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Economics Flashcards

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1
Q

Economics

A

The study of the ways societies allocate resources to individuals and groups.
(including the choices to fund certain initiatives)
Since resources in any society are finite, allocation of resources is a reflection of what that society values.

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2
Q

Economic Systems are based on…

A
  • what goods are produced
  • how those goods are produced
  • who acquires or benefits from the goods
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3
Q

2 Categories of Economics

A

Macroeconomics: larger systems
Microeconomics: smaller systems

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4
Q

Market Economy

A

Economy where supply and demand are determined by consumers

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5
Q

Planned Economy

A

A planning authority (possibly a public entity) makes decisions about resources will be produced, how they are produced, and how people benefit from them.

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6
Q

Market Socialism

A

In between Market and Planned Economies. A planning authority determines the allocation of resources at a higher level, while consumer goods are driven by a market economy.

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7
Q

Demand

A

What customers want and need, and how much they are willing and able to purchase

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8
Q

Supply

A

How much of a good suppliers are willing and able to sell.

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9
Q

Market Equilibrium Price

A

Where the interests of the consumers meet the interest of the suppliers. The price people are willing to buy at, and sellers are willing to sell at.
Dependent on the overall economy, beliefs and considerations of individuals, and other factors.

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10
Q

Elasticity

A

How quickly the quantity of a product responds to change in the price demanded for the product. If it changes quickly it is said to be very elastic.

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11
Q

Market Efficiency

A

When a market can produce enough output of goods to meet consumer demands, it is said to be efficient.

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12
Q

Comparative Advantage

A

When a country can produce a product more efficiently and cheaply - or at a lower opportunity cost - than other countries, it has a comparative advantage in production of that product.

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13
Q

Microeconomics

A

Focuses on economic factors such has how consumers behave, how income is distributed, and output and input markets.
Focused on the industry or firm level, rather than a whole society.
Studies factors of production, costs of production, and factor income. These factors determine production decisions for individual firms.

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14
Q

Market Classification

A

Markets are classified by assessing these conditions:

  • existence of competition
  • number and size of suppliers
  • influence of suppliers on price
  • variety of available products
  • ease of entering the market
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15
Q

Market Failure

A

5 Types:

  • competition is inadequate
  • information is inadequate
  • resources are not mobile
  • negative externalities (side effects that affect 3rd parties)
  • failure to provide public goods
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16
Q

Factors of production

A

Resources needed to produce a good or service
- labor
- land
- capital
- entrepreneurship
Can be fixed (land, equipment) or variable (labor), producing fixed or variable costs (costs of production).

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17
Q

Factor Income

A

Factors of Production have an associated factor income. Factors that earn income include:
- Labor: earns wages
- Capital: earns interest
- Land: earns rent
-Entrepreneurs: earn profit
Each factors income is determined by its contribution - in a market economy this is not guaranteed to be equal.

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18
Q

Output Market

A

4 kinds of market structures in an output market: perfect competition, monopoly, monopolistic competition, oligopoly

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19
Q

Perfect Competition

A

All firms sell an identical product
No one controls the final price
Nothing makes it difficult to enter or leave the industry (called a barrier to entry)
Example: agriculture

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20
Q

Monopoly

A

One seller controls the product and its price.

High barriers to entry - like high fixed cost structures.

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21
Q

Monopolistic Competition

A

Many firms sell similar but not identical products (different brands of food or clothing)
Low barriers to entry

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22
Q

Oligopoly

A

A few firms control the production and distribution of products. Barriers to entry are high, preventing most firms from entering the market.
Example: automobile

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23
Q

4 types of monopolies

A

natural monopoly, geographic monopoly, technological monopoly, government monopoly

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24
Q

Natural Monopoly

A

A single supplier has a strong advantage over others

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25
Q

Geographic Monopoly

A

Only one business offers a product in a certain area

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26
Q

Technological Monopoly

A

One company controls the technology necessary to supply a product

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27
Q

Government Monopoly

A

A government agency is the only provider of a good or service

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28
Q

Sherman Anti - Trust Act

A
  1. Prohibited trusts, monopolies, and any other situations that eliminated competition.
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29
Q

Clayton Anti-Trust Act

A
  1. Prohibited price discrimination.
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30
Q

Robinson-Patman Act

A
  1. Strengthened provisions of the Clayton Anti-Trust Act.
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31
Q

Securities and Exchange Commission

A

Requires companies that provide public stock to provide financial reports on regular basis.

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32
Q

Control by US government

A

Banks are regulated more than other businesses, and required to provide information to the government.

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33
Q

Marketing

A

All activity used to convince consumers to acquire goods, convince them of its utility.

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34
Q

Utility

A

The ability of a product or service to satisfy the need of a consumer.
Four Types: Form, Place, Time, Ownership

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35
Q

Form Utility

A

A products desirability lies in its physical characteristics.

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36
Q

Place Utility

A

A product’s desirability is in its location and convenience

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37
Q

Time Utility

A

A product’s desirability is determined by its availability at a certain time.

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38
Q

Ownership Utility

A

A product’s desirability is increased because ownership of the product passes to the consumer.

