Microeconomics
What is the law of demand?
As the price of a good increases, the quantity demanded decreases.
Example: If the price of coffee rises from $2 to $3, consumers may buy less coffee.
What does GDP stand for?
Gross Domestic Product.
Example: A country's GDP measures the total value of all goods and services produced within its borders.
What is a tariff?
A tax imposed on imported goods and services.
Example: A 10% tariff on imported steel increases the cost of foreign steel in the domestic market.
What is a market economy?
An economic system where decisions regarding investment, production, and distribution are based on supply and demand.
The United States operates largely as a market economy, where prices and production are determined by private individuals and businesses.
What is currency?
A system of money in general use in a particular country.
Define "opportunity cost."
The value of the next best alternative that is foregone when a decision is made.
Example: Choosing to spend time studying economics means you miss out on attending a concert.
What is the difference between real and nominal GDP?
Real GDP is adjusted for inflation while nominal GDP is not.
Example: If nominal GDP increases by 5% but inflation is 3%, real GDP has increased by approximately 2%.
What is a trade deficit?
When a country's imports exceed its exports.
Example: If a country imports $1 billion worth of goods but only exports $800 million, it has a $200 million trade deficit.
What is a command economy?
An economy where the government makes all economic decisions.
Example: North Korea has a command economy, with the government controlling all major industries and setting prices.
What is the Federal Reserve?
The central bank of the United States, responsible for regulating the nation's monetary policy.
Example: The Federal Reserve sets interest rates and controls the money supply to maintain economic stability.
What is price elasticity of demand?
A measure of how much quantity demanded of a good responds to a change in price.
Example: If the price of a luxury car increases and demand decreases significantly, the car's demand is considered elastic.
What is inflation?
The rate at which the general level of prices for goods and services is rising.
Example: If the price of groceries increases by 4% over a year, inflation is 4%.
What is NAFTA?
North American Free Trade Agreement, a treaty between Canada, Mexico, and the United States to eliminate trade barriers.
Example: NAFTA allows for the free movement of goods between these countries without tariffs.
What is a mixed economy?
An economic system combining private and public enterprise.
Canada has a mixed economy, where private businesses operate alongside government-provided services like healthcare.
What is fractional reserve banking?
A banking system in which banks keep a fraction of deposits as reserves and lend out the remainder.
Example: If you deposit $1,000 in a bank with a 10% reserve requirement, the bank must keep $100 in reserve and can lend out $900.
What is the law of supply?
As the price of a good increases, the quantity supplied increases.
Example: If the price of wheat rises, farmers may plant more wheat to take advantage of higher prices.
What is the unemployment rate?
The percentage of the labor force that is jobless and actively seeking employment.
Example: If 10 out of 100 people in the labor force are unemployed, the unemployment rate is 10%.
What is an embargo?
An official ban on trade with a particular country or the exchange of specific products.
Example: The U.S. imposed an embargo on Cuba in 1960, restricting trade and economic relations.
What is a traditional economy?
An economic system where traditions, customs, and beliefs shape the goods and services the economy produces.
Example: Indigenous tribes in the Amazon rainforest have a traditional economy based on hunting, fishing, and bartering.
What are interest rates?
The cost of borrowing money, expressed as a percentage of the amount borrowed.
Example: If you take out a loan of $1,000 at an annual interest rate of 5%, you'll pay $50 in interest over one year.
What is marginal utility?
The additional satisfaction or benefit received from consuming one more unit of a good or service.
Example: The first slice of pizza provides high satisfaction, but the fifth slice may provide less satisfaction.
What is the business cycle?
The fluctuations in economic activity characterized by periods of expansion and contraction.
Example: A recession occurs when the economy contracts, and a recovery follows when the economy begins to grow again.
What is the World Trade Organization?
An organization that regulates international trade.
Example: The WTO helps resolve trade disputes between countries and promotes trade liberalization.
What is a planned economy?
An economic system where the government controls all aspects of the economy.
Example: Cuba has a planned economy, where the government owns and operates most businesses and sets prices.
What is monetary policy?
The process by which the central bank controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.
Example: The Federal Reserve may raise interest rates to combat inflation or lower them to stimulate economic growth.