Economics – Chapter 3 & 12 – Flashcards
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The fairness with which an economy distributes its resources and wealth.
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Define Economic Equity
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A society's way of coordinating the production and consumption of goods and services.
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Define Economic System
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An economic system in which decisions about production and consumption are based on customs and traditions.
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Define Traditional Economy
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An economic system in which decisions about production and consumption are made by a powerful ruler or government.
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Define Command Economy
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An economic system in which economic decisions are left up to individual producers and consumers.
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Define Market Economy
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Income earned when an individual sells or rents a factor of production that he or she owns. Wages are factor payments made to workers in exchange for their labor.
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Define Factor Payment
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An economic system in which both the government and individuals play important roles in production and consumption. Most modern economies are mixed economies.
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Define Mixed Economy
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An economic system in which the means of production are mostly privately owned and operated for profit.
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Define Free Enterprise System
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- What goods and services are to be produced? - How are goods and services to be produced? - For whom are goods and services to be produced?
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The title of the three Fundamental Economic questions
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- The ability-to-pay - Equal distribution - First come, first serve - Distribution based on need
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What are the ways goods and services are distributed?
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- Economic Freedom - Economic Efficiency - Economic Equity - Economic Growth - Economic Security - Economic Stability
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How does society answer their economic goals?
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The ability to make our own economic decisions without interference from the government.
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Define Economic Freedom
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Makes the most of the society's resources, includes full employment.
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Define Economic Efficiency
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Economic Growth is desirable because overtime it improves the standard of living. An economy is said to grow when it produces more and better goods and services.
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Define Economic Growth
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Economic Security seeks to provide its less fortunate members with the support they need in terms of food, shelter, health care to live decently.
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Define Economic Security
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Goods and services we count on -- electricity on demand, food and clothing in stores -- are there when we want them.
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Define Economic Stability
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Economists are referring to the economic system within which buyers and sellers exchange goods and services.
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What is "the Market"?
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The workings of the market are not planned or directed.
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Define Free Market Economy
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- Economic Freedom - Economic Efficiency
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What are the highest goals of market economy?
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A household is made up of a person or of a group of people living together.
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What is a household?
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Individual investors
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Who are the capitalists?
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A book that advocated for the overthrow of capitalism.
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What is the "Communist Manifesto"?
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An economist who help publish The Communist Manifesto.
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Who is Carl Marx?
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A philosopher who helped publish The Communist Manifesto.
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Who is Friedrich Engels?
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A political and economic philosophy that calls for property to be owned by society as a whole, rather than by individuals, for equal benefit for all.
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Define Socialism
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A political and economic system in which all property and wealth are owned by all members of society.
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Define Communism
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Based on customs and traditions
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How are decisions made in a traditional economy?
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By a single authority or government
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How are decisions made in a command economy?
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By individual producers and consumers interacting freely in the marketplace
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How are decisions made in a market economy?
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Market freedom & government involvement
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What do mixed economy have to balance?
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Government-financed projects
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What are public works?
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Dams, highways, and sewer systems
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What are examples of public works?
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Term economists use to describe a market economy that is relatively free from government intervention.
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Define Laissez-faire
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An agreement between a buyer and seller
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What is a contract?
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Economic Freedom Competition Equal Opportunity Binding Contracts Property Rights Profit Motive Limited Government
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What are the seven characteristic of the American Free Enterprise system?
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Competition provides an incentive for businesses to create new and better products and ways of serving customers.
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Define Competition
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Through the efforts of citizens and government intervention, barriers to economic opportunity have fallen. Today every citizen has the same legal right to gain an education and compete in the marketplace.
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Define Equal Opportunity
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An agreement between a buyer and seller. Contracts are used in all kinds of economic transaction. People are free to decide what contracts they want to enter into - but once agreed on, a contract is binding. That mean both sides have to fulfill their ends of the deal.
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Define Binding Contracts
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Property Rights are the right son those who own land, buildings, or other goods to use or dispose of them as they choose.
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Define Property Rights
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The desire to make profit is known as the profit motive. The profit motive is closely tied to the incentive-matter principle. Profits are our incentive to work or start businesses in the hope of making money for ourselves.
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Define Profit Motive
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In the United States, the government does not try to control firms. Nor does it often compete with firms. Government intervention in the economy is generally limited to seven areas.
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Define Limited Government
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Profit is the money earned by a business after subtracting its costs of operation.
