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Introduction to Business – Chapter 2

demand
willingness and ability of buyers to purchase goods and services
supply
willingness and ability of sellers to provide goods and services
microeconomics
study of small economic units, such as individual customers, families, and businesses
economics
social science that analyzes the choices people and governments make in allocating scarce resources
macroeconomics
study of a nation’s overall economic issues, such as how an economy maintains and allocates resources and how a government’s policies affect the standards of living of its citizens
demand curve
graph of the amount of a product that buyers will purchase at different prices
supply curve
graph that shows the relationship between different prices and the quantities that sellers will offer for sale, regardless of demand
equilibrium price
prevailing market price at which you can buy an item
pure competition
market structure in which large numbers of buyers and sellers exchange homogenous products and no single participant has a significant influence on price
monopolistic competition
market structure in which large numbers of buyers and sellers exchange heterogeneous products so each participant has some control over price
oligopoly
market situation in which relatively few sellers compete and high start-up costs form barriers to keep out new competitors
monopoly
market situation in which a single seller dominates trade in a good or service for which buyers can find no close substitutes
socialism
economic system characterized by government ownership and operation of major industries such as communication
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
mixed economies
economic system that draws from both types of economies, to different degrees
privatization
conversion of government-owned and operated companies into privately held businesses
recession
cyclical economic contraction that lasts for six months or longer
productivity
relationship between the number of units produced and the number of human and other production inputs necessary to produce them
gross domestic product
sum of all goods and services produced within a country’s boundaries during a specific time period, such as a year
inflation
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
hyperinflation
economic situation characterized by soaring prices
deflation
opposite of inflation, occurs when prices continue to fall
Consumer Price Index
measurement of the monthly average change in prices of goods and services
unemployment rate
percentage of the total workforce actively seeking work but are currently unemployed
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
fiscal policy
government efforts to influence the economy through spending and taxation
budget defecit
situation in which the government spends more than the amount of money it raises through taxes
federal debt
money owed by government to individuals, businesses, and government agencies
budget surplus
excess funding that occurs when the government spends less than the amount of funds raised through taxes and fees
economy
a financial and social system of how resources flow through society from production, to distribution, to consumption
commercial banks
privately owned financial institutions that accept demand deposits and make loans and provide other services for the public
money supply
the total amount of money within the overall economy
money
anything generally accepted as a medium of exchange, a measure of value, or a means of payment
open market operations
the Federal Reserve function of buying and selling government securities
discount rate
the rate of interest that the Federal Reserve charges when it loans funds to banks
reserve requirement
specifies the minimum amount of reserves a bank must hold
Federal Deposit Insurance Corporation
insures deposits up to $250,000 per customer, per bank
economic system
a structure for allocating limited resources
capitalism
an economic system based on private ownership, economic freedom and fair competition
natural monopoly
one company as a supplier of a product because the nature of that product makes a single supplier more efficient than multiple suppliers
business cycle
the periodic contraction and expansion that occur over time in an economy
contraction
a period of economic downturn
depression
a deep and long-lasting recession
recovery
a period of rising economic growth
expansion
a period of robust economic growth
disinflation
a period slowing average price increases across the economy
producer price index
a measure of inflation that evaluates the change over time in the weighted-average wholesale prices

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