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39
Q

Determining a Product’s Market

A
  1. Market Research: to decide if the market will be receptive to the product
  2. Market Surveys: Part of market research, ask specific questions to help determine the marketability of a product
  3. Test Marketing: Releasing a product in a small area to see how it sells. Followed by wider marketing if the product does well.
40
Q

4 Elements of a Marketing Plan

A

Product, Price, Place, Promotion

41
Q

Product

A

Elements that pertain directly to the product - packaging, presentation, services that go with it

42
Q

Price

A

Calculates cost of production, distribution, advertising, and desired profit to determine final price

43
Q

Promotion

A

Ways to let consumers know the product is available

44
Q

Place

A

Where or how the product will be sold

45
Q

Distribution Channels

A

Determine the route a product takes from the producer to the consumer. This can influence the price and availability of the product.
2 major forms of distribution: wholesale and retail
Additional channels include club warehouse stores, catalogues, and the internet. Usually newer distribution channels sell directly to the consumer.

46
Q

Wholesale Distribution

A

Distributor buys in large quantities and resells smaller amounts to to other businesses.

47
Q

Retail Distribution

A

Sell directly to consumers

48
Q

Income Distribution

A

To determine income distribution family incomes are ranked lowest to highest, and these rankings are divided into quintiles which are compared to one another.
In most societies income is not distributed evenly. Uneven income distribution can be linked to higher levels of education in the upper classes, discrimination, and existing monopolies.

49
Q

Income Gap in the US

A

Income gap is growing due to

  • growth in the service
  • changes in the US family unit
  • reduced influence of labor unions
50
Q

Poverty

A

Defined by comparing incomes to poverty guidelines, which determine the level of income necessary for a family to function.
Those below the poverty line are often eligible for assistance from the government

51
Q

2 Major Types of Consumer Behavior

A

Marginal Propensity to Consume

Utility

52
Q

Marginal Propensity to Consume

A

The tendency of consumers to increase their spending when their income increases.

53
Q

Utility

A

The satisfaction experienced by a consumer when they acquire and use a good or service. Providers of goods/services will stress utility to convince consumers they want a product.

54
Q

Macroeconomics

A

Studies economics on a national level
Variables studied:
Output, Consumption, Investment, Government Spending, Net Exports

55
Q

GDP (definition)

A

Gross Domestic Product, measures a nation’s economic output over a time period (such as a year)

56
Q

Expenditures Approach to Measure GDP

A

based on how much money is spent in each individual sector (same results as Expenditures Approach)

57
Q

Income Approach to Measure GDP

A

Based on how much money is earned in each sector (same results as Income Approach).
Income Factors to calculate:
- Compensation of employees
- Rent from the land
- Interest on invested capital
- Entrepreneurial income
indirect business taxes (including property and sales taxes) and depreciation, are subtracted.

58
Q

4 Economic Sectors in Macro Economy

A

Consumers, Business, Government, Foreign Sector.

59
Q

Entrepreneurial Income

A

2 Forms: Proprietor’s Income and Corporate Profit.
Proprietor’s Income comes back to the entrepreneur itself
Corporate Profit is divided into corporate profits, taxes, dividends, and retained earnings.

60
Q

Population and GDP

A

If population grows more quickly than GDP, individual income or income per individual will diminish.
Population growth can also lead to economic growth because economic growth requires consumers to purchase goods and workers to produce them.

61
Q

Ideal Balanced Economy

A

aggregate supply is equal to aggregate to demand
national output = the amount of output that is purchased
During times of inflation or rising unemployment, government intervention is necessary to stabilize an economy so supply and demand are balanced.

62
Q

Phases of Economies

A

Boom - High GDP
Recession - GDP falls, unemployment rises
Trough - Lowest point of recession
Recovery - Unemployment lowers, prices rise, economy begins to stabilize

63
Q

Inflation

A

Occurs when the economy is growing too quickly. Too much spending and demand outstrips supply - so prices are driven artificially high.

64
Q

Unemployment

A

Too little spending and supply is far beyond demand, creating a surplus of product. Companies cut back on production and reduce the number of workers they employ.

65
Q

5 Forms of Unemployment

A

Frictional, Structural, Cyclical, Seasonal, Technological

66
Q

Frictional Unemployment

A

Workers change jobs and are unemployed between jobs

67
Q

Structural Unemployment

A

Economic shifts reduce the need for workers

68
Q

Cyclical Unemployment

A

Natural business cycles bring about a loss of jobs

69
Q

Seasonal Unemployment

A

Seasonal cycles reduce the need for certain jobs

70
Q

Technological Unemployment

A

When advances in technology result in elimination of certain jobs

71
Q

Creeping Inflation

A

Rate of 1 - 3 percent annually

72
Q

Galloping Inflation

A

High rate of 100 - 300 percent annually

73
Q

Hyperinflation

A

Rate over 500 percent annually. Usually leads to complete monetary collapse in a society. It is impossible for people to buy what they need.

74
Q

Government Fiscal Policy

A

Monetary Policy, Contractionary Policies, Expansionary Policies

75
Q

Contractionary Policies

A

Counteract inflation by increasing taxes and decreasing government spending, to slow spending

76
Q

Expansionary Policies

A

Increase government spending and lower taxes to increase spending and lower unemployment.

