Economics Exam Review Units 1-6 Questions and Answers (Review Game) – Flashcards
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Name at least 3 desirable characteristics of money
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(durability, limited supply, divisibility, portability, uniformity, acceptability)
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How is money a better store of value than goods and services used in the barter system
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(goods and services are perishable but money isn't, so you can keep money and have power to purchase at a later date but if keep good or service may not have power to purchase later)
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The fact that money give us a way of expressing something's value and thus a way to compare the values of different items is called _?_
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(unit of account)
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What are the three types of money, What type of money does the U.S? have
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(commodity, representative, fiat; fiat)
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How is money a better means of payment than bartering
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(ensures double coincidence of wants; bartering takes too much time to find what other person wants so as to make exchange)
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How is the circular flow model useful
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(helps us explain the national economy and make predictions about it)
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What is a transfer payment
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(money that goes from the government to households to meet the needs of individuals)
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What does the Federal Reserve Bank do
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(regulates the amount of money in the economy by creating it and withdrawing it)
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What is GDP
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(gross domestic product, all goods and services produced within a country's borders in a year)
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When households provide factors of production (land, labor, capital, entrepreneurship) to producers, what do they receive in return
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(rent, wages, interest, profit)
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What are the four phases of the business cycle
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(expansion, peak, contraction, trough)
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What caused a bad recession in the 1970s
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(external shock--OPEC refused to sell oil to U.S.)
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What caused the Great Recession
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(banks lending money to people and then selling mortgage to investment companies; then investment companies losing a lot of money when they couldn't pay it back)
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What can cause an expansion of the economy
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(positive consumer expectations, low interest rates, lots of business investment, positive external shocks like new technology or good growing season for crops)
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What can cause a contraction of the economy
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(negative consumer expectations, high interest rates, businesses stop investing, negative external shocks like natural disasters or war)
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What is full employment
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(4-6%)
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What are some groups of people that suffer more poverty than others
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(single moms, children, the elderly, rural, inner-city, African-American, Hispanics, Native Americans)
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Why is unemployment bad for the economy and the nation
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(waste of talent and skill and productivity; can lead to poverty, crime, and political turmoil)
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How does the government try to decrease poverty
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(workfare, Earned Income Tax Credit, housing assistance, food stamps, job training)
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Why is the unemployment rate higher than what is reported
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(it doesn't count people who are underemployed or discouraged workers)
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What is inflation
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(a continuing rise in the general level of prices)
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What is a "safe" level of inflation
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(1-3%)
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How is inflation measured
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(economists choose a "basket of goods" and compare its price now to what it used to cost)
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What are the two types of inflation
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What is the real cause of inflation? (cost-push inflation and demand-pull inflation; real cause is too much money chasing too few goods)
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Whom does inflation hurt the most
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(people on a fixed income because their income doesn't buy as much as it used to, lenders because the money they are repaid doesn't buy as much as what they loaned, savers because the money they saved doesn't buy as much as it used to, society because inflation can lead to bank failures and strikes/riots and even dictatorship)
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What is a COLA
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(cost of living adjustment, it ensures that someone on a fixed income will get more income if inflation occurs)
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What are two things the national government can do to try to end a recession
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(cut taxes, spend more)
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What are the four kinds of unemployment
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(cyclical, structural, frictional, seasonal)
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What are some causes of poverty
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(discrimination, unemployment, single-parent households, location, lack of education, fewer high-paying manufacturing jobs available)
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What are three things the Federal Reserve can do to try to end a recession
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(lower the reserve requirement for banks, lower interest rates for banks, buy government bonds)
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What is barter
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(exchanging goods and services for goods and services, no money)
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What is stagflation
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(a period when the economy is contracting and there is inflation)
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What are two things the national government can do to try to reduce inflation
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(increase taxes, reduce government spending)
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What is the difference between fiscal and monetary policy
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(fiscal—taxing and spending decisions made by Congress and president; monetary—Federal Reserve policies about borrowing)
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What are three things the Federal Reserve can do to try to end inflation
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(raise the reserve requirement for banks, raise the interest rate for banks, sell government bonds)
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What is laissez-faire economics
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it literally means "leave it alone," another name for capitalism because it advocates that the government should leave the economy alone
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What is a traditional economy
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one where tradition answers the economic questions
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Give some examples of "cradle to grave" benefits that the government gives in a socialist state
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free medical care, free education, retirement income, unemployment income, low-rent housing, etc.
