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Chapter 2

Chapter Two Definitions

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Pre-Business BUS107

Chapter Two Definitions:  Business Cycle (Economic Cycles) – The periodic rises and falls that occur in all economies over time.  Capitalism – An economic system in which all or most of the factors of production and distribution are privately owned and operated for profit.  Communism – An economic and political system in which the state (the government) makes all economic decisions and owns almost all of the major factors of production.  Consumer Price Index (CPI) – Monthly statistic that measures the pace of inflation or deflation.  Deflation – A situation in which prices are declining.  Demand – The quantity of products that people are willing to buy at different prices at a specific time.  Depression – A severe recession.  Disinflation – A situation in which price increases are slowing (the inflation rate is declining).  Economics – The study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals.  Free-Market Economy – An economy in which the market largely determines what goods and services are produced, who gets them, and how the economy grows.  Inflation – A general rise in the prices of goods and services over time.  Invisible Hand – A phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all.  Macroeconomics – The part of economic study that looks at the operation of a nation’s economy as a whole.  Market Price – The price determined by supply and demand.  Microeconomics – The part of economic study that looks at the behavior of people and organizations in particular markets.
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