What is physical capital and what are examples?
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What is an efficient economy?one that uses its resources to make the most goods and servicesWhat are traditional economies(those that rely on custom, habit, the way things have always been done) small.Who owns factors of production?householdsWhat is the "invisible hand" that regulates the market economy?Competition and self-interestHow did heavy industry in the Soviet Union avoid the competition that drives a free market economy?The government controlled prices, wages, and products to discourage competitionWhat was the trade-off of the Soviet Union's focus on heavy industry?Fewer consumer goods were produced.Describe the U.S. economyIs the world's largest national economy and the world's second largest overall economy.What is the main difference between the economies of China and North Korea?china is privatizing businessWhat are the characteristics of a centrally planned economy?The central government decides what to produce, how to produce them, and who will consumer them.How do consumers make their desires known to businesses in a free market economy?Buying or not buying productsHow are savers and borrowers linked through financial institutions?Savers deposit money that is used to loan money to borrowersWhat is considered a normal rate of unemployment when the economy is working properly?4 to 6 percentHow could the Chinese economy be characterized?mixed, but on the side of centrally plannedWhat basic principles are fundamental to American free enterprise?Open opportunity, private property, contracts, voluntary exchangeWhat is profit motive?incentive to make moneyWhat are the governments 3 goals for promoting economic strength?High employment, steady growth, and stabilityWhat may the government do to try to promote economic growth?Increase spendingWhat is the rule for determining whether a good is a public good or not?Whether the benefits to society are greater than total costWhat is the government's role in controlling externalities in the American economy?Tries to encourage positive and limit negative externalitiesIf a student volunteers at a nursing home after school, what would possible negative externalities be.A student might be unable to work at her part-time job that afternoon.What are examples of in-kind benefits?Food giveaways, food stamps, subsidized housing, and legal aidWhat government programs provide health insurance for the elderly, the poor, and the disabled?Medicare and MedicaidWhen did the nation's welfare system develop?During the great depressionWhat is the difference between a business cycles and the day-to-day fluctuations of the stock market?A business cycle consists of prolonged fluctuations rather than day-to-day fluctuations.What is the law of demand?price goes up, demand goes downWhat is necessary for there to be demand for a good or service?A person must be willing and able to buy the good at a given price.What does the substitution effect say happens when the price of a good or service rises?Consumers will buy less of a good and more of a cheaper substitute when the price of the first good rises.How can expectations about the future change consumer behavior?Demand for a good will go up if its price is expected to rise.What can cause an entire demand curve to shift?a change in demographicsHow does elasticity affect a company's pricing policy?If demand is elastic at the current price, the company knows that an increase in price would reduce total revenues.What does elasticity of demand measure?how buyers will cut back or increase their demand when price rises or fallsHow does a person's perception of a good as a necessity or a luxury affect his or her purchase of it?A good that is perceived as a necessity will be purchased even if the price rises.What effect does the availability of many substitutes have on the elasticity of demand for a good?Demand would be elastic.Name goods with elastic demand? With inelastic?Candy bars, soft drink, steak . Inelastic—medicine, contact lenses, glassesWhat is ceteris paribus?It is when the variables that are not mentioned remain constant.What are inferior goods?goods for which the demand falls when income risesWhat are demographics?statistical data relating to the population and particular groups within it.What are complements?two goods for which an increase in the price of one leads to a decrease in the demand for the otherWhere along a demand curve would you show a decrease in quantity demanded where only price was a factor?on the curveWhat is elasticity of less than one called?inelasticWhat is the biggest factor impacting elasticity of supply?timeWhich way does a supply curve always run?It always rises from left to right.When the price of a product goes down, what happens to producers?Some produce less, others leave the marketHow does a manufacturer set total output to maximize profit?They set production at the point where marginal revenue equals marginal cost.When would it make sense for a factory that is losing money to remain in business?If the total revenue from the goods being produced exceeds the operating costHow is total cost determined?Fixed costs + variable costsHow does specialization affect production?It makes workers more efficientWhat are characteristics of sole proprietorships?They are owned and managed by an individual.. Sole proprietors may have problems borrowing money from a bank.What are characteristics of partnerships?