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Free Enterprise Midterms Questions

1. What is economics?
Economics is the study of how induviduals and societies make choices about ways to use scarce resorses to fullfill their wants.
2. What is the basic problem in economics?
The basic problem of economics is scarcity.
3. What are the five factors of production?
The five factors of producton are land, labor, capital, entrepunership, and technology.
4.What is the diffrence between a need and a want?
Needs are what one has to have for survival.
Wants are everything else.
5. Explain porduction possibilities?
Production possibliities show the max. combination of goods that can be produce from a fixed amount of resorses in a given period of time.
8. What are the diffrent types of models?
Types of economic models include words on paper, a grapgh, or a mathematical equatoin(used most often).
11. Explain the four basic economic questions?
-what/how much goods should be produced?(one must consider tradeoff and scarcity)
-how should they be produced?(in the most effecient mannar)
-who should produce them?(most qualified person)
-who should share in what's produced(whoever can afford it)
12.Explain the 4 types of economic stystem
-traditional economy(peole do what ansestors have done, forever, no machinary, and customs play a huge role)
-comand/control economy(gov. tells what edu./career one has, and makes all desisions)
-pure market/capitalist economy(induv. make desiosns based on the 4 economic questions)
-mixed economy(gov. and induv. make desisions)
13. Explain the circular flow of income?
the circular flow of income basically shoes how buissness provide payment in use of an induv. resorses(work) while the induv. spends on the companie's goods, creating the flow of income to and from.
16. What did Adam Smith say about the economy?
Adam Smith said that economy should not be messed wtih by gov. and that competiton works like an "invisible hand" therefore should not be interferaed with by gov.
17. What are America's economic goals?
America's 5 economic goals are effecienty, growth, security/equaty, stability, and induv. freedom.
18. How are disposbale and discretionary income diffrent?
Disposable income is used for needs, while dicretionary incom is used for wants.
19. What are the basic buying principals/strateges?
The basic buying principles are:
-gather info
-use ads. wisely
-compaison shopping
20. What are the consumer rights that came about in the 1960's?
In the 1960's Kennedy passed the following laws to portect consumers
-the right to saftey
-the right to be informed
-the right to chose
-and the right to be heard

the right to redress was later added by Nixon.
21. What are some of consumer respoblibilities?
SOme consumer reposibilities incluse
-reporting a faulty product
-and exhibiting ethical behavior
22. What federal agencies are there to help consumer?
The federal agencies that help consumers are
-Consumer Information Center Program
-Federal Trade Commision
-Consumer Prodcut Saftey Commision
-Gov. Printing Office
-U.S. Postal Service
-U.S. Departement of Agriculture
-Bereau of Consumer Protection
-Food and Drug Administration
-and the National Highway Traffic Saftey Administration
23. Why do people use credit?
People use credit to
-have an immeditant need/want
-to spread payment out by the life of the item
24. What is an installment debt?
An installment debt is a type of loan repaid with equal payments, or installments, over a specific period of time.
25. Whta is a mortage and how does it normally work?
A mortage is a type of installment debt for houses, buildings, or land in which someone provides the owner with fundsd to purchase the properyt, but in return, the owner must repay the loan with interest in installments over a # of years
26. What are the diff. types of lending institi. and waht are the characteristics of each?
-commercial banks(bug banks, provide full service such as lending, depositsm, cheking/savings, transfer, and investment oppertunies.)
