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Economics Final Study Guide
Terms in this set (48)
What is the basic problem in economics?
Scarcity formed from limited resources but unlimited wants
What is the difference between a want and a need?
Want: Any item that is not a need, typicaly to satisfy yourself.
Need: a basic requirement for survival and incldues food, clothing and shelter
What are the four factors of production?
Land:All the natural resources on or under the ground that are used to produce goods and services.
Labor:All the human time, effort, and talent used to produce goods and services.
Capital:All the resources people make and use to produce and distribute goods and services.
Entrepreneurship:The combination of vision, skill, ingenuity, and willingness to take risks that is needed to create and run new businesses.
What are trade-offs and opportunity costs?
Trade-offs:an alternative we sacrifice when we make a decision
Opportunity costs:the most desirable alternative given up as the result of a decision
What is th purpose of the economic models and production possibility curves?
They show alternative ways to use an economy's resources.
What are the three basic questions all economic systems must answer?
1.What goods and services should be produced?
2.How should these goods and services be produced?
3.Who consumes these goods and services?
What are the four types of economic systems?
Traditional:economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services.
Command:economic system in which the central government makes all decisions on the production and consumption of goods and services.
Market:economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets.
Mixed:economic system that combines the free market with limited government involvement.
What are the terms and characteristics used to describe the American Economy?
What was Adam Smith's opinion about the government's involvement in a nation's economy?
Limited role of government:The government does not control the market place, but rather only ensures saftey and quality within it.
Freedom of enterprise:Individuals are free to own and control the factors of production.
Freedom of choice: Buyers, not sellers, make the decisions about what should be produced.
Profit Incentive: The desire to make a profit.
Competition:The struggle among producers for the dollars of consumers. A business relation in which two parties compete to gain customers.
Private Property: Property owned by individuals, instead of the government.
Adam Smith: His ideal economic system was capitalism. This system would be where the government had no control over the marketplace at all.
What are the economic goals of the American free-enterprice system?
Economis eficiency: Using our limited resources wisely.
Economic equity: The attempt to balance an economic policy so that everyone benefits fairly.
Standard of living: The material well-being of an individual, group, or nation, measured by how well their necessities and luxuries are satisfied.
Economic growth: Expansion of the economy to produce more goods, jobs, and wealth.
Who pays taxes?
Anyone who earns an income
What are the three main types of taxes?
Income: A tax on earnings that goes to FEDERAL government revenue Sales: A tax on goods that goes toward STATE revenue Property: A tax based on property value that goes toward LOCAL government revenue
What are the differences between gross income and net income?
Gross Income: Total pay before any deductions Net Income: Income remaining after deductions
What is PYF in regards to savings?
It stands for Pay Yourself First. I makes sure that you have backup money in the bank or where ever so that if an issue arrises you have the money to deal with it.
What is a savings account?
An interest bearing account that is used to hold money for future/emergency use
What are the characteristics of a debit card and credit card?
Debit: Buy now, Pay now ; No interest charge ; Not a way to build credit ; monthly maintenance and overdraft fees
What is credit agency and what is its purpose?
A depository institution owned and operated by its members to provide savings accounts and low interest loans only to its member.
What is the Law of Demand?
Consumers buy more of a good when its price decreases and less when its price increases.
What is the Law of Diminishing Marginal Utility?
A general decrease in the utility of a product, as more units of it are consumed.
What is the Real Income Effect?
Economic rule stating that individuals cannot keep buying the same quantity of a product if its price rises while their income stays the same.
What are the five determinates of demand?
Change in population: When population increases, opportunity to buy and sell increase.
Change in income: The demand for most goods and services depends on a person's income.
Change in tastes and preferences: When a product becomes a fad, more of the products are demanded and sold at every possible price.
Substitutes: Substitutes are goods used to take the place of one another.
Complementary goods:two goods that are bought and used together
What is the law of supply?
The price and quantity supplied move in the same direction.
What are the four determinats of supply?