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What is profit?
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- Protecting property rights and contracts - Promoting the general welfare - Preserving competition - Protecting consumers, workers, and the environment - Stabilizing the economy
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U.S. government intervention in the economy is limited to what seven areas?
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- The what in the market, made up of millions of individuals who buy and sell goods every day on a strictly voluntary basis - The who is you, your family, and your friends, all exercising your freedom of choice as consumers
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How do mixed economies divide the decision making?
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It is the reason most economies exist. As Adam Smith observed, people produce goods and services not out of the kindness of their hearts, but in order to improve their economic situation - to make profit.
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Why is the profit desired and seemed as a positive force of society?
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The idea that a tax system should be fair. Although people agree with tax equity in principle, they often disagree on how to achieve it.
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Define Tax Equity
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The allocation of the burden of a tax between consumers and producers. Tax incidence is said to fall on the group that bears the burden of tax, no matter from whom the tax is collected.
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Define Tax Incidence
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A loss of productivity or economic well-being for which there is no corresponding gain. A tax causes deadweight loss when the costs to taxpayers of paying the tax exceed the revenues gained by the government.
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Define Deadweight Loss
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The percentage that is levied on the value of whatever is being taxed, such as income or property.
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Define Tax Rate
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A tax that takes the same share of income at all income levels. A proportional income tax applies the same tax rate to all tax payers, regardless of income.
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Define Proportional Tax
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A tax that takes a larger share of income as income increases. A progressive income tax applies a higher tax rate to high incomes than to low incomes.
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Define Progressive Tax
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A tax that takes a smaller share of income as income increases. A regressive tax applies the same tax rate to everyone. But the tax paid represents a larger share of a poorer taxpayer's income that of a wealthier taxpayer's income.
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Define Regressive Tax
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- Supply revenues to support the functions of government - Pay infrastructures, like roads and bridges - Fund welfare and public services - Promote social and economic goals
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Today taxes are collected and used for various reasons. What are some of the reasons?
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It provides the basis for federal tax law, says that Congress shall have the power "to lay and collect Taxes, Duties, Imposts, Excises." But the clause goes on to limit this power in two key ways. - Taxes can be levied, or collects, only for the country's "common Defense and general Welfare," not for the benefit individual citizens. - Federal taxes must be the same in every state.
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What does article 1, section 8, clause 1 state?
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- Equity - Certainty - Convenience - Efficiency
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What are Adam Smith's four maxims?
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The ability-to-pay principle mirrors Smith's first maxim. It says that citizens should be taxed according to their income or wealth.
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What is the ability-to-pay principle?
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The benefits-received principle says that those who benefit from a particular government program should pay for it.
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What is the benefits-received principle?
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The tax base is the thing that is taxed, such as personal income, a good sold at a store, or a piece of property. Taxes are defined according to their tax base.
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What is a tax base?
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A proportional tax, also know as a flat tax, is a tax that takes the same share of income at all income levels.
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What is a flat tax?
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Everyone pays equal share, it is also efficient because they are simple to calculate and easy to collect.
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Why do people want a flat tax?
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U.S. citizens and residents with income above a certain minimum level
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Who pays individual income taxes?
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The IRS collects taxes form workers using a "pay as you earn" system. Under this system, also know as withholding, employers take out a certain amount of tax from each paycheck.
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What are "withholdings" when discussing taxes?
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A list of workers' wages fro the previous year and the amount of tax that was withheld.
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What is a W-2 form?
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A payroll tax is a tax on the wages a company pays its employees.
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What is a payroll tax?
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The Social Security tax is set at a fixed rate, which is paid half by the employer and half by the employee.
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What is a Social Security tax?
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- Social Security tax - Medicare tax Both are used to fund large federal social insurance programs.
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What are examples of payroll taxes?
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Excise taxes are typically levied on goods and services a government wants to regulate.
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What are excise taxes?
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Luxury, as the name implies, are levied on the sale of luxury goods, such as fur coats and private jets. Luxury taxes are progressive.
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What are luxury taxes?
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The national debt is the total amount owed by a nation's government as result of borrowing.
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What is the National Debt?
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The shortfall between tax revenues and government expenditures in any given year
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Define federal deficit
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A 12-month accounting period
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What is a fiscal year?
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Entitlements are programs through which individuals receive benefits based on their age, income, or some other criteria.
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What are governmental spending know as "entitlements"?
