CH 3 – Economics Review – Flashcards
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Identify the role of the consumer in the U.S. Free enterprise system.
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In the free enterprise system consumers have the freedom to make their own economic choices. Through voluntary exchange, consumers send a signal to businesses, telling them what to produce and how much to make.
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What constitutional guarantees underlie the American free enterprise system?
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Mainly property rights, but also taxation
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Explain at least three benefits of the free enterprise system.
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- profit motive - open opportunity - economic rights
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Compare macroeconomics with microeconomics, and give an example of each.
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Macro is the study of the economy as a whole, while micro is the study of the economy as a smaller unit. MACRO: measure of whole market MICRO: measure of a particular stock
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What does gross domestic product (GDP) tell economists about business cycles?
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GDP records, compared against each other chronologically, will illustrate a trend. Depending on whether the trend is increasing or decreasing, economists will know at what stage of business cycle the country is in.
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Define & identify examples of public goods.
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A public good is a shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers. Examples are roads and military defense.
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Explain how and why a free rider is a type of market failure. Include an example.
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Free riders consume what they do not pay for. An example, is not paying for a highway because it is too expensive, but still using it anyway once it it built.
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What is the difference between the public sector and the private sector? Give examples of each.
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Public sector refers to government-owned organizations and government-provided services. Private sector refers to 1) organizations that are not government owned, and 2) the goods and services provided by organizations outside of the government. For example, companies owned by individuals are part of the private sector.
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How does welfare attempt to raise poor people's standard of living?
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By taxing people and them redistributing them to the poor.
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Why does poverty exist in a free market economy?
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Because of welfare and other means of distributing to the poor can be taken out of hand.
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Describe the tradition of free enterprise in the U.S. and the constitutional protections that underlie it.
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People have the opportunity to tryout their own ideas and businesses. The constitution protects property rights, taxation and contracts.
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Explain how the government tracks and seeks to influence business cycles.
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Tax rates from the government can influence business decisions, as can regulations put into place to keep businesses from taking advantage of customers
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Explain the basic principles of the U.S. free enterprise system.
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The U.S. economic system of free enterprise contain five main principles: the freedom to choose our businesses, the right to private property, the profit motive, competition, and consumer sovereignty.
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Analyze the effect of technology on productivity.
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Technology progress improves the U.S. economy, allowing more efficiency and more products being produced. This increases the GDP and gives U.S. businesses an advantage over other countries.
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Explain how gross domestic product (GDP) provides a means to analyze economic growth?
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By showing the total value of all final goods and services for the year, which can be then compared to the GDP of previous years.
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Analyze market failures.
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Situations in which the market does not distribute resources efficiently.
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Describe at least 3 of the programs through which the government distributes income.
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1- social security- cash transfers of retirement income to the elderly and disabled. 2- unemployment insurance- compensation checks to those who have lost a job. 3- TANF- federal money to the states which design and run their own welfare programs.
