stabilization (you are not responsible for reading Section 3) Monetarism The relationship between interest rates and the money supply Easy money policy Tight money policy How monetary policy can impact inflation Chapter 17: International Trade Section 1: Why Nations Trade Specialization and what determines specialization Absolute advantage Comparative advantage How the law of comparative advantage relates to trade between nations Export, imports; the U.S. as an exporter and importer How world trade effects employment shifts in the U.S. Section 2: Trade Barriers and Agreements Trade barrier Voluntary export restraint Customs duty, tariff How trade barriers increase prices for foreign goods Trade wars Protectionism and protecting infant industries Normal trade relations status (NTR)

World Trade Organization (WTO) European Union (EU) North American Free Trade Agreement (NAFTA) Role of multinational corporations in international trade

Section 3: Measuring Trade Exchange rate Appreciation, depreciation (regarding currency) Foreign exchange market Trade surplus, trade deficit; balance of trade The U.S. trade deficit Chapter 18: Economic Development and Transition Section 1: Levels of Development Economic development Developed nations and less developed countries (LDCs) Ways to measure development: per capita GDP, energy consumption, labor force, consumer goods, literacy, life expectancy, infant mortality rate Characteristics of developed nations and of LDCs Levels of development: primitive equilibrium, transition, takeoff, semidevelopment, highly developed Newly Industrialized Countries (NICs) Section 2: Issues in Development Population growth rate; natural rate of population increase Consequences of rapid population growth How lack of physical capital impacts LDCs Why human capital is important to LDCs, and how not having it impacts LDCs The political factors that inhibit economic development The impact of debt for LDCs Section 3: Financing Development Internal investment, foreign investment Foreign direct investment (FDI) in LDCs Foreign aid: what it is, why countries give it, and historical examples of it International institutions that promote economic development: the World Bank, the United Nations Development Program (UNDP), and the International Monetary Fund (IMF) The role stabilization programs play in debt rescheduling