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GROSS - Economics > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

What is CAPITALISM?

A

a system based on private ownership of property, competition, and profits as key motivation

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2
Q

What are two other names for capitalism?

A

market system and free enterprise

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3
Q

What does competition due?

A

forces people to produce efficiently

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4
Q

What are the three pillars of free enterprise?

A
  • Private Property
  • Price System
  • Competition
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5
Q

What is PRIVATE PROPERTY?

A

guarantees individuals right to own, use, and dispose of things of value

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6
Q

90% of all goods are produced by…?

A

private companies

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7
Q

Who is ADAM SMITH?

A
  • the father of economics

- wrote a book called the wealth of nations that opposed mercantilism

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8
Q

What is LAISSEZ-FAIRE?

A

government should not involve itself in other peoples affairs

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9
Q

What are PHYSLOCRATS?

A

people who believed the same things as Adam Smith

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10
Q

What leads firms to produce the best products at the lowest prices?

A

self-intrest

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11
Q

What is PRICE SYSTEM?

A

where resources are allocated (distributed) as a result of the interaction of the forces of supply and demand

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12
Q

What is another name for price system?

A

the invisible hand

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13
Q

What is PRICE?

A

money value of a good or service

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14
Q

What is the chain reaction that occurs when buyers want more of products…?

A
  • prices are raised
  • higher prices attack other producers
  • as production increases the need for additional workers causes wages to rise
  • competition encourages sellers to produce goods at the lowest price
  • lower prices lead to a higher standard of living
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15
Q

What is MARKETSHARE?

A

% of the total

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16
Q

What is STANDARD OF LIVING?

A

a measure of the amount of goods an individual considers essential to well being

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17
Q

What is COMPETITION?

A

rivalry amongst buyers and sellers in the purchase of resources and products

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18
Q

What are the 2 benefits of competition?

A
  • gives us the goods we want and where we want them

- forces producers to be efficient thus conserving resources, increasing output, and raising living standards

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19
Q

What are the negatives of competition?

A
  • too much competition can lead to a monopoly

- monopoly can lead to higher prices and worse products

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20
Q

What is THE ROLE OF ECONOMIC INCENTIVE?

A

factors that cause people to behave in certain ways as they strive to earn their living

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21
Q

What is ECONOMIC SELF-INTEREST?

A

the effort to conduct your activities so as to achieve the greatest return (whatever benefits you most)

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22
Q

What are the four EXAMPLES of economic self-interest?

A
  • consumers will travel to a distant store if that will save them money
  • employers will increase wages as a means of attracting labor
  • savers will switch accounts to receive more interest
  • producers will conduct their business so as to earn the greatest profit
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23
Q

What are the four EXCEPTIONS to economic sef-interest?

A
  • workers pass up higher pay bc they don’t want to move
  • business reduce their profit by giving to charity
  • women give up high paying jobs to have a child
  • people that patronize stores that charge higher prices
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24
Q

What is PROFIT MOTIVE?

A

the force that drives producers to risk their capital in business ventures

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25
Q

What are PROFITS?

A

retained earnings

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26
Q

What are RETAINED EARNINGS?

A

money set aside in the form of savings that gives companies the capital they need to expand

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27
Q

What do loses do to companies?

A

they encourage owners to use their resources more efficiently thus conserving resources and growing economy

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28
Q

What is LAISSEZ-FAIRE and who is a strong believer of it?

A
  • describes a policy whereby government keeps it hands off of businesses
  • Adam Smith
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29
Q

What is EMINENT DOMAIN?

A

the rite of government to take the private property at a fair price

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30
Q

What are the 6 areas the government has involved itself in?

A
  • Safeguarding the market system
  • The Government provides some goods and services
  • Programs to prevent harmful externalities
  • Programs to assist those in need
  • Programs to help special groups
  • Programs to stabilize the economy
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31
Q

Why and how does the government safeguard the market system?

A

to prevent monopoly the government has regulated the economy by passing anti-trust laws

32
Q

List and define the six anti-trust acts passed by the government to safeguard the market system.

A

Interstate Commence Act - curve the abuses of the railroad

Northern Securities Case

Sherman Antitrust Act - prohibited any combination in the restrain of trade

Clayton Antitrust Act - specified what acts would be considered in restraint of trade

Federal Trade Commission Act - created the office of attorney general

Seller Anti-merge Act - declared merges to be illegal where they lessen competition

33
Q

What are some goods and services provided by the government?

A
  • National Defense
  • Street Lights
  • Post Office
34
Q

What are EXTERNALITIES?

A

the effects of economic activities that fall outside the market place

35
Q

What are HARMFUL EXTERNALITIES?