77
Q

Monetary Policy

A

Can take several forms, affects the amount of funds banks have to make loans.

78
Q

Population

A

Populations are studied by size, rate of growth due to immigration, fertility rate, and life expectancy.
US population is larger today, but growing slower. Fertility rate is low and life expectancy is high - projected imbalance between older and younger people in the future. Increase in percentages of Asian, Hispanic, and Black populations.

79
Q

Money

A 
Ways it is Used:
- as an accounting unit
- as a store of value
- as an exchange medium 
Money must be accepted throughout a society, should be relatively scarce, retain a stable value, be easily carried and divisible, and durable.
80
Q

3 Types of Money

A

Commodity, representative, fiat

81
Q

Commodity Money

A

gems or precious metals

82
Q

Representative Money

A

Can be exchanged for items which have inherent value, such as gold or silver

83
Q

Fiat Money

A

Legal Tender, no inherent valued but has been declared to function as money by the government. Often backed by gold or silver, but not necessarily a 1:1 ratio.

84
Q

US Money

A

When economists calculate the amount of money available, take into account currency, deposits in checking accounts, debit cards, and “near moneys” that can be quickly converted into cash, such as savings accounts.
M1 - currency, checkable deposits, and traveler’s checks
M2 - savings deposits, CDs, and other monetary deposits
M1 + M2 = total quantity of available money

85
Q

The Federal Reserve System

A

“The Fed” implements all monetary policy.
Can increase or decrease the amount of money available for loans by regulating the amount of money available in the banking system. Can also change the Discount Rate - the interest rate charged by the fed when banks borrow money from them.
Policies can be expansionary or contractionary.

86
Q

Banks

A

Banks earn income by loaning out money and charging interest on the loans.
If less money is available to them, they can make fewer loans, which can lower spending in the overall economy.
Not allowed to loan out all of their money - must retain some on reserve (called the reserve ratio)
A higher reserve ration means less money is available for loans, lower reserve ratio means more money can be given away in loans.
Reserve ration is determined by the fed

87
Q

Open Market Operations

A

The fed can buy or sell bonds it has purchased from banks or individuals. When the fed buys bonds, this puts more money into circulation to stimulate the economy (expansionary act).
When the fed sells bonds, money is taken out of the economy (a contractionary situation) to slow economic growth if there is inflation.
However US banks can circumvent actions by the fed, by borrowing and lending money in markets outside the US.

88
Q

International Trade

A

Allows markets to bring a wider variety of products to the consumers.
Also allows countries to specialize in particular products where they have a comparative advantage and sell this product around the world. And to buy other products that are harder to produce domestically, from around the world.
To participate in intl trade, nations must develop efficient use of native resources, and maintain sufficient income to be able to purchase imported products.
Many countries participate in intl trade, but many others face major economic barriers to participation.

89
Q

Characteristics of Developing Nations

A
  1. Low GDP
  2. Rapid Population Growth
  3. Economy centers on subsistence agriculture
  4. Poor conditions: high infant mortality rates,, disease rates, insufficient housing
  5. Low literacy rate
    Often under oppressive governments, extreme disparities between rich and poor, with little opportunity to improve one’s economic condition.
    Difficult to acquire funding to move into other stages of economic development. Some receive help from developed countries or international organizations like the International Monetary Fund or the World Bank.
90
Q

Stages of Economic Development

A
  • agricultural stage
  • manufacturing stage
  • service sector stage
91
Q

Obstacles to Economic Growth

A
  • rapid population growth
  • trade restrictions
  • misused resources (often perpetrated by nation’s government)
  • traditional beliefs that reject change
    In general, country are more likely to experience economic growth if their governments encourage entrepreneurship and provide private property rights.
92
Q

Major Problems with Rapid Industrialization

A

Often triggered by rapid global economic growth, some countries industrialize too quickly leading to artificially rapid economic growth. Major problems are:
- Use of technology not suited to the goods or services being supplied
- Poor investment of capital
- Lack of time for the population to adapt to changes
- Lack of time to experience all stages of development and adjust to each change
Example: Indonesia

93
Q

E - Commerce

A

Many traditional supply channels are bypassed because e - commerce makes it possible to set up a direct market to consumers. Many more people can sell goods, so competition is high. This also increases the variety of products available to consumers.
Many industries are struggling with how best to adapt to the changes caused by e - commerce. How e- commerce will affect the economy long term is yet to be seen.

94
Q

Knowledge Economy

A

Growing sector in the economy - includes the trade and development of:
- data
- intellectual property
- technology, esp communications
Knowledge as a resource is becoming more and more important in the “information age,” bringing changes thought to be as significant as the Agricultural and Industrial Revolutions.

95
Q

Cybernomics

A

Related to the knowledge economy
Economics driven by e- commerce and other computer - based markets and products.
Marketing has changed drastically with the growth of cyber communication.
- secure online trade
- intellectual property rights
- rights to privacy
- interaction with developing nations
Many of the old ways of doing business no longer work and industries are changing to function in the new system

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