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According to Marx, what are the two main groups in every society? What did he call them
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bourgeoisie—property owners, proletariat—workers
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What is the dictatorship of the proletariat
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harsh government set up by the proletariat revolution; it owns all the factors of production and redistributes goods and services equally; supposed to be temporary but never is
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Who first articulated the idea of capitalism
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Adam Smith
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In a free market, why do people produce goods and services
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self-interest, desire for profit
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What role does competition play in a free market
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keeps prices low, encourages creativity and innovation
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In Capitalism who answers the economic questions and how are they answered
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individuals; whatever is profitable, however is efficient, whoever can pay
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State a total of four positives and negatives of capitalism
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positive—lots of freedom, resources are used in the best way, lots of innovation and hard work, good products at low prices, causes people to cooperate; negative—freedom to fail, lots of inequality, exploitation of workers
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Name the two books Karl Marx wrote to articulate his economic ideas
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The Communist Manifesto, Kapital
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How does a communist government typically come to power
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revolution by the workers
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Give three examples of loss of individual freedom in a communist society
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only one political party, secret police, religion controlled by the state, govt. answers economic questions
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In Communism who answers the economic questions and how are they answered
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central authority; what the government wants, how the government wants, equally/according to need
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State a total of four positives and negatives of communism
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positive—equality, security; negative—loss of freedom, little incentive to work hard or be creative, shortages and surpluses due to government planners' mistakes and bad priorities
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How does a socialist government come into power
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elected, no revolution
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What is nationalization
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the government taking over key resources and/or industries
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Is the U.S. a socialist nation? Explain your answer
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not socialist—lots of freedom, no nationalized industries; socialist—regulation, many benefits are provided by government; answers will vary
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In Socialism who answers the economic questions and how are they answered
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govt. and individuals; what govt. and individuals want, how govt. decides, all receive benefits/who can pay
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State a total of four positives and negatives of socialism
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positive—some economic freedom, political freedom, cradle to grave benefits, less inequality; negatives—high taxes, lots of regulation of businesses, less incentive to work hard, big govt. has potential to become oppressive
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What are the three economic questions
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what will be produced, how will it be produced, who will get what is produced
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What is the name of Adam Smith's famous book
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The Wealth of Nations
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What does the Bible say about how a nation's economy should be organized
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private property, roughly equal starting point for all, extremes of wealth and poverty are wiped out every fifty years, share generously with those in need, no permanent slavery or long-term debt, work for income, those who refuse to work shouldn't get food
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What are the four types of goods that can be produced by a nation
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consumer, capital, military, public
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What are the six economic goals
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efficiency, equity, growth, stability, security, freedom
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What is capital gains tax.
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tax paid on profit made from selling stock
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What is an industry.
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group of companies selling similar or related products
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What does unlimited personal responsibility mean.
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owner of company is personally responsible for the company's debts; personal assets can be forfeited to pay business's debts
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What is a patent.
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permission granted by government to be sole producer of a good or service for a specific amount of time, goal is to encourage innovation
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What is a cooperative.
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a business organization owned and operated by a group of individuals for their own benefit
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If a partnership does not write its own articles of partnership, what law automatically applies to it.
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Uniform Partnership Act
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What is a corporation.
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legal entity formed by articles of incorporation; owned by stockholders
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What is an oligopoly.
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four companies produce 70 to 80% of the output in an industry
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What does a board of directors do.
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makes major decisions for company; appoints corporate officers; elected by stockholders
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What is the difference between a general and a limited partnership.
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in general, both partners share liability and responsibility; in limited, one partner contributes only money and has limited liability
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In which market do companies have more of an ability to control the price, perfect competition or oligopoly.
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oligopoly
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Which type of market is hardest to enter and exit.
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monopoly
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Which type of market has the greatest number of companies.
