Chapter 3 Economics – Flashcards
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4 questions of macroeconomics
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1What to produce 2. How to produce 3. How to allocate the products 4. How should production be shared
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List the three facets of a modern economy
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Markets, government, and international trade
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arrangement that allows buyers and sellers to exchange goods and services
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market
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List the two decision-makers
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1.households 2.firms
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The economy consist primarily of _____ & _____.
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Households and firms
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What is an individual or group of people who live in the same housing unit?
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A household
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What is an organization that uses resources to produce a product which it then sells?
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Firm
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List three reasons why we need governments in the economy
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1.We need governments to enforced basic contracts and property rights in markets 2.to provide goods and services not readily delivered through markets 3.and to deal with deficiencies that emerge from pure market transactions
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Households are _____ of factors and _______of goods.
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Sellers, buyers
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Firms are _____ of factors and ______ of goods.
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Buyers, sellers
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What two markets and do households and firms interact in?
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Factor (input) markets Product (output) markets
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What shows the relationship between households and firms
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A two tier income flow chart
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On a two-tier income flow chart what is the inner flow?
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The flow of resources (inputs and products)
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On a two-tier income flow chart what is the outer flow?
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Monetary flow
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What two areas makes a two-tier income flow chart incomplete?
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1.doesn't include government interaction 2.forgets international Trade effects
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What are the two foundations of capitalism?
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Specialization and trade
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system in which individuals and firms use markets to facilitate the exchange of money and products
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market system
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ability of one person/nation to produce a particular good at a lower absolute cost than another person/ nation; nominal value
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absolute advantage
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ability of one person/nation to produce a particular good at a lower opportunity cost than another person/ nation; lower opportunity cost
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comparative advantage
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What are the specialization advantages?
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1.increase in productivity 2.increase in income 3.saves time 4.reduces production cost
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A firm which is owned by a single person who is liable for all the firms debts?
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Sole proprietorship
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What percent do sole proprietorships make up of all firms; what percent of total sales?
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70%,6%
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What firm is owned by two or more partners in which all partners are individually liable for the firm's debts?
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Partnership
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What percent do partnerships make up of all firms; what percent of total sales?
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8%, 4%
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What is a legal entity owned by stockholders?
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Corporation
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What percent do corporations make up of all firms; what percent of total sales?
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22%, 90%
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How is a corporation established?
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By filing a corporate charter with a state government in the state that it is doing business in
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an organization that produces and sells goods and services throughout the world
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multinational corporation
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A market Of the factors of production?
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Factor (input) markets
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What do factor markets produce?
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Capital goods
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What are the three types of factor markets?
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Labor markets, capital markets, natural resource markets
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This is the market in which firms hire workers for wages
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Labor markets
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Markets in which households provide funds for first to use to buy equipment, and receive an interest of the firm's profits in return
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Capital markets
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Market in which household sell natural resources to firms
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Natural resource market
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Markets that organizations used to sell their goods and services to consumers?
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Product markets
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What do product markets produce?
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Consumer goods
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What are the five government functions in the economy?
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1.providing goods and services 2.redistributing income 3.taxation 4.regulation of business practices 5.trade policy
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What do local government spend most their money on?
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Education
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What is the local governments main source of revenue?
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Property taxes
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What do state government spend most their money on?
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Education and public welfare
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What is the state government's main source of revenue?
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Sales tax
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What do federal government spend most of their money on?
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Income security, then national defense
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What is the national government's main source of revenue?
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Individual income taxes
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the idea that a person's tax liability should depend on how much he/she benefits from government programs
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benefit-tax approach
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exists when people of similar circumstances pay similar taxes
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horizontal equity
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implies that people with higher incomes should pay higher taxes
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vertical equity
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income taxes are needed to ____________.
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run the government from day to day
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Taxes distort _____ & _____, and one of the objectives of tax policies is to minimize such disruptions
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People's choices & markets
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This federal agency regulates the purchase and sale of stocks in the stock markets
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The securities and exchange commission (sec)
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This federal agency Control mergers of large corporations to ensure that they don't result into too much power for one corporation
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Federal trade commission (FTC)
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Federal agency that regulates broadcast, TV, and radio
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Federal Communications Commission
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Federal agency that ensures the safety of food and medicine
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Food and drug administration
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Federal agency that enforces the safety of working conditions
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Occupational safety and health administration
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Federal agency that creates rules on dumping wastes into air and water
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Environmental Protection Agency
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economic system under which government plays an important role, including the regulation of markets, where most economic decisions are made
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mixed economy
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economy in which a government bureaucracy controls the factors in production
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centrally planned economy
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Socialism results in what two problems
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inefficiency and waste
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process of going from socialism to move toward a more capitalistic economy
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transition
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process of selling state firms to individuals
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privatization
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good produced in "home" country & sold in another country
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export
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good produced in a foreign country and purchased by residents of the "home" country
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import
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3 major trade partners of U.S.
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Canada, Japan, and Mexico
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Top 5 major exports of U.S.
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1.machines,engines, and pumps 2.electronic equipment 3.oil 4.vehicles 5.aircraft,spacecraft
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Top 5 major imports of U.S.
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1.apparel 2.footwear 3. furniture 4. kitchen & household appliances 5. automobiles
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rules that restrict the free flow of goods b/w nations, including tariffs, quotas, voluntary export restraints, & nontariff trade barriers
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trade barriers
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special tax on imported goods
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tariff
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reason for tariffs
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to protect home industries
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limits on total imports
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quota
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agreements between governments to limit imports
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voluntary export restraints
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subtle practices that hinder trade
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nontariff trade barriers
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the practice of buying components for a product from nations throughout the world
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worldwide sourcing
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another name of worldwide sourcing
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outsourcing
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an international agreement that has lowered trade barriers between the U.S. and other nations
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General Agreement on Tariffs and Trade(GATT)
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an organization that oversees the GATT and other international trade agreements
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World Trade Organization (WTO)
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an international agreement that lowers trade barriers between the U.S., Mexico, and Canada
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North American Free Trade Organization (NAFTA)
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Organization of 28 countries in Europe that has reduced trade barriers within Europe and make a single European market
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European Union (EU)
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An organization of 21 Asian countries that attempts to reduce trade barriers between their nations, also includes countries in Pacific Ocean
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Asian Pacific Economic Cooperation (APEC)
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2 complications involved with international trade
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1. many governments adopt policies to inhibit trade 2.since each country has its own currency, there must be a market where currency can be traded
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a market in which people exchange one currency for another
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foreign exchange market
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price at which currencies trade for another
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exchange rate
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Top 5 Global Corporations
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1. WalMart 2. Exxon Mobile 3. Chevron 4. Berkshire Hathaway 5. Apple
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total dollar value of all the goods and services a country produces in a year
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Gross Domestic Product (GDP)
