question

Scarcity

answer

the limited nature of society's desirable resources

question

Economics

answer

the study of how society manages its scarce resources

question

Efficiency

answer

society gets the most it can from its scarce resource

question

Equity

answer

distributing economic prosperity FAIRLY among the members of society

question

Opportunity Cost

answer

whatever must be given up to obtain some item, second most desirable

question

Rational People

answer

people who systematically and purposefully do the best they can to achieve their objectives, think at margin!

question

Marginal Changes

answer

small incremental adjustments to a plan of action, if it leads to profit

question

Incentive

answer

something that induces a person to act, the motives!!!!

question

Property Rights

answer

the ability of an individual to own and exercise control over scarce resources- how market works

question

Market Failure

answer

a situation in which a market left on its own fails to allocate resources efficiently

question

Externality

answer

reason for market failure: the impact of one person's actions on the well-being of a bystander, example: pollution

question

Market Power

answer

the ability of a single economic actor (or small group of actors) to have a substantial influence on market prices, example: being the only one selling a product, having a more interesting product

question

Productivity

answer

the quantity of goods and services produced from each hour of a worker's time, this is INPUT

question

Inflation

answer

an increase in the overall level of prices in the economy, acceptable at 0-3%

question

Business Cycle

answer

change in economic activity, such as employment and production

question

opportunity cost of college

answer

wages given up to go to college

question

a flight charges 45$ for plane tickets, and before the plane takes off there are three empty seats, what should they airline company charge?

answer

more than 0$ to make a profit for the empty seats

question

what is the effect of creating the seat belt law

answer

slight change in driver deaths, increase in accidents and pedestrian deaths

question

main benefit of trade?

answer

specialization

question

The invisible hand...

answer

people help others more than when they TRY to help others

question

Invisible hand is powerful

answer

not perfect, so there must be some government regulation to enforce rules of economy

question

if productivity increases, so does

answer

standard of living

question

three questions of economics

answer

what to produce, how to produce it, and who it goes to? - answered by consumers, workers, and producers

question

factors of production?

answer

land, labor, and capital

question

TINSTAAFL

answer

nothing is free

question

trade-offs

answer

decisions to do one thing but having to give up other thing- example: study or watch TV

question

marginal costs vs. benefits

answer

cost is what it costs to produce an item, and the benefit is what you get from selling it

question

trade benefits

answer

both parties in the long run! allows specialization, lowers cost

question

market economy

answer

U.S.A, where firms/households or producers/consumers answer economic questions

question

Adam Smith

answer

laissez-faire economy, invisible hand (competition/self-interest) willl fix economy, not gov't

question

GDP is measured by

answer

standard of living, and productivity (inputs/outputs)

question

standard of living is measured by

answer

GDP and personal income

question

SOL is determined by

answer

the ability of a country to produce goods/services

question

productivity is increased by

answer

better factors of production

question

there is a short run trade off between

answer

unemployment and inflation

question

Formula for GDP

answer

y=C+I+G+Nx, consumption, investment, gov't spending, exports

question

Phillip's curve illustrates..

answer

trade off between consumption and inflation

question

recession

answer

real GDP (adjusted for inflation) decreases two consecutive quarters of the year

question

inputs vs, outputs

answer

time and production factors then the actual product

question

revenue is

answer

money to businesses from sales

question

interdependence

answer

people and countries depend on each other to provide what each of them wants

question

Thinking Like Economists takes

answer

observation, theories, and tests

question

experiments are difficult because

answer

cannot manipulate money policies, or change economy for test

question

assumptions in economics

answer

simplify situation, question the effect

question

assumptions for prices in short run vs. long run

answer

short run: prices fixed long run: prices flexible

question

Circular flow model

answer

shows the flow of inputs and outputs between firms and households

question

market for goods and services (product market.. also output)

answer

firms sell goods/services, households buy them

question

market for factors of production (factor market or output)

answer

households sell factors of production (land, labor, and capital), firms buy them

question

outer-loop shows what?