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perfect competition
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What is the most typical type of market in the United States.
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monopolistic competition
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Name three things that make markets different from each other.
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number of firms, differentiated or undifferentiated goods, control of prices, amount of information known, barriers to entry
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Advantages of sole proprietorship
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easy entrance/exit, few regulations, low taxes, freedom/control, profit
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Disadvantages of sole proprietorship
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stress, unlimited personal liability, difficult to find and keep good employees, lack of resources such as time, knowledge, skill, money, etc.
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Advantages of partnership
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more money available, easier to borrow money, easier to get and keep good employees, stress is shared, each partner can do what they are good at
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Disadvantages of partnership
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unlimited personal liability, have to share profit, potential for conflict
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Advantages of corporation
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limited personal liability, can attract experts to work for company, continuous life, easy to raise capital
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Disadvantages of corporation
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can be difficult and expensive to get started, triple taxation, more government regulation, employees may not care about the company
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Advantages of franchise
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training and support, national advertising and recognition, standardized quality
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Disadvantages of franchise
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pay high fees and royalties, have to follow strict standards, loss of freedom in terms of what to sell or buy
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Give an example of a cartel.
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OPEC, Medellin
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What are two bad things about monopolies.
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can result in higher prices, inefficiency, lower quality
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What is the most popular form of business in the United States.
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sole proprietorship
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Explain two ways stockholders make money.
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receive dividends, sell stock for profit
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Why are some monopolies legal.
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when competition would cause waste, inconvenience to consumers [utilities]; to encourage innovation [patents]
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Define elasticity.
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responsiveness to changes in price
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What is a price floor and give and example.
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minimum price set by the government for a good or service; minimum wage law, farm subsidies
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What is a price ceiling and give an example.
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maximum price set by the government for a good or service; rent control laws
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What are substitute goods and give an example.
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Goods that can replace each other; Chex and Crispy Hexagons, spaghetti sauce and alfredo sauce, skis and snowboards, etc.
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What are complementary goods.
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goods that are used together; skis and ski boots, spaghetti sauce and noodles, cereal and milk
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What does market equilibrium look like on a graph.
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the point where supply curve and demand curve intersect
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What is market equilibrium.
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the price at which the quantity demanded is equal to the quantity supplied
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Name all three factors that determine the elasticity of demand for a good.
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how necessary it is, how many substitute goods exist, how big of a proportion of one's budget it is
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What determines if the supply of a good is elastic or inelastic.
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if it's easy to make more or less of the product the supply is elastic; if it's difficult to make more or less of the product the supply is inelastic
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If there is a shortage of a good, what actions can be taken to restore market equilibrium.
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raise price, produce more, decrease demand/encourage people to conserve the product
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State the law of demand.
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customers buy less of an item when the price is high and more when the price is low
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State the law of supply.
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producers make more of an item when the price is high and less when the price is low
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Name three things that can cause a change in demand.
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change in income, customer expects a change in price in the future, change in population, change in tastes and preferences, change in price of a related good
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What is the difference between change in quantity demanded and change in demand.
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change in quantity demanded is caused by a change in price, change in demand is caused by something other than a change in price
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Name four things that can cause a change in supply.
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change in cost of production, producer expects a change in price in the future, change in number of producers, change in price of a good related in production
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What will happen to the supply of books if five major publishing companies go bankrupt.
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it will decrease because there are fewer suppliers
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If demand for a good is elastic and the price increases, what will happen.
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customers will buy much less of it
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If the supply of a good decreases, what will happen to the supply curve.
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moves to the left
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If the price of pencils is expected to skyrocket in the future, what will happen to the demand for pencils right now.
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it will increase because people will buy more now while the price is still low
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If the price of SUV's is expected to skyrocket in the future, what will happen to the supply of economy cars.
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it will decrease because producers will make lots of SUV's instead of economy cars
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If people make a lot more money than before, what will happen to the demand for used cars.
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it will decrease because used cars are an inferior good
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If the supply of a good is inelastic and the price increases, what will happen.
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not much; roughly the same amount of the good will be produced
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If the demand of a good decreases, what will happen to the demand curve.