-savings and loan associations(alternate to bank, very primative)
-savings banks(small bank in small town, not many sevices)
-credit union(best bank, when join you own some of it, so profits go back to you)
-consumer finance companies(have high interest loans to risky borroers)
27. What are the 4 diff. methods of calculating interst on a credit card?
-previos balance method
-adjusted balance
-average dailyy balance
-past due balance
28. Explain how interest is calculated using the diff. methods?
-previos balance method(charge on the 1st of the month)
-adjusted balance method(charge on last day of month)
-average daily balance(average on what one owes divided by the days)
-past due balance(random day one is charged for interest)
29. What are th 3 C's of credit?
-capacity to pay
31. What major laws are there to protect ocnsumers?
-Truth in Lending Act of 1968
-Fair Credit Reporting Act of 1970
-Equal Oppertunity Act of 1974
-Fair Credit Billing Act of 1974
-Fair Debt Collection Practices Act of 1977
32. Explain the two types of personal bankruptcy?
-ch. 7(one is so deep in debt that none paid back, house if taken, and money is taken from income)
-ch. 13(some is paid back, house kept, money from income taken)
36. Explain diff. types of investments?
-stock(buyer gets a share of the company and essetntial owns it)
-bonds(debt to a compnay, mature, and then paid back)
37. Explain capital gain?
Capital gain is the increse in value of an asset from the time it was bought to the time it was sold.
38. why do people invest in the stock market?
People invest in the stock market in hope of capital gain.
39. Who investigates and oversees investments in America?
40. What are some common types of retirment plans?
-socaial security programs
-keogh plan
-Roth IRA
41. How do laz of supply and demand work?
law of demand states that quanity demanded and price move in opposite directions, while law a supply sayd they move in the same direction
42. Explain how the law of dininishing marginal utility works in the real world?
the law states that with each unit bought, utility is less and less till one stops buying, in other words, if you were to buy a soda, u wouldn't buy another if you have no need for it, unless the price was lowered
43. What are some determinates of demand?
44. Explain elasticity of demand?
elasticity is a situation when a product's price change has little impact on the quanity demanded by consumers
45. What are the deterniments of supply and how do they work?
-price of inputs(if cheaper, more suppliers)
-number of firms in industry(more suppliers if more firms)
-taxes(if more, then less suppliers)
-technology(patent, or legal)
46. What happens when price is above the equillibrium point?
47. What are the major types of buisnesses?
-sole proprietorships
48. Explain the 4 market structures?
-perfect competition(large, simular pruduct, easy entry/exit, easy to get info, no price control)
-monopoly(one seller, no substitues, no entry, almost complete control over market)
-oligopoly(few sellers, barriers to entry, identical/slightly diff. product, nonprice competition, interdependence)
-monopolistic competition(numerous sellers, sorta easiy entry, differentiated products, non price competition, come control on price)
49. What is an antitrust? What are the major antitrust laws?
antitrust is federal/state laws passed to prevent noew monopolies from forming and break up those that do
-Sherman Antitrust Act
-Clayton Act
-FTC Act
-Robinson-Patman Act
-Celler-Kefauver Act
-Hart-Scott-Rindo Antitrust Act Improvements
50. What are regulatroy agencies and what do they do?
agencies that oversee various industries and services
-exist in federal/state/local level
51. Explain the channels of distribution?
routes by which goods are moved from producer to consumer
52. What is the civilian work force?
total number of people 16 years old or older who are either employed or actively seeking work
53. Why is it impossible to have every American working?
5.5%-6% is the perfect emplyment rate(means eveyone is working, cause cant expect everyone to work continually due to some get fired and some seasonal workers
54. How are workers categorized by the type of work they do?
-service workers
55. How are workers categorized by the skill they do?
56. What do labor unions try to get for the workers?
-better wages and working conditions
57. Explain the major labor-managment legislatoino that exists?
-Norris-LaGuardia Act(limits power of court to stop picketts/boycotting, yellow-dog contract illegal)
-Wagner Act(laborers have right to organize and bargin collectively, set up NLBR)
-Taft-Hartely Act(outlawnstkie tatctis, union shops illegal, and allow president to delay stike if nation's heath in jeporady)
-Landrum-Griffen Act(increase gov. control on unions, and gives union members rights)