answer

money flow in accordance with the flow. example: sell goods/services=revenue, or sell land, labor, and capital=income

question

Production possibilities frontier

answer

shows various combinations of output/products that economy can produce given resources and technology

question

points outside frontier vs. inside

answer

points outside are not feasible with given resources and technology, unless country produces more than can consume to create specialization in trade vs. inside means economy is not being efficient with given resources and technology... reason could be unemployment

question

curved/bow shape frontier

answer

means increasing opportunity cost

question

straight frontier

answer

constant opportunity cost

question

specialization

answer

country's efforts to produce more of a product than can consume to export for profit

question

shifts more outward in direction where one good

answer

has more production possibilities, must be an increase in both goods to shift equally outward

question

purpose of PPC

answer

measure opportunity cost, trade offs, production possibility, and economic growth

question

micro vs. macro economics

answer

micro is more in depth of firms/households while macro is economics as a whole, the big picture

question

positive vs. normative analysis

answer

positive sounds like scientist, are descriptive about econ., while normative sounds like adviser, a perspective statement

question

positive statements affect

answer

normative views about econ. policies

question

it is good that economists have different views because

answer

it offers conflicting advice and better decisions are made, also have to consider different factors before making a public policy

question

demand curve

answer

effect of a good's price on quantity consumers want

question

omitted variables

answer

are deceptive when viewing graphs

question

reverse causality

answer

reason variables linked is not stated directly, the effect is not completely true

question

David Ricardo

answer

developed comparative advantage in his book Principles of Political Economy and Taxation, advocate of free trade

question

absolute advantage

answer

ability to produce a good using fewer inputs than another... remember inputs are factors of production or time, to solve, just compare

question

example of absolute advantage

answer

tiger wood can mow lawn in 2 hours, while forest can mow it in 4 hours, so tiger has absolute

question

comparative advantage

answer

used to compare opportunity costs, so ability to produce good at lower oppor. cost than another

question

formula for input and output

answer

input- gain/loss output- loss/gain

question

example of comparative advantage

answer

two hours to mow lawn, or two hours to film movie for 10,000$ 4 hours mow lawn or four hours work for 20$ - second has comparative because he gives up less to mow lawn

question

you can have absolute advantage or comparative in both

answer

someone can have absolute in both goods but not comparative!

question

when each person specializes in a good

answer

they have comparative advantage causing total production to rise

question

the comparative adv. of one good is always

answer

the inverse of comparative advantage on the other

question

desired economic growth (GDP)

answer

3-6% per capita

question

understand:

answer

economic freedom, efficiency, equity, security, and full employment, (5% unemploy.), and price stability

question

investment (business)

answer

money put towards factors of production in order to make a profit

question

socialism

answer

some questions answered by government but most are answered by firms/households

question

command

answer

government answers questions

question

sole proprietoship

answer

business owned by one person, most common, need a licence, unlimited liability and limited life, lack of fringe benefits

question

Partnership

answer

owned by two or more, either general or limited(one partner isnt in daily running), may need articles of partnership, limited liability and limited life,

question

corporations

answer

can sell stock/bonds- either common or preferred stocks(fixed), either principal or interest bonds, limited liability, unlimited life, must obtain a charter, profits taxed twice, stock mu be registered with SEC

question

financial systems

answer

help match someone's savings to someone else's investment because S=I

question

financial markets

answer

someone who wants to save can DIRECTLY supply to a borrower - stocks and bonds

question

bond market-

answer

certificate of debt sold by companies, common (flunctuating dividends) or preferred (fixed dividends)

