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y la disminución de la demanda de uno produzca el aumento o la disminución de la demanda del otro (pág. 112) conglomerate [conglomerado] n. empresa compuesta de compañías que producen bienes o servicios no relacionados (pág. 243) consumer [consumidor] n. persona que compra bienes o servicios para su uso personal (pág. 5) consumer price index (CPI) [índice de precios al consumo (IPC)] v medida porcentual de los cambios en los precios de una cesta de los bienes y los servicios que los consumidores compran frecuentemente (pág. 396) consumer sovereignty [soberanía del consumidor] n. idea de que los consumidores tienen el control deﬁ nitivo sobre lo que se produce ya que son libres para comprar lo que quieren y para rechazar productos que no quieren (pág. 50) R46 Spanish Glossary contingent employment [empleo contingente] n. trabajo temporal o a tiempo parcial (pág. 270) contract [contrato] n. acuerdo formal con fuerza jurídica (pág. 598) contraction [contracción] n. reducción de la actividad económica (pág. 359); véase business cycle [ciclo económico] contractionary ﬁ scal policy [política ﬁ scal restrictiva] n. plan para reducir la demanda agregada y desacelerar la economía durante un período de expansión económica demasiado rápido (pág. 446) contractionary monetary policy [política monetaria restrictiva] n. plan para reducir la cantidad de dinero en circulación; también llamada política de dinero escaso (pág. 492) cooperative [cooperativa] n. tipo de negocio dirigido a favor del bene
ﬁ cio compartido de los propietarios, que son también los clientes (pág. 250) co-pay [copago] n. cantidad que el asegurado debe pagar cuando una persona asegurada recibe atención médica (pág. 596) corporate income tax [impuesto de sociedades anónimas] n. impuesto basado en las ganancias de una sociedad anónima (pág. 412) corporation [sociedad anónima] n. empresa que pertenece a los titulares de acciones, o accionistas, que poseen los derechos a las ganancias de la compañía pero cuya responsabilidad es limitada respecto a las deudas y pérdidas de la compañía (pág. 238) cosigner [coﬁ rmante, aval, avalista] n. persona que asume la responsabilidad de la deuda si el prestatario no reembolsa el préstamo (pág. 583) cost-beneﬁ t analysis [análisis costo-beneﬁ cio] n. práctica de examinar los costos y los beneﬁ cios previstos de una opción, como ayuda en la toma de decisiones (pág. 15) cost-push inﬂ ation [inﬂ ación de costos] n. situación en la que el aumento de los costos de producción hace subir los precios (pág. 399) Council of Economic Advisers [Consejo de Consejeros Económicos] n. grupo de tres miembros que aconseja al Presidente sobre la política ﬁ scal y otros asuntos económicos (pág. 452) coupon rate [tasa de cupón] n. tasa de interés que el titular de un bono obtiene cada año hasta que vence el bono (pág. 338) craft union [s
indicato gremial] n. organización de trabajadores con aptitudes similares que trabajan en diferentes industrias para diferentes empleadores (pág. 274) credit [crédito] n. práctica de comprar bienes o servicios en el presente y pagarlos en el futuro (pág. 582) credit report [informe crediticio] n. documento emitido por una agencia de informes crediticios que explica detalladamente el historial de crédito de un consumidor (pág. 586) credit score [caliﬁ cación del riesgo crediticio] n. número que resume la reputación crediticia de un consumidor (pág. 586) crowding-out effect [efecto de exclusión] n. situación en la que el gobierno supera la oferta de las tasas de interés de bonos privados para obtener fondos prestables (pág. 466) currency [moneda] n. papel moneda y monedas metálicas (págs. 293, 475) customs duty [derecho arancelario] n. impuesto aplicado en Estados Unidos a los bienes importados (pág. 425) customs unions [uniones aduaneras] n. acuerdos que eliminan las barreras al comercio entre los miembros y establecen aranceles uniformes para los no miembros (pág. 532) cyclical unemployment [desempleo cíclico] n. desempleo causado por la parte del ciclo económico que presenta una actividad económica reducida (pág. 384) D debit card [tarjeta de débito] n. tarjeta que se puede usar como tarjeta de cajero automático (ATM) para retirar dinero o como cheque para hacer compras (pág. 308) debt restructuring [reestructuraci
ón de la deuda] n. método que utilizan los países con obligaciones de deuda pendientes para alterar los términos de los acuerdos de la deuda, a ﬁ n de conseguir alguna ventaja (pág. 559) deduction [deducible] n. cantidad que el asegurado paga antes de que pague la compañía aseguradora (pág. 596) default [incumplimiento] n. condición que se presenta cuando un país no puede pagar los intereses o el capital sobre un préstamo (pág. 559) deﬁ cit spending [gastos deﬁ citarios] n. práctica del gobierno de gastar más de lo que obtiene en ingresos en un determinado año ﬁ scal (pág. 462) deﬂ ation [deﬂ ación] n. disminución del nivel general de precios (pág. 398) demand [demanda] n. deseo de obtener algún bien o servicio y la capacidad para pagarlo (pág. 98) demand curve [curva de la demanda] n. gráﬁ ca que muestra una tabla de demanda, o la cantidad de un bien o de un servicio que una persona puede y está dispuesta a comprar a cada precio (pág. 102) demand deposits [depósitos a la vista] n. cuentas corrientes, llamadas así porque las cuentas corrientes pueden convertirse en dinero “a la vista” (pág. 293) Spanish Glossary R47 demand-pull inﬂ ation [inﬂ ación de demanda] n. condición que se presenta cuando la demanda total sube más rápido que la producción de bienes y servicios (pág. 399) demand schedule [tabla de demanda] n. tabla que mu
estra la cantidad de un bien o de un servicio que una persona puede y está dispuesta a comprar a cada precio (pág. 100) demand-side ﬁ scal policy [política ﬁ scal sobre la demanda] n. plan para estimular la demanda agregada (pág. 454) deposit multiplier formula [fórmula del multiplicador de depósitos] n. fórmula matemática que indica cuánto aumentará la oferta monetaria tras realizar un depósito inicial de dinero en un banco (pág. 485) depreciate [depreciar] v. disminuir de valor (pág. 590) depression [depresión] n. período prolongado con un alto nivel de desempleo y una reducción de la actividad económica (pág. 359) deregulation [desregulación] n. reducción o eliminación de la vigilancia y el control de las empresas por parte del gobierno (pág. 218) derived demand [demanda derivada] n. demanda de un producto o un recurso que se basa en su aportación al producto ﬁ nal (pág. 259) developed nations [países desarrollados] n. países que tienen una economía de mercado, un nivel de vida relativamente alto, un PIB alto, industrialización, propiedad privada generalizada y un gobierno estable y efectivo (pág. 544) differentiated product [producto diferenciado] véase product differentiation [diferenciación de productos] diminishing returns [rentabilidad decreciente] n. situación en la que nuevos trabajadores hacen que el producto marginal aumente pero a un ritmo decreciente (pág. 139) discount rate [tasa de descuento] n. tasa de interés que aplica la Reserva Federal cu
ando presta dinero a otros bancos (pág. 491) discretionary ﬁ scal policy [política ﬁ scal discrecional] n. medidas que toma el gobierno federal a voluntad para corregir la inestabilidad económica (pág. 446) discretionary spending [gastos discrecionales] n. gastos que el gobierno debe autorizar cada año (pág. 428) disequilibrium [desequilibrio] n. situación en la que la cantidad ofertada y la cantidad demandada no se encuentran en equilibrio (pág. 169) disposable personal income (DPI) [renta personal disponible (RPD)] n. renta personal menos los impuestos (pág. 355) diversiﬁ cation [diversiﬁ cación] n. práctica de distribuir las inversiones entre diferentes activos ﬁ nancieros para maximizar la rentabilidad y limitar el riesgo (pág. 327) dividend [dividendo] n. aquella parte de las ganancias de una sociedad anónima que la compañía paga a los accionistas (pág. 238) dumping [dumping] n. venta de un producto en otro país a un precio más bajo del que tiene en el mercado de origen (pág. 521) Dumpster diving [buceo en la basura] n. técnica utilizada por los ladrones de identidad para recoger información personal en la basura (pág. 584) E easy-money policy [política de dinero barato] véase expansionary monetary policy [política monetaria expansiva] economic cycle [ciclo económico] véase business cycle [ciclo económico] economic growth [crecimiento económico] n. aumento del producto interior bruto real de un país (pág. 358) economic interdependence [interdependencia
económica] n. situación en la que los productores de un país dependen de otros para conseguir bienes y servicios que ellos no producen (pág. 510) economic model [modelo económico] n. representación simpliﬁ cada de las actividades, sistemas o problemas económicos (pág. 18) economics [economía] n. estudio de cómo las personas y la sociedad satisfacen sus deseos ilimitados con recursos limitados (pág. 4) economic system [sistema económico] n. forma en que la sociedad utiliza sus recursos escasos para satisfacer los deseos ilimitados de su población (pág. 38) economies of scale [economías de escala] n. situación en la que el costo promedio de producción disminuye al crecer el productor (pág. 201) economize [economizar] v. tomar decisiones según lo que se cree la mejor combinación de costos y beneﬁ cios (pág. 12) efﬁ ciency [eﬁ ciencia] n. condición en la que los recursos económicos se utilizan para producir la cantidad máxima de bienes y servicios (pág. 20) elastic [elástica] adj. situación en la que un cambio en el precio, ya sea para más o para menos, produce un cambio relativamente más grande en la cantidad demandada o en la cantidad ofertada (págs. 117, 154) elasticity of demand [elasticidad de la demanda] n. medida de la reacción de los consumidores ante los cambios de los precios en el mercado (pág. 117) elasticity of supply [elasticidad de la oferta] n. medida de la reacción de los productores ante los cambios de los precios en
el mercado (pág. 154) R48 Spanish Glossary embargo [embargo] n. ley que prohíbe la mayor parte o todo el comercio con un país determinado (pág. 521) entitlement [derechos sociales adquiridos] n. programa de asistencia social que tiene determinados requisitos de admisión (pág. 428) entrepreneurship [capacidad empresarial] n. combinación de visión, aptitud, ingenio y disposición de asumir riesgos, necesaria para crear y dirigir nuevas empresas (pág. 9) equilibrium price [precio de equilibrio] n. precio al que la cantidad demandada equivale a la cantidad ofertada (pág. 164) equilibrium wage [salario de equilibrio] n. salario en el que la cantidad de trabajadores demandados equivale a la cantidad de trabajadores ofertados; precio de mercado de la mano de obra (pág. 258) estate tax [impuesto de sucesiones] n. impuesto aplicado a los activos de una persona que ha muerto (pág. 425) European Union (EU) [Unión Europea (UE)] n. unión económica y política de los países europeos, establecida en 1993 (pág. 532) euro [euro] n. moneda única de la Unión Europea (pág. 533) excise tax [impuesto sobre consumos] n. impuesto aplicado a la producción o a la venta de un bien o un servicio determinado (págs. 149, 425) expansion [expansión] n. aumento de la actividad económica (pág. 358); véase business cycle [ciclo económico] expansionary ﬁ scal policy [política ﬁ scal expansiva] n. plan para aumentar la demanda agregada y estimular
una economía débil (pág. 446) expansionary monetary policy [política monetaria expansiva] n. plan para aumentar la cantidad de dinero en circulación; también llamada política de dinero barato (pág. 492) exports [exportaciones] n. bienes o servicios producidos en un país y vendidos a otros países (pág. 516) externality [externalidad] n. efecto secundario de una transacción que afecta a alguien que no sea el productor o el comprador (pág. 87) F factor market [mercado de factores] n. mercado para los factores de producción: tierra, trabajo, capital y capacidad empresarial (pág. 52) factors of production [factores de producción] n. recursos económicos necesarios para producir bienes y servicios (pág. 8) federal budget [presupuesto federal] n. plan para gastar los ingresos obtenidos mediante los impuestos federales (pág. 431) federal funds rate (FFR) [tasa de interés para fondos federales (TFF)] n. interés al que una institución de depósitos presta por un día fondos disponibles a otra institución de depósitos (pág. 490) Federal Insurance Contributions Act (FICA) [Ley de Contribuciones al Seguro Federal] n. impuesto sobre nóminas que proporciona cobertura a las personas mayores, a los desempleados por incapacidad y a los familiares supervivientes de asalariados que han muerto (pág. 423) Federal Open Market Committee (FOMC) [Comité Federal del Mercado Abierto] n. junta del Sistema de la Reserva Federal que supervisa la venta y la compra de valores del gobierno federal (pág. 477) Federal Reserve System [Sistema de la Reserva Federal] n
. banco central de Estados Unidos, llamado comúnmente la Fed (pág. 474) ﬁ at money [dinero ﬁ duciario] n. dinero que no tiene respaldo tangible pero cuyo valor es declarado por el gobierno y aceptado por los ciudadanos (pág. 291) ﬁ ling status [estado personal] n. para la declaración de impuestos, se basa en el estado civil o en las cargas familiares (pág. 604) ﬁ nancial asset [activo ﬁ nanciero] n. derecho de la propiedad del prestatario (pág. 319) ﬁ nancial intermediary [intermediario ﬁ nanciero] n. institución que reúne fondos de los ahorradores e invierte estos fondos en activos ﬁ nancieros (pág. 319) ﬁ nancial market [mercado ﬁ nanciero] n. situación en la que los compradores y los vendedores intercambian activos ﬁ nancieros (pág. 319) ﬁ nancial system [sistema ﬁ nanciero] n. todas las instituciones que ayudan a transferir fondos entre los ahorradores y los inversionistas (pág. 318) ﬁ scal [ﬁ scal] adj. lo relacionado a los ingresos y a los gastos del gobierno (pág. 446) ﬁ scal policy [política ﬁ scal] n. uso que hace el gobierno federal de los impuestos y los gastos para afectar a la economía (pág. 446) ﬁ scal year [año ﬁ scal] n. período de 12 meses en el que una organización planiﬁ ca sus gastos (pág. 431) ﬁ xed costs [costos ﬁ jos] n. gastos en los que incurren los prop
ietarios de empresas, independientemente de cuánto produzcan (pág. 140) ﬁ xed rate of exchange [tasa de cambio ﬁ ja] n. sistema en el que la divisa de un país es ﬁ ja o constante respecto a las otras divisas (pág. 526) Spanish Glossary R49 ﬂ exible exchange rate [tasa de cambio ﬂ exible] n. sistema en el que la tasa de cambio para una divisa ﬂ uctúa al ﬂ uctuar la oferta y la demanda de la divisa; también llamada tasa ﬂ otante (pág. 527) focus group [grupo focal] n. discusión dirigida por un moderador y realizada con pequeños grupos de consumidores (pág. 208) foreign exchange market [mercado de divisas] n. mercado en el que se compran y venden divisas de diferentes países (pág. 526) foreign exchange rate [tasa de cambio de divisas] n. precio de una divisa expresado en las divisas de otros países (pág. 526) franchise [franquicia] n. negocio formado por negocios parcialmente independientes que ofrecen todos los mismos productos o servicios (pág. 248) franchisee [franquiciado] n. negocio parcialmente independiente que paga un cargo por el derecho a vender en una determinada zona los productos o servicios de la compañía matriz (pág. 248) free contract [contrato libre] n. situación en la que las personas deciden por sí solas qué contratos legales aceptar (pág. 73) free-enterprise system [sistema de libre mercado] n. otro nombre del capitalismo, sistema económico basado en la propiedad privada de los recurs
os productivos (pág. 70) free rider [beneﬁ ciario gratuito] n. persona que no paga un bien o un servicio pero que se beneﬁ cia de él cuando se le da (pág. 85) free-trade zone [zona de libre comercio] n. determinada región en la que el comercio entre los países se realiza sin aranceles proteccionistas (pág. 532) frictional unemployment [desempleo friccional] n. desempleo temporal de los trabajadores que pasan de un puesto de trabajo a otro (pág. 384) full employment [pleno empleo] n. nivel de desempleo en el que ninguna parte del desempleo se debe a la reducción de la actividad económica; por lo general, está marcado por una tasa de desempleo del 4 al 6 por ciento (pág. 383) future [futuro] n. contrato para comprar o vender acciones en una fecha futura determinada y a un precio establecido (pág. 333) G general partnership [sociedad colectiva] n. sociedad en la que cada socio participa en la dirección de la empresa y es responsable de todas las deudas y pérdidas de la empresa (pág. 233) geographic monopoly [monopolio geográﬁ co] n. monopolio que existe debido a la ausencia de otros productores o vendedores en cierta región (pág. 201) gift tax [impuesto sobre donaciones] n. impuesto aplicado al dinero o a las propiedades que una persona viva le da a otra (pág. 425) glass ceiling [techo de cristal] n. barrera artiﬁ cial e invisible que a veces afrontan las mujeres y las minorías y que les impide avanzar profesional
mente (pág. 262) global economy [economía global] n. todas las interacciones económicas que cruzan las fronteras internacionales (pág. 61) gold standard [patrón oro] n. sistema en el que la unidad monetaria básica es igual a una cantidad de oro establecida (pág. 299) goods [bienes] n. objetos físicos, como los alimentos, la ropa y los muebles, que pueden comprarse (pág. 5) government monopoly [monopolio gubernamental] n. monopolio que existe debido a que el gobierno posee y dirige esa empresa o autoriza un solo productor (pág. 201) grant-in-aid [donativo del gobierno federal] n. pago de transferencia del gobierno federal a gobiernos estatales o locales (pág. 432) gross domestic product (GDP) [producto interior bruto (PIB)] n. valor de mercado de todos los bienes y servicios ﬁ nales producidos en un país durante un determinado período de tiempo (pág. 350) gross national product (GNP) [producto nacional bruto (PNB)] n. valor de mercado de todos los bienes y servicios ﬁ nales producidos por un país durante un determinado período de tiempo (pág. 355) H hacking [hacking] n. técnica empleada por los ladrones de identidad para recoger información personal mediante computadoras y tecnología relacionada (pág. 588) horizontal merger [fusión horizontal] n. unión de dos o más compañías que ofrecen productos o servicios iguales o similares (pág. 243) human capital [capital humano] n. conocimientos y aptitudes que permiten a los trabajadores ser productivos (pág. 261) human development
index (HDI) [índice de desarrollo humano (IDH)] n. combinación del PIB real per cápita, la esperanza de vida al nacer, la tasa de alfabetización de adultos y la tasa de matriculación de los estudiantes de un país y todo esto indica cómo es la vida en un país determinado (pág. 547) R50 Spanish Glossary hyperinﬂ ation [hiperinﬂ ación] n. tasa de inﬂ ación acelerada y no controlada superior al 50 por ciento (pág. 398) I identity theft [robo de identidad] n. uso de la información personal de otra persona con ﬁ nes criminales (pág. 588) imperfect competition [competencia imperfecta] n. estructura de mercado que carece de una o más de las condiciones necesarias para la competencia perfecta (pág. 195) imports [importaciones] n. bienes o servicios producidos en un país y comprados por otro (pág. 516) incentive [incentivo] n. beneﬁ cio ofrecido para estimular a las personas a que actúen de cierta manera (págs. 12, 176) incidence of a tax [incidencia ﬁ scal] n. carga ﬁ nal de un impuesto (pág. 415) income distribution [distribución de la renta] n. forma en que la renta se divide entre las personas de un país (pág. 390) income effect [efecto renta] n. cambio en la cantidad de un bien o de un servicio que un consumidor comprará debido a la variación de su renta (y por ello su poder adquisitivo) (pág. 107) income inequality [desigualdad de la renta] n. distribución desigual de la renta (pág. 390) increasing returns [rent
abilidad creciente] n. situación en la que la contratación de nuevos trabajadores hace aumentar el producto marginal (pág. 139) independent contractor [contratista independiente] n. alguien que vende sus servicios mediante un contrato (pág. 270) individual income tax [impuesto sobre la renta personal] n. impuesto basado en las rentas que una persona recibe de todas las fuentes (pág. 412) industrial union [sindicato industrial] n. organización de trabajadores con muchas y diversas aptitudes y que trabajan en la misma industria (pág. 274) inelastic [inelástica] n. situación en la que la cantidad demandada o la cantidad ofertada cambia poco al cambiar el precio (págs. 117, 155) infant industries [industrias nacientes] n. nuevas industrias que frecuentemente son incapaces de competir contra los competidores más grandes y establecidos (pág. 523) infant mortality rate [tasa de mortalidad infantil] n. número de niños que mueren durante el primer año de vida por 1,000 nacimientos (pág. 547) inferior goods [bienes inferiores] n. bienes que tienen menos demanda por parte de los consumidores cuando aumentan sus ingresos (pág. 110) inﬂ ation [inﬂ ación] n. aumento persistente del nivel general de precios, o disminución persistente del poder adquisitivo del dinero (pág. 396) inﬂ ation rate [tasa de inﬂ ación] n. tasa de variación de los precios durante un período de tiempo establecido (pág. 397) infrastructure [infraestructuras] n. conjunto básico de los sistem
as de soporte, como los sistemas energéticos, de comunicaciones, de transporte, de agua, sanitarios y de educación, que se necesitan para el funcionamiento de la economía y la sociedad (págs. 86, 545) input costs [costos de los insumos] n. precio de los recursos necesarios para producir un bien o un servicio (pág. 148) insourcing [uso de recursos internos] n. práctica de las compañías extranjeras que establecen operaciones en Estados Unidos y por lo tanto crean puestos de trabajo en este país (pág. 269) interest [interés] n. cargo que paga un banco por el uso del dinero (pág. 578) International Monetary Fund (IMF) [Fondo Monetario Internacional (FMI)] n. organización internacional establecida para promocionar la cooperación monetaria internacional, fomentar el crecimiento económico y proporcionar apoyo ﬁ nanciero temporal a los países para ayudar a mitigar el ajuste de la balanza-de-pagos (pág. 559) investment [inversión] n. uso actual de la renta de manera tal que permita obtener un beneﬁ cio futuro (pág. 318) investment objective [objetivo de inversión] n. meta ﬁ nanciera utilizada para determinar si una inversión es apropiada (pág. 324) J junk bond [bono basura] n. bono de empresa que es de alto riesgo y de alto rendimiento (pág. 339) K Keynesian economics [economía keynesiana] n. idea, propuesta inicialmente por John Maynard Keynes, de que el gobierno necesita estimular la demanda agregada en períodos de recesión (pág.