58. What happens when there is a break-down of comunications between labor and managment?
-stikes, picketing, and boycotting can occur on the labor side
-lock-outs and injunctions can occur on the managment side
59. Why are labor laws declining?
-unions grown too large
-lost touch of laborer's needs
-higher wages are passed to consumers through higher prices
-union rules decrease productivity
-technology take blue-collar jobs
60. What are the functions of money?
-meadian of exchange
-unit of accounting
-store value
61. What are the diffrences between money and near-money?
near money acts like money, but isnt, cause there is an extra step involved to get the money
-ex. COD, savings account, stocks/bonds
6. Explain Classic and Real world examples of production possiblities?
-in classic production possibilities, the model assumes that factors remain the same(guns vs. butter)
-in real world production possibilities the models hold everything steady but the variables assumed to be related(in 90's less guns cause no need to guns)
7. how do economists use models?
economists use models to help analize the real world works by testing a hypothesis
9. What are the step to forming a hypothesis?
-define problem
-from the alternatives, state hypothesis that appears to offer best solution to problem/ explanation of event
-gather info/test hypothesis, besides using facts from real world, economist must identify economic priciples involved
-evaluate data and discard that aren't relavent
-make sure theres enough data to test hypotesis
-develop conclusion based on data, to do so evaluate alternative best, in veiw of its concequences
-if hypothesis valid, retest with new data to see if same outcome
-if still valid, form on gernerlazation(pulls together idea amoung facts) that can be aplied to other cases, develop an economic policy based on best alternative
10. What role do values play in economics?
values effect ones outlook on polocies,weather you find them good, or bad
-creates nonagreement in colution, strategies and interpretation of data
15. What are the major characteritics of the American economy?
the major cahracteristics of the american free enterprise system is
30. What safegaurds are there to protect users of credit?
-consumer rights that Kennedy/Nixon made(5)
-if card stolen, can report it and only 50$ of the charge you will owe
33. What is the max. you should spend when buying a house?
no more thatn 1/3 of the income on mortage
34. Explaion the different types of mortages?
-standard fixed-rate mortage(interset rate and monthely payment ramin same)
-flexible rate mortage(interst and monthly payment go up and down depending on interest rate in gerneral, max. it can go up but not ma. it can go down)
-federal housing administration mortage(FHA insure mortage so can get bigger loans)
-graduateed payment mortage(GPM, interst fixed, but monthly payment riase though years)
-verterns administration(VA mortage, loe interest rate and loans without down payment)
35. Explain the diffrent types of svaing plans?
-passbook/statment savings account(regular money in bank, low interest, safe)
-money market deposit account(MMDA, high interest, but must have much money in bank at all times)
-time deposits(put money in bank for time till mature with more money)
62. Explain the federal budget making process?
fiscal year is 18 months
-executive branch agnecies develop requests for funds and submit them to the Offcice of Magagment and Budget(OMB) (Feb-Sept)
-president and OMB review the requests and make the fiscal decisions on what goes in the budget(budget formally printed to congress)(Sept-Dec)
-(all from Jan-Sept) house and senate budget commetiees review the president's proposed budget and in (April)commettie prepares an initial resolution for budget that goes to congress for debate, by (Sept) then congressional budget should be finalized and passed by the house of repsentatives which approves spending and revenue bills
-(Oct. 1) fiscal year begins
-(Oct-Setp) agency program implements the budget and disburse funds
-(Oct-Nov) data on actual spending and recipts for complete fiscal year become avalable adn general acconting occife audits the fiscal-year layout
63. Why is the federal goverment in debt?
Most of the years, the gov. has spent more money than gotten in, in taxation, causing a budget deficit.
64. What are the major taxes of the U.S.?
-personal income
-social insurance
-corporate insuracne
-custom duties
65. What are the diffrent form of taxation?
classified according to effect they have on people taxed
-proportional tax
-progressive tax
-regressive tax
66. What are the diffrent principles of taxtion?
-benifit-recieived princliple
-ability-to pay principle?