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move to the left
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If the price of a good decreases, what will happen to its demand curve.
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it will not change, we will move from one point on the curve to another but the curve doesn't move
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If the price of peanut butter goes up, what will happen to the demand for jelly.
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it will decrease because people buy less peanut butter and thus need less jelly
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What is the name of a chart that shows the relationship between price and quantity supplied.
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supply schedule
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When graphing supply and demand, what the axes labeled.
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vertical is price, horizontal is quantity
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Explain the difference between normal and inferior goods, using specific examples.
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normal something you buy more of when you have more money; inferior something you buy less of when you have more money
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How are the desires of producers and consumers similar and How are they different.
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similar both want to have as much money as possible, different producers want high prices and consumers want low prices
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Why are prices of goods and services often higher in poor neighborhoods.
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costs of production are higher due to crime so producers raise their prices to cover them; high costs of production force some stores to close so then there are fewer stores and less competition which also raises prices
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What is economics?
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(the study of choices made by individuals, businesses, and governments and the consequences of those choices for everyone)
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What is the difference between microeconomics and macroeconomics?
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(microeconomics studies choices of individual businesses, households, or people; macroeconomics studies choices at the national or international level)
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What is the difference between positive and normative economics?
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(positive just observes and makes predictions; normative observes, predicts, and tries to change choices being made)
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What is the difference between subjective and intrinsic value?
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(intrinsic doesn't change, based on what the thing is/its nature; subjective changes based on usefulness)
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What is the law of increasing costs?
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(as production is switched from one product to another, more and more resources are needed to increase production of the second item because they are not as suited to produce it)
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What is land Give an example?
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(any natural resource; water, coal, cotton, chicken, rice, etc.)
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What is labor Give an example?
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(any human effort; a carpenter sawing wood, a professor writing a book, an accountant filling out tax forms, etc.)
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What is an entrepreneur?
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(someone who takes a risk and combines land, labor, and capital to create a product)
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What is physical capital. Give an Example?
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(something human-made that is used to make another product; a computer, a hammer, a machine in a factory, a building, etc.)
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What is financial capital?
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(money used to buy other factors of production and make a product)
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At point x, how many televisions are being produced? Here is the link to the graph for the question. Copy and Paste it. http://70.168.223.218/ClassDocuments/16840/201759/review%20game%20graph.pdf
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(15)
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At point y, how many gallons of apple juice are being produced? Here is the link to the graph for the question. Copy and Paste it. http://70.168.223.218/ClassDocuments/16840/201759/review%20game%20graph.pdf
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(9)
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What is the opportunity cost of producing 21 televisions? Here is the link to the graph for the question. Copy and Paste it. http://70.168.223.218/ClassDocuments/16840/201759/review%20game%20graph.pdf
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(10 gallons of apple juice)
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What is happening at point z? Here is the link to the graph for the question. Copy and Paste it. http://70.168.223.218/ClassDocuments/16840/201759/review%20game%20graph.pdf
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(resources are not being fully used, underutilization)
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What could cause the curve to shift outward? Here is the link to the graph for the question. Copy and Paste it. http://70.168.223.218/ClassDocuments/16840/201759/review%20game%20graph.pdf
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(more resources, maybe immigration or population growth or new technology that allows nation to use resources more effectively, etc.)
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What is the name of the process we use to make choices?
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(cost-benefit analysis)
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Give an example of cost-benefit analysis?
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(answer must include benefits and costs)
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What is a trade-off?
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(giving up one benefit in order to get a greater benefit, involved in every choice made)
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What is the opportunity cost of a choice?
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(the best alternative that was given up when making the choice)
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Why do we have to make choices. Use scarcity and insatiability in your answer?
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(since our wants are insatiable and our resources to satisfy those wants are limited, we can't have everything we want; so, we have to choose what we want most)
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What is the difference between a good and a service?
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(a good is a physical, tangible object; a service is an intangible action)
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What is human capital?
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(people's skill and experience used to make products)
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What are the three kinds of incentives?
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(economic based on money, social based on relationships or image, moral based on knowledge of right and wrong)
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How is economics like a science. How is it unlike a science?
