Economics Final Exam Review

Circular Flow Diagram
This helps students of economics understand the relationships in the economy.

Opportunity Cost
The value of time, money, goods, and services given up in an economic choice.

Scarcity
The basic economic problem facing all societies is the realization that all resources and wants are finite and therefore limited.

Consumer
This individual makes purchases of goods and services in the market place.

What an Economist studies?
The production, distribution and consumption of goods and services.

The Three Basic Questions
What, for whom, and how to produce.

Market Economy
An economy in which the decisions are made according to supply and demand.

Capitalism
An economic system in which the factors of production are owned by private citizens.

Command Economy
An economic system in which the factors of production are controlled by the government.

Factors of Production
Land, labor, and capital form this foundation in economics.

Economic Resources
Those resources necessary in the production of goods and services. These include labor or humans, money or capital, and land or resources.

Globalization
Growing integration of national economies around the world, fostering greater trade, foreign investment, and international organizations such as the World Trade Organization promoting fair trade.

Equilibrium
The point on the supply and demand graph where supply and demand intersect.

Determinants of Supply
Factors which cause the supply curve to shift to the right or the left. These determinants include prices of resources, technology, number of producers, future price and market expectations, price of related goods or services.

Market Shortage
A condition in the market where the supply cannot meet the demand, and there is an increase in the price of the good or service.

Market Surplus
The condition in the market where the quantity supplied is greater than the quantity demanded. The result will see a decrease in the price of a good or service.

Monopolistic market
When a single producer has complete control over one kind of good or service.

Anti-trust Law
These pieces of legislation were designed to break up monopolies and promote competition within a market.

Real Wage
This term is used to describe the individuals wage rate as it relates to what it buys.

The Federal Reserve Bank
The Central Bank of the United States, in charge of monetary policy. There goal is to promote economic growth, employment, and control interest rates.

Money
This is a store of value, a medium of exchange, or a unit of account.

GDP Gross Domestic Product
This is the total market value of all final goods and services produced annually in a country.

Capital Investment
Purchases of equipment for the use in producing a product.

Recession
This is the low point of a normal business cycle. At this point in the cycle, consumer spending declines, unemployment rises, and growth slows or stops.

Inflation
An increase in the average level of prices due to the decline in the value of the currency.

Contractionary Monetary Policy
A policy initiated by the FED during periods of high inflation. The FED begins to tighten the money supply in hopes of decreasing the quantity of money in the economy.

Expansionary Monetary Policy
A policy initiated in the recession period of the business cycle. The FED will release into the economy more money in hopes of stimulating employment, consumer spending, and economic growth. This may result in a decline in the value of the dollar.

Fractional Reserve Banking
This system of banking demands the banks maintain a fraction of all deposits on reserve. Banks can lend out the remaining portion and charge higher interest rates then they pay bank depositors.

The Business Cycle
The up and down period of economic activity that illustrates periods of growth and contraction.

Progressive Tax
This is a form of taxation where the average rate increases as income increases. Such a tax claims not only a larger absolute dollar amount but also a larger percentage of income as income increases. Federal Income Tax is a form of this tax.

Stagflation
This economic condition customarily involved high unemployment, low growth, high inflation.

Personal Income Tax
This progressive tax is the largest form of tax revenues for the federal government.

Budget Deficit
When government expenditures exceeds tax revenues.

Government Debt
When a government accumulates deficits.

Open Market Operations
This is the process of buying and selling government bonds by the Federal Reserve Bank.

NAFTA North American Free Trade Agreement
This international agreement eliminated trade barriers between the three members.

Dividends
These are a share of the profits of a corporation paid out to its stockholders.

Favorable Balance of Trade
This economic environment exists when a countries exports exceed their imports.

Mutual Fund
This is a collection of stocks that individual may invest in. This investment vehicle allows the individual to decrease the risk.

Consumer Price Index
This index is the price of a basket of goods measured from one year tot he next.

Credit Cards
This allows people to borrow money for the purchase of goods and services. Individuals may spend beyond their means as a result.

Sole Proprietorship
This type of business entity is owned and run by one individual. There is no legal distinction between the owner and the business. All profits and all losses accrue to the owner

Protective Tariff
These are taxes imposed upon imported goods to protect domestic industry.

Scarcity of resources
This is the basic economic problems all societies face.

Consumer
This is the individual in the marketplace who makes purchases of goods and services for personal use.

Capital Good
Goods that can be used as a resource for further production.

Consumer Good
A good that an individual uses for personal use.

Capital Goods
A cargo ship, iron smelter, a hammer, and an assembly line are examples of these…

Consumer Goods
A television, cell phone, and hammer are examples of these . . .

Trade-off
A situation in which more of one thing necessarily means less of something else.

What to produce? For Whom to Produce? and How to Produce?
These are the three basic questions that all economies have to answer.

Resources
These economic factors are always limited in supply.

Wants
This economic factor is unlimited and helps to produce the effect of scarcity.

Globalization
This has increased foreign trade, foreign investment, and the development of the World Trade Organization.

Number of Buyers
This factor of demand will increase or decrease the demand in the marketplace.

Elastic Demand
This is usually associated with the wild fluctuation of price on demand.

Inelastic Demand
The following goods, such as milk, water, and utilities are these type of demand products because they are considered necessities.

Demand Curve
This show the relationship between consumers in the marketplace and price.

Market Shortage
This market condition raises prices.

Peak of a Business Cycle
At this point, unemployment is low.

Limited Capital
The notion that a limited amount of money can be raised. This is usually associated with a sole proprietorship.