Price of inputs: If the price of inputs needed to make a product drops, a producer can supply more at a lower production cost.
Number of firms in the industry: As more firms enter the industry, greater quantities of their product and service are supplied at every price.
Taxes: If the government imposes more taxes on the production of certain items, businesses will not be willing to supply as much as before, because the cost of production will rise.
Technology: Any improvements in technology will increase supply.
What is a price floor and price ceiling?
Price floor: a minimum price for a good or service
Price Ceiling: a maximum price that can legally charged for a good or service
What is GDP? How is it measured? What is it considered? How is it computed?
Gross Domestic Product: The measure of the value of goods and services produced by a country in one year.
What is disposable personal income?
Income remaining for people to spend or save after all taxeshave been paid.
What is inflation?
Prolonged rise in the general price level of final goods and services.
What is the consumer price index?
A stattistical measure of the average prices of a specified set of goods and services purchased by typical consumers in city areas.
What is real GDP?
GDP that has already been adjusted for inflation by applying the price deflator.
What is the buisness cycle?
Irregular changes in the level of total output measured by real GDP.
What is the Fed? How are they elected? What are they responsible for? What are their functions?
The Federal Reserve System created by congress in 1913 as the nation's central banking organization. it is responsible for monetary policy in the United States.
How many federal Reserve Districts are there?
There are 12 Federal Reserve District banks.
What is Tight and Loose Money Policy?
TIght money: Monetary policy that makes credit expensive and in short supply in an effort to slow the economy.
Loose money: Monetary policy that makes credit inexpensive and abundant, possibly leading to inflation.
What is Fractional Reserve Banking?
System in which only a fraction of the deposits in a bank is kept on hand, or in reserve; the remainder is available to lend.
What are Public Works projects?
Publicly used facilities, such as schools and highways, built by federal, state, or local governments with public money.
What is a merit good and a demerit good?
Good Merit: A good that has been deemed socially desirable by government leaders. Ex) Museums, ballets
Demerit: A good that has been deemed socially undesirable by government leaders. Ex) Tobacco, alcohol
What is income redistribution?
a practice done through progressive taxation to take income from wealthier individuals to help other citizens in need
What does it mean when the government regulates economic activity?
The government protects consumers, supervises labor, promoting competition, and regulating negative by product.
What are some examples of social-insurance programs?
Who submits the federal budget to congress?
Where does most of the government's federal spending go?
Public Assistance Programs, Restorations
Where does most of the government's revenue come from?
What are the three forms of taxation?
-Proportional Tax - Sales Tax
-Progressive Tax - Property Tax
-Regressive Tax - Income Tax
What does it mean to regulate negative externalities of production?
government regulations that keeps the well being of the environment / individual health as the top priority.
What is deficit financing?
Government policy of spending more money than it is able to bring in through revenues
What at the four types of unemployment?
-Cyclical - Unemployment associated with up or down fluctuations in the business cycle
-Structural - Unemployment caused by changes in the economy such as technololgical advances or discoveries of natural resources
-Seasonal - Unemployment caused by changes in the season or weather
-Frictional - Temporary uneployment between jobs because of firins, layoffs, voluntary searches for new jobs
What causes stagflation?
A combination of inflation and stagnation (low economic activity)
What is absolute advantage and comparative advantage?
Absolute Advantage: The ability of one country to produce more output than another country Comparative Advantage: The ability of a country to produce at a lower oppurtunity cost than another country
What is a tariff?
A Tax placed on imported goods
Recommended textbook explanations
Economics: Concepts and Choices
Principles of Economics
N. Gregory Mankiw
Economics: Principles in Action
Arthur O'Sullivan, Steven M. Sheffrin
Economics: Today and Tomorrow
Roger LeRoy Miller
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A business raising price finds rivals keeping theirs relatively constant, so demand is relatively flat. A business lowering their price finds other businesses doing the same so demand is relatively steep.
Prices in a competitive market economy tend to favor the producer over the consumer. True or False?