454) L labor [trabajo] n. todo el tiempo, esfuerzo y talento humano usado para producir bienes y servicios (pág. 8) labor input [factor trabajo] n. magnitud de la fuerza laboral multiplicada por la duración de la semana laborable (pág. 371) labor productivity [productividad del trabajo] n. cantidad de bienes y servicios que una persona puede producir en un tiempo determinado (pág. 149) Spanish Glossary R51 labor union [sindicato laboral] n. organización de trabajadores que trata de mejorar para sus miembros los salarios, las condiciones laborales, los beneﬁ cios suplementarios, la seguridad en el empleo y otros asuntos relacionados con el trabajo (pág. 274) Laffer Curve [curva de Laffer] n. gráﬁ ca que ilustra cómo afecta la reducción de los impuestos a los ingresos ﬁ scales y al crecimiento económico (pág. 459) lagging indicators [indicadores retrasados] n. medidas del rendimiento económico que suelen cambiar después de cambiar el producto interior bruto real (pág. 364) laissez faire [laissez faire] n. principio según el cual el gobierno no debe interferir en la economía (pág. 49) land [tierra] n. todos los recursos naturales sobre o bajo el suelo que se utilizan para producir bienes y servicios (pág. 8) landlord [propietario de una propiedad] n. dueño de una propiedad de alquiler (pág. 609) law of comparative advantage [ley de la ventaja comparativa] n. ley según la cual los países se beneﬁ cian cuando producen artí
culos cuya fabricación realizan con la mayor eﬁ ciencia y con el menor costo de oportunidad (pág. 514) law of demand [ley de la demanda] n. establece que cuando el precio de un bien o de un servicio baja la cantidad demandada aumenta, y cuando los precios suben la cantidad demandada disminuye (pág. 99) law of diminishing marginal utility [ley de la utilidad marginal decreciente] n. establece que el beneﬁ cio marginal obtenido al consumir cada unidad adicional de un bien o de un servicio durante un determinado período de tiempo tiende a disminuir tras el consumo de cada una (pág. 106) law of increasing opportunity costs [ley de costos de oportunidad crecientes] n. establece que al pasar de fabricar un producto a fabricar otro, se necesitan cada vez más recursos para aumentar la fabricación del segundo producto, lo cual hace aumentar los costos de oportunidad (pág. 21) law of supply [ley de la oferta] n. establece que los productores están dispuestos a vender más de un bien o de un servicio a un precio más alto que a un precio más bajo (pág. 131) leading indicators [indicadores principales] n. medidas del rendimiento económico que generalmente cambian antes de que cambie el producto interior bruto real (pág. 364) lease [contrato de arrendamiento ﬁ nanciero] n. contrato para alquilar un apartamento, vehículo u otro objeto durante un determinado período de tiempo (pág. 609) legal equality [igualdad legal] n. situación en la que todo el mundo tiene los mismos derechos económicos bajo la ley (pág. 73) less developed countries
(LDCs) [países menos desarrollados (PMD)] n. países con un PIB más bajo, menos industrias bien desarrolladas y un nivel de vida menor; a veces, se llaman economías emergentes (pág. 545) life expectancy [esperanza de vida al nacer] n. promedio de años que se prevé que una persona vivirá si las tendencias de mortalidad actuales continúan durante el resto de la vida de esa persona (pág. 547) limited liability [responsabilidad limitada] n. situación en la que la responsabilidad del propietario de una empresa respecto a las deudas y a las pérdidas de la empresa es limitada (pág. 240) limited liability partnership (LLP) [sociedad de responsabilidad limitada (SRL)] n. sociedad en la que no todos los socios son responsables de las deudas y de otras obligaciones de los otros socios (pág. 233) limited life [vida limitada] n. situación en la que una empresa deja de existir si el propietario muere, se jubila o abandona la empresa (pág. 228) limited partnership [sociedad limitada] n. sociedad en la que hay al menos un socio que no participa en la gestión de la empresa y es responsable sólo de los fondos que invirtió (pág. 233) literacy rate [tasa de alfabetización] n. porcentaje de personas mayores de 15 años que saben leer y escribir (pág. 547) loan [préstamo] n. dinero prestado que se reembolsa generalmente con intereses (pág. 582) Lorenz curve [curva de Lorenz] n. curva que muestra el grado de desigualdad de la renta de un país (pág. 391) M macroeconomic equilibrium
[equilibrio macroeconómico] n. punto donde la demanda agregada equivale a la oferta agregada (pág. 361) macroeconomics [macroeconomía] n. estudio del comportamiento de la economía en su conjunto; lo relacionado a la actividad económica a gran escala (pág. 27) mandatory spending [gastos obligatorios] n. gastos que debe realizar el gobierno según las leyes actuales (pág. 428) marginal beneﬁ t [beneﬁ cio marginal] n. beneﬁ cio o satisfacción obtenido al consumir una unidad adicional de un bien o de un servicio (pág. 16) marginal cost [costo marginal] n. costo adicional de producir o consumir una unidad adicional de un bien o de un servicio (págs. 16, 140) marginal product [producto marginal] n. cambio en el producto total que es resultado de añadir un trabajador más (pág. 138) R52 Spanish Glossary marginal revenue [ingreso marginal] n. dinero obtenido al vender cada unidad adicional (pág. 142) market [mercado] n. cualquier lugar o situación en que las personas compran y venden bienes y servicios (pág. 48) market allocation [reparto de mercado] n. acuerdo entre dos o más empresas competidoras por el que se divide un mercado (pág. 216) market demand curve [curva de demanda de mercado] n. gráﬁ ca que muestra datos de una tabla de demanda de mercado, o la cantidad de un bien o de un servicio que todos los consumidores pueden y están dispuestos a comprar a cada precio (pág. 102) market demand schedule [tabla de demanda de mercado] n. tabla que muestra la cantidad de un bien
o de un servicio que todos los consumidores pueden y están dispuestos a comprar a cada precio de un mercado (pág. 100) market division [repartición de mercado] véase market allocation [reparto de mercado] market economy [economía de mercado] n. sistema económico basado en la elección individual y el intercambio voluntario (pág. 39) market equilibrium [equilibrio del mercado] n. situación en la que la cantidad ofertada y la cantidad demandada a un precio determinado son iguales (pág. 164) market failure [fallo del mercado] n. situación en la que personas no participantes de una interacción del mercado se beneﬁ cian de ella o pagan parte de sus costos (pág. 84) market research [investigación de mercados] n. recogida y evaluación de información sobre las preferencias de los consumidores respecto a bienes y servicios (pág. 208) market share [cuota de mercado] n. porcentaje del total de ventas de una empresa en un mercado determinado (pág. 209) market structure [estructura de mercado] n. modelo económico de competencia entre las empresas de la misma industria (pág. 192) market supply curve [curva de oferta de mercado] n. gráﬁ ca que muestra datos de una tabla de oferta de mercado (pág. 134) market supply schedule [tabla de oferta de mercado] n. tabla que muestra la cantidad de un bien o de un servicio que todos los productores de un mercado pueden y están dispuestos a ofrecer para su venta a cada precio (pág. 132) maturity [vencimiento] n. fecha en la que un bono debe reembolsarse (pág. 338) Medicaid [Medicaid] n. programa de seguro méd
ico gubernamental destinado a las personas de baja renta (pág. 429) Medicare [Medicare] n. programa de seguro de salud nacional y gubernamental destinado principalmente a los ciudadanos mayores de 65 años (pág. 423) medium of exchange [medio de intercambio] n. medio por el que se pueden intercambiar bienes y servicios (pág. 288) merger [fusión] n. unión de dos o más compañías para formar una sola compañía (pág. 214) microeconomics [microeconomía] n. estudio del comportamiento de los participantes individuales de una economía, como las personas, las familias y las empresas (pág. 27) minimum balance requirement [requisito de saldo mínimo] n. cantidad de dinero que se debe mantener en una cuenta para evitar los cargos (pág. 576) minimum wage [salario mínimo] n. la menor cantidad, según establece la ley, que un empleador puede pagar a un trabajador por una hora de trabajo (págs. 182, 262) mixed economy [economía mixta] n. sistema económico que presenta elementos de las economías tradicional, autoritaria y de mercado; sistema económico más común (pág. 58) modiﬁ ed free enterprise economy [economía de libre mercado modiﬁ cada] n. sistema económico mixto que incluye algunas medidas protectoras, disposiciones y reglamentos del gobierno, para ajustar el sistema de libre mercado (pág. 80) monetarism [monetarismo] n. teoría económica que sugiere que los cambios rápidos en la oferta monetaria son la causa principal de la inestabilidad e
conómica (pág. 496) monetary [monetario] adj. lo relacionado al dinero (pág. 474) monetary policy [política monetaria] n. medidas de la Reserva Federal que cambian la oferta monetaria para inﬂ uir en la economía (pág. 490) money [dinero] n. todo lo que las personas aceptan como pago de bienes y servicios (pág. 288) money market [mercado monetario] n. mercado en el que se compran y venden activos ﬁ nancieros a corto plazo (pág. 322) monopolistic competition [competencia monopolista] n. estructura de mercado en la que un gran número de vendedores ofrecen a los consumidores productos similares pero no estandarizados (pág. 206) monopoly [monopolio] n. estructura de mercado en la que un único vendedor vende un producto para el que no existen sustitutos adecuados (pág. 198) monopsony [monopsonio] n. estructura de mercado en la que existe gran número de vendedores pero sólo un comprador grande (pág. 212) Spanish Glossary R53 multifactor productivity [productividad multifactorial] n. razón entre la producción económica de una industria y los factores trabajo y capital (pág. 372) multinational corporation [empresa multinacional] n. sociedad anónima que tiene establecimientos en varios países (pág. 243) mutual fund [fondo de mercado monetario, fondo mutual] n. compañía de inversión que reúne dinero de inversionistas individuales y lo utiliza para comprar una variedad de activos ﬁ nancieros (pág. 320) N NAFTA [NAFTA] n. Tratado de Libre Comercio con América del Norte, convenio que asegura el lib
re comercio por todo el continente y constituye la zona de libre comercio más grande del mundo (pág. 533) national accounts [cuentas nacionales] véase national income accounting [contabilidad nacional] national bank [banco nacional] n. banco autorizado por el gobierno nacional (pág. 299) national debt [deuda pública] n. cantidad total de dinero que debe el gobierno federal (pág. 462) national income (NI) [renta nacional (RN)] n. renta total percibida en un país por la producción de bienes y servicios durante un determinado período de tiempo (pág. 355) national income accounting [contabilidad nacional] n. método de analizar la economía de un país usando medidas estadísticas de los ingresos, los gastos y la producción (pág. 350) nationalize [nacionalizar] v. pasar de la propiedad privada a la propiedad gubernamental o pública (pág. 61) natural monopoly [monopolio natural] n. situación del mercado en la que los costos de producción son más bajos cuando una única empresa proporciona un producto o un servicio (pág. 201) near money [cuasidinero] n. cuentas de ahorro y otros depósitos a plazo similares que pueden convertirse en dinero de manera relativamente fácil (pág. 293) needs [necesidades] n. objetos como los alimentos, la ropa y los lugares de vivienda, que son necesarios para la vida (pág. 4) negative externality [externalidad negativa] n. externalidad que supone un costo para personas no participantes en la actividad económica original (pág. 87) net national product (NNP) [producto nacional
neto (PNN)] n. producto nacional bruto menos la depreciación del capital social. Es decir, es el valor de los bienes y los servicios ﬁ nales menos el valor de los bienes capitales que quedaron desgastados durante el año (pág. 355) nominal GDP [PIB nominal] n. producto interior bruto expresado en función del valor actual de los bienes y los servicios (pág. 352) nonmarket activities [actividades no comerciales] n. servicios que tienen un valor económico en potencia pero que se prestan sin cobrar (pág. 354) nonprice competition [competencia no basada en el precio] n. uso de factores distintos al precio, como el estilo, el servicio, la publicidad o los regalos, para tratar de convencer a los clientes para que compren algo de un productor y no de otro (pág. 207) nonproﬁ t organization [organización sin ﬁ nes de lucro] n. institución que actúa como empresa pero que existe para beneﬁ ciar a la comunidad en lugar de obtener ganancias (pág. 250) normal goods [bienes normales] n. bienes que tienen más demanda por parte de los consumidores cuando aumentan sus ingresos (pág. 110) normative economics [economía normativa] n. forma de describir y explicar cómo debería ser el comportamiento económico y no cómo es en realidad (pág. 29) not-for-proﬁ t [sin ﬁ nes de lucro] véase nonproﬁ t organization [organización sin ﬁ nes de lucro] O oligopoly [oligopolio] n. estructura de mercado en la que un número reducido de vendedores ofrecen un producto similar (pág. 209) OPEC
[OPEP] n. Organización de Países Exportadores de Petróleo, grupo comercial regional (pág. 535) open market operations [operaciones de mercado abierto] n. compraventa por parte de la Reserva Federal de valores del gobierno federal; instrumento de política monetaria de mayor uso por la Reserva Federal para ajustar la oferta monetaria (pág. 490) open opportunity [oportunidad abierta] n. capacidad para que todo el mundo pueda entrar y competir en el mercado según su libre elección (pág. 73) operating budget [presupuesto de operación] n. plan para los gastos diarios (pág. 436) opportunity cost [costo de oportunidad] n. costo de elegir una alternativa económica en lugar de otra (pág. 14) option [opción] n. contrato por el que se da al inversionista el derecho a comprar o vender acciones en una fecha futura y a un precio establecido (pág. 333) outsourcing [subcontratación] n. práctica de contratar una empresa externa, a menudo en un país extranjero, para que proporcione bienes y servicios (pág. 269) R54 Spanish Glossary overdraft [sobregiro] n. cheque u otra forma de retirar fondos que excede del saldo existente en la cuenta (pág. 576) P par value [valor a la par] n. cantidad que el emisor de un bono promete pagar al comprador en la fecha de vencimiento (pág. 338) partnership [sociedad] n. empresa que pertenece a dos o más personas, o “socios”, que acuerdan la forma de repartir las responsabilidades, las ganancias y las pérdidas (pág. 232) patent [patente] n.