- limited duration - transfer of ownership requires agreement - partnerships are separate legal entities - unlimited liability of partners for partnership debts - ease of formation, can be very informal - not a taxable entity, flow-through entity (1065)What are advantages of each? disadvantages?limited banks and dis- have to pay back loansWhat are advantages of a franchise?management training and support, standardized quality, national advertising programs, financial assistance, centralized buying powerWhat percentage of income is earned by corporations?60%Define a horizontal merger.A combination of two firms that produce the same type of good or service.Define a vertical merger.A merger between a firm and one of its suppliers or customers.What does limited liability mean for stockholders?stockholders can lose only the money they investedWhat are the characteristics of money?durability, portability, divisibility, uniformity, limited supply, acceptabilityWhat do the characteristics mean?SetheWhat is the difference between representative money and fiat money?Representative money can be converted into silver or gold; fiat money cannot.Why would commodity money be hard to use in most societies?It is not often portable, durable, or divisible.What did the Federalists favor economically in the early U.S.?a centralized banking system.How was the U.S. Banking system reformed during the Depression era?The banking system was taken off the gold standard.What was one disadvantage of the Gold Standard?It can slow economic growth by limiting the amount of money in circulation.What is the difference between how simple interest and compound interest are paid?Simple interest is on principal only; compound interest is on both principal and interestWhat is a credit union?a cooperative lending institution for a particular groupHow does a bank make most of its profit on its business?By paying out less in interest than it earns in interest on loansWhat is an important characteristic of the M1 money supply?liquidityWhat is a prospectus?An investment report for potential investorsWhy is a certificate of deposit considered such a safe investment?It is guaranteed by the federal government.What is a mutual fund?an investment program funded by shareholders that trades in diversified holdings and is professionally managed.Why might you choose an investment with high risk as opposed to a lower risk one?for a higher returnwhy would investors buy a junk bond?Junk bonds pay a potentially higher level of interest than other bondsWhat is the difference between a primary market and a secondary market?Primary market assests can be redeemed only by the original investor; second market assets can be resold.What is usually the relationship between a bond's rating and the interest rate a company pays to buyers?The higher the rating, the lower the rate.Rank the types of bonds according to riskSavings, treasury bonds, municipal bonds, corporate bondsWhat is gained and what is lost when switching from a short-term to a long-term CD?gained interestWhat does the New York Stock Exchange do?Arranges stock and bond trading of the largest and most established companies in the USWhat were the outcomes of the Great Crash in 1929?Ordinary people were afraid to invest in the stock market.What happened to stock prices in the Great Crash?prices fellWhat are the characteristics of a certificate of deposit?safe, lower interesthow do saving bonds differ from most other bonds?the buyer does not receive periodic interest.What is a municipal bond?a security issued by or on behalf of a local authority.Why don't government planners try to end seasonal unemployment?It is a natural part of a healthy economy.What does "full employment" mean?There is no cyclical unemployment.Why does unemployment rise when the economy slows?Decreased demand for goods causes demand for labor to go down.What are the causes of inflation?demand pull inflation and cost push inflationHow does inflation impact real returns?your money buys lessWhat are the causes of poverty in the U.S.?lack of educationHow has income distribution in the U.S. changed over the last 20 years?it has become less evenWhat is underemployment?People working at jobs below their level of skills1. What gives the U.S. government authority to collect taxes?The U.S. ConstitutionWhat is a proportional tax?a tax that takes the same percentage of income from all taxpayers regardless of income levelWhy is a sales tax a regressive tax?It is a higher percentage of income if you earn less moneyWhat are the characteristics of a good tax?simplicity, efficiency, certainty, equityWhy does the government tax alcohol and tobaccoto discourage useWhat is the difference between an estate tax and a gift tax?An estate tax is a tax on the money and property of a person who has died. A gift tax is a tax on money or property worth over $12,000 that one living person gives to another.