Econ Final Exam Study Guide

Question 1

What is a Production Possibilities Curve?

Answer 1

A production possibilities curve shows the combinations of two goods an economy is capable of producing.

Question 2

What is Economic Interdependence?

Answer 2

When two or more parties depend on each other for the exchange of goods and the fulfillment of their necessities.

Question 3

What are capital goods?

Answer 3

Final products that have an extended life and are used by the company to manufacture a product; provide a service; or sell, store, and deliver merchandise.

Question 4

What are trade-offs?

Answer 4

When you choose one thing which causes you to have to give up, or sacrifice, another.

Question 5

What is Opportunity Cost?

Answer 5

The loss of potential gain from another alternative when one alternative is chosen.

Question 6

What are reasons for studying Economics?

Answer 6

Because It affects our everyday lives through important areas such as tax, interest rates, wealth, and inflation.

Question 7

What are goods?

Answer 7

A real tangible item that has use and satisfies a want.

Question 8

What are services?

Answer 8

Work that is performed by someone.

Question 9

What is circular flow?

Answer 9

An economic model that shows the exchange of money for goods and services in our economy.

Question 10

What is the Law of Supply?

Answer 10

An idea that producers will offer more of a product at higher prices and less of a product at lower prices.

Question 11

What is the law of demand?

Answer 11

When the price of a product goes up, the quantity demanded will go down and vice versa.

Question 12

What are the determinants of demand?

Answer 12

Price, income, prices of related goods and services, tastes and preferences, and expectations.

Question 13

What are the determinants of supply?

Answer 13

Change in resource prices, technology, taxes and subsidies, prices of other goods, expectations, and the number of sellers.

Question 14

What is the elasticity of demand?

Answer 14

How much the quantity demanded of a good or service changes in response to a change in its price.

Question 15

What is the elasticity of supply?

Answer 15

How much of the quantity supplied by a good or service changes in response to a change in its price.

Question 16

What are the 3 Big Questions of Economics?

Answer 16

(1) What goods and services should be produced to meet consumer needs?
(2) How should they be produced, and who should produce them?
(3) Who should receive goods and services?

Question 17

What is scarcity?

Answer 17

The demand for a good or service is greater than the availability of the good or service.

Question 18

What are the 4 factors of production?

Answer 18

Land, Labor, Capital, and Entrepreneurship.

Question 19

What is entrepreneurship?

Answer 19

It’s the process of starting and launching a business including the willingness and ability to take on that business risk.

Question 20

What is a traditional economy?

Answer 20

An economic system that relies on cultural customs and ancestral traditions to determine what is produced, how it is produced, who produces it, and how it is distributed.

Question 21

What is a command economy?

Answer 21

A system in which a central governmental authority sets permitted levels of production, as well as the terms of distribution and pricing.

Question 22

What is a market economy?

Answer 22

An economic system where two forces, known as supply and demand, direct the production of goods and services.

Question 23

What is a mixed economy?

Answer 23

An economy organized with some free-market elements and some socialistic elements.

Question 24

What is free enterprise?

Answer 24

A capitalist economy where the resources are privately owned and competition is allowed to flourish without government involvement.

Question 25

What is the role of consumers in our economy?

Answer 25

Consumer sovereignty: Consumers rule our economy. They force businesses to innovate and develop new products. If consumers don’t like a product, they don’t have to buy it.

Question 26

What are fixed costs?

Answer 26

Business costs, such as rent, are constant whatever the quantity of goods or services produced.

Question 27

What are variable costs?

Answer 27

Costs that change as the volume changes.

Question 28

What is Gross Domestic Product(GDP)?

Answer 28

The dollar value of all final goods, services, and structures produced within a country’s borders during a one-year period.

Question 29

What is Real GDP?

Answer 29

Gross domestic product after adjustments for inflation (compare with a base year to figure growth rates).

Question 30

What are business cycles?

Answer 30

Regular increases and decreases in real GDP over time in an economy.

Question 31

What are the phases of the business cycle?

Answer 31

(1) Peak: the point where real GDP stops growing and starts to decline. (2) Recession/contraction: decline in real GDP lasting at least 2 quarters (6 months). (3) Trough: the point where the economy starts to turn around and real GDP stops declining. (4) Expansion/recovery: a period of recovery and uninterrupted growth of real GDP.

Question 32

What's a Recession?

Answer 32

A sustained period of weak or negative growth in real GDP (output) that is accompanied by a significant rise in the unemployment rate

Question 33

What's a Depression?

Answer 33

A steep drop in economic activity combined with rising unemployment

Question 34

What's inflation?

Answer 34

An increase in the general price level.

Question 35

What's the Federal Reserve?

Answer 35

The U.S. Central Bank was created by the Federal Reserve Act of 1913 to establish a monetary system that could respond effectively to stresses in the banking system.

Question 36

What's the Consumer Price Index?

Answer 36

A measure of the average change over time in the prices paid by consumers for a representative basket of consumer goods and services.

Question 37

What is Deflation?

Answer 37

A situation where all prices start gradually falling.

Question 38

What is Stagflation?

Answer 38

Higher inflation combined with low economic growth and high unemployment.

Question 39

What is Hyperinflation?

Answer 39

Extreme inflation of 500% (post-war Germany, extremely poor countries)

Question 40

What are the types of unemployment?

Answer 40

Structural, Cyclical, Technological, Seasonal, and Frictional unemployment.

Question 41

Who was Adam Smith?

Answer 41

A Scottish philosopher, widely considered as the first modern economist.

Question 42

What's "The Invisible Hand"?

Answer 42

A metaphor for the unseen forces that move the free market economy.

Question 43

What are the Types of Taxes?

Answer 43

Proportional, Progressive, and Regressive taxes

Question 44

What are the main sources of Tax Revenue for Local, State and national governments?

Answer 44

Local governments: property taxes: some have sales and income taxes too. State governments: sales taxes Federal government: income taxes

Question 45

What's the Stock Market?

Answer 45

Where traders buy and sell shares of a company to raise capital( money $$$)

Question 46

What is monetary policy?

Answer 46

Focused on interest rates and money supply, set by the Federal Reserve.

Question 47

What are interest rates?

Answer 47

A percentage that represents the cost or return generated by a loan or certain saving instruments.

Question 48

What is income?

Answer 48

Money or value that an individual or business entity receives in exchange for providing a good or service or through investing capital.

Question 49

What are price controls(price floor/price ceiling)?

Answer 49

Restrictions imposed by governments to ensure that goods and services remain affordable. The floor is the lowest it can go, ceiling is the highest.

Question 50

What is a budget deficit?

Answer 50

When the spending of the federal government is greater than the revenue.

Question 51

What is the national debt?

Answer 51

The amount of money the federal government has borrowed to cover the outstanding balance of expenses incurred over time.

Question 52

What are subsidies?

Answer 52

A transfer of resources from a government to a domestic entity without an equivalent contribution in return.

Question 53

What is free trade?

Answer 53

A policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports).

Question 54

What is protectionism?

Answer 54

The use of trade barriers to protect domestic industries from foreign competition.

Question 55

What are Tariffs?

Answer 55

A tax imposed by one country on the goods and services imported from another country to influence it, raise revenues, or protect competitive advantages.