pobreza] n. situación en la que la renta y los recursos de una persona no le permiten obtener un nivel de vida mínimo (pág. 388) poverty line [línea de pobreza] véase poverty threshold [umbral de pobreza] poverty rate [tasa de pobreza] n. porcentaje de personas que viven en hogares cuya renta es inferior a la del umbral de pobreza (pág. 389) poverty threshold [umbral de pobreza] n. renta mínima oﬁ cial necesaria para pagar los gastos básicos de la vida (pág. 388) predatory pricing [establecer precios predatorios] n. ﬁ jar los precios por debajo del costo durante un tiempo para excluir de un mercado a los competidores de menor tamaño (pág. 216) preferred stock [acciones preferentes] n. participación en la propiedad de una sociedad anónima que da al titular parte de las ganancias pero generalmente no da derecho a voto (pág. 331) premium [prima] n. cantidad que se paga por un seguro (pág. 596) price ceiling [precio máximo] n. precio máximo establecido que los vendedores pueden cobrar por un producto (pág. 180) price ﬁ xing [imposición de precios] n. pactos entre dos o más empresas por los que ﬁ jan los precios de productos competidores (pág. 216) price ﬂ oor [precio mínimo] n. precio mínimo establecido al que los compradores deben pagar un producto (pág. 182) price maker [ﬁ jador de precio] n. empresa que no tiene que tomar en cuenta a los competidores cuando ﬁ ja sus precios (pág. 198)
price taker [tomador de precio] n. compañía que debe aceptar el precio de mercado ﬁ jado por la interacción de la oferta y la demanda (pág. 193) primary market [mercado primario] n. mercado de valores para comprar activos ﬁ nancieros directamente del emisor (pág. 322) prime rate [tasa preferencial] n. tasa de interés que los bancos aplican a sus mejores clientes (pág. 491) private company [compañía privada] n. sociedad anónima que controla quién puede comprar o vender sus acciones (pág. 238) private property rights [derechos a propiedad privada] n. derechos de las personas y de los grupos a poseer recursos y empresas (pág. 48) private sector [sector privado] n. parte de la economía que pertenece a las personas o a las empresas (pág. 432) privatization [privatización] n. proceso de transferir a las personas propiedades y empresas públicas (pág. 563) privatize [privatizar] v. pasar de la propiedad gubernamental o pública a la propiedad privada (pág. 61) producer [productor] n. persona que produce bienes o presta servicios (pág. 5) producer price index (PPI) [índice de precios al por mayor (IPM)] n. medida de los cambios en los precios al por mayor (pág. 397) product differentiation [diferenciación de productos] n. intento de distinguir un producto de otros productos similares (pág. 206) Spanish Glossary R55 product market [mercado de productos] n. mercado en el que se compran y venden bienes y servicios (pág. 52) production possibilities curve (PPC) [curva de posibilidades de producción
(CPP)] n. gráﬁ ca utilizada para ilustrar el efecto de la carencia sobre una economía (pág. 18) productivity [productividad] n. cantidad de producto obtenido a partir de una cantidad establecida de insumos (pág. 372) productivity, labor [productividad, trabajo] véase labor productivity [productividad del trabajo] proﬁ t [ganancias] n. ganancias ﬁ nancieras que obtiene un vendedor al realizar una transacción comercial (pág. 49); dinero que queda tras restar los costos de fabricar un producto a los ingresos obtenidos al vender ese producto (pág. 78) proﬁ t-maximizing output [nivel de producción de máxima ganancia] n. punto de la producción en el que una empresa ha alcanzado su mayor nivel de ganancias (pág. 143) proﬁ t motive [afán de lucro] n. incentivo que estimula a las personas y a las organizaciones para que mejoren su bienestar material buscando obtener ganancias de actividades económicas (pág. 73) progressive tax [impuesto progresivo] n. impuesto que aplica una tasa impositiva más alta a las personas de alta renta que a las personas de baja renta (pág. 412) property tax [impuesto sobre la propiedad] n. impuesto basado en el valor de los activos de una persona o de una empresa (pág. 412) proportional tax [impuesto proporcional] n. impuesto que extrae el mismo porcentaje de renta a todos los contribuyentes, independientemente de su nivel de renta (pág. 412) protectionism [proteccionismo] n. us
o de barreras al comercio entre los países para proteger las industrias nacionales (pág. 523) protective tariff [arancel proteccionista] n. impuesto aplicado a los bienes importados para proteger los bienes nacionales (pág. 521) public company [empresa que cotiza en Bolsa] n. sociedad anónima que emite acciones que pueden negociarse libremente (pág. 238) public disclosure [divulgación pública] n. política que exige que las empresas revelen a los consumidores información sobre sus productos (pág. 217) public goods [bienes públicos] n. bienes y servicios proporcionados por el gobierno y consumidos por el público como grupo (pág. 84) public transfer payment [pago de transferencia público] n. pago de transferencia por el que el gobierno transﬁ ere ingresos de los contribuyentes a los beneﬁ ciarios sin que éstos den nada a cambio (pág. 89) pure competition [competencia pura] véase perfect competition [competencia perfecta] Q quota [cuota] n. límite sobre la cantidad de un producto que puede importarse (pág. 520) R rational expectations theory [teoría de las expectativas racionales] n. teoría según la cual las personas y las empresas prevén que los cambios en la política ﬁ scal tendrán efectos determinados y actúan para proteger sus intereses contra esos efectos (pág. 452) rationing [racionamiento] n. sistema en el que el gobierno asigna bienes y servicios aplicando factores distintos al precio (pág. 183) real GDP [PIB real] n. producto interior bruto
ág. 279) risk [riesgo] n. posibilidad de sufrir pérdidas en una inversión (pág. 327) S safety net [red de protección] n. programas gubernamentales diseñados para proteger a las personas de las diﬁ cultades económicas (pág. 89) sales tax [impuesto sobre las ventas] n. impuesto basado en el valor de los bienes o los servicios en el momento de la venta (pág. 412) savings [ahorros] n. ingresos que no se utilizan para el consumo (pág. 318) scarcity [carencia] n. situación en la que los recursos no son suﬁ cientes para satisfacer los deseos humanos (pág. 4) seasonal unemployment [desempleo estacional] n. desempleo asociado al trabajo estacional (pág. 384) secondary market [mercado secundario] n. mercado en el que los activos ﬁ nancieros se venden de nuevo (pág. 322) service [servicios] n. trabajo que una persona realiza para otra a cambio de un pago (pág. 5) shadow economy [economía sumergida] véase underground economy [economía subterránea] share [acción] n. unidad del conjunto de acciones de una sociedad anónima (pág. 238); véase stock [acciones] shock therapy [terapia de choque] n. programa económico en el que se pasa abruptamente de una economía autoritaria a una economía de libre mercado (pág. 563) shortage [escasez] n. situación en la que la demanda es mayor que la oferta y la causa suele ser la ﬁ jación de precios excesivamente bajos (pág. 167) shoulder surﬁ ng [navegar por el hombro] n. t
écnica utilizada por los ladrones de identidad para recoger información personal cuando se revela información privada en público (pág. 588) socialism [socialismo] n. sistema económico en el que el gobierno posee algunos o todos los factores de producción (pág. 43) Social Security [Seguridad Social] n. programa federal que proporciona ayuda a los ciudadanos mayores, a los niños huérfanos y a los incapacitados (pág. 423) sole proprietorship [empresa unipersonal] n. empresa que pertenece a una sola persona y que es controlada por esa persona (pág. 226) spamming [spamming] n. técnica utilizada por los ladrones de identidad para recoger información personal mediante correos electrónicos engañosos (pág. 588) special economic zone (SEZ) [zona económica especial (ZEE)] n. región geográﬁ ca que tiene leyes económicas diferentes de las leyes económicas normales de un país, con el objetivo de aumentar las inversiones extranjeras (pág. 567) specialization [especialización] n. situación en la que las personas o las empresas centran sus esfuerzos comerciales en los campos en que presentan una ventaja para una mayor productividad y mayores ganancias (págs. 50, 138, 510) spending multiplier effect [efecto multiplicador de los gastos] n. situación en la que un pequeño cambio en los gastos acaba produciendo un cambio mucho más grande en el PIB (pág. 455) stabilization programs [programas de estabilización] n. programas en los que los países en diﬁ cultades se ven obligados a realizar reformas, como reducir el dé�
� cit comercial exterior y el endeudamiento externo, eliminar los controles de precios, cerrar las empresas públicas ineﬁ cientes y bajar radicalmente el déﬁ cit presupuestario (pág. 559) stagﬂ ation [estanﬂ ación] n. períodos durante los que suben los precios a la vez que se reduce la actividad económica (pág. 359) standardized product [producto estandarizado] n. producto que los consumidores consideran idéntico en todas sus características esenciales a otros productos del mismo mercado (pág. 192) standard of value [patrón de valor] n. forma de medir el valor económico en el proceso de cambio de divisas (pág. 289) start-up costs [costos de puesta en marcha] n. gastos que una nueva empresa debe pagar para entrar en un mercado y empezar a vender a los consumidores (pág. 209) state bank [banco estatal] n. banco autorizado por el gobierno de un estado (pág. 296) statistics [estadísticas] n. datos numéricos (pág. 24) stock [acciones] n. participaciones en la propiedad de una sociedad anónima (pág. 238) stockbroker [agente de bolsa] n. agente que compra y vende valores para los clientes (pág. 332) stock exchange [bolsa de valores] n. mercado secundario donde se venden y compran valores (pág. 330) stock index [índice bursátil] n. instrumento utilizado para medir e informar sobre el cambio en los precios de un conjunto de acciones (pág. 334) stored-value card [tarjeta de valor almacenado] n
. tarjeta que representa dinero que el titular tiene en forma de depósito con la compañía emisora (pág. 308) Spanish Glossary R57 store of value [depósito de valor] n. algo que conserva su valor con el paso del tiempo (pág. 289) strike [huelga] n. paralización del trabajo utilizada para ejercer presión en las negociaciones mientras se trata de convencer al empleador de que mejore los salarios, las condiciones laborales u otros asuntos relacionados con el trabajo (pág. 274) structural unemployment [desempleo estructural] n. desempleo que existe cuando los puestos de trabajo disponibles no se corresponden con las aptitudes de las personas en condiciones de trabajar (pág. 384) subsidy [subsidio] n. pago gubernamental que ayuda a cubrir el costo de una actividad económica que puede beneﬁ ciar al público en su conjunto (pág. 88) substitutes [sustitutos] n. productos que se pueden usar en lugar de otros productos, para satisfacer los deseos de los consumidores (pág. 112) substitution effect [efecto sustitución] n. patrón de comportamiento que se presenta cuando los consumidores, al reaccionar ante un cambio en el precio de un producto, compran un producto sustitutivo que ofrece un mejor valor relativo (pág. 107) supply [oferta] n. disponibilidad y capacidad para producir y vender un producto (pág. 130) supply curve [curva de la oferta] n. gráﬁ ca que muestra los datos de una tabla de oferta (pág. 134) supply schedule [tabla de oferta] n. tabla que muestra la cantidad de un b
ien o de un servicio que un productor individual puede y está dispuesto a ofrecer para su venta a cada precio (pág. 132) supply-side ﬁ scal policy [política ﬁ scal sobre la oferta] n. plan diseñado para ofrecer incentivos a los productores para que aumenten la oferta agregada (pág. 458) surplus [excedente] n. situación en la que la oferta es mayor que la demanda y la causa suele ser la ﬁ jación de precios excesivamente altos (pág. 167) T tariff [arancel] n. cargo aplicado a los bienes transferidos a un país procedentes de otro país (pág. 521) tax [impuesto] n. pago obligatorio a un gobierno (pág. 410) taxable income [renta gravable] n. aquella parte de la renta sujeta a impuestos después de descontar todas las deducciones y exenciones (págs. 421, 604) tax assessor [asesor ﬁ scal] n. funcionario gubernamental que determina el valor de una propiedad sujeta a impuestos (pág. 437) tax base [base imponible] n. forma de riqueza, como la renta, la propiedad, los bienes o los servicios, que está sujeta a impuestos (pág. 412) tax incentive [incentivo ﬁ scal] n. uso de impuestos para estimular o desalentar ciertos comportamientos económicos (pág. 417) tax return [declaración de la renta] n. formulario utilizado para declarar la renta y los impuestos que deben pagarse al gobierno (pág. 421) technological monopoly [monopolio tecnológico] n. monopolio que existe debido a que una empresa controla un m
étodo de fabricación, un invento o un tipo de tecnología (pág. 201) technology [tecnología] n. aplicación de métodos e innovaciones cientíﬁ cos a la producción (pág. 149) telecommuting [trabajo a distancia] n. práctica de realizar el trabajo de oﬁ cina en un lugar distinto a la propia oﬁ cina (pág. 270) telework [teletrabajo] véase telecommuting [trabajo a distancia] temp, temps, temping [trabajo temporal] véase contingent employment [empleo contingente] thrift institution [entidad de ahorros] n. institución ﬁ nanciera que sirve a los ahorradores (pág. 478) tight-money policy [política de dinero escaso] véase contractionary monetary policy [política monetaria restrictiva] total cost [costo total] n. suma de los costos ﬁ jos y variables (pág. 140) total revenue [ingreso total] n. ingreso que recibe una empresa al vender sus productos (págs. 122, 142) total revenue test [prueba del ingreso total] n. método para medir la elasticidad comparando el ingreso total que obtendría una empresa al ofrecer su producto a diferentes precios (pág. 122) trade barrier [barrera al comercio] n. toda ley aprobada para limitar el libre comercio entre los países (pág. 520) trade deﬁ cit [déﬁ cit comercial] n. balanza de comercio desfavorable que se produce cuando un país importa más de lo que exporta (pág. 529) trade-off [compensación] n. alternativa que se rechaza al tomar una decisión económica (pág. 14) trade surplus [superáv
it comercial] n. balanza de comercio favorable que se produce cuando un país exporta más de lo que importa (pág. 529) trade union [sindicato] véase labor union [sindicato laboral] trade war [guerra comercial] n. serie de barreras al comercio entre los países (pág. 522) R58 Spanish Glossary trade-weighted value of the dollar [valor ponderado del dólar] n. medida del valor internacional del dólar que determina si el dólar es fuerte o débil al compararse con otra divisa (pág. 528) traditional economy [economía tradicional] n. sistema económico en el que las personas toman decisiones económicas basándose en costumbres y creencias que se han pasado de una generación a la siguiente (pág. 38) transfer payment [pago de transferencia] n. dinero enviado a personas que no dan bienes o servicios a cambio. (págs. 89, 432) transitional economy [economía transicional] n. país que ha pasado (o está pasando) de una economía autoritaria a una economía de mercado (pág. 545) Treasury bill (T bill) [letra del Tesoro] n. bono a corto plazo cuyo vencimiento es de menos de un año (pág. 464) Treasury bond [bono del Tesoro a largo plazo] n. bono a largo plazo cuyo vencimiento es de 30 años (pág. 464) Treasury note [pagaré del Tesoro] n. bono a medio plazo cuyo vencimiento es de entre dos y diez años (pág. 464) trough [punto mínimo] n. ﬁ n de una contracción de la economía (pág. 359); véase business cycle [ciclo económico]
trust [grupo de empresas] n. grupo de compañías que se combinan para reducir la competencia en una industria (pág. 214) trust fund [fondo ﬁ duciario] n. fondo creado para un ﬁ n determinado y para un uso futuro (pág. 465) U underemployed [subempleados] n. personas que trabajan a tiempo parcial pero que quieren trabajar a tiempo completo, o personas que tienen un trabajo que requiere una capacidad inferior a la suya (pág. 383) underground economy [economía subterránea] n. actividades de mercado que no se declaran por ser ilegales o porque los participantes quieren evitar pagar impuestos (pág. 354) underutilization [infrautilización] n. condición en la que los recursos económicos se usan por debajo de su potencia total, dando lugar a menos bienes y servicios (pág. 20) unemployment rate [tasa de desempleo] n. porcentaje de la fuerza laboral que no tiene empleo y que está buscando activamente un trabajo (pág. 382) union [sindicato] véase labor union [sindicato laboral] union shop [compañía de exclusividad sindical] n. empresa en la que los trabajadores están obligados a asociarse a un sindicato durante un período de tiempo establecido después de ser contratados (pág. 279) unit elastic [elasticidad unitaria] n. situación en la que el cambio porcentual del precio y el de la cantidad demandada son iguales (pág. 118) unlimited liability [responsabilidad ilimitada] n. situación en la que el propietario de una empresa es responsable de todas las pérdidas y deudas de la emp
resa (pág. 228) unlimited life [vida ilimitada] n. situación en la que una sociedad anónima continúa existiendo aun después de un cambio de propietario (pág. 240) user fee [cargo de usuario] n. cantidad de dinero que se cobra por el uso de un bien o servicio (pág. 425) utility [utilidad] n. beneﬁ cio o satisfacción obtenido del consumo de un bien o un servicio (pág. 12) V variable costs [costos variables] n. costos comerciales que varían con el nivel de producción (pág. 140) vertical merger [fusión vertical] n. combinación de dos o más empresas relacionadas con diferentes fases de la producción o de la comercialización de un producto o un servicio (pág. 243) voluntary exchange [intercambio voluntario] n. intercambio en el que las partes participantes prevén que los beneﬁ cios serán más importantes que el costo (pág. 49) voluntary export restraint (VER) [retricción voluntaria a la exportación (RVE)] n. autolimitación sobre las exportaciones a ciertos países para evitar cuotas o aranceles (pág. 521) W wage and price controls [controles de precios y salarios] n. limitaciones gubernamentales sobre el aumento de los precios y los salarios (pág. 501) wage-price spiral [espiral de precios y salarios] n. ciclo que empieza con el aumento de los salarios, lo cual da lugar a costos de producción más altos, que a su vez produce precios más altos; esto provoca la demanda de salarios incluso más altos (pág. 400) wage rate [escala de salarios] n. salario establecido para un determinado puest
o de trabajo o tarea realizada (pág. 261) wages [salarios] n. pagos que reciben los trabajadores a cambio de su trabajo (pág. 258) wants [deseos] n. deseos que pueden satisfacerse mediante el consumo de un bien o un servicio (pág. 4) welfare [asistencia social] n. programas económicos y sociales del gobierno que proporcionan ayuda a los necesitados (pág. 392) Spanish Glossary R59 withholding [retención] n. dinero descontado del pago de un trabajador antes de que reciba ese pago (pág. 421) workfare [programa de empleo público] n. programa que obliga a los beneﬁ ciarios de la asistencia social a realizar algún tipo de trabajo a cambio de sus beneﬁ cios (pág. 393) World Bank [Banco Mundial] n. institución ﬁ nanciera que proporciona préstamos, consejos relacionados con la política y ayuda técnica a países de ingresos bajos o medios, para reducir la pobreza (pág. 559) World Trade Organization (WTO) [Organización Mundial del Comercio (OMC)] n. organización que negocia y gestiona acuerdos comerciales, resuelve conﬂ ictos comerciales, supervisa las políticas comerciales y apoya los países en vías de desarrollo (pág. 535) Y yield [rendimiento] n. tasa de rentabilidad anual sobre un bono (pág. 338) R60 Spanish Glossary Index I n d e x Page numbers in bold indicate that the term is deﬁ ned on that page. Page numbers in italics indicate an illustration. A letter after a number indicates a speciﬁ c kind
