1. Scarcity increases the demand for a product, and increases the price that consumers are willing to pay for it. Scarcity of an item allows a seller to raise prices, while a surplus of an item means prices will decrease.
2. Macroeconomists would be concerned with issues such as job growth and unemployment, growth in industrial production, and the consumer price index.
3. Under a socialist economic system, businesses and industries can be state-owned or privately owned, depending on the country.
4. A downside to capitalism is the issue of income inequality. There is a considerable difference between the highest and lowest incomes, as indicated by the 2010 income information reported in the textbook for this course. Median pay for a chief executive of a company whose stock was listed on Standard and Poor’s index was $9 million. Median pay for private sector workers was $40,500.
5. The model of perfect competition was created by Adam Smith. According to Smith, in perfect competition, the market has many small sellers who sell interchangeable products to many informed buyers, and no seller is large enough to dictate the price of the product.
6. The term consumer sovereignty is the idea that consumers influence the marketplace through the decisions of which products they choose to buy or not to buy.
7. The business cycle runs through a pattern of expansion, peak, contraction, and trough. Expansion, when economic activity speeds up, is triggered by a rise in investment spending, government spending, or exports.
8. Deflation is defined as a general decline in the prices of most goods and services.
9. An economic bubble is a situation in which prices for securities, especially stocks, rise far above their actual value.
10. TARP is the Troubled Assets Relief Program, signed into law in October 2008. This $700 billion program was created to purchase bank assets in order to strengthen the financial sector. This was outgoing President Bush’s last “screw you” to the people of America. It might have worked to stabilize the banks if the amount was double, and if it offered relief to businesses as well.