Economics: Final Exam Review – Flashcards
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not enough goods to satisfy the demand this affects the economy because it causes an increase in price
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Scarcity and its effect on the economy
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What is given up when a trade-off occurs this concept shows marginality and whether there is marginal cost and benefit
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Opportunity Cost and explanation
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A country specializes in what they can produce with the lowest opportunity cost and trades for the rest A country would choose this strategy in order to make more money
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Comparative Advantage and why a country would choose this strategy
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A country specializes in goods they an produce more efficiently
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Absolute Advantage
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absolute advantage is based on efficiency while comparative advantage is based on opportunity cost
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Contrast between comparative advantage and absolute advantage
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A person who has the combination of vision, skill, ingenuity and willingness to take risk that is needed to create and run and new business
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Entrepenuer
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Land, labor, capital, and entrepenuership
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What are the Factors of Production
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People will buy something more at lower prices than at higher prices
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Law of Demand
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The impact that a price increase has on a consumer's decision to purchase an item or to substitute that item for a similar product that meets the same need or want but at a lower cost.
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Substitution Effect
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A measure of reaction to price changes
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Elasticity
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Time - the more time a seller has to adjust the quantity being produced, the more elastic it is Flexibility of Production - the greater a seller's ability to change the quantity produced, the more elastic it is
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What factors determine the elasticity of supply? Explain their impact
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availability of substitute goods or services - if there is a substitute for a product that had a price increase, it will be elastic proportion of income - the greater % of people's budget spent on a product, the more elastic it is necessities vs. luxuries - necessities = inelastic, luxuries = elastic time - the more time people have to adjust to a price change, the more elastic it is
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What factors determine the elasticity of demand? Explain their impact
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Change in demand - movement along the curve Change in quantity demanded - shift of the entire demand curve
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What is the difference between the quantity demanded and a change in demand?
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the cost of production of a product affects the price of the product, and therefore, how much they are willing to produce at that price
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How does cost of production affect suppliers of a product?
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A shortage of a product causes prices to increase
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What is the impact of a shortage on a market?
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an increase in demand causes equilibrium price to increase
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What causes equilibrium price to increase?
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Prices act as incentives for producers by making them more willing to produce products at higher prices
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How do prices act as incentives for producers
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Labor productivity - the amount of good or services a person can produce in a specific amount of time Change in expectations - if suppliers believe that demand will change in the future, they will change their rate of production in order to meet the expected demand Technology - suppliers use technology to make production more efficient Government Action - activities by the government can change the costs of production
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What factors cause a change in supply? Explain each.
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(Sorry, don't have explanations for these, feel free to add it in) Change in income Change of market size Change in consumer tastes Change in consumer expectations Availability of substitutes Availability of complementary goods Change in weather or season
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What factors cause a change in demand?
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Individual Income Tax - a tax determined from an individual's income from all sources Corporate Income Tax - a tax determined by a country's profits Sales Tax - A tax determined by the value of designated goods or services at the time of sale Property Tax - a tax determined by the value of an individual's or business' assets
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What are the different types of taxes? Explain each.
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Individual income taxes
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Which taxes are usually withheld from a person's paycheck?
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It achieves the goal of raising revenue for the government with the least cost in terms of administration
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What makes a system of taxation efficient?
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Proportional - the same % of income is taken from all tax payers, regardless of income Regressive - a larger percentage of taxes are placed on low income earners than high income earners Progressive - A higher percentage of taxation is placed on high income earners than on low income earners
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What are the different types of tax structures? Explain each
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Spending required by law. Examples: Social Security, Medicare
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What is mandatory government spending? What programs are provided under this?
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Spending that the government must authorize each year Examples: national defense, highways, environmental programs
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What is discretionary government spending? What programs are provided under this?
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A diagram that maps the way a market economy operates. All resources start in Households, which they can sell to the factor market for income and use that income to buy goods and services from the product market. These goods and services come from businesses and the sale of these provides them with revenue which they can use to buy productive resources from the factor market.
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What is the circular flow? Explain the interaction between each location
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The market value of all final goods and services produced within a country's borders in a given period of time High Per Capita GDP: more developed, educated and healthier population
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What is gross domestic product? Describe a country with a high capita GDP.
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The final value of all products produced by U.S. owned companies regardless of location
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What is gross national product?
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4-6% unemployment
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What is full employment?