of illustration: c – chart; i – photograph; m – map. An a after an italicized page number indicates an Animated Economics feature. A ability-to-pay taxation, 411 absolute advantage, 512, 513, 519 Adidas, 244 advertising and consumer tastes, 111 dot-com products, 345 Animated Economics, 19a, 20a, 22a, 26a, 53a, 80a, 100a, 102a, 108a, 109a, 118a, 132a, 134a, 147a, 148a, 155a, 165a, 169a, 243a, 260a, 361a, 415a, 449a, 495a, 517a annual percentage rate (APR), 582–584, 585 normal/inferior goods, 110 averages, calculating, R3 B Bakal, Abe, 92 balanced budget, 436 antitrust legislation, 214–215 balance of payments, 529 Advisory Councils, Federal, 478 apartments, ﬁ nding, 608–609 balance of trade, 529–530 AFL-CIO, 276, 279 APEC, 535 aggregate demand, 360–361 appropriations, 431 Baldwin, James, 389 Baltic Republics, 565 curve, 360, 360a, 403 Archer Daniels Midland (ADM), 216 banana production, 511 demand-side economics and, 454–457 ﬁ scal policy and, 446, 448–450 inﬂ ation and, 452 aggregate supply, 360–361, 403 agricultural productivity, 374, 544, 550 aid, ﬁ nancial, 593, 593–595 aid, foreign, 559 Airline Deregulation Act of 1978, 218 allocation, resource, 3–9, 11, 38, 7881, 416, 432 Amazon.com, 75 American Federation of Labor (AFL), 275–276 American Federation of State, County, and Municipal Employees (AFSCME), 278–279 American Railway Union, 276 American Stock Exchange (AMEX), 332 Angola, 547 Archipelago Exchange, 332 Argentina, 289, 560 Bangladesh, A15 bank, 301 Ariel Capital Management, 326 central, 474–475, 478 Armenia, 565 ASEAN, 534 Ash, Mary Kay, 230, 230i Asia-Paciﬁ c Economic Cooperation (APEC) group, 535 assets, ﬁ nancial, 319, 322. See also
, 359, 366 aggregate supply and demand, 360–361 ﬁ scal policy and, 451, 451 historical, 365–366 monetary policy and, 496, 503 predicting, 364 stages of, 358–359 unemployment and, 385 businesses, 52–53, 53 business organizations, 225–250 advantages and disadvantages, 242 cooperatives, 250 corporations, 238–242, 239, 240, 243–245 franchises, 93, 248, 248–249 mergers, 214–215, 243–244, 243a, 247, 306, 306–307 nonproﬁ t organizations, 250 partnership, 232–235, 234, 237 car. See also automobile industry. buying a, 590–591 insurance, 516, 517 career change, 271 career counseling, 600 caricature, 114 cartel, 198, 535 cartoon, political, 33, 61, 114, 159, 204, 214, 218, 221, 241, 244, 283, 287, 298, 313, 317, 331, 335, 341, 345, 358, 365, 377, 405, 411, 423, 436, 452, 462, 469, 475, 505, 520, 543, 564, 570, 571, 582, 594, 598, R26 case studies Apple Inc., 252–253 automobile demand, 124–125 China, 570–571 entrepreneurs, 92–93 federal deﬁ cit, 468–469 Federal Reserve System, 504–505 inﬂ ation, 404–405 Internet companies, 344–345 bear market, 335 Becker, Gary, 264, 264i beef, 195, 522 Belarus, 565 Belgium, 547 beneﬁ ts-received taxation, 411 Bernanke, Ben, 504–505, 504i Beveridge, Sir William, R27 binding arbitration, 280 Black Entertainment Television (BET), 152 black market, 183–184, 354 blue chip stocks, 335 Board of Governors, 476–477 Bombay Stock Exchange (BSE), 336 bonds, 240, 338–340, 580 government, 339, 464, 482, 490 interest rates and, 340 ratings, 340, 340 risk and return, 327, 583 Treasury, 339, 464, 583 types of, 338–339 Bono, 523, 523i booksellers, 74–75 borrowing, 319. See also loans. costs of, 583 inﬂ ation and, 402 Botswana, 550
, 449, 449–450, 457, 500, 500 contractionary monetary policy, 492–493, 500, 500 contracts, 432, 598–599 contrasting, 56, 64–65 cooperative, 250 co-pay, 596 corn, 195 corporate bond, 339, 579 corporate income tax, 412, 424, 424, 435 corporation, 238–242, 239, 240, 243–245 corruption index, 557, 557 cosigner, 583 Costa Rica, 511 cost-beneﬁ t analysis, 13, 15–16, R18 education, 593 energy, 373 ﬁ xed/variable, 140 input, 148 databases, R11, R31 De Beers cartel, 198–199 debit card, 308–309, 486, 577, 585 Debs, Eugene V., 276 marginal, 16, 140–141 debt opportunity, 12–17, 21, 512–513 investment and, 325, 579 production, 140–143 and revenues, 145 total, 140 Council of Economic Advisers, 452 coupon rate, 338 cover letter, 601–602 craft union, 274–273 credit, 582–589 identity theft and, 588–589 reports, 586–587, 587 score, 586 types of, 582–585 credit card, 305, 309, 582, 584–585 credit-rating company, 340 credit union, 302 creeping inﬂ ation, 398 crowding-out effect, 466–467, 467 cultural exception, 524 currency, 293, 475, 478, 483, 483. See also money. exchange rates and, 526–528, 531 stability, 555, 555i strong and weak, 528 curves. See graphs. customs duty, 425 customs union, 532 cyclical unemployment, 384–385 Czech Republic, 565 D Dahl, Gary, 73–74 less developed countries and, 559 debt restructuring, 559, 560 decimals, R2 decision-making, 15, 15–16, 439, 568, R17, R22 deductible, 596 deduction, tax, 421, 421 default, 559 deﬁ cit budget, 462, 463 federal, 462–464, 468–469 trade, 529, 530, R21 deﬁ cit spending, 462–464, 466, 466, 468–469 de
ﬂ ation, 398 Dell, Michael, 178, 178i demand, 97–122. See also price; supply. aggregate, 360–361, 403, 446, 448–450, 452, 454–457 demand-pull inﬂ ation, 399, 399, 449 derived, 259 elastic/inelastic, 116–122, 117, 415, 415a factors affecting, 106–113, 113, 115 labor, 258–259 law of, 99, 99 for money, 486, 487, 489 price and, 99, 116–117, 164–165, 169–171, 169a, 171, 487 supply and, 164–171 demand curve, 102–103, 102a, 103, 105–111, R15 aggregate, 360, 360a, 403 elastic/inelastic, 118a cost-push inﬂ ation, 399–400 costs, 13. See also price. data, 24–26, R14, R23, R31. See also graphs. R64 Index I n d e x labor, 259 355 economic investment, 318 supply curve and, 166, 166, 337 diversiﬁ cation, 327–328 economic models, 18, 24–25, 196, R16 demand deposits, 293 dividends, 238, 330–331 economics, 3, 4 demand-pull inﬂ ation, 399, 399, 449 dollar, 289, 292, 528, 528 demand schedule, 100–101, 100a, 101, 165, 165a dot-coms, 344–345 double taxation, 242, 424 microeconomics and macroeconomics, 27–28, 28 positive and normative, 29 demand-side ﬁ scal policy, 454–457, 458 democracy, 544 Dow Jones Industrial Average (DJIA), 334, 334–336, 335 Economics of Discrimination, The, 264 democratic socialism, 43 Doyle, Jim, 440 demographic trends, 390 drug manufacturer, 204 Deng Xiaoping, 566–567, 570 dumping, 521 Department of Justice, 215 dumpster diving, 588 dependent, 608 deposit expansion multiplier, 485 deposit multiplier formula, 485 E earned-income tax credit, 392 depreciation, 590 depression, 359 Depression, Great, 300, 365, 398, 454, 457, 463 deregulation, 218, 300, 306, 458 derived demand, 259 de Soto, Hernando, 39
4, 394i developed nation, 544–545 development. See economic development. development assistance, 25, 25 diamond market, 198–199 differentiated products, 206–207, 209–210, 212 diminishing marginal utility, law of, 106–107, 107 diminishing returns, 139 direct investment, 558 discount rate, 491 discretionary ﬁ scal policy, 446 discretionary spending, 428, 430 discrimination, 262, 390 disequilibrium, 169 Disney, R18 disposable personal income (DPI), Eastern Europe, 565 Eastman Kodak Company, 202 easy-money policy, 492, 498-499, 499 economic concepts, R13 economic cycle. See business cycle. economic development, 543–567 capital and, 552–553 categorizing, 561 ﬁ nancing, 558 levels of, 544–545, 551 market economy and, 562–567, 569 opportunity and, 556–557 stability and, 554–555 standards of, 546–550 economic growth, 22, 358, 368–375, 556 economic indicators, 349–374 business cycles, 358–366, 359, 366 gross domestic product (GDP), 65, 350–354, 351, 352, 356 types of, 364, 364 economic institutions. See business organizations. economic interdependence, 510–511 Economics of Imperfect Competition, The, 212 Economics Update, 5, 25, 30, 32, 39, 44, 54, 62, 64, 71, 76, 81, 92, 99, 104, 111, 119, 124, 131, 152, 158, 165, 178, 182, 186, 193, 203, 207, 210, 212, 216, 220, 227, 230, 234, 240, 246, 252, 259, 264, 267, 278, 282, 289, 294, 297, 301, 312, 318, 325, 326, 334, 344, 351, 362, 369, 374, 376, 383, 389, 394, 397, 404, 411, 422, 426, 429, 434, 440, 447, 456, 465, 468, 475, 482, 494, 504, 511, 512, 518, 530, 538, 545, 556, 560, 567, 570, 588, 593 economic systems, 37–62 command economy, 39, 42–46, 54, 56, 562–5
, 462–464, 468–469 Federal Reserve and, 482–483 securities, 339, 464, 482, 490 expansionary ﬁ scal policy, 446, 448, 449, 452, 498–499, 499 spending, 428–432 taxes, 420–426, 425 expansionary monetary policy, 492, 498–499, 499 Federal Insurance Contributions Act (FICA), 423 expenses, personal, 574–575 exports, 516–517, 517 balance of trade and, 529–530 exchange rates and, 528 intraﬁ rm, 536 net, 351–352 voluntary export restraint (VER), 521 externality, 87–88, 91 Federal Open Market Committee (FOMC), 477–478, 482 Federal Reserve System, 300, 474–496 currency, 483, 483 districts, 477m, 479 duties of, 474–475 government and, 482–483 member banks, 477 monetary policy and, 490–502 money and, 475, 484, 484–487, 490–496 structure of, 476, 476–478 U.S. Treasury and, 488 Federal Trade Commission (FTC), 215, 217, 589 ﬁ at money, 291–292 entrepreneurship, 9, 92–93, 93 Environmental Protection Agency (EPA), 217 environmental tax, 426 Epson, 159 equilibrium price, 164–171, 167, 173, 189 F factor market, 52–53, 80, 81 factors of production, 8–9, 9, 510 facts, 236, R27 FAFSA, 594–595 Fair Labor Standards Act, 263, 276 business cycles and, 361 famine, 554 R66 Index I n d e x FICA, 423 ﬁ ling status, 604 ﬁ lm industry, 209 ﬁ nance charge, 582–583 ﬁ nance company, 320 ﬁ nancial asset, 319, 322 ﬁ nancial intermediary, 319–321 ﬁ nancial markets, 317–341, 319 assets in, 319, 322 ﬁ nancial system, 318–322, 319 personal investing in, 324–328 productivity and, 373 stocks, 330–336 types of, 322–323 Financial Services Act of 1999, 307 ﬁ nancial system, 318–322, 319 ﬁ reworks displays, 85 �
� rm closures, 71 First Bank of the United States, 297 ﬁ scal policy, 446–466, 450 contractionary, 446, 449, 449–450, 457, 500, 500 demand-side, 454–457 discretionary, 446 expansionary, 446, 448, 449, 452, 498–499, 499 federal deﬁ cit and, 462–464 interest rates and, 499–500 limitations of, 451–452 monetary policy and, 498–502, 502 national debt and, 465–466 supply-side, 458, 458–460 taxation and, 448, 450, 458–460 types of, 446–450, 460–461 ﬁ scal year, 431 ﬁ xed cost, 140 ﬁ xed investment, 351 ﬁ xed rate of exchange, 526–527 ﬂ at tax, 412 ﬂ exible rate of exchange, 527 Flintoff, Andrew, R22 G galloping inﬂ ation, 398 ﬂ oating rate, 527 ﬂ ow chart, R17 focus group, 208 Food and Drug Administration (FDA), 217 food production, 79, 79, 374, 374 food stamp program, 392, 429, 482 Gartner, Inc., 221 gasoline, 155 gas station, 269i Gates, Bill, 246, 246i GDP. See gross domestic product (GDP). General Agreement on Tariffs and Trade (GATT), 524, 535 Ford Motor Company, 62, 277 General Electric (GE), 245, 335 foreign exchange market, 526–528 generalizing, R24 foreign exchange rate, 526–528 foreign investment, 61, 558 General Motors Corporation, 124, 276–277, 382 foreign sector, 352 Form 1040, 604–606, 606 401(k) plan, 580 fractional reserve banking, 296, 305, 305a general partnership, 233 General Theory of Employment, Interest, and Money, 456 generic drug, 204 geographic monopoly, 201, 203 France, A15, 59, 524 franchise, 93, 248, 248–249 franchisee, 248 Franklin, Benjamin, 604 Free Application for Federal Student Aid (FAFSA), 594–595 free contract, 73, 74 free enterprise sector, 84 Germany, A15 gift tax, 425 glass ceiling, 262 global economy, 61–63 globalization, 244–
245, 269. See also international trade. gold standard, 299, 526–527 Gompers, Samuel, 275 free enterprise system, 69–90 goods, 5 competition and, 72, 75 government and, 72, 80–81, 84–90 legal rights and, 74i modiﬁ ed, 80–81 free market, 30, 54 free rider, 85–86 Free to Choose, 76 free-trade zone, 532 frictional unemployment, 384 Friedman, Milton, 76, 76i, 496 full employment, 383 futures, 333 consumption of, 548, 548–549 ﬁ nal/intermediate, 350, 357 normal/inferior, 110, 177 public, 84–85 Google, 244 Gorbachev, Mikhail, 564 government. See also ﬁ scal policy; monetary policy; regulation; taxation. banking and, 306–307 bonds, 339, 464, 482, 490 command economies and, 39, 42–46 competition and, 432 Index R67 contract, 432 greenback, 299 Hungary, 565, 569 demand-side policy and, 457 Greenspan, Alan, 477, 494, 494i, 504 Hurricane Katrina, 363, 486 gross domestic product (GDP), 65, 350–354, 351, 356 hybrid automobile, 125 hyperinﬂ ation, 398 economic growth and, 375 Federal Reserve System and, 483–483 ﬁ nancial insurance and, 320, 341 free enterprise and, 72, 80–81, 84–90 laissez faire capitalism and, 49 market economies and, 55 mergers and, 215 monopoly, 201–202 national debt and, 465, A14, A15 nominal, 352, 352–353 per capita, A11m, A15, 369, 546, 546, 557 real, 352, 352–353, 358–361, 364, 368–373, 369 United States, A12 payroll and consumption, 81, 81 gross national product (GNP), 355 private sector and, 432, 466 Gulf and Western, 244 production costs and, 149–150 revenue, 410–411, 420–426, 425 securities, 339, 464, 482, 490 spending, 351–352, 428–433, 448–450, 456–457, 463 stability and, 554 state and local, 434–438 H hacking, 588–589 Hagen,
421–422, 447, R7 state, 435, 435 increasing returns, 139 independent contractor, 270 indexing, tax, 422 human capital, 8, 261, 264, 371, 552–553 human development index (HDI), 547, 569 India, A15, A16, 282, 385, 548, 549, R20 individual income tax, 412, 420–422 individual retirement account (IRA), 580 Indonesia, A15 industrialization, 55 compounding, 585 objective, 324–325, 347 on savings, 587–579, 581, 581 online information about, 342 Industrial Revolution, 44, 371 interest rates industrial union, 274 bond prices and, 340 options, 579 overseas, 336 inelastic demand, 117–118, 415, 415a business cycles and, 363 personal, 318, 324–328, 578–581 I n d e x inelastic supply, 154–156 infant industries, 523 demand for money and, 486, 487 ﬁ scal policy and, 499–500 infant mortality rate, 547, 551 inﬂ ation and, 402 inferences, making, R21 loans and, 582–583, 583 inferior goods, 110 inﬂ ation, 289, 396–402 demand-pull, 399, 399, 449 effects of, 401–405 ﬁ scal policy and, 449–450, 457 income and, 401 indexing and, 422 interest rates and, 402 investment and, 327–328 monetary policy and, 495–496 national debt and, 465 oil supply and, 396, 400 rate, 397–398, 398 types of, 398–399 wage and price controls, 501, 563–564 information technology, 371 infrastructure, 86, 545, 562 initial public offering (IPO), 330 input costs, 148 insourcing, 269 Institute for Liberty and Democracy, 394 insurance banking and, 307 ﬁ nancial, 320, 341 types of, 596–597, 597 Integrated Device Technology, 62 interest, 304–305, 578 calculating, 321, R6 risk and return, 327, 327–329, 338–340, 579, 579 spending multiplier effect and, 455 stability and, 555 U.S. Treasury bonds, 464 Iran, A15, 524 monetary policy and, 495, 495–496, 499–500 Internal
34 borrowing, 305 demand for, 487, 489 Federal Reserve System and, 475, 484, 484–487, 490–496 ﬁ at, 291–292 functions of, 288–289, 289, 295 inﬂ ation and, 399 M1 and M2, 486 order, 482 properties of, 290 types of, 291–293 mergers, 214, 243–244, 243a, 247 money management, 574–581 bank, 306, 306–307 government and, 215 Mexican peso, 526i Mexico, A15, 72, 533–534 microeconomics, 27–28, 28 Microsoft, 246 Milanesi, Carolina, 221 military bases, 433 Miller, Darlene, 283 budgeting, 574–575 checking accounts, 576–577 credit, 582–589 paying taxes, 604–607 saving and investing, 578–581 money market, 322 money market account, 578 money market mutual fund (MMMF), 341 minimum balance requirement, 576 minimum wage, 182, 182, 262–263 monopolistic competition, 206–208, 211–212 N NAFTA, 533, 533–534, 537 Namibia, 40, 60 NASDAQ, 333 NASDAQ Composite, 334 national accounts, 350, 355 National Association of Securities Dealers (NASD), 333 national bank, 297, 299 National Basketball Association (NBA), 136 National Bureau of Economic Research (NBER), 365 National Credit Union Association (NCUA), 302 national debt, A14, A15, 462, 465, 465–466 national defense, 85, 430 National Farm Workers Association (NFWA), 277 National Foundation for Credit Counseling, 587 Index R71 national income accounting, 350, 355 not-for-proﬁ t organization, 250 Pearl Jam, 186 national income (NI), 355 nationalization, 61 National Labor Relations Act, 276 O occupational segregation, 262 National Labor Union (NLU), 275 offshore outsourcing, 385 pension fund, 320–321 People’s Bank of China (PBC), 478 per capita GDP, A11m, A15, 369, 546m, 546, 557, percentages, calculating, 60, R2, R4 national parks, 425 natural monopoly, 201 Ohio, 523 oil supply, 10, 200, 363, 370, 396, 400 perestroika, 564–565 natural resources, A4
, 156 factors of, 8–9, 9, 510 marginal product, 138–139 production costs schedule, 141, 141–143, 143 production possibilities curve (PPC), 18–22, 22a, 23 producer price index, 397 guns vs. butter, 20–21, 20a stability, 555 shift in, 22, 22a supply and, 131, 170, 170–171, 171 productivity, 149, 372–373 system, 174–175, 175 tariffs and, 522, 522 price ceiling, 180–181 price ﬂ oor, 182, 185 professional sports, 203 professional worker, 261 proﬁ t, 49, 54–55, 78, 136, 142–143 proﬁ t-maximizing output, 143, 204 proﬁ t motive, 73 progressive tax, 412, 413, 414, 421–422, 447, R7 property, 48 property rights, 555 property tax, 412, 425, 437, 438 proportional tax, 412–413, 414 protectionism, 523–524, 556 protective tariff, 515, 521 public company, 238 public disclosure, 217 public goods, 84–85, 463 public opinion polls, 82 public safety, 436, 438 public schools, 438 public sector, 84, 86 public transfer payment, 89, 89–90, 447 public welfare, 436, 438 Pudliszki, R17 purchasing power, 289–290 pure competition, 192–195, 194, 197, 211 Putin, Vladimir, 564 Q quality of life, 354 quota, 520 R Ramirez, Monica, 70–71, 70i rational expectations theory, 452, 498–499, 501 rationing, 183, 183–184 ratios, using, R5 reading strategies active reading, S4 previewing, S2–S3 reviewing and summarizing, S5 Index R73 Reagan, Ronald, 365, 401, 494 Social Security and, 429 real capital, 8 real GDP, 352, 352–353, 353, 358–361, 364 return on investment, 327–329, 583, 583 Reuther, Walter Philip, 277 economic growth and, 368–373 revenue, 410. See also taxation. per capita, 369, 369 recession, 359, 451, 493 recording industry, 362 corporations and, 240 federal, 410–411, 420–426, 425 sole proprietorships and, 229 redistribution of income,
12, 38, 58, 70, 78, 84, 98, 116, 130, 154, 164, 192, 238, 258, 288, 330, 358, 382, 396, 410, 420, 446, 474, 526, 552, 562 comparison and contrast chart, 206c, 232c, 462c concepts chart, 24c, 48c, 106c, 146c, 174c, 198c, 226c, 296c, 324c, 338c, 434c, 454c, 480c, 510c, R13 hierarchy chart, 42c, 138c, 180c, 214c, 266c, 304c, 318c, 352c, 428c, 490c summary chart, 18c, 248c, 274c, 368c, 388c, 532c, 544c, R26, R27 R76 Index Uniform Partnership Act (UPA), 235 trade balance, 530, 530, R21 unions. See labor unions. unemployment rates, 383, 386 union shop, 279 United Autoworkers Union (UAW), 276–277 union membership, 278 world economy and, A15, 518 United States maps I n d e x international organizations, 532– 536, 534m specialization and, 514 trade barrier, 520–524 trade deﬁ cit, 529, 530, R21 trade-off, 14 trade surplus, 529 United Farm Workers, 277 United Kingdom, 61, R19 trade unions. See labor unions. United Mine Workers, 277 trade war, 522 trade weighted dollar, 528 traditional economy, 38, 40 transactions money, 293, 486 transfer payment, 89–90, 352, 432, 447, 482 United Nations Development Program (UNDP), 559 United States antitrust legislation, 214–215 automobile industry, 124–125 banking in, 296–302, 365 transitional economy, 545 China and, 529, 529 consumer price index, 397 employment, 268, 365–366, 517, A12–A13 energy use, 549 household income, A5m land use, A4m natural resources, A4m political, A2m–A3m population density, A5m unit elasticity, 118 unlimited liability, 228–229, 235 unlimited life, 240–241 unskilled worker, 261 U.S. Agency for International Development (USAID), 559 U.S. Department of Agriculture (
