Economics and Personal Finance Final Exam Terms – Flashcards
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scarcity
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the condition that exists when there are not enough resources to satisfy all of the competing uses.
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Choices often have
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long-run unintended consequences
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Most choices are NOT
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all or nothing decisions
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natural resources
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Gifts of nature which exist without human intervention
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human resources
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The effort of people which is applied to the production of goods and services
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capital resources
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Goods or tools which are used to produce other goods
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entreprenuers
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Individuals who are willing to take risks, to bring the other resources together and develop new products, and start new businesses
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command economy
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The government or central authority answers all of the economic questions
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traditional economy
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The answer to all economic questions is what has always been done
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market economy
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Scarce goods and services are allocated through the influence of prices on production and consumption
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mixed economy
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a combination of market and command economies
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Adam Smith
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Often called the father of economics, Believed in the division of labor, Author of The Wealth of Nations
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characteristics of a market economy
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Profit motive, Prices determined in markets Competition among businesses
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incentive for consumers
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Value and or lower price
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incentive for producers
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Profit
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incentive for workers
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Pay and benefits
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incentive for savers
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Interest earned
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incentive for investors
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Capital gain
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incentive for citizens
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Voting for politicians who share their views
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consumer soveriegnty
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Businesses must respond to the wishes of consumers in order to succeed.
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Entrepreneurs often foster
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technological progress and economic growth
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sole proprietorships
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Most businesses in the United States are organized this way
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Corporations
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generate the most income of organized forms of business in the United States. most
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Rising costs tend to
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decrease profits
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Falling costs tend to
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increase profits
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Increased productivity leads to
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higher standards of living for societies.
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Technology improvements
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can increase productivity
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Competition among sellers
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lowers prices
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Competition among consumers
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raises prices
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Monopolies and collusion among sellers
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eliminates competition
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In industries with less competition
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prices are likely to be higher
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Households receive income from
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government and businesses
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Businesses sell goods to
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households and the government
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Tax on income and sales is collected by
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government
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Government provides services to
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households and businesses
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law of supply
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states that producers will increase the quantity supplied at higher prices.
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law of demand
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states that people will buy more of a good or service at lower prices.
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equilibrium price
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The one price at which quantity supplied equals quantity demanded.
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Price inelastic demand
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is typical for goods and services that are necessities, have no good substitutes and/or are expensive relative to ones income.
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Price elastic demand
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is typical for goods or services that are luxuries or have good substitutes
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price ceiling
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sets the highest price that can be charged for a good or service.
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price floor
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sets the lowest price that can be charged for a good or service.
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GDP (gross domestic product)
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a basic measure of a nation's economic output and income.
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CPI (consumer price index)
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most commonly used measure of price-level changes
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unemployment rate
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indicates the percentage of the labor force who are not working and are actively seeking paid work.
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Unemployment can be caused by:
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Seasonal fluctuations in demand, People changing jobs, changes in the skills need by employers
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inflation
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An increase in the general level of prices
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deflation
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A decrease in the general level of prices
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expansionary phase
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When the business cycle is moving upward with unemployment decreasing and growth increasing
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peak
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This phase is likely to be characterized by low unemployment and inflation
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contractionary phase
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The economy will eventually begin to slow with unemployment rising and growth slowing.
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trough
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The economy will bottom out where growth will be slow, prices low and unemployment high.
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National economic goals include
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Stable prices, stable growth, full employment
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When people trade voluntarily
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both parties benefit
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Absolute advantage
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"occurs when a country can produce a certain good with fewer resources than other countries."
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Comparative advantage
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"occurs when a country can produce a certain good at a lower opportunity cost than its trading partners."
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imports
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Foreign goods and services that are purchased from sellers in other nations.
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exports
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Domestic goods and services that are sold to buyers in other nations.
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deficit
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when imports exceed exports
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surplus
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when exports exceed imports
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exchange rate
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The price of one nation's currency relative to another nation's currency.
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Trade barriers may be established to
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Strengthen national defense, protect domestic companies and workers, influence or pressure a foreign government
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International trade agreements and the World Trade Organization (WTO)
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have tended to decrease trade barriers.
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As a result of growing economic interdependence, economic conditions in one nation
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increasingly affect economic conditions and policies in other nations
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Money makes it easier
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to trade, borrow, save, invest and compare the value of goods and services.
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Financial markets
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bring together people who have money to lead with people who want to borrow
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Federal Reserve System
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is the central banking system for the United States
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monetary policies
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The Federal Reserve System uses these policies to help stabilize the economy
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balanced budget
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when the federal government's revenues and expenditures are equal
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budget deficit
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when the government's expenditures exceed its revenues
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budget surplus
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when the government's revenues exceed its expenditures
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national debt
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The total amount of money the federal government owes.
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property taxes
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most local governments depend primarily on these
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sales and income taxes
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most state governments depend on primarily on these
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individual income taxes
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The federal government gets the largest percentage of its revenue from these.
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The bulk of federal spending goes toward
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national defense, payments to Social Security recipients, medical expenditures and interest payments on the national debt.
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The bulk of stae and local revenue is spent on
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public education, public welfare, road construction and repair, and public safety.
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Government regulations aim to
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protect consumers and labor and decrease market failures
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Governments often redistribute income directly in response to
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individuals or interest groups who are not satisfied with the income distribution that results from markets
