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Terms in this set (46)
Define Scarcity and why it is the fundamental problem in Economics.
ongoing tension of not having enough resources to meet human wants
What is the definition of economics?
the study of how people choose to use scare resources to satisfy their wants
Difference between Marginal benefit vs. Marginal cost
Marginal benefit=the benefit gained from using one more unit of a g/s.
Marginal cost=refers to the additional cost of producing one more unit of a g/s
the value of what you give up by choosing one alternative over another
List and describe the 4 different types of economies
Traditional=follows custom and traditions ex: a society where women tend crops while men hunt
Command=gov. officials deciding the distribution of all resources. ex: North Korea
Market=economy driven by producers and consumers, freedom, allows communities to set their own economic development.
Mixed= most countries are a mix of the different economic systems, most common economic system
What are the 4 factors of production
land, labor, capital and entrepreneurship
Microeconomics vs. Macroeconomics
Micro= studies behavior of individual firms in the economy
Macro= studies economy as a whole, looking as a general rise in prices
Who holds all the power in a market economy?
government stays out of the marketplace
In what type of economy is freedom of choice a principle advantage?
Define Demand and Supply
demand=the desire to have a g/s and the ability to pay for it
supply= the willingness and ability of producers to offer g/s for sale
Define Law of Supply and the Law of Demand
Law of Supply= when Price increases, Quantity supplied increases and vice versa
Law of Demand= When Price increase Quantity demanded decreases and vice versa
Define demand schedule and supply schedule and their relationship to demand and supply curves.
The schedule shows how much of a product someone is willing and able to sell/buy
the curve shows the data from the schedule in graphic form
What does it mean when an item is said to be Demand Elastic or Demand Inelastic (Supply...)
Elasticity of demand=the measure of how responsive consumers are to change in price
Factors that cause a change in Demand
2. market size
5. consumer tastes
6. consumer expectations
Factors that cause a change in Supply
1. Input costs
2. labor productivity
4. government action
5. producer expectations
6. number of producers
______________determines the price system in a market economy
Explain the role higher prices plays for producers and consumers
Motivate producers to enter the market
Explain the role lower prices plays for producers and consumers
Motivate consumers to buy
When will a shortage or surplus occur?
Surplus= happens when prices are too high relative to consumer demand (QS is higher than QD)
Shortage= occurs when prices are too low relative to consumer demand (QS is lower than QD)
At a price of $2 a coffee shop supplies 25 large coffees and 25 large coffees are demanded. What does $2 per large coffee represent?
List and explain examples of price floor and price ceilings
Price floor= minimum wage
Price ceiling=rent control
Why are monopolists able to control prices?
they have no competition and there are no close substitutes for their products
Define and give an example for the different market structures.
Perfect competition=many sellers compete and none control price
Monopolistic competition=sellers gain limited monopoly by convincing consumers that their product is different from competition
Imperfect competition= market structure lacking one of the conditions needed for perfect competition.
What are the Physical characteristics of money
What are the functions of money
measure of value
store of value
medium of exchange
The Federal Reserve System is comprise of _____ regional banks. What role does this board serve?
central board makes major monetary descisions
The United States governments issues_____ money. What is the main advantage for issuing this type of money?
Has value because the government says it can be used as money and people accept it
Define deregulation and explain the role it played in bank mergers.
Government allowing banks from different states to merge is an example (lifted regulations on banks)
Explain the main advantage of mutual funds.
They allow individuals without a lot of money to own a variety of financial assests
Why is an investment objective important before analyzing investment options
before choosing among investment options, an investor should determine an investment objective (financial goal used to determine whether certain investments are appropriate)
What is the most helpful guideline concerning risk and age when investing?
The longer you have to invest, the more risk you can take
Explain the relationship between risk and return.
investments with high rates of return have high risk
U.S. government bonds are almost_________free.
Means that an investor makes several different types of investments to minimize risk
Why would an investor put money into a risky investment?
such investments often earn the greatest profit
What type of market is NASDAQ considered to be?
The__________is a stock index based on the stocks of 30 major companies on the NYSE.
Dow Jones Industrial Average
The market value of all final goods and services produced withing a nation in a given time period.
Explain/ define the business cycle and explain the four phases.
business cycle=a series of periods of expanding and contracting economic activity
(expansion, peak=highest point of business cycle, contraction, trough=lowest point of business cycle)
Define real GDP. Why is real GDP the best measure of a nations economic growth?
real GDP=GDP adjusted for changes in price (inflation)
it is the best measure of a nations economic growth because it factors out rising prices
List the exclusions of GDP.
also...goods made in other countries
Describe the difference between nominal GDP and Real GDP and real GDP per capita.
Real GDP is adjusted for inflation
Real GDP per capita is the usual measure of the production divided by population
Nominal GDP (current) not adjusted for inflation.
Explain a country's poverty threshold.
poverty threshold=official minimum income needed to pay basic living expenses
poverty rate is the % of people that have incomes below the poverty threshold
Differentiate between full employment and underemployment.
full employment=the level of unemployment in which none of the unemployment is caused by decreased economic activity
underemployment= part-time workers who want full-time work or those working below skill level
Describe inflation's effects on the economy.
decreasing value of the dollar
increasing interest rates
decreasing real return on savings
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