company, 201 Wealth of Nations, The, 30, 39 web diagram, R24 welfare, 90, 392–393 W-2 form, 605 W-4 form, 604, 604 Whaley, John, R18 wildcat banking, 298–299 Wilson, Woodrow, 299 withholding, 421 women in labor force, 267, 267, 556 wage discrimination and, 262 Wood, Ben, 221 Woodworm, R22 Woolcock, Keith, 65 wool production, 511 workfare, 90, 393 working conditions, 262, 270–271 work stoppage, 274, 280 World Bank, 559 world data table, A15 world maps GDP per capita, A11m land use, A9m natural resources, A8m political, A6m–A7m population density, A10m world markets, 336 world population, A16 World Trade Organization (WTO), 535 R78 Index Acknowledgments Text Acknowledgments Chapter 1, page 32: Excerpts from “O’Hare International Airport (ORD/ KORD), Chicago, IL, USA,” from the Airport-Technology Web site. Reprinted by permission of SPG Media Limited. Chapter 1, page 33: Excerpt from “Organization and Introduction,” from the AReCO Web site. Reprinted by permission of The Alliance of Residents Concerning O’Hare, Inc. (AReCO). Chapter 2, page 64: Excerpt from “The North Korean Famine,” from Peace Watch, June 2002. Reprinted by permission of the United States Institute of Peace. Chapter 2, page 65: Excerpt from “Masters of the Digital Age,” by Rana Foroohar and B. J. Lee, Newsweek, October 18, 2004. Copyright © 2004 Newsweek, Inc. All rights reserved. Reprinted by permission. logo are trademarks of Yahoo! Inc. Reprinted by permission of Yahoo! Inc. Chapter 11, page 342: “Apple Computer (AAPL-Q),” from The Globe and Mail, April 19, 2006. Reprinted by permission of the Globe and Mail Chapter 11, page 344: “Kozmo.com,” from the Wikipedia Web site. Reprinted by permission. Chapter 11, page 345: Excerpt from “The Bubble Bowl” by David M. Ewalt, Forbes Web site
, January 27, 2005. Copyright © 2005 Forbes.com Inc. Reprinted by permission. Chapter 12, page 364: “U.S. Leading Economic Indicators (LEI) and Real GDP”. The Conference Board, United States Bureau of Economic Analysis, National Bureau of Economic Research. Reprinted by permission of The Conference Board Inc. Chapter 3, page 92: Excerpt from “The Industry: Message in a Bottle” by Matt Lee and Ted Lee, The New York Times, June 28, 2005. Copyright © 2005 by The New York Times Co. Reprinted with permission. Chapter 12, page 376: Excerpts from “Europe’s Capitalism Curtain” by Steve Pearlstein, The Washington Post, July 23, 2004. Copyright © 2004, The Washington Post. Excerpted with permission. Chapter 3, page 93: Excerpt from “Growing Occupation: Being Your Own Boss” by Stacey Hirsh, Baltimore Sun, April 21, 2006. Copyright © 2006 The Baltimore Sun. Reprinted by permission. Chapter 12, page 377: Excerpts from “Reaping the European Union Harvest,” The Economist, January 8, 2005. The Economist Newspaper Ltd. All rights reserved. Reprinted with permission. Further reproduction prohibited. www.economist.com. Chapter 4, page 124: Excerpts from “Volkswagen Tries 12 Months of Free Car Insurance to Lure Buyers” by Jeff Green, December 31, 2004, Bloomberg Web site. Copyright © 2004 Bloomberg L.P. All rights reserved. Reprinted by permission of Bloomberg L.P. Chapter 4, page 125: Excerpt from “2005 – The Year of the Hybrid,” from the InvoiceDealers Web site. Reprinted by permission of Dealix Corporation, a Division of The Cobalt Group. Chapter 5, page 144: Excerpt from “Why is the Supply of Cement Falling Short of Demand?” from the Portland Cement Association Web site. Reprinted by permission of the Portland Cement Association. Chapter 5, 158: Excerpts from “Robots for Babies: Toyota at the Leading Edge” by Burritt Sabin, Japan Inc. Web site. Reprinted by permission of Japan Inc. Chapter 5, page 159: Excerpt from “Cake Decorating” from the EPSON Robots Web site. Rep
rinted by permission of EPSON America Inc. Chapter 6, page 187: Figure 1 from “The Economics of Real Superstars: The Market for Concerts in the Material World” by Alan B. Krueger, Journal of Labor Economics, 23(1), 2005. Reprinted by permission of The University of Chicago Press. Chapter 7, page 220: Excerpts from “Anyone for Telly?,” The Economist, September 10, 2005. The Economist Newspaper Ltd. All rights reserved. Reprinted with permission. Further reproduction prohibited. www.economist.com. Chapter 7, page 221: Excerpt from “Gartner Says Mobile Phone Sales Will Exceed One Billion in 2009,” from the Gartner Web site. Reprinted with permission. Chapter 8, page 248: “World’s Leading Franchises,” from Franchise Facts. Copyright © International Franchise Association. Reprinted by permission of the International Franchise Association. Chapter 8, page 252: Excerpt from “Steve Jobs and Steve Wozniak: The Personal Computer” from the Lemelson-MIT Program Web site. Courtesy of Inventor of the Week, Lemelson-MIT Program, http://web.mit.edu/invent. Chapter 8, page 253: Excerpts from “Interview with Evelyn Richards” by Wendy Marinaccio, appearing on the “Making the Mac/Technology and Culture in Silicon Valley” Web page, Stanford University Library. Reprinted by permission of the Stanford University Library. Chapter 8, page 253: “Highlights in Apple Company History” adapted from Apple timeline appearing in Macworld, February 2004. Copyright © 2004 Mac Publishing LLC. All rights reserved. Reprinted by permission. Chapter 8, page 255: “Mergers in the United States” MergerStat Review, 2004. Copyright © 2004 Mergerstat Holdings, LLP. Reprinted by permission of FactSet Mergerstat LLC. Chapter 9, page 282: Excerpt from “Subcontinental Drift” by Nandini Lakshman, Business Week, January 16, 2006. Copyright © 2006 by The McGraw-Hill Companies, Inc. Reprinted by special permission. Chapter 9, page 283: Excerpt from “Foreign Firms Come Bearing Jobs” by Mike Meyers, Star Tribune, September 5, 2004. Copyright © 2004 Star Tribune. All rights reserved. Reprint
ed by permission of the Star Tribune, Minneapolis – St. Paul, Minnesota. Chapter 10, page 312: Excerpts from “Congress Cuts Funding for Student Loans” by Anne Marie Chaker, The Wall Street Journal, December 22, 2005. Copyright © 2005 The Wall Street Journal. Reprinted by permission. Chapter 10, page 313: Excerpts from “It’s Payback Time” by Jonathan D. Glater, The New York Times, April 23, 2006. Copyright © 2006 by The New York Times Co. Reprinted with permission. Chapter 11, page 334: “Dow Jones Industrial Average, 1929-2006,” from Yahoo! Finance Web site. Copyright © 2006 Yahoo! Inc. YAHOO! and the YAHOO! Chapter 13, page 404: Excerpt from “The Search for a New Economic Order” by Robert Tolles, Ford Foundation, New York, 1982, p. 24. Reprinted by permission of the Ford Foundation. Chapter 13, page 405: Excerpts from “Open Editorial” by Bernice Davidson, The New York Times, September 29, 1972. Copyright © 1972 by The New York Times Co. Reprinted with permission. Chapter 14, page 440: Excerpts from “iPod Tax Planned for Music Downloads?” from the CNET Web site, March 10, 2006. Copyright © 2006 CNET Networks, Inc. All rights reserved. Reprinted by permission of Reprint Management Services. Chapter 14, page 441: Excerpt from “Internet Sales Tax,” from The New York Times, July 5, 2005. Copyright © 2005 by The New York Times Co. Reprinted with permission. Chapter 15, page 468: Excerpts from “Federal Budget Deﬁ cit Sparks Worries,” The Associated Press, January 15, 2006. Copyright © 2006 The Associated Press. All rights reserved. Reprinted by permission of Reprint Management Services. Chapter 15, page 469: Excerpt from “Snow Sets Sights on Deﬁ cits” by Edward Alden, Andrew Balls, and Holly Yeaser, Financial Times, November 4, 2005. Copyright © The Financial Times Ltd. 2005. Reprinted with permission. Chapter 16, page 504: Excerpts from “Fed Expected to Boost Key Interest Rates,” The Associated Press, May 10,
2006. Copyright © 2006 The Associated Press. All rights reserved. Reprinted by permission of Reprint Management Services. Chapter 16, page 505: Excerpts from “Bernanke Talks Tough on Inﬂ ation” by Edmund L. Andrews, The New York Times, June 6, 2006. Copyright © 2006 by The New York Times Co. Reprinted with permission. Chapter 17, page 521: “Tariffs are Falling,” from the Human Development Report, 2005, United Nations Development Programme. Reprinted by permission of the United Nations Publications Department. Chapter 17, page 538: Excerpt from “Sugar Daddies” by Jason Lee Steorts, National Review, July 18, 2005. Copyright © 2005 National Review. Reprinted by permission. Chapter 17, page 539: Excerpts from “Sweetener Impact on US Economy,” from the American Sugar Alliance Web site. Copyright © 2005 American Sugar Alliance. Reprinted by permission. Chapter 18, page 570: Excerpt from “From T-shirts to T-bonds,” The Economist, July 28, 2005. The Economist Newspaper Ltd. All rights reserved. Reprinted with permission. Further reproduction prohibited. www.economist.com. Chapter 18, page: Excerpts from “China’s Economic Miracle: The High Price of Progress,” from CBC News, April 20, 2006, Canadian Broadcasting Corporation Web site. Copyright © CBC 2006. Reprinted by permission. Skillbuilder Handbook Page R15: Excerpts from “Crude Oil Prices Sink Below $66 a Barrel,” The Associated Press, September 11, 2006. Copyright © 2006 The Associated Press. All rights reserved. Reprinted by permission of Reprint Management Services. Page R21: Excerpt from “U.S. Trade Deﬁ cit Hit Record High in 2005”by Vikas Bajaj, The New York Times, February 10, 2006. Copyright © 2006 by The New York Times Co. Reprinted with permission. Page R23: Excerpt from “Not Business as Usual” by Elizabeth Bauman, Online NewsHour Extra, January 30, 2002. Copyright © 2002 MacNeil-Lehrer Productions. Reprinted by permission. Page R27: Excerpt from “1942: Beveridge Lays Welfare Foundations,” from BBC Web site.
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© Time & Life Pictures/Getty Images; 405 © Larry Katzman/CartoonStock; 407 © David Lees/Getty Images. Unit 6 408–409 © Tom Bean/Getty Images; 411 Frank and Ernest reprinted with permission of Thaves; 416 © Ljupco Smokovski/ShutterStock; 419 Phil Coale/AP/Wide World Photos; 420 © Tim Boyle/Getty Images; 422 © Myrleen Ferguson Cate/PhotoEdit; 423 © Harley Schwadron/CartoonStock; 426 Photo courtesy of Sarah Brennan; 427 © Elizabeth Simpson/Getty Images; 428 © George Mattei/Photo Researchers, Inc.; 429 © Spencer Platt/Getty Images; 430 left © Getty Images; center © Jose Luis Pelaez, Inc./Corbis; right © Mark Wilson/Getty Images; 432 © Royalty-Free/Corbis; 433 Rachel Denny Clow/Corpus Christi Caller-Times/AP/Wide World Photos; 436 © Mike Lane/Caglecartoons.com; 438 © Dan Brandenburg/istockphoto.com; 439 © Michael Newman/PhotoEdit; 440 © G. Schuster/zefa/Corbis; 444–445 © I. Vanderharst/Getty Images; 445 © Harley Schwadron/www.CartoonStock. com; 447 © Joel Stettenheim/Corbis; 448 © John Humble/Getty Images; 452 © Larry Wright/Caglecartoons.com; 453 © Jeff Metzger/ShutterStock; 454 The Granger Collection, New York; 456 From The General Theory of Employment, Interests, and Money, by John Maynard Keynes (1997), book cover. (Amherst, NY: Prometheus Books). Book cover © 1997 by Prometheus Books. Reprinted with permission of the publisher.; Time cover © Time Life Pictures/Getty Images; 457 © Hulton-Deutsch Collection/Corbis; 460 left © Altrendo images/Getty Images; center Mel Evans/AP/Wide World Photos; right © Jim West/Alamy Images; 461 © Charles Luzier/Reuters/Corbis; 462 © Harley Schwadron/www.CartoonStock.com; 467 © Peter Beck/Corbis; 468 © Stan Honda/AFP/Getty Images; 469 © Harley Schwadron/www.CartoonStock. com; 472–473 © Brooks Kraft/Corbis;
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Caglecartoons.com; 588 © BananaStock/ Jupiter Images; 590 top left © Getty Images; right © Gabe Palmer/Corbis; 591 © Alexander Walter/Getty Images; 592 © David Young-Wolff/PhotoEdit; 594 © Mike Lane/Caglecartoons.com; 596 © Colorstock/Getty Images; 598 © John Morris/www.CartoonStock.com; 600 top left © Getty Images; bottom right Reprinted with permission of the Employment Development Department, State of California; 603 © Creatas Images/Jupiter Images; 605 © Mario Tama/ Getty Images; 606 © Ken Reid/Getty Images; 608 © PM Images/Getty Images. Backmatter R26 © Stan Eales/CartoonStock. Maps (except Economic Atlas and Statistics maps) © GeoNova Group. Trademark Acknowledgments ADIDAS and the Adidas design are registered trademarks of Adidas AG Joint Stock Company AMERICAN RED CROSS design is a trademark of American Red Cross Inc. AMOCO design is a registered trademark of Amoco Oil Company BET.COM design is a trademark of Black Entertainment Television, Inc. COCA-COLA and the Coca-Cola design are registered trademarks of The Coca-Cola Company DELL design is a registered trademark of Dell Inc. FANTASTIC SAM’S is a registered trademark of Fantastic Sam’s Franchise Corporation HABITAT FOR HUMANITY design is a registered trademark of Habitat for Humanity International, Inc. INTERNATIONAL MONETARY FUND design is a trademark of The International Monetary Fund KOZMO.COM design is a registered trademark of of Kozmo.com, Inc. MASTERCARD design is a registered trademark of MasterCard International Incorporated MICROSOFT is a registered trademark of Microsoft Corporation NASDAQ is a registered trademark of NASDAQ Stock Exchange, Inc. NEWSWEEK is a registered trademark of Newsweek, Inc. NOKIA is a registered trademark of Nokia Corporation NYSE is a registered trademark of New York Stock Exchange, Inc. PIONEER is a registered trademark of Pioneer Kabushiki Kaisha DAB Pioneer Electronic Corporation SALVATION ARMY design is a registered trademark of The Salvation Army SAMSUNG is a regisered trademark of Samsung Electronics Co., Ltd. The SHELL emblem is a trademark of Shell International Limited SONY is a registered trademark of Sony Kabushiki Kaisha TA Sony Corporation TIME design is a
registered trademark of Time, Inc. TYCO is a trademark of Mattel, Inc. U.S. NEWS & WORLD REPORT design is a registered trademark of U.S. News & World Report, L.P. VAIO design is a registered trademark of Sony Kabushiki Kaisha TA Sony Corporation VISA design is a registered trademark of Visa International Service Association VOLVO is a registered trademark of Volvo Trademark Holding AB Corporation WWF design is a registered trademark of World Wide Fund for Nature All other trademarks are property of their respective owners and are in no way afﬁ liated with, connected to or sponsored by McDougal Littell, a division of Houghton Mifﬂ in Company. Trademarks, trade names, logos and graphics are shown in this book strictly for illustrative purposes. Acknowledgments R81 read. Below you will find several strategies that involve built-in features of Economics: Choices and Concepts. Careful use of these strategies will help you learn and understand economics more effectively. Preview Chapters Before You Read Each chapter begins with a two-page chapter opener. Study these pages to help you get ready to read. 1 Read the chapter title and section titles for clues to what will be covered in the chapter. 2 Read the Concept Review, which reviews previous learning important to understanding chapter content. Then study the Key Concept, which focuses on the main idea explored in the chapter. Finally, read the Why the Concept Matters explanation and question. These help place the chapter’s main idea in a real-world context. 3 Study the chapter-opening photograph and caption. These provide a visual illustration of the chapter’s main idea. Microeconomics U n i t 2 Market Economies at Work CHAPTER 4 SECTION 1 What Is Demand? SECTION 2 What Factors Affect Demand? SECTION 3 What Is Elasticity of Demand? CASE STUDY Fueling Automobile Demand 3 Demand This computer store customer meets the two requirements of demand—the customer is willing to buy and is able to pay. 1 Demand Microeconomics is the study of the economic behaviors and decisions of small units, such as individuals and businesses Demand is the willingness to buy a good or service and the ability to pay for it AT T E R S The concept of demand is demonstrated every time you buy something. List the last five goods or services that you purchased. Rate each one with a number from 1 (not important to you) to 4 (very important). Which of the goods or services would you stop
buying if the price rose sharply? Describe the relationship between your ratings and your willingness to buy at a higher price. More at ClassZone.com Go to ECONOMICS UPDATE for chapter updates and current news on demand in the automobile industry. (See Case Study, pages 124–125.) Go to ANIMATED ECONOMICS for interactive lessons on the graphs and tables in this chapter. Go to INTERACTIVE REVIEW for concept review and activities. What caused more people to demand hybrid cars? See the Case Study on pages 124–125. 96 Demand 97 S2 Preview Sections Before You Read Each chapter consists of three or four sections. These sections explain and build on the Key Concept. Use the section openers to help you prepare to read. 1 Study the information under Objectives. This bulleted list tells you the key points discussed in the material you are about to read. 2 Preview the Key Terms list. This list identifies the vocabulary you will need to learn in order to understand the material you are about to read. Use the Taking Notes graphic to help you organize information presented in the text. 3 Notice the structure of the section. Blue heads label the major topics; red subheads signal smaller topics within a major topic or illustrative examples of the major topic. Together, these heads provide you with a quick outline of the section. 4 Read the first paragraph under Key Concepts. This links the content of the section to previous chapters or sections. K E Y T E R M S demand, p. 98 law of demand, p. 99 demand schedule, p. market demand sched What Is Demand TA In Section 1, you will demand, p. 98 • define demand and outline law of demand, p. 99 what the law of demand says • explain how to interpret and create demand schedules and describe the role of market research in this process • explain how to interpret and create demand curves demand schedule, p. 100 market demand schedule, p. 100 demand curve, p. 102 market demand curve, p. 102 As you read Section 1, complete a cluster diagram like this one for each key concept. Use the Graphic Organizer at Interactive Review @ ClassZone.com Demand The Law of Demand 3 4 KE Y CONCEP TS In Chapter 3, you learned that the United States has a free enterprise economy. This type of economic system depends on cooperation between producers and consumers. To make a profit, producers provide products at the highest possible price. Consumers serve their own interests by purchasing the best products at the lowest possible
price. The forces of supply and demand establish the price that best serves both producers and consumers. In this chapter, you’ll learn about the demand side of this equation. QUICK REFERENCE Demand is the willingness to buy a good or service and the ability to pay for it. Demand is the desire to have some good or service and the ability to pay for it. You may want to take a round-the-world cruise or to rent a huge apartment that overlooks the ocean. Or you may want to buy a brand-new sports car or a state-of-the-art home entertainment center. However, you may not be able to afford any of these things. Therefore, economists would say that you have no actual demand for them. Even though you want them, you don’t have the money needed to buy them. Conversely, you may want the latest CDs by several of your favorite bands. And, at a price of between $12 and $15 each, you can afford them. Since you have both the desire for them and the ability to pay for them, you do have demand for CDs. Price is one of the major factors that influence demand. The law of demand states that when the price of a good or service falls, consumers buy more of it. As the price of a good or service increases, consumers usually buy less of it. In other words, quantity demanded and price have an inverse, or opposite, relationship. This relationship is graphically illustrated in Figure 4.1 below. NEED HELP? QUICK REFERENCE Law of demand states that when prices go down, quantity demanded increases. When prices go up, quantity demanded decreases. EXAMPLE Price and Demand 3 Let’s take a look at an example of demand in action. Cheryl, a senior at Montclair High School, loves movies and enjoys collecting them on DVD. She and Malik, a friend from school, sometimes meet downtown at Montclair Video Mart to look through the DVD stacks. Rafael, the owner of the video mart, often jokes that Cheryl and Malik spend so much time at his store that he might have to give them jobs. Actually, Cheryl already has a job—stocking shelves at her neighborhood supermarket. She worked so many hours this summer that she has extra money to spend. Let’s see how DVD prices at Montclair Video Mart affect her spending decisions. Cheryl has been saving to buy the DVD boxed set of the original Star Wars trilogy, one of her favorite series of movies.