question

date of maturity

answer

when to be paid, a term is until it matures

question

junk bonds

answer

companies are unstable and sell high interest rate bonds

question

credit risk is, and leads to

answer

failure to pay a bond, leads to default

question

tax treatment

answer

tax laws affect on the interest rate of a bond

question

stock market

answer

represents ownership ownership in a firm

question

equity finance

answer

selling stock to raise money

question

bonds are considered

answer

debt finance, means it is used to pay off a loan not make money

question

financial intermediaries

answer

savers INDIRECTLY provide to borrowers

question

banks

answer

use deposits from people's savings as loans for someone else

question

banks pay

answer

people interest for saving their money

question

medium of exchange

answer

used to engage transaction

question

mutual funds

answer

sell shares, use money to buy a portfolio of stock or bonds

question

diversification

answer

investment in many stocks or bonds, instead of putting all your money int one stock, limits risk

question

index funds

answer

buy all stock in given stock index

question

stock index

answer

average group of stock prices

question

stock exchanges

answer

sell/trade stocks NY stock exchange, American, NASDAQ

question

National saving

answer

income after paying consumption/ gov't purchases (S)

question

private saving

answer

amount of money households have left after paying for taxes and consumption

question

public saving

answer

amount of tax revenue government has after paying for its spending

question

budget surplus

answer

when government has greater tax revenue of spending T>G

question

budget deficit

answer

when gov't has greater spending over tax revenue G>T

question

market for loanable funds

answer

savers supply funds, investors demand loans

question

supply graph

answer

p=price so if p is high, savings are high

question

demand graph

answer

p=price so if p is high, demand is low. if p is low, then demand is high

question

saving incentives

answer

high interest rates lead to greater saving which leads to greater supply

question

investment incentives

answer

low real interest rates leads to greater investment which leads to greater demand

question

government debt

answer

adding up of past borrowing

question

loanable funds in budget surplus

answer

real interest rate decreases, investment increases

question

loanable funds in budget deficit

answer

real interest rate would rise, investment decreases

question

finance

answer

study of how people make decisions given the resources, and handling the risk

question

present value

answer

money offered today

question

future value

answer

money offered in future that can yield to be more with interest rate

question

formula for future value

answer

P(1+i) to the nth number of years. P is current price, and i is interest rate

question

compounding

answer

interest amounts added to principal original value over time

question

Rule of 70

answer

variable doubles in 70/x years

question

risk averse

answer

people hate bad things more than they hate the good that can come out from it

question

utility

answer

measure of satisfaction

question

Insurance

answer

handles risk, but must pay fee even if risk might not happen - a gamble

question

two problems that stop insurance from spreading risk

answer

adverse selection- high risk person is more likely to invest in insurance, than a low-risk.... and moral hazard- people's safety incentives decrease with insurance

question

diversification also

answer

reduces risk by switching big risk with smaller risks

question

standard deviation

answer

fluctuations of a variable, a high standard deviation increases risk

question

risky stocks

answer

8% returns, risk or standard deviation is 20%

question

safe stocks

answer

3% return, no risk or Standard deviation

question

price of stock is determined by

answer

supply and demand

question

fundamental analysis

answer

what a company is/will be worth, value of stock, companies ability to pay stock

question

efficient markets hypothesis

answer

theory where stocks reflect the information given on it

question

goal of buying/selling stock

answer

sold when overvalued and bought when undervalued

question

goal of theory

answer

same number of people who think stock is overvalued= number of people who think its undervalued

question

random walk

answer

changes in stock prices are unpredictable based on information

question

index funds are solution because

answer

they diversify and lower risk

question

market irrationality

answer

changes in stock prices are partly in the mind, others raise/lower price depending on who will own it tomorrow

question

Tax credit for savings

answer

People have because interest rates are high, so saving goes up and interest rates go down causing investment to go up and ppc to shift out S⬆️ r⬇️.... I⬆️, PPC ➡️

question

Tax credit for investment

answer

Savings used for investment increases demand for goods with which causes interest rate to rise from spending money, causing investment to go down and the ppc to stay constant D⬆️, r⬆️ and I⬆️, PPC =

question

Crowding out

answer

Fall of interest rate because govt spending S⬇️, r⬆️ and I ⬇️, PPC =

question

Hold all things constant

answer

Ceterius paribus

AP Economics Vocabulary Unit 1 – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards