Econ Final Exam Study Guide Flashcards
What is a Production Possibilities Curve?
A production possibilities curve shows the combinations of two goods an economy is capable of producing.
What is Economic Interdependence?
When two or more parties depend on each other for the exchange of goods and the fulfillment of their necessities.
What are capital goods?
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.
What are trade-offs?
When you choose one thing which causes you to have to give up, or sacrifice, another.
What is Opportunity Cost?
The loss of potential gain from another alternative when one alternative is chosen.
What are reasons for studying Economics?
Because It affects our everyday lives through important areas such as tax, interest rates, wealth, and inflation.
What are goods?
A real tangible item that has use and satisfies a want.
What are services?
Work that is performed by someone.
What is circular flow?
An economic model that shows the exchange of money for goods and services in our economy.
What is the Law of Supply?
An idea that producers will offer more of a product at higher prices and less of a product at lower prices.
What is the law of demand?
When the price of a product goes up, the quantity demanded will go down and vice versa.
What are the determinants of demand?
Price, income, prices of related goods and services, tastes and preferences, and expectations.
What are the determinants of supply?
Change in resource prices, technology, taxes and subsidies, prices of other goods, expectations, and the number of sellers.
What is the elasticity of demand?
How much the quantity demanded of a good or service changes in response to a change in its price.
What is the elasticity of supply?
How much of the quantity supplied by a good or service changes in response to a change in its price.
What are the 3 Big Questions of Economics?
(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?
What is scarcity?
The demand for a good or service is greater than the availability of the good or service.
What are the 4 factors of production?
Land, Labor, Capital, and Entrepreneurship.
What is entrepreneurship?
It’s the process of starting and launching a business including the willingness and ability to take on that business risk.
What is a traditional economy?
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.
What is a command economy?
A system in which a central governmental authority sets permitted levels of production, as well as the terms of distribution and pricing.
What is a market economy?
An economic system where two forces, known as supply and demand, direct the production of goods and services.
What is a mixed economy?
An economy organized with some free-market elements and some socialistic elements.
What is free enterprise?
A capitalist economy where the resources are privately owned and competition is allowed to flourish without government involvement.
What is the role of consumers in our economy?
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.
What are fixed costs?
Business costs, such as rent, are constant whatever the quantity of goods or services produced.
What are variable costs?
Costs that change as the volume changes.
What is Gross Domestic Product(GDP)?
The dollar value of all final goods, services, and structures produced within a country’s borders during a one-year period.
What is Real GDP?
Gross domestic product after adjustments for inflation (compare with a base year to figure growth rates).
What are business cycles?
Regular increases and decreases in real GDP over time in an economy.
What are the phases of the business cycle?
(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.
What’s a Recession?
A sustained period of weak or negative growth in real GDP (output) that is accompanied by a significant rise in the unemployment rate
What’s a Depression?
A steep drop in economic activity combined with rising unemployment
What’s inflation?
An increase in the general price level.
What’s the Federal Reserve?
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.
What’s the Consumer Price Index?
A measure of the average change over time in the prices paid by consumers for a representative basket of consumer goods and services.
What is Deflation?
A situation where all prices start gradually falling.
What is Stagflation?
Higher inflation combined with low economic growth and high unemployment.
What is Hyperinflation?
Extreme inflation of 500% (post-war Germany, extremely poor countries)
What are the types of unemployment?
Structural, Cyclical, Technological, Seasonal, and Frictional unemployment.
Who was Adam Smith?
A Scottish philosopher, widely considered as the first modern economist.
What’s “The Invisible Hand”?
A metaphor for the unseen forces that move the free market economy.
What are the Types of Taxes?
Proportional, Progressive, and Regressive taxes
What are the main sources of Tax Revenue for Local, State and national governments?
Local governments: property taxes: some have sales and income taxes too.
State governments: sales taxes
Federal government: income taxes
What’s the Stock Market?
Where traders buy and sell shares of a company to raise capital( money $$$)
What is monetary policy?
Focused on interest rates and money supply, set by the Federal Reserve.
What are interest rates?
A percentage that represents the cost or return generated by a loan or certain saving instruments.
What is income?
Money or value that an individual or business entity receives in exchange for providing a good or service or through investing capital.
What are price controls(price floor/price ceiling)?
Restrictions imposed by governments to ensure that goods and services remain affordable. The floor is the lowest it can go, ceiling is the highest.
What is a budget deficit?
When the spending of the federal government is greater than the revenue.
What is the national debt?
The amount of money the federal government has borrowed to cover the outstanding balance of expenses incurred over time.
What are subsidies?
A transfer of resources from a government to a domestic entity without an equivalent contribution in return.
What is free trade?
A policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports).
What is protectionism?
The use of trade barriers to protect domestic industries from foreign competition.
What are Tariffs?
A tax imposed by one country on the goods and services imported from another country to influence it, raise revenues, or protect competitive advantages.