The set costs $69.95, and Cheryl has the money to buy it this weekend. When Cheryl goes to the Montclair Video Mart, she is disappointed to learn that the Star Wars set is sold out and a new shipment won’t arrive for a week. She decides to buy some other DVDs so that she won’t go home empty-handed, but she also decides to save roughly half of her money toward a future purchase of Star Wars. As she looks through the movie DVDs, she sees that most of those she wants sell for $15. How many will she buy at that price? Let’s say she decides to buy three and keep the rest of her money for the Star Wars trilogy. But what if each of the DVDs she wants costs just $5? Cheryl might decide that the price is such a good deal that she can buy seven. As you can see, the law of demand is more than just an economic concept. It’s also a description of how consumers behave. APPLIC ATION Applying Economic Concepts A. You have $50 and want to buy some CDs. If prices of CDs rose from $5 each to $10, how would your quantity demanded of CDs change? Find an update on the demand for CDs and DVDs at ClassZone.com 98 Chapter 4 Demand 99 S3 STRATEGIES Use Active Reading Strategies As You Read Now you are ready to read the chapter. Read one section at a time, from beginning to end. 1 Read to build your economic vocabulary. Use the marginal Quick Reference notes to reinforce your understanding of key economic terms. 2 Use special features and illustrations to reinforce and extend your understanding of content and to apply your knowledge. Study features such as Your Economic Choices, which applies economic concepts to a real-world situation. Look closely at the figures, which illustrate economic concepts in table, chart, or graph form. Answer the accompanying Analyze questions to test your understanding of the visual and the concept it illustrates. 3 At natural breaks in the section, ask yourself questions about what you have just read. Look for APPLICATION headings at the bottom of pages and answer the questions or complete the activities. These provide you with opportunities to apply the knowledge you have gained from your reading. QUICK REFERENCE Elasticity of demand is a measure of how responsive consumers are to price changes. 1 Economists use the term elasticity of demand to describe how responsive consumers are to price changes in the marketplace. Economists describe demand as being either elastic or
inelastic. Demand is elastic when a change in price, either up or down, leads to a relatively larger change in the quantity demanded. The more responsive to change the market is, the more likely the demand is elastic. On the other hand, demand is inelastic when a change in price leads to a relatively smaller change in the quantity demanded. For this reason, elastic goods and services are often said to be price sensitive. So, in the case of inelastic demand, changes in price have little impact on the quantity demanded. Another way to think about elasticity is to imagine that a rubber band represents quantity demanded. When the quantity demanded increases by a marked amount, the demand is elastic and the rubber band stretches. If the quantity demanded barely changes, demand is inelastic and the rubber band stretches very little. QUICK REFERENCE Elasticity of demand is a measure of how responsive consumers are to price changes. Demand is elastic if quantity demanded changes signiﬁ cantly as price changes. Demand is inelastic if quantity demanded changes little as price changes. 2 EXAMPLE Elasticity of Demand for Goods and Services Let’s look at an example of elastic demand. Suppose that a certain brand of PDAs goes on sale. If the price of that brand goes down 20 percent, and the quantity demanded goes up 30 percent, then demand is elastic. The percentage change in quantity demanded is greater than the percentage change in price. Goods that have a large number of substitutes fall into the elastic category, since if the prices change, consumers can choose other products. Now think about a completely different type of good—the medicine insulin. Many diabetics require daily insulin injections to regulate their blood sugar levels. Even if the price of insulin were to rise sharply, diabetics would still need the same amount of insulin as they did before. If the price were to drop, they would not need any more insulin than their required dosage. As a result, the demand for insulin is inelastic because the quantity demanded remains relatively constant. YO EC ESSIT Y OR C HOIC E 2 Which of these services could you give up? Most people consider getting a cavity ﬁ lled to be a necessity. Having your teeth whitened is a service that can be postponed or eliminated without harm. As a result, the demand for whitening is more elastic than the demand for ﬁ llings.? Over time the elasticity of demand for a particular product may change. If
more substitutes for a product become available, the demand may become more elastic. For example, the cost of cell phones and their service has become more elastic as more providers enter the market. On the other hand, in the case of prescription drugs, if a product is withdrawn from the market and there are fewer choices for the consumer, the demand may become inelastic. The data for elastic demand and the data for inelastic demand produce demand curves that look very different from each other. Compare Figure 4.13 and Figure 4.14 below. Notice that the inelastic demand curve has a steeper slope than the elastic demand curve does. The reason for this difference is that the changes along the vertical axis (the price) are proportionally greater than the changes along the horizontal axis (the quantity demanded). FIGURE 4.13 ELASTIC DEMAND CURVE FIGURE 4.14 INELASTIC DEMAND CURVE ) 12 10 200 160 120 80 40 20 b 4,000 8,000 12,000 16,000 20,000 0 20 40 60 80 100 120 Quantity demanded of movie tickets Quantity demanded of fillings a In Figure 4.13, elastic demand curves have gradual slopes. They are more horizontal than vertical because of the greater changes in quantity demanded. b In Figure 4.14, inelastic demand curves have steep slopes. They are more vertical than horizontal because quantity demanded changes very little. ▲ Cosmetic whitening ANALYZE GRAPHS 1. In Figure 4.13, what happens to the quantity demanded when price drops from $10 to $8? 2. In Figure 4.14, what is the difference in quantity demanded between the most expensive and least expensive filling? Use elastic and inelastic demand curves at ClassZone.com QUICK REFERENCE Demand is unit elastic when the percentage change in price and quantity demanded are the same. Demand is said to be unit elastic when the percentage change in price and quantity demanded are the same. In other words, a 10 percent increase in price would cause exactly a 10 percent drop in quantity demanded, while the reverse would be true. No good or service is ever really unit elastic. Instead, unit elasticity is simply the dividing point between elastic and inelastic demand. It is a useful concept for figuring out whether demand is elastic or inelastic ▲ Filling a cavity Demand 117 118 Chapter 4 3 APPLICATION Drawing Conclusions A. Decide how elastic demand is for the following item. Explain your reasoning.
When a grocery store sells soup at $1.09 per can, it sells 1,500 cans per week. When it dropped the price to $0.75, it sold an additional 1,000 cans. S4 Review and Summarize What You Have Read When you finish reading a section, review and summarize what you’ve read. If necessary, go back and reread information that was not clear the first time through. 1 Look again at the blue heads and red heads for a quick summary of the major points covered in the section. 2 Study any tables, charts, graphs, and photographs in the section. These visual materials often convey economic information in condensed form. 3 Complete all the questions in the Section Assessment. This will help you think critically about the material you have just read. 1 Total Revenue Test S E C T I O N 3 Assessment ClassZone.com AC T I C E 3 QUICK REFERENCE Total revenue is a company’s income from selling its products. Total revenue test is a method of measuring elasticity by comparing total revenues. 1 2 KE Y CONCE PTS Businesses need to know about elasticity of demand because it influences the amount of revenue they will earn. Economists measure elasticity of demand by calculating a seller’s total revenue, the amount of money a company receives for selling its products. Total revenue is calculated using the following formula, in which P is the price and Q is the quantity sold: TOTAL REVENUE = P Q. You can measure elasticity by comparing the total revenue a business would receive when offering its product at various prices. This method is the total revenue test. If total revenue increases after the price of a product drops, then demand for that product is considered elastic. Why? Because even though the seller makes less on each unit sold, the quantity demanded has increased enough to make up for the lower price. For example, if a hot dog stand sells 100 hot dogs for $2.50 each, the total revenue is $250 for the day. However, if the price of hot dogs drops to $2.00 each and 150 are sold, the total revenue for the day will be $300. The demand is elastic. But if the total revenue decreases after the price is lowered, demand is considered inelastic. If the hot dog stand lowers its price to $1.00 each and sells 200 hot dogs, it makes $200 in total revenue. Clearly, the price reduction has caused only a modest increase in quantities sold
, which is not enough to compensate for lower revenues. EX AMP LE Revenue Table Let’s look at an example of demand for movie tickets. In Figure 4.17, you can see how total revenues show whether demand is elastic or inelastic. Price of a Movie Ticket ($) Quantity Demanded per Month Total Revenue ($) a b 12 10 8 6 4 1,000 2,000 6,000 12,000 20,000 12,000 20,000 48,000 72,000 80,000 a At $10 a ticket, the quantity demanded is 2,000. Total revenue is $20,000. b When the price drops to $8, the quantity demanded rises to 6,000. Total revenue rises to $48,000. So, demand is elastic. ANALYZE TABLES When the price range changes from $8 to $6, is demand elastic or inelastic? Explain. APPL ICATION Creating Tables D. Use the information from Figure 4.14 to estimate prices to make a total revenue table. 1. Use each of the terms below in a sentence that gives an example of the term: a. elastic b. inelastic c. total revenue 2. How is total revenue related to elasticity of demand? 3. Why are elastic goods and services said to be price sensitive? 4. What are the factors that affect elasticity of demand and how does each affect elasticity? 5. Analyze the factors that determine elasticity to explain why utilities companies never offer sale prices on their services. 6. Using Your Notes How does the concept of unit elasticity relate to the concepts of elasticity and inelasticity? Refer to your completed cluster diagram. Use the Graphic Organizer at Interactive Review @ ClassZone.com elasticity of demand 7. Analyzing Causes In early 2004, news articles reported that prescription drug prices were rising almost three times faster than the prices of other products. Identify the factors that explain why the drug companies were able to raise prices so sharply. 8. Analyzing Data In June, Snead’s Snack Bar sold 1,000 fruit smoothies at a price of $2.50 each. In July, they sold 1,300 fruit smoothies at a price of $2.00. Is the demand for fruit smoothies elastic or inelastic? Use the formula on page 121 to decide. Show the math calculations to support your answer. 9. Applying Economic Concepts Suppose the company that runs concession stands at
a local sports arena wants to increase revenue on sales of soft drinks. The manager believes the only solution is to charge higher prices. As a business consultant, what advice would you give the manager? Use economic thinking to support your answer. 10. Challenge You learned in this section that no product ever has demand that is unit elastic. What possible reasons can you give for that? Draw on what you know about utility, demand, and elasticity as you formulate your answer. Calculating Elasticity Determine the elasticity of bottled water by calculating elasticity and using the revenue table below. Use the information on pages 121 and 122 to help you. Number of Bottles Sold Price ($) 35 75 100 120 2.00 1.50 1.25 1.00 Write a Summary After you have determined whether bottled water is elastic or inelastic, think about what factors affect the demand for bottled water. Write a summary of your conclusions explaining whether demand is elastic or inelastic and why, and what factors affect the elasticity of water. Challenge What effect might the introduction of a new energy drink have on the demand for bottled water? Use economic thinking to support your answer. 122 Chapter 4 Demand 123 S5 STRATEGIES Part 2: Test-Taking Strategies and Practice You can improve your test-taking skills by practicing the strategies discussed in this section. First, read the tips on the left-hand page. Then apply them to the practice items on the right-hand page. Multiple Choice stem 1 Read the stem carefully and try to answer the question or complete the sentence before looking at the alternatives. 2 Look for key words and facts in a question. They may direct you to the correct answer. 1. The country with the most elements of a command economy is Most is a key word. China has some elements of a command economy but North Korea has more. alternatives A. China B. North Korea C. South Korea D. Japan You can eliminate D if you remember that Japan has a market economy. 3 Read each alternative 2. Economic models with the stem. Don’t make your final decision on the correct answer until you have read all of the alternatives. 4 Eliminate alternatives that you know are wrong. 5 Look for modifiers to help you rule out incorrect alternatives. 6 Carefully consider questions that include all of the above as an alternative. 7 Take great care with questions that are stated negatively. A. all present statistical information B. represent economic forces C. must be three-dimensional D. always use graphs to convey
information Absolute words, such as all, always, never, ever, and only often signal an incorrect alternative. 3. Which of these statements about Adam Smith is correct? A. He is considered to be the founder of modern economics. B. He was an economic advisor at the Versailles peace conference. C. He endorsed the trickle-down theory of economics. D. All of the above. If you select this answer, be sure that all of the alternatives are correct. 4. Which of the following is not a factor of production? A. land B. labor C. services D. capital Eliminate incorrect alternatives by identifying those that are factors of production answers: 1 (B), 2 (B), 3 (D), 4 (C) S6 PRACTICE Directions: Read each question carefully and choose the best answer from the four alternatives. 1. Which of the following is not a type of business consolidation? A. vertical merger B. franchise C. conglomerate D. multinational corporation 2. Wage rates are influenced by A. supply and demand B. discrimination C. government actions D. all of the above 3. As of 2005, the euro had been adopted by A. the United Kingdom B. all the European countries C. some European countries D. every member of the European Union 4. The central bank of the United States A. has no cash reserves B. is the U.S. Treasury C. does not lend money D. was established by the Federal Reserve Act S7 STRATEGIES Charts Charts present information in a visual form. Economics textbooks use several types of charts, including tables, flow charts, Venn diagrams, circular flow charts, and infographics. The chart most commonly found in standardized tests, however, is the table. This organizes information in columns and rows for easy viewing. 1 Read the title and identify the broad subject of the chart. 2 Read the column and row headings and any other labels. These will provide more details about the subject of the chart. 3 Note how the information in the chart is organized. 4 Compare and contrast the information from column to column and row to row. 5 Try to draw conclusions from the information in the chart. 6 Read the questions and then study the chart again. Gross Domestic Product (GDP)—Percentage Change Over Previous Year—for Selected Countries Country Canada France Germany Italy Japan United Kingdom United States 2002 2003 3.4 1.1 0.1 0.4 -0.3 1.8 1.9 2.