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(like a science because observe, make hypotheses, experiment; unlike because people are not always predictable and variables can be difficult to change or hold constant)
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What are two ways nations can get what they don't have? Which is better?
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fight or trade; trade
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Does the U.S. trade more or less than other nations?
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more than most; largest importer, 3rd largest exporter
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What is absolute advantage?
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When one is able to produce more of a good, using equal resources
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How is interdependence positive? How is it negative?
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reduces conflict because less likely to have war with trading partners; lose self-sufficiency and can be at a disadvantage if other nation can no longer supply the product
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What is the law of comparative advantage?
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a nation is better off when it specializes in the goods it can produce at a lower opportunity cost than others
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Does the U.S. have a trade deficit or surplus?
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deficit, imports more than it exports
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What happened at the Bretton Woods conference?
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many European nations pegged their currency to the U.S. dollar in order to stabilize the world economy
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How are fixed and flexible exchange-rate systems different?
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fixed—one nation's currency is connected to the value of another's; flexible—supply and demand determine the value of currencies
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What does it mean if a nation's currency is appreciating?
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gaining value, tends to decrease its exports and increase its imports
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How can a trade deficit be reduced?
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buy less from other nations, sell more to other nations, depreciate currency
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What is an embargo?
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a complete ban on trade with another nation, to punish or pressure them
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What is a tariff?
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a tax on imported goods, makes them more expensive so domestic products are more attractive
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Other than a tariff, what are two barriers to trade?
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import quota—limit on amounts imported, slow and expensive licensing processes, regulations and standards that are difficult to meet
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What are the effects of trade barriers?
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higher prices, possibly can lead to trade wars if other nations retaliate by imposing trade barriers on our products
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What are the three reasons to adopt protectionism?
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protect domestic jobs, protect infant industries, protect national security by decreasing interdependence
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T/F? A nation's level of development indicates the worth and value of its people and culture.
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false
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What is per capita GDP?
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GDP divided by population, indicates productivity/consumption per person in the nation
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Explain three obstacles to development connected to factors of production.
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land—few natural resources, bad climate, natural disasters; labor—malnutrition and disease; human capital—little education; physical capital—little technology; financial capital—little saving or investment is possible
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How is rapid population growth an obstacle to development? Is this a big concern today?
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a developing nation finds it hard to provide for its current population, let alone one that is growing quickly; kind of—population is growing significantly slower than it used to be
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Explain three ways that a nation's political situation can contribute to its poverty.
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wars are destroying its people and resources, corruption takes wealth and opportunity from the people, a command economy is in place, colonization caused the nation to lose resources and created negative patterns
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What is globalization?
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increasingly tight interconnection of producers, consumers, and financial institutions around the world
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Give an example of globalization before the present.
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Asian spice trade in Middle Ages, colonization of the Americas, African slave trade, imperialism, etc.
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Why is the pace of globalization increasing?
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new technology makes transportation and communication faster, more nations have free market economies, nations are pursuing free trade more
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How is globalization a good thing?
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higher standard of living, life is more comfortable and enjoyable, life is longer, etc.
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How is globalization a bad thing?
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less job security, recessions spread quickly, rapid urbanization results in things like crime and lack of services, brain drain, environmental damage, high stress/lots of pressure to compete and innovate, exploitation
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What does GATT stand for?
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General Agreement on Tariffs and Trade, a worldwide trade agreement
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Define development.
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the process by which a nation improves the social, economic, and political well-being of its people
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Give two examples of developed countries and two examples of LDCs.
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developed—U.S., western European, Australia, Japan, etc.; LDCs—Nepal, Albania, Bangladesh, Sudan, Nigeria, etc.
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Define two of these three terms: life expectancy, literacy rate, infant mortality rate.
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life expectancy—average expected life span of a person, literacy rate—percentage of population that can read, infant mortality rate—percentage of children who die before 1st birthday
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Give at least 5 characteristics of a LDC.
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low per capita GDP, big income gap, high infant mortality rate, low life expectancy, rural, high unemployment rate, many subsistence farmers, low literacy rate, etc.
