Chapter 4- Economics

Question 1

define economics

Answer 1

the study of how people use scarce resources in order to satisfy unlimited needs and wants

Question 2

define demand

Answer 2

when individuals attempt to satisfy their needs and wants by purchasing a good or service

Question 3

define quantity demanded

Answer 3

the quantity of a good or service that an individual is willing and able to buy at a certain price.

Question 4

When does the quantity demanded change?

Answer 4

When the prices changes.

Question 5

what is the demand schedule?

Answer 5

a table that lists the quantify demanded for a good that people are willing and able to buy at all possible prices

Question 6

What is the market demand schedule?

Answer 6

a table that lists the quantity demanded for a good or service that people throughout the whole economy are willing and able to buy at all possible prices.

Question 7

What is supply?

Answer 7

the relationship between the quantity of a good or service and its price. it’s home much of a product or service is available for sale in a market.

Question 8

What is the supply schedule?

Answer 8

a table that illustrates all the quantities supplied at different prices. the supply schedule shows you how the supply changes when you increase or decrease the price

Question 9

What is the market supply schedule?

Answer 9

a table that lists the quantity supplied for a good or service that suppliers throughout the whole economy are willing and able to supply at all possible prices.

Question 10

Define economy

Answer 10

the management of the resources of a country

Question 11

What is the basic economic problem?

Answer 11

that needs and wants are unlimited, but resources are scarce.

Question 12

what are resources?

Answer 12

Also known as factors of production, include land, labor, capital and entrepreneurship

Question 13

what does scarcity mean?

Answer 13

that resources are limited, and because resources are scarce, people must make choices.

Question 14

What are incentives?

Answer 14

rewards that motivate people to behave in certain ways.

Question 15

What is the circular flow model?

Answer 15

includes households, businesses and governments and shows how money moves around in a simple market economy.

Question 16

What are factors of production?

Answer 16

land, labor, capital and entrepreneurship.

Question 17

define prices

Answer 17

rent, wages and profits

Question 18

what role do households play in the circular flow model?

Answer 18

they buy goods and services from businesses as well as sell their labor, land and capital in exchange for income.

Question 19

what role do businesses play in the circular flow model?

Answer 19

they sell goods and services to households, earning revenue and generating profits. they also pay wages, interest and profits to household in return for the use of their factors of production

Question 20

what role does government play in the circular flow model?

Answer 20

levy taxes on households and businesses in order to provide certain benefits to everyone.

Question 21

what are injections in the circular flow model?

Answer 21

include investments, government purchases and exports

Question 22

what are leakages in the circular flow model?

Answer 22

include savings, taxes and imports

Question 23

what is an economic system

Answer 23

the manner in which our society has structured the way goods and services are produced, distributed, and consumed to satisfy our needs and wants

Question 24

What are the categories of economic systems?

Answer 24

market-oriented systems

command-oriented systems

Question 25

Define a market system?

Answer 25

one which relies on market forces to determine production, distribution, and consumption of goods and services. most property and economic decisions are in the hands of private individuals.

Question 26

define command system?

Answer 26

relies on the state rather than individuals or markets. the state owns most property and most economic activities are directed through central state planning.

Question 27

Define a socialistic economic system.

Answer 27

the government owns most land and capital goods, but individuals still control their own labor. Economic decisions of production, distribution, and consumption are centrally planned.

Question 28

define communism

Answer 28

all factors of production, land, capital, and even labor are controlled by the state.

Question 29

define mixed economic systems

Answer 29

where the government blends different features of two or more systems.

Question 30

What are excess reserves?

Answer 30

funds that are held by a bank that exceed the federal reserve’s minimum reserve requirement. It can be determined by subtracting required reserves from legal reserves.

Question 31

What is a fractional-reserve system?

Answer 31

a banking system where banks only hold a fraction of the money deposited with them is reserves. the deposits not held in reserves are used to make loans or are invested.

Question 32

What are required reserves?

Answer 32

the level of reserves that the Federal Reserve requires that member banks hold to honor withdrawals.

Question 33

What are legal reserves?

Answer 33

include the cash held by the bank for daily banking transactions (vault cash) and its deposits at one of the Federal Reserve regional banks.

Question 34

What are primary reserves?

Answer 34

Refers to the bank’s cash and deposits.

Question 35

What are secondary reserves?

Answer 35

high-quality securities that are easily convertible to cash, such as treasury bonds.

Question 36

What is the excess reserve formula?

Answer 36

Excess reserves = legal reserves - required reserves