0 0.5 -0.1 0.3 2.5 2.2 3.0 Source: Historical Statistics of the United States This chart organizes the countries alphabetically. In some charts, information is organized according to years or the value of the numbers displayed. Notice that the rows contain both positive and negative numbers. Think about what trend or trends the data indicates. 1. The country that had the greatest percentage change in GDP in 2003 was A. the United States B. the United Kingdom C. Japan D. Canada 2. In 2002, which country experienced a decline in GDP? A. France B. Italy C. Germany D. Japan answers: 1 (A), 2 (D) S8 PRACTICE Directions: Use the chart and your knowledge of economics to answer questions 1 through 4. Refined Copper Production for Selected Countries (in thousands of metric tons) North America South America Year Canada Mexico 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 493.4 491.1 528.7 515.2 515.8 538.0 539.3 561.6 527.5 560.0 72.3 128.4 140.9 155.8 157.1 190.1 191.0 197.8 199.5 207.5 United States 1,479.9 1,541.6 1,852.0 1,953.8 2,017.4 2,000.0 2,140.0 2,250.0 2,230.0 2,280.0 Brazil Chile Peru 166.0 201.7 185.9 207.8 201.7 141.4 158.0 161.1 170.0 165.0 783.7 795.0 852.9 1,071.0 990.8 1,012.8 1,242.3 1,093.2 1,080.0 1,288.8 225.6 224.8 174.7 224.3 181.8 244.1 251.1 261.7 253.0 282.0 Source: 2003 Industrial Commodity Statistics Yearbook, United Nations 1. Which country produced the most refined copper in the years shown? A. Canada B. Mexico C. the United States D. Chile 2. From 1986 to 1988, Mexico’s copper production A. remained fairly constant B. nearly doubled C. decreased slightly D. almost tripled 3. Which North American country showed an increase in copper
production each year from 1987 through 1995? A. Canada B. Mexico C. the United States D. all of the above 4. Brazil’s copper production was greatest in A. 1995 B. 1994 C. 1990 D. 1989 S9 STRATEGIES Line Graphs Line graphs display information in a visual form. They are particularly useful for showing changes and trends over time. 1 Read the title of the graph to learn what it is about. 2 Study the labels on the vertical and horizontal axes to see the kinds of information presented in the graph. The vertical axis usually shows what is being graphed, while the horizontal axis indicates the time period covered. 3 Review the information in the graph and note any trends or patterns. Look for explanations for these trends or patterns. 4 Carefully read and answer the questions. Note if questions refer to a specific year or time period, or if they focus on trends or explanations for trends. Nuclear Generation of Electricity in the United States One likely explanation for increase in electricity generated is an increase in demand. 100 90 80 70 60 50 40 30 20 10 Year Source: U.S. Energy Information Administration 1. Nuclear generation of electricity first exceeded 80 percent of maximum capacity in A. 1994 B. 1995 C. 1998 D. 1999 2. During which time period did the percentage of maximum capacity increase the most? A. 1989–1991 B. 1993–1995 C. 1997–1999 D. 1999–2002 answers: 1 (B), 2 (C) S10 PRACTICE Directions: Use the graph and your knowledge of economics to answer questions 1 through 4. Retail Prices for Regular Gasoline 350 300 250 200 150 100 50 ) 2005–06 2004–05 y a M e n Ju July g u A pt e S Oct v o N ec D n Ja b e F ar M pr A Month* *Survey taken last week of month Source: U.S. Energy Information Administration 3. During which period was the price of gasoline lowest? A. in December 2004 B. in December 2005 C. in May 2004 D. in May 2005 4. In 2005–2006, the price of gasoline per gallon A. nearly reached $3.00 B. dropped from close to $3.00 to less than $2.20 C. fluctuated more than in 2004–2005 D. all of the above 1. During which period did the price of regular gasoline rise toward its peak? A. May–August 2004 B. November 2004–February 2005 C. August–
November 2005 D. February–April 2006 2. Which of the following statements most accurately describes the information shown in the graph? A. Gas prices were stable during both 12- month periods. B. There was a severe spike in price during each 12-month period. C. The price of gas was always higher in 2005–2006. D. The price of regular gas fluctuated more during 2004–2005. S11 STRATEGIES Bar and Pie Graphs A bar graph allows for comparisons among numbers or sets of numbers. A pie, or circle, graph shows relationships among the parts of a whole. These parts look like slices of a pie. The size of each slice is proportional to the percentage of the whole that it represents. 1 Read the title of the graph to learn what it is about. 2 For a bar graph, study the labels on the vertical and horizontal axes to see the kinds of information presented in the graph. Note the intervals between amounts or years. 3 Study the legend, if there is one. The legend on a bar graph provides information on what is being graphed. The legend on a pie graph shows what each slice of the pie represents. 4 Look at the source line and evaluate the reliability of the information in the graph. 5 Study the data on the graph. Make comparisons among the slices of a pie graph. Draw conclusions and make inferences based on the data. 6 Read the questions carefully and use any words to reject incorrect alternatives. U.S. Imports of Crude Oil and Petroleum Products by Region Crude oil Petroleum products East C o ast M id w est G ulf C o ast R ockies W est C o ast Region Source: U.S. Energy Information Administration 1. Which region of the United States imported the most crude oil per day during 2004? A. East Coast B. West Coast C. Gulf Coast D. Midwest Components of M1 1% 22% 54% 23% Currency Demand Deposits Other Checkable Deposits Traveler’s Checks The graph shows that currency—paper money and coins—makes up more than half of M1. Source: Federal Reserve Statistical Release H.6, July 6, 2006 2. What is the largest component of M1? A. currency B. demand deposits C. other checkable deposits D. traveler’s checks Statistics from government agencies, such as the Federal Reserve, tend to be reliable answers: 1 (C), 2 (A) S12 PRACTICE Directions: Use the
graphs and your knowledge of economics to answer questions 1 through 4. New Jobs Added to the U.S. Economy Electricity Generation by Energy Source ) 400 350 300 250 200 150 100 50 0 Ju n–05 Jul–05 A u g–05 Se p–05 O ct–05 N ov–05 D ec–05 Ja n–06 Fe b–06 M ar–06 A pr–06 Ju n–06 M ay–06 3% 3% 7% 19% 49% 19% Coal Nuclear Natural Gas Hydroelectricity Petroleum Other Source: Energy Information Administration, Electric Power Monthly, June 2006 Month and Year Source: U.S. Department of Labor 1. When was the greatest number of jobs added to the economy? 3. Which source of fuel generated nearly half of all electric power? A. July 2005 B. November 2005 C. February 2006 D. March 2006 A. coal B. natural gas C. nuclear D. petroleum 2. Which statement is supported by information in the graph? 4. Which single source generated the least amount of electricity? A. The graph shows that there were greater A. coal B. natural gas C. nuclear D. petroleum fluctuations in job creation in the later months of 2005 than there were in the early months of 2006. B. More jobs were added to the economy in all of 2005 than in all of 2006. C. The graph shows a steady upward trend in the number of jobs added to the economy. D. More jobs were added to the economy between January and June of 2006 than between June and December of 2005. S13 STRATEGIES Extended Response Extended-response questions usually focus on an exhibit of some kind—a chart, graph, or diagram, for example. They are more complex than multiplechoice questions and often require a written response. Some extended-response questions ask you to complete the exhibit. Others require you to present the information in the exhibit in a different form. Still others ask you to write an essay, a report, or some other extended piece of writing. In most standardized tests, exhibits have only one extendedresponse question. 1 Read the title of the exhibit to get an idea of the subject. 2 Carefully read the extended-response questions. (Question 1 asks you to complete the graph by drawing and labeling a new demand curve. Question 2 asks you to write a brief explanation of what is shown in the completed graph.) 3 Study and analyze the exhibit. 4 If the question requires an extended piece of writing, jot
down ideas in outline form to get started. Shifts in Demand e c i r P D1 Quantity demanded 1. The graph above shows the demand for CDs. How would demand for CDs change if the price of CD players rose? Draw a new demand curve to reflect this change. Label the new curve D2. 2. Write a brief explanation of why demand for CDs changed in this way. Sample Response CDs and CD players are used together, so they are complements. If demand for one changes, demand for the other will change in the same way. If the price of CD players rises, then demand for CD players and CDs will decrease and the demand curve shifts to the left S14 PRACTICE Directions: Use the graph and your knowledge of economics to answer questions 1 and 2. Shifts in Aggregate Supply P1 AS1 AD1 Q1 Real GDP 1. The graph above shows an economy at its macroeconomic equilibrium. Copy this graph onto a separate sheet of paper. On the graph, chart how the aggregate supply curve and macroeconomic equilibrium would change if interest rates went up. 2. Write a brief description of these changes and explain why they occurred. S15 Economics and Choice Scarcity and Choices Economics is about making choices. Even such an ordinary task as deciding what to have for lunch involves economic choice. Should you spend $5 on a hot meal, $3 on a sandwich, or should you save your money and bring lunch from home? 2 CHAPTER 1 SECTION 1 Scarcity: The Basic Economic Problem SECTION 2 Economic Choice Today: Opportunity Cost SECTION 3 Analyzing Production Possibilities SECTION 4 The Economist’s Toolbox CASE STUDY The Real Cost of Expanding O’Hare Airport The Economic Way of Thinking Economics is the study of how individuals and societies satisfy their unlimited wants with limited resources Scarcity is the situation that exists because wants are unlimited and resources are limited AT T E R S You confront the issue of scarcity constantly in everyday life. Look again at the caption on page 2. Suppose you have $20 to cover the cost of lunches for the week. How will you use your limited funds to meet your wants (lunch for Monday through Friday)? What if you stayed late at school twice a week and bought a $1 snack each day? How would this affect your lunch choices? Identify one or two other examples of scarcity in your everyday life. More at ClassZone.com FIGURE 1.9 U. S. COMPUTER AND I N T E R N
E T ACC ESS Go to ECONOMICS UPDATE for chapter updates and news on the cost of expansion plans at O’Hare Airport in Chicago. (See Case Study, pages 32–33). Go to ANIMATED ECONOMICS for interactive lessons on the graphs and tables in this chapter. Go to INTERACTIVE REVIEW for concept review and activities 70 60 50 40 30 20 10 0 1998 2003 Year Computers Internet Access Source: National Telecommunications and Information Administration How do economists use graphs? See Section 4 of this chapter. The Economic Way of Thinking 3 S E C T I O N 1 Scarcity: The Basic Economic Problem TA K I N G N O T E S In Section 1, you will • explain how the economic definition of scarcity differs from the common definition • understand why scarcity affects everyone • learn three economic questions that societies face because of scarcity • describe the four factors of production and their uses wants, p. 4 needs, p. 4 scarcity, p. 4 land, p. 8 labor, p. 8 capital, p. 8 economics, p. 4 entrepreneurship, p. 9 goods, p. 5 services, p. 5 consumer, p. 5 producer, p. 5 factors of production, p. 8 As you read Section 1, complete a cluster diagram showing how scarcity is the central concept of economics. Use the Graphic Organizer at Interactive Review @ ClassZone.com Scarcity What Is Scarcity? KEY CONCEPT S Have you ever felt you wanted a new cell phone, a car, a new pair of running shoes, or the latest MP3 play er? You are not alone. Consumers have many economic wants. Wants are desires that can be satisfied by consuming a good or service. When making purchases, people often make a distinction between the things they need and the things they want. Some things that people desire, like a house or an apartment, are more important than other things, like a flat-screen television. Needs are things, such as food, clothing, and shelter, that are necessary for survival. People always want more, no matter how much they have already. In fact, wants are unlimited, but the resources available to satisfy them are limited. The result of this difference is scarcity, the situation that exists when there are not enough resources to meet human wants. Scarcity is not a temporary shortage of some desired thing. Rather, it is a fundamental and ongoing tension that confronts individuals, businesses, governments, and societies. Indeed, it is so basic
to human experience that a social science has developed to understand and explain it. That social science is economics, the study of how people choose to use scarce resources to satisfy their wants. Economics involves 1. examining how individuals, businesses, governments, and societies choose to use scarce resources to satisfy their wants 2. organizing, analyzing, and interpreting data about those economic behaviors 3. developing theories and economic laws that explain how the economy works and to predict what might happen in the future. QUICK REFERENCE Wants are desires that can be satisfied by consuming a good or a service. Needs are things that are necessary for survival. Scarcity exists when there are not enough resources to satisfy human wants. Economics is the study of how individuals and societies satisfy their unlimited wants with limited resources. 4 Chapter 1 Shortages and Scarcity Shortages often are temporary. Movie tickets may be in short supply today, but in a few days’ time they may be easy to come by. Scarcity, however, never ends because wants always exceed the resources available to satisfy them. P RI NCI PLE 1 People Have Wants Choice is central to the use of scarce resources. People make choices about all the things they desire—both needs and wants. You might think of food as a need, because it is necessary for your survival. Nevertheless, you make choices about food. What do you want for dinner tonight? Will you cook a gourmet creation or heat up a frozen dinner? Or will you treat yourself to a meal at your favorite restaurant? You make choices about other needs too. For example, consider the choices you make about the clothes you wear. Wants are not only unlimited, they also are ever changing. Twenty-five years ago, for example, few Americans owned a personal computer. Today, however, few Americans can imagine life without computers and computer-related technology. P RI NCI PLE 2 Scarcity Affects Everyone Because wants are unlimited and resources are scarce, choices have to be made about how best to use these resources. Scarcity, then, affects which goods are made and which services are provided. Goods are physical objects that can be purchased, such as food, clothing, and furniture. Services are work that one person performs for another for payment. Services include the work of sales clerks, technical support representatives, teachers, nurses, doctors, and lawyers. Scarcity affects the choices of both the consumer, a person who buys goods or services for personal use, and the producer, a person who makes goods or provides services
. AP P LI CATION Applying Economic Concepts A. Identify five wants that you have right now. Describe how scarcity affects your efforts to meet these wants. Find an update about computer ownership in the United States at ClassZone.com QUICK REFERENCE Goods are objects, such as food, clothing, and furniture, that can be bought. Services are work that one person does for another. A consumer is a person who buys or uses goods or services. A producer is a maker of goods or a provider of services. The Economic Way of Thinking 5 Scarcity Leads to Three Economic Questions KEY CONCEPT S If you have ever had to decide whether something you want is worth the money, then you have experienced scarcity firsthand. Scarcity in the lives of individual consumers—the gap between their unlimited wants and limited resources—is all too easy to understand. Scarcity, however, also confronts producers and whole societies. Indeed, scarcity requires every society to address three basic economic questions: What will be produced? How will it be produced? For whom will it be produced? QUESTION 1 What Will Be Produced? To answer the first fundamental economic question, a society must decide the mix of goods and services it will produce. Will it produce mainly food, or will it also produce automobiles, televisions, furniture, computers, and shoes? The goods and services a society chooses to produce depend, in part, on the natural resources it possesses. For example, a country that does not possess oil is unlikely to choose to produce petroleum products. Resources, however, do not completely control what a country produces. Japan does not possess large amounts of the iron ore needed to make steel. Yet Japan is a leading producer of automobiles, whose construction requires a great deal of steel. Some Leading Products China South Africa United States Coal Machinery Rice Steel Textiles Chemicals Coal Gold Metal ores Metal products Automobiles Coal Textiles Timber Wheat What to Produce? The availability of natural resources, such as gold, influences what the country of South Africa produces. Some countries, including the United States, resolve the issue of what goods and services to produce by allowing producers and consumers to decide. For example, if consumers want cars with automatic transmissions, automobile companies would be unwise to make only cars that have manual transmissions. In other countries—Cuba and North Korea, for example—the consumer plays little or no part in answering this question. Rather, the government decides what goods and services will be produced. This first fundamental economic question involves not only
what to produce, but also how much to produce. To answer this, societies must review what their wants are at any time. A country at war, for example, will choose to produce more weapons than it would during peacetime. 6 Chapter 1 How to Produce For some societies, using a large amount of human labor is the most efficient way to produce food (left). For other societies, using a lot of machinery is a more efficient method of production (right). QUE S T ION 2 How Will It Be Produced? Once a society has decided what it will produce, it must then decide how these goods and services will be produced. Answering this second question involves using scarce resources in the most efficient way to satisfy society’s wants. Again, decisions on methods of production are influenced, in part, by the natural resources a society possesses. In deciding how to grow crops, for example, societies adopt different approaches. Societies with a large, relatively unskilled labor force might adopt labor-intensive farming methods. For this society, using many workers and few machines is the most efficient way to farm. The United States, however, has a highly skilled work force. So, using labor-intensive methods would be an inefficient use of labor resources. Therefore, the United States takes a capital-intensive approach to farming. In other words, it uses lots of machinery and few workers. QUE S T ION 3 For Whom Will It Be Produced? The third fundamental economic question involves how goods and services are distributed among people in society. This actually involves two questions. Exactly how much should people get and how should their share be delivered to them? Should everyone get an equal share of the goods and services? Or should a person’s share be determined by how much he or she is willing to pay? Once the question of how much has been decided, societies must then decide exactly how they are going to get these goods and services to people. To do this, societies develop distribution systems, which include road and rail systems, seaports, airports, trucks, trains, ships, airplanes, computer networks—anything that helps move goods and services from producers to consumers in an efficient manner. AP P LI CATION Analyzing Cause and Effect B. Why does the basic problem of scarcity lead societies to ask the three fundamental economic questions? The Economic Way of Thinking 7 QUICK REFERENCE Factors of production are the resources needed to produce goods and services. Land refers to all natural resources used to produce
goods and services. Labor is all of the human effort used to produce goods and services. Capital is all of the resources made and used by people to produce goods and services. The Factors of Production KEY CONCEPT S To understand how societies answer the first two basic questions—what to produce and how to produce it—economists have identified the factors of production, or the economic resources needed to produce goods and services. They divide the factors of production into four broad categories: land, labor, capital, and entrepreneurship. All of these factors have one thing in common—their supply is limited. FACTOR 1 Land In everyday terms, the word land usually refers to a stretch of ground on the earth’s surface. In economic terms, however, land includes all the natural resources found on or under the ground that are used to produce goods and services. Water, forests, and all kinds of wildlife belong in the category of land. So, too, do buried deposits of minerals, gas, and oil. FACTOR 2 Labor The word labor usually brings to mind images of hard physical work. In economic terms, however, its meaning is far broader. Labor is all the human time, effort, and talent that go into the making of products. Labor, then, is not only the work done by garbage collectors, factory workers, and construction workers. It also includes the work of architects, teachers, doctors, sales clerks, and government officials. FACTOR 3 Capital When you hear the word capital, you probably think of money. In economic terms, however, capital is all the resources made and used by people to produce and distribute goods and services. Tools, machinery, and factories are all forms of capital. So are offices, warehouses, stores, roads, and airplanes. In other words, capital is all of a producer’s physical resources. For this reason capital is sometimes called physical capital, or real capital. While businesses invest in real capital, workers invest in human capital—the knowledge and skills gained through experience. Human capital includes such things as a college degree or good job training. When workers possess more human capital, they are more productive. Human Capital Education increases your human capital and makes you more productive in the workplace. 8 Chapter.1 Factors of Production Land All the natural resources found on or under the ground that are used to produce goods and services are considered land. What are the Factors of Production? Labor All the human time, effort, and talent that go into the production of goods and services are considered labor
. Entrepreneurship The combination of vision, skill, ingenuity, and willingness to take risks that is needed to create and run new businesses is called entrepreneurship. Capital All the physical resources made and used by people to produce and distribute goods and services are considered capital. So, too, are the knowledge and skills that make workers more productive. ANALYZE CHARTS Two new businesses have opened in your neighborhood—a coffee bar called Lou’s Café and a health club called BodyPower. Construct your own Economics Essentials diagram to show how the four factors of production are used in one of these businesses. FACT OR 4 Entrepreneurship The fourth factor of production, entrepreneurship, brings the other three factors together. Entrepreneurship is the combination of vision, skill, ingenuity, and willingness to take risks that is needed to create and run new businesses. Most entrepreneurs are innovators. They try to anticipate the wants of consumers and then satisfy these wants in new ways. This may involve developing a new product, method of production, or way of marketing or distributing products. Entrepreneurs are also risk takers. They risk their time, energy, creativity, and money in the hope of making a profit. The entrepreneurs who build a massive shopping mall or who open a new health club do so because they think they could profit from these business ventures. The risk they take is that these enterprises might fail. AP P LI CATION Applying Economic Concepts C. Think of a product that you recently purchased. How do you think the four factors of production were used to create this product? QUICK REFERENCE Entrepreneurship involves the vision, skills, and risk-taking needed to create and run businesses. The Economic Way of Thinking For more on cause and effect, see the Skillbuilder Handbook, page R20. Analyzing Cause and Effect Causes are the events that explain why something happens and effects are what happens. An effect can become the cause of other effects, resulting in a chain of events or conditions. Identifying causes and effects helps economists understand how economic conditions occur. Use the strategies below to help you identify causes and effects using a graphic organizer. Identify causes by using the word why to formulate questions about the topic of the passage. Example: Why did oil become more scarce in 2003? Why did this situation continue? The answers you find will be the causes. Turmoil Reduces Oil Supply Oil is a scarce resource, but events in the Middle East have made it more so. The invasion of Iraq in 2003 by U.S.-