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Frictional- Unemployment caused by changing jobs Seasonal-Unemployment caused by seasonal work Structural-Unemployment caused by a situation where jobs exist, but workers looking for jobs do not have the skills needed Cyclical-Unemployment caused by a part of the business cycle with decreased economic activity
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What are the different types of unemployment? Explain each
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A series of periods of expanding or contracting economic activity Expansion: GDP growing, low unemployment, spending and prices increase Peak: GDP is at its highest and stops growing Contraction: GDP shrinking, resources less scarce, prices stabilize or fall, unemployment increases, employers produce less Trough: GDP is lowest and stops shrinking
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What is the business cycle? Describe each stage.
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The central bank of the United States. It is in charge of managing the nation's monetary policy
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What is the Federal Reserve? Describe its role in the economy
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The federal reserve's actions that change the money supply in order to stabilize the economy. Expansionary: Increase money supply Contractionary: Reduce money supply
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What is monetary policy? What types of monetary policy are there? Explain this system.
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The federal government;s use of taxes and government spending to stabilize the economy Expansionary: increase demand, stimulate the economy Contractionary: reduce demand and slow the economy
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What is fiscal policy? What types of fiscal policy are there? Explain this system.
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features of fiscal policy that work automatically to steady the economy
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What are automatic stabilizers?
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Traditional- Economic questions are answered by elders Command-Economic questions are answered by the government Market-Economic questions are answered by the free market
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What are the three types of economies? Explain each.
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What to produce? How to produce? For whom to produce?
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What are the three fundamental economic questions?
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The study of people producing and exchanging scarce resources to get the good and services they want and need
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What is economics?
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the availability of factors of production vary from country to country
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Why do countries choose to trade?
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an organization that promotes free trade on regional and world levels
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What is a trade organization?
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European Union: Abolished trade barriers, created the euro, world's biggest trader North American Free Trade Agreement: free trade between Mexico, U.S., and Canada, largest free-trade zone
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What are examples of trade organizations? What is the purpose of each?
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Less Developed Nations- lower GDP, less developed industries, lower standard of living Developed Nations- highest standard of living Transitioning Nations- moved or are moving from a command economy to a market economy
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What are the three levels of economic nation development? Describe each.
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Per Capita GDP: GDP divided by population Infant Mortality Rate: the number of children who die within the first year of life per 1,000 births Life Expectancy: the number of years a person can expect to live Literacy Rate: the percentage of people older that 15 who can read and write
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What are the measures of economic development? Explain each.
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Quota: limits the amount of a product that can be imported Tariff: a fee charged for imported goods Voluntary Export Restraint: a limit on the number of goods a country exports to avoid tariffs Embargo: a law that cuts off most or all trade with a specific country Informal Trade Barrier: a indirect barrier to trade that results from another law
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What are the different types of trade barriers? Explain how each one works.
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physical products that can be purchased
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What is a good?
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work that one person performs for another for payment
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What is a service?
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the cost of using one more unit of a good or service
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What is marginal cost?
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a diagram that represents the various combination of goods or services an economy can produce when all productive resources are fully employed It shows marginality and trade offs
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What is the productions possibilities curve? What is its purpose?
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The longer you style your hair, the less change happens. As time goes on, the marginal return decreases
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Explain the concept of diminishing marginal returns
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anyone who buys goods or services for personal use
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What is a consumer?
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Balanced: Income = Expenditures Deficit: Income Expenditures
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Describe the various states that a budget can be in.
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Statement Savings Account: FDIC insured, very liquid, low interest rate Certificate of Deposit: leave money for specific period of time, FDIC insured, not liquid, high rate of return Savings Bond: one-half face value and matures to full value, moderate liquidity, FDIC insured, moderate rate of return Corporate Savings Bond: one half-face value and matures to full value, not FDIC insured, less liquid and higher interest rate than U.S. savings bond, moderate risk Corporate Stock: Not FDIC insured, high risk, potential high rate of return, moderate liquidity Mutual Fund: people pool savings, not FDIC insured, moderate rate of return, not liquid Pension Fund: retirement account, not FDIC insured, moderate rate of return, not liquid
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What are the different types of investments? Describe each.
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When you take out a loan, the principle is the amount you borrowed, you have to pay this back. Interest is added on from the time you had the loan and together, these make up the finance charge of the loan
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Explain principle and interest/finance charge as they relate to a loan.
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the price people pay for insurance
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What is a premium?