A

undesirable effects of economic activities that are borne by people who did not participate in the activity

36
Q

What are the two benefits of the government providing programs to assist those in need?

A
  • to help people by increasing their income

- eliminating the causes of poverty

37
Q

What programs are created by the government to help people by increasing their income?

A
  • welfare
  • food stamps
  • social security
38
Q

What are two ways government programs eliminate the causes of poverty?

A
  • outlaw discrimination

- provide equal educational opportunities

39
Q

What were programs created by the government to help special groups and how did they help?

A
  • Business/Industry: tariff
  • Inventors: patents
  • Farmers: subsidies
  • Union Workers: labor legislation: wagner act
40
Q

What program did the government create to help stabilize the economy and how did the program help?

A

Employment Act of 1945

  • minimize unemployment
  • stabilize prices
  • promote economic growth
41
Q

What is GNP/GDP?

A

measures the nations total output of goods and services per year

42
Q

In 1929 how much of everything produced did the government purchase?

A

8%

43
Q

In what year did the government purchase 8% of everything produced?

A

1929

44
Q

Today how much of everything produced does the government purchase?

A

40%

45
Q

In what year did the government purchase 40% of everything produced?

A

today

46
Q

What is a HOUSEHOLD?

A

one or more people living in the same dwelling and functioning and an economic unit

47
Q

What are PRODUCTIVE FACTORS?

A

the resources of land, labor, capital, and enturpernurership

48
Q

What do the letters C I G stand for?

A

C - consumer spending
I - business spending or investment
G - government spending

49
Q

T or F: In 1930, the order of circular flow and GNP from most tolerable is CGI.

A

FALSE

In 1930 the order is CIG

50
Q

T or F: In 1930, the order of circular flow and GNP from most tolerable is CIG.

A

FALSE

Today the order is CGI

51
Q

What is INVESTMENT?

A

using money to purchase real capital to be used in the production of goods and services

52
Q

What is another name for investment?

A

business spending

53
Q

What is another name for business spending?

A

investment

54
Q

What doe the HGB stand for in the circular flow diagram?

A

H- household
B- business
G- government

55
Q

Label the Circular Flow Diagram…

A

H to G: labor and taxes
G to H: services and wages

G to B: services and payments
B to G: goods and taxes

B to H: goods and wages
H to B: payments and labor

56
Q

What are the three areas of controversy in the American economic system?

A
  • aid to the poor
  • tariffs/taxes
  • labor unions
57
Q

What the two economic goals that have no controversy?

A
  • full employment

- economic growth

58
Q

What is FULL EMPLOYMENT?

A

there is a job waiting for everyone who is ready, willing, and able to work

59
Q

What is ECONOMIC GROWTH?

A

an increase in output over a period of time - usually a company by an increases in GNP/GDP

60
Q

What is economic growth measured in?

A

constant dollars

61
Q

What are CONSTANT DOLLARS?

A

inflation has been factored into the number

62
Q

What are CURRENT DOLLARS?

A

the number without inflation factored in

63
Q

What is the HONEST way to measure economic growth?

A

constant dollars

64
Q

What is PRICE STABILITY?

A
  • the absence of inflation or deflation
  • a period of time when their is little change in what the dollar can buy
  • prices stay at equilibrium and do not change
65
Q

What is INFLATION?

A

a period where the purchasing power of the dollar is falling and prices of goods are rising

66
Q

What is DEFLATION?

A
  • a decrease in the level of prices

- a period in which the purchasing power of the dollar is rising and prices of goods are falling

67
Q

T or F: Inflation is good for consumers and bad for producers.

A

FALSE

Inflation is bad for consumers and good for producers.

68
Q

T or F: Deflation is bad for consumers and good for producers.

A

FALSE

Deflation is good for consumers and bad for producers.

69
Q

What is ECONOMIC FREEDOM?

A

you choose how you will earn your living

70
Q

What is ECONOMIC SECURITY?

A

those who are unable to produce/care for themselves will be provided for

71
Q

What are BAILOUTS?

A

where the government saves a failing company by giving them money so the company does not go bankrupt

72
Q

When, how much, and to whom are six examples of a government bailing out a company?

A 
1971 - $125 mill - Penncentral Railroad
1971 - $250 mill - Lockheed
1979 - $1 1/2 bill - Chrysler
1984 - $4 1/2 bill - Continental Illinois (bank)
Latest - 2 times - General Motors
73
Q

What is INSOLVENT?

A

a company is going bankrupt / falling apart

74
Q

What are the cons of bailouts?

A
  • it is unfair to competition

- it costs tax payers if the companies do not pay the government back

75
Q

What are the pros of bailouts?

A
  • the companies were restored to health
  • jobs were saved
  • the loans were paid back

GROSS - Economics (7 decks)

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