econ exam Flashcards
Define- Scarcity
Scarcity is when a country has limited rescoursed matched with unlimited wants.
Define- Choice
Make a decision between one or more options
Define- Trade-Off
Trade-offs are all of the other possible options not chosen
Define- Opportunity Cost
The next-best option that you didn’t choose
What are the 4 Factors of Production?
Land, Labor, Capital, and Entrepreneurship
Define- Land
Land is the natural resources used to produce a product
Define- Labor
Labor is the people/workers used in the process of producing the product.
Define- Human Capital
The education, training, or experiences that help in producing the products.
Define- Physical Capital
Any man-made good that factors into the production process. Also includes intermediate goods, like a car radio.
Traditional Economy
Family or cultural customs decide the jobs people have and what is bought and sold in the country
Farming, fishing, hunting and gathering are usually done in this type of economy
People may barter or trade goods instead of buying and selling using money
Found in many developing countries, but can be found in rural areas of richer countries like the United States
May value stability and security (possibly equity, depending), but low on freedom, growth, and efficiency
Command Economy
The government decides the jobs people have and what is bought and sold in the country
Heavy industry is a big focus in command economies
Money and resources are supposed to be shared equally among the population, but that rarely happens
Little incentive for people to work hard/innovate → stagnation and mismanagement of resources (often shortages)
Found in Communist countries like North Korea
Value equity (at least in theory) stability, and security, but low on freedom, growth, and efficiency
Market Economy
The market, companies and individuals decide the jobs people have and what is bought and sold in the country
Individuals have the freedom to apply to certain jobs, produce whatever product they wish and purchase the products they want
Supply and demand, innovation and competition drive the economy
The rich, middle class and poor are found in this economy - often leads to great inequalities
Value freedom, growth, and efficiency, but not stability, security, or equity
Mixed Economy
This is a combination of two or all three of the other economy types (traditional, command and market)
The United States has a mixed economy, it is mostly a market economy, but the government creates laws that protect citizens and the environment (command). Traditional economic features can be found in more rural areas of the U.S. as well.
Benefits of innovation and competition, but also protections and security provided by government regulation
Most modern countries have a mixed economy of some sort
Value freedom, growth, and efficiency, but are willing to sacrifice them to also gain (at least some degree of) stability, security, and equity
Define- Market Structures
Market Structures refers to how businesses are organized in different industries. We can think of these structures as existing on a continuum based on how much competition there is between firms in each industry.
Perfect Competition
Many small firms
Identical products (perfect substitutes for each other)
Low barriers to entry – easy for first to enter or exit the industry
No control over price – firms are “price takers”
Monopolistic Competition
Many firms, varying in size
Differentiated products
Low barriers to entry – other firms enter or exit the industry easily
Some control over price – since products are differentiated, there is lots of non-price competition (ex. advertising)
Oligopoly
A few large firms
Identical or differentiated products
High barriers to entry – other firms struggle to enter the industry
Some control over price – firms based their decisions off what they think their competitors will do (game theory)
Monopoly
One large firm – the firm is the ENTIRE market
Unique product – no close substitutes
High barriers to entry – other firms cannot enter the industry
Total control over price – firms are “price makers” and don’t have to take influence from others
Sole Proprietor
Definition: business organization owned and controlled by one person
Over 70% of all businesses in the US today, but only generate 5% of all sales
Examples?
Mom-and-Pop grocery store
Barbershop
Computer repair business
Partnership
Definition: business co-owned by two or more people (“partners”), who agree on how responsibilities, profits, and losses will be divided
Examples?
Law firms
Doctors’ offices
Investment companies
Real-estate groups
Corporation
Definition: A business owned by stockholders, who own the rights to the company’s profits but face limited liability for the company’s debts or losses
Individuals acquire ownership rights through the purchase of stock (shares of ownership in a corporation)
About 20% of US businesses, but produce most US goods and employ majority of workers
Define- Law of Supply
Supply: different quantities of goods that producers are willing and able to sell at different prices
Define- Law of Demand
Demand: different quantities of goods that consumers are willing and able to buy at different prices
Define- Equilibrium
Equilibrium: price at which quantity supplied equals quantity demanded
Shown by the intersection of supply and demand curves on the graph
What does the acronym “BITER” stand for?
B: buyers (#)
I: income
T: tastes and preferences
E: expectations (future prices and/or availability, future income)
R: related goods (substitutes and complements)
What does the acronym “SINGER” stand for?
S: # sellers– competition
I: input cost
N: new technology
G: government-subsidies, taxes, and regulations
E: expectations (input and/or output)
R: related goods
True or False- A rightward shift of the supply curve indicates that there is an increase in supply
True or False- A decrease in the price of a Netflix subscription would shift the supply curve for Redbox rentals to the right
True or False- If the population of a town decreases, the demand for food will shift to the left
True or False- An increase in the price of mustard would affect the supply to the left.
True or False- Cellphone chargers are considered substitutes for cell phones
True or False- An increase in the demand for chicken will cause the equilibrium price to increase and the equilibrium quantity to decrease.
True or False- A shortage exists when the quantity supplied is larger than the quantity demanded.
True or False- A shortage exists when the quantity supplied is larger than the quantity demanded.
True or False- The government passes a law that requires all car manufacturers to implement certain safety measures. Therefore, the supply of cars decrease.
True or False- A decrease in the supply of apples will cause the equilibrium price to increase and the equilibrium quantity to decrease.
True or False- The demand for an inferior good decreases as the income of consumers increase.
Fill in the blank- A market (1) equals (2) . This is the point where the supply and demand curve (3) on the graph.
What is the effect of implementing a new minimum wage?
What is the effect on the graph of instituting rent control?