and British-led coalition forces led to an almost immediate shutdown of Iraq’s oil exports, thereby reducing the availability of crude oil by some 1.8. million barrels per day. Unrest in Nigeria, Africa’s largest oil producer, further added to global scarcity. More than two years later, in part due to continued unrest in the Middle East, oil production was still sluggish. One result of the continued scarcity was a rise in energy prices. Increased energy prices in turn caused shipping costs to rise. The increased costs of shipping led shippers to seek more economical means of transport. Some shippers have decreased their use of planes and trucks. Instead, they have turned to less fuel-dependent modes of transport. One example is the use of double stacked railroad cars that can carry two shipping containers stacked one on top of the other. Identify effects by looking for results or consequences. These are sometimes indicated by words such as led to, brought about, thereby, and as a result. Look for causeeffect chains, where an effect may be the cause of another event and so on. Diagram the causes and effects in a flowchart like this one. CAUSE: war in Iraq CAUSE: unrest in Nigeria CAUSE: continued Mideast turmoil EFFECT/CAUSE: crude oil availability reduced EFFECT/CAUSE: higher energy prices EFFECT/CAUSE: increased shipping costs EFFECT: decrease in use of planes EFFECT: increased use of doublestacking railroad cars T HINKING ECONOMICALLY Analyzing Causes and Effects Locate and read an economics-related article in a current affairs magazine, such as Time, Newsweek, or U.S. News & World Report. Make a diagram to summarize the causes and effects discussed in the article. 10 Chapter 1 S E C T I O N 1 Assessment ClassZone.com AC T I C E 1. Explain the relationship between the terms in each of these pairs: a. wants scarcity b. consumer producer c. factors of production entrepreneurship 2. What is the difference between needs and wants? Explain how a need may also be a want. 3. How does scarcity affect consumers? Producers? 4. What services that individuals or businesses provide do you use every day? 5. Describe how the owners of a computer repair store might use the four factors of production to run their business. 6. Using Your Notes How does scarcity affect methods of production? Refer to your completed cluster diagram. Scarcity Use the Graphic Organizer at
Interactive Review @ ClassZone.com. Drawing Conclusions Many high schools throughout the United States have faced a serious shortage of math and science teachers. Many prospective teachers choose to go into business and industry because of higher salaries. In some communities, businesses are “loaning” employees who want to teach part-time to schools to fill the math and science teacher gap. Does this scenario illustrate scarcity? Why or why not? 8. Applying Economic Concepts Consider the following entrepreneurs: Lucy, who runs an organic farm, and Ron, a sports superstar who owns several restaurants. Describe how they may have used entrepreneurship to establish and run their businesses. 9. Writing About Economics Select a 10-minute period of time in your day-to-day life—when you are in the cafeteria at lunchtime, for example. Analyze how scarcity affects your activities during this time period. Write your analysis in a paragraph. 10. Challenge At one time or another, you have probably made a choice about how to use your scarce resources that you later regretted. For example, you may have purchased a music download instead of going to the movies. What led you to your choice? What did you learn later that might have led you to a different choice? Using Scarce Resources Suppose you are moving into your first apartment like the young woman above. You have saved $1,200 to use for this purpose. When you go shopping, you learn that these are the prices for things you had on your list of furnishings. Item Price ($) Kitchen table and chairs TV set Dishes Silverware Towels Couch Desk & chair Bed Computer Stereo system 200 150 45 25 35 300 175 350 400 300 Make Economic Choices Use these prices to decide how you will spend your budget for furnishings. Make a list of the things you will buy. Challenge What did you have to give up to get the things you chose? Why did you decide to give those things up? The Economic Way of Thinking 11 S E C T I O N 2 Economic Choice Today: Opportunity Cost TA K I N G N O T E S In Section 2, you will incentives, p. 12 • understand why choice is at utility, p. 12 the heart of economics • explain how incentives and utility influence people’s economic choices • consider the role of trade- offs and opportunity costs in making economic choices • demonstrate how to do a cost- benefit analysis economize, p. 12 trade-off, p. 14 opportunity cost, p. 14 cost-benefit analysis
, p. 15 marginal cost, p. 16 marginal benefit, p. 16 As you read Section 2, complete a cluster diagram to help you see how the key concepts relate to one another. Use the Graphic Organizer at Interactive Review @ ClassZone.com Economic Choice Incentives The chance of winning a championship trophy serves as an incentive for athletes to train and play hard. Making Choices KEY CONCEPT S involves As you recall from Section 1, scarcity forces everyone to choose. But what shapes the economic choices that people make? One facincentives, or tor benefits offered to encourage people to act in certain ways. Grades in school, wages paid to workers, and praise or recognition earned in personal and public life are all incentives. Choice is also influenced by utility, or the benefit or satisfaction gained from the use of a good or service. When they economize, people consider both incentives and utility. In common usage, the word economize means to “cut costs” or “do something cheaply.” In strict economic terms, however, economize means to “make decisions according to what you believe is the best combination of costs and benefits.” QUICK REFERENCE Incentives are methods used to encourage people to take certain actions. Utility is the benefit or satisfaction received from using a good or service. To economize means to make decisions according to the best combination of costs and benefits. 12 Chapter 1 YO U R EC MAKING C HOIC ES How will you spend time with a friend? You and a friend have the choice of going to dinner or going to a movie. There is an incentive for choosing the movies, since dinner would surely cost more. On the other hand, your friend has offered to help you with college applications. So dining out, which allows time for conversation, has more utility to you than seeing a movie.? Movie FACT OR 1 Motivations for Choice Dinner Choice powers an economy, but what powers choice? The choices people make are shaped by incentives, by expected utility, and by the desire to economize. For example, look at Your Economic Choices above. How will you decide between the two options? Like other economic decision makers, you weigh the costs against the benefits, and you make your choice purposefully. Perhaps you decide to go out to dinner. Even though you’ll spend more money, you feel that the tips your friend can give you on writing your college application essay are invaluable. You’ve economized by choosing
what represents the best mix of costs and benefits. In making this decision, you were guided by self-interest. This does not mean that you behaved selfishly. Rather, it simply means that you looked for ways to maximize the utility you’d get from spending time with your friend. FACT OR 2 No Free Lunch An old saying can sum up the issue of choice in economics: “There is no such thing as a free lunch.” Every choice involves costs. These costs can take the form of money, time, or some other thing you value. Let’s revisit your choices. If you chose to go to dinner rather than to a movie, you gained the benefit of a satisfying, informative, and beneficial conversation with a friend. Even so, you also paid a cost—you didn’t see the movie. On the other hand, if you chose to go to the movie, you gained the benefit of an entertaining evening and having more money to save or spend on something else. Once again, however, your choice involved a cost. You sacrificed the time you could have spent getting advice and guidance on the college application process from your friend. AP P LI CATION Using a Decision-Making Process A. You have enough money to buy either an MP3 player that is on sale or some fitness equipment you want. What incentives and utility would guide your decision? The Economic Way of Thinking 13 Trade-Offs and Opportunity Cost KEY CONCEPT S QUICK REFERENCE A trade-off is the alternative people give up when they make choices. Choices, as you have learned, always involve costs. For every choice you make, you give up something. The alternative that you give up when you make an economic choice is called a trade-off. Usually, trade-offs do not require all-or-nothing choices. Rather, they involve giving up some of one thing to gain more of another. EXAMPLE 1 Making Trade-Offs To understand how trade-offs work, let’s take a look at decisions made by Shanti, who has just finished her junior year in high school. Shanti wants to go to summer school to earn some credits she can apply to college. She could take a semester-long course at a local university, or she could take an intensive six-week course at her high school. She decides on the six-week course, even though she’ll earn fewer credits. However, she will have several weeks of the summer vacation to
have fun and relax. Trade-Offs All the decisions you make, including selecting school or college courses, involve choosing among alternatives. EXAMPLE 2 Counting the Opportunity Cost Shanti’s friend Dan, who has just graduated, has decided to take off a year before going to college. He’s been offered a full-time job for the whole year. However, he decides to take the job for six months and then spend time traveling. Dan’s choice, like all economic choices, involves an opportunity cost. The opportunity cost of a decision is the value of the next-best alternative, or what you give up by choosing one alternative over another. Dan decided to travel around the country and visit friends. The opportunity cost of that decision is the income he could have earned at his job. If, however, Dan had decided to work for the whole year, his opportunity cost would have been the trip around the country that he didn’t take. Note that Dan’s opportunity cost is not the value of all the things he might have done. Rather, it is the value of his next-best alternative, or what he gave up to get what he most wanted. APPLICATION Applying Economic Concepts B. Look again at Shanti’s decision. What was the opportunity cost of her choice? If she had chosen the semester course, what would her opportunity cost have been? QUICK REFERENCE Opportunity cost is the value of something that is given up to get something else that is wanted. 14 Chapter 1 Analyzing Choices KEY C ONCEPT S Shanti and Dan did not make their choices randomly. Rather, they carefully looked at the benefits they would gain and the opportunity costs they would incur from their decisions. This practice of examining the costs and the expected benefits of a choice as an aid to decision making is called cost-benefit analysis. Cost-benefit analysis is one of the most useful tools for individuals, businesses, and governments when they need to evaluate the relative worth of economic choices. QUICK REFERENCE Cost-benefit analysis is an approach that weighs the benefits of an action against its costs. E XAMPLE Max’s Decision-Making Grid Perhaps the simplest application of cost-benefit analysis is the decision-making grid, which shows what you get and what you give up when you make choices. Look at Max’s decision-making grid in Figure 1.2 below. Max has to decide how to spend his scarce time—studying for
his government class or going out with his friends. Max likes nothing better than to spend hours talking with his friends at the local juice bar. However, the F he has in the government class at the moment will not look good on his transcript. So he certainly could benefit from some extra study time. Max knows that he has six hours available for extra study or socializing each week. He begins to build his decision-making grid by listing all the options he has for using these six hours. He then lists the benefits and opportunity costs of each of these options. After reviewing all of this information, he chooses three extra hours of study a week. He feels that the opportunity cost, three hours of time with his friends, is worth the expected benefit, a B grade. F I G U R E 1. 2 Max’s Decision-Making Grid A decision-making grid helps you to see what you gain and what you lose when you make choices. Max’s decision-making grid shows the costs and benefits of hours spent studying versus time spent socializing. Choice Benefit Opportunity Cost One hour of extra study D in government class One hour with friends Two hours of extra study C in government class Two hours with friends Three hours of extra study Four hours of extra study Five hours of extra study B in government class B in government class A in government class Three hours with friends Four hours with friends Five hours with friends Six hours of extra study A in government class Six hours with friends ANALYZE TABLES 1. What is Max’s opportunity cost of three extra hours of study? 2. Read the information about marginal costs on the next page. What is Max’s marginal cost of moving from a grade of B to a grade of A? The Economic Way of Thinking 15 Costs and benefits change over time. So do goals and circumstances. Such changes will influence the decisions people make. For instance, Max learns that Pine Tree State, the college he wants to attend, only considers applicants with a 3.4 or better grade point average. If he needs to get a B+ or better to raise his GPA to 3.4, he might decide to spend less time with his friends and study four or five hours per week rather than three. EXAMPLE Marginal Costs and Benefits How did Max arrive at his decision? To explain it, economists would look at marginal costs and marginal benefits. Marginal cost is the cost of using one more unit of a good or service, while marginal benefit refers to the benefit or
satisfaction received from using one more unit of a good or service. Max’s choice was to study three extra hours, which gave him a B grade at the opportunity cost of three hours with his friends. Look again at Max’s decision-making grid in Figure 1.2. What would be the marginal cost of one more hour of study? As you can see, it is the loss of one more hour with his friends. The marginal benefit of that extra hour would be an improvement in grade from B to B+. Max decided that the benefit of a slight improvement in his grade was not worth the cost of one less hour with his friends. The analysis of marginal costs and marginal benefits is central to the study of economics. It helps to explain the decisions consumers, producers, and governments make as they try to meet their unlimited wants with limited resources. QUICK REFERENCE Marginal cost is the additional cost of using one more unit of a product. Marginal benefit is the additional satisfaction from using one more unit of a product. YO U R EC MARGINAL B EN E FIT S AND COST S Which will you do—basketball practice or after-school job? For every hour you practice basketball, you gain in skill and increase your chances of making the team. However, each hour you practice is an hour you could have spent working at an after-school job to save for a car or college or something else you want.? Basketball practice Part-time job APPLICATION Using a Decision-Making Process C. Look at Your Economic Choices above. Construct a decision-making grid that analyzes the potential choices of attending basketball practice and working at an after-school job. Which option would you choose? 16 Chapter 1 S E C T I O N 2 Assessment ClassZone.com AC T I C E 1. Explain the relationship between the terms in each of these pairs: a. incentive utility b. trade-off c. marginal cost opportunity cost marginal benefit 2. Two action movies are playing at your movie-theater complex. You have a half-price coupon for one. However, you choose to see the other. How might this still be an example of economizing? 3. Think of some of the options you have for spending time after school—sports practice, hobby clubs, work, or extra study, for example. Which option would you choose? What is the opportunity cost of your choice? 4. How is a decision-making grid an example of cost-benefit analysis? 5
. Use the concepts of marginal costs and marginal benefits to explain why some people might see the same movie ten times while others will watch it only once or twice. 6. Using Your Notes How do marginal costs and benefits relate to trade-offs? Refer to your completed cluster diagram. Use the Graphic Organizer at Interactive Review @ ClassZone.com Economic Choice. Applying Economic Concepts A Web site reviewing new CDs offers you a free subscription. All you have to do is complete a brief online application. What is the opportunity cost of this “free” offer? Why do you think the offer is being made? 8. Evaluating Economic Decisions Explain how self-interest is part of each economic choice. Use an example from your own experience that shows how you purposely served your own selfinterest in a choice you made. 9. Conducting Marginal Cost–Marginal Benefit Analysis You are on a limited budget and planning a four-day camping trip to a national park. Bus fare is $75 each way and the ride takes 12 hours. Plane fare is $150 each way and the ride takes an hour and a half. Conduct a cost-benefit analysis to help you choose your method of travel. 10. Challenge Why are all choices economic choices? Illustrate your answer with examples. Making Choices Some of the incentives that spur people to action are money, recognition, self-esteem, good grades, immediate benefit, future benefit, and altruism (doing good for others, such as working for Habitat for Humanity). Consider Economic Choices Copy and complete the chart by noting the incentives that might motivate people to take the listed actions. (Several incentives might apply in some cases.) Action Incentive Donate to charity. Get a promotion. Buy a friend a present. Attend a good college. Buy organic foods. Buy inexpensive imported goods. Challenge Have you ever had two or more conflicting incentives for a certain behavior? If so, how would you choose among them? If not, which of the incentives above motivates you most often? The Economic Way of Thinking 17 S E C T I O N 3 Analyzing Production Possibilities TA K I N G N O T E S In Section 3, you will economic model, p. 18 • describe what a production production possibilities curve possibilities curve is and how it is constructed (PPC), p. 18 efficiency, p. 20 • explain what economists learn from using production possibilities curves • analyze how production possibilities curves show economic growth underutilization, p. 20 law of increasing opportunity costs
, p. 21 As you read Section 4, complete a summary chart to identify the most important points on production possibilities. Use the Graphic Organizer at Interactive Review @ ClassZone.com Analyzing Production Possibilities PPC shows impact of scarcity Graphing the Possibilities KEY CONCEPT S In Section 2 you learned that all economic choices involve trade-offs. Economists have created economic models—simplified representations of complex economic activities, systems, or problems—to clarify trade-offs. One such model is a production possibilities curve (PPC), a graph used to illustrate the impact of scarcity on an economy by showing the maximum number of goods or services that can be produced using limited resources. Like all other economic models, the PPC is based on assumptions that simplify the economic interactions. For the PPC these assumptions are: 1. Resources are fixed. There is no way to increase the availability of land, labor, capital, and entrepreneurship. 2. All resources are fully employed. There is no waste of any of the factors of pro- duction. In other words, the economy is running at full production. 3. Only two things can be produced. This assumption simplifies the situation and suits the graphic format, with one variable on each axis. 4. Technology is fixed. There are no technological breakthroughs to improve methods of production. Since the curve on a PPC represents the border—or frontier—between what it is possible to produce and what it is not possible to produce, this model is sometimes called a production possibilities frontier. It is a useful tool for businesses and even governments, but it works just as well with individual, small-scale economic decisions. For example, suppose you are preparing food for a soup kitchen and have the ingredients to make 12 loaves of whole wheat bread or 100 bran muffins or some combination of the two. A PPC can help you decide what to make. QUICK REFERENCE An economic model is a simplified representation of economic forces. The production possibilities curve (PPC) is a graph used by economists to show the impact of scarcity on an economy. 18 Chapter 1 Production Possibilities Curve The production possibilities table in Figure 1.3 below shows five production possibilities for loaves of bread and bran muffins. These production possibilities run from the two extremes of all bread or all muffins through several combinations of the two products. The data in the table also can be plotted on a graph, as in Figure 1.4. The line joining the plotted points is
the production possibilities curve. Each point on the curve represents the maximum number of loaves of bread that can be produced relative to the number of bran muffins that are produced. Further, the PPC shows the opportunity cost of each choice in a visual way. Trace the curve from left to right with your finger. Notice that as you move along the curve you make fewer loaves of bread and more muffins. The opportunity cost of making more muffins is the bread that cannot be made. Production Possibilities A production possibilities curve can show all the possible combinations for producing muffins and bread. FIGURE 1.3 PRODUCTION POSSIBILITIES TABLE: BREAD VS. MUFFINS FIGURE 1.4 PRODUCTION POSSIBILITIES CURVE: BREAD VS. MUFFINS Loaves of Bread Bran Muffins a b c 12 10 7 4 0 0 35 63 84 100 a b 12 10 10 20 30 40 50 60 70 80 90 100 Bran muffins a Here you are using all the ingredients to make only bread. b This point shows a combination of 7 loaves of bread and 63 muffins. The opportunity cost of making the 7 loaves is 37 muffins (100 – 63). c At this point, you are making all muffins and no bread. ANALYZE GRAPHS 1. If you decided to make ten loaves of bread, how many bran muffins could you make? 2. What is the opportunity cost of making the ten loaves of bread? Use an interactive production possibilities curve at ClassZone.com AP P LI CATION Interpreting Graphs A. Look at the production possibilities curve in Figure 1.4. What is the opportunity cost of increasing bread production from four loaves to seven loaves? The Economic Way of Thinking 19 What We Learn from PPCs KEY CONCEPT S QUICK REFERENCE Efficiency involves producing the maximum amount of goods and services possible. Underutilization means producing fewer goods and services than possible. No economy actually operates according to the simplified assumptions underlying the PPC. However, economists use the simplified model because it spotlights concepts that work in the real world of scarce resources. One important concept revealed in a PPC is efficiency, the condition in which economic resources are being used to produce the maximum amount of goods and services. Another is underutilization, the condition in which economic resources are not being used to their full potential. As a result, fewer goods and services are being produced than the economy is capable of making
. Both of these conditions are easy to see in the PPC. EXAMPLE Efficiency and Underutilization Figure 1.5 shows the classic production possibilities model of guns vs. butter. In this model, “guns” is shorthand for military spending and “butter” represents consumer products. Every point along this PPC shows a different combination of military and consumer production. Regardless of the combination, each point represents efficiency, the most that can be produced with the available resources. Any point inside the curve represents underutilization, or the inefficient use of available resources. Look again at Figure 1.5 and notice that point 3 indicates that all resources are not fully employed. The PPC shows that the economy is capable of producing either 47 million more guns (point 1 on the curve) or 30 million more pounds of butter (point FIGURE 1.5 PPC: GUNS VS. BUTTER 300 250 200 150 100 50 ) 50 100 150 200 250 300 350 Butter (in millions of pounds) a Any point along the curve—1, 2, or 5—represents efficiency. b Point 3 inside the curve represents underutilization. Some or all of the factors are not being used efficiently. c Point 4, outside the curve, represents a production impossibility. Regardless of how the available factors of production are used, this level of production cannot be reached. ANALYZE GRAPHS 1. What is the opportunity cost of moving butter production from 1 to 2? 2. At 3, factors of production are not being used efficiently. Identify a situation where this might occur. Use an interactive production possibilities curve at ClassZone.com 20 Chapter 1 2 on the curve). Any point outside the curve is impossible to meet because resources are fixed. To produce the number of guns indicated at point 4, fewer pounds of butter would have to be made (point 1 on the curve). Similarly, to produce the amount of butter indicated at point 4, fewer guns would have to be made (point 2 on the curve). The shape of the PPC shows a third important economic concept. This is the law of increasing opportunity costs, which states that as production switches from one product to another, increasingly more resources are needed to increase the production of the second product, which causes opportunity costs to rise. E XAMPLE Increasing Opportunity Costs Return again to Figure 1.5. A nation makes 250 million pounds of butter (point 1 on the curve), but wants to make 280 million pounds (point 2 on the curve).

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