Chapter 16

Rational decision making-making decisions based on factual information and logical reasoning
Marginal benefits/costs-additional benefits received when one more unit of a product is produced
Specialization-the development of skills in a specific kind of work
Voluntary exchange-the act of buyers and sellers freely and willingly engaging in market transactions
Non-fraudulent exchange-the act of doing something on your own without someone forcing you to do it. exchanging goods, services, resources, etc
Circular flow diagram-a visual model of the economy that shows how dollars flow through markets among households and firm
Resource market(factor)- market in which firms purchase the factors of production from households
Product market-the market in which households purchase the goods and services that firms produce
Law of demand-consumers buy more of a good when its price decreases and less when its price increases
Law of supply-tendency of suppliers to offer more of a good at a higher price
Demand- the ability and desire to purchase goods and services
Supply- offering goods and services for sale
Market clearing price-the price at which the amount supplied is equal to the amount demanded
Equilibrium price-the price that balances quantity supplied and quantity demand
Price ceiling-a maximum price that can be legally charged for a good or service
Price floor-a legal minimum on the price at which a good can be sold
Price elasticity-a measure of the sensitivity of demand to changes in price
Sole proprietorship-a business owned and managed by a single individual
Partnership-a contract between two or more persons who agree to pool talent and money and share profits or losses
Corporation-a business owned by stockholders who share in its profits but are not personally responsible for its debts
Monopoly-complete control of a product or business by one person or group
Oligopoly-a market structure in which a few large firms dominate a marke
Monopolistic competition- market structure in which many companies sell products that are similar but not identical
Pure competition-the market structure that exists when there are many small businesses selling one standardized product
Command economy- an economic system in which the government controls a country's economy
Market economy-an economy that relies chiefly on market forces to allocate goods and resources and to determine prices mIxed economy-an economic system that combines private and state enterprise private ownership- profit- consumer sovereignty- government regulation-the government gives a single firm the exclusive right to produce some good or service freedom-the condition of being free security- equity- growth-increase in size efficiency-the ratio of the output to the input of any system stability-the quality of being free from change or variation market failures-situations in which the market does not lead to a desired resul government deregulation-the removal of some government controls over a marketplace
GDP-gross domestic product- the total market value of all final goods and services produced annually in an economy
Unemployment- the number of americans who are out of work but actively looking for a job. the number does not usually include those who are not looking.
Cyclical unemployment- unemployment that rises during economic downturns and falls when the economy improves
Frictional unemployment-type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs
Business cycle-recurring fluctuations in economic activity consisting of recession and recovery and growth and declin
Peak-the height of an economic expansion, when real gdp stops rising
Trough-the lowest point in an economic contraction, when real gdp stops fallin
Contraction-a period of economic decline marked by falling real gdp

Expansion- a period of economic growth as measured by a rise in real gdp
Depression-a long-term economic state characterized by unemployment and low prices and low levels of trade and investment
Fiscal policy-the use of government spending and revenue collection to influence the economy
Progressive taxes-a tax rate that increases as the amount of ones income increase
Regressive taxes-tax in which people with lower incomes pay a larger portion of their income
Proportional taxes-taxes that require all income groups to pay the same percentage of their income in taxes
Sales tax-a tax based on the cost of the item purchased and collected directly from the buyer
National debt- total sum of money a government owes
Govt deficit- money owed in 1 year
Federal reserve system- central bank of the US
Board of governors-the seven-member board that oversees the federal reserve system
Monetary policy-management of the money supply and interest rates
Reserve requirement- percentage of their deposits that member banks must keep available in a federal reserve bank.
Discount rate- the interest rate on the loans that the fed makes to banks
Open market-

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