Economics Midterm Flashcards
Wants
Things I want to have
Needs
Things I need to live
Wants and needs
To economists everything other than basic survival needs is considered a want. People want such items as new cars, new clothes, and the latest technology. What begins as a luxury, or a want becomes to many people a necessity.
Scarcity
condition of not being able to have all the goods and services one wants, because wants exceed what can be made from all available resources at any given time
Scarcity means that people do not have and cannot have enough income, time, and other resources to satisfy their every want.
Factors of production:
Land, Labor, capital, entrepreneurship
Land
Natural resources present without human intervention.
Examples include: land, water, fish, animals, forests, and mineral deposits.
Labor
The work that people do.
Labor includes anyone who works to produce goods and services. What are goods and services? Goods are tangible items that people buy. Services are activities done for others for a fee.
Capital
Previously manufactured goods used to make other goods and services.
For many, when they think of capital they always think of money but in economics, that’s not the case. Capital goods are machines, buildings, and tools. Capital is also increased productivity - the ability to produce greater quantities of goods and services in better and faster ways.
Entrepreneurship
The ability of risk-taking individuals to start new businesses, to introduce new products and processes, and improve management techniques. In order to make profits
Entrepreneurship involves initiative and willingness to take risks in order to reap profits.
Trade-offs
sacrificing one good or service to purchase or produce another
Scarcity forces people to make choices about how they will use their resources. The economic choices people make involve exchanging one good or service for another. Exchanging one thing for the use of another is called a trade-off. Individuals, families, businesses, and societies are forced to make trade-offs every time they use their resources in one way and not another.
The result of a trade-off is what you give up in order to get or do something else. Decisions, decisions, decisions
Opportunity cost
Opportunity cost is the value of the next best alternative that had to be given up to do the action that was chosen. You may have many trade-offs but whatever you consider the single next best alternative is the opportunity cost. A good way to think about opportunity cost is to realize that when you make a trade-off, and you always make trade-offs, you lose. What do you lose? You lose the ability to engage in your next highest alternative.
Example of trade-off and opportunity cost
You want to listen to some music. Who do you listen to? Do you turn on a music streaming service or do you listen to music you have downloaded? You have to make a trade-off and what you don’t listen to is your opportunity cost. In economics, therefore, opportunity cost is always an opportunity that is given up.
Production possibilities curve
Economists use a model called the production possibilities curve to show the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time. This curve can help people and businesses determine how much of each item to produce , thus revealing the trade-offs and opportunity costs involved in each decision.
Microeconomics
Microeconomics is the branch of economic theory that deals with behavior and decision making by small units such as individuals and firms
Macroeconomics
Macroeconomics is the branch of economic theory dealing with the economy as a whole and decision making by large units such as government.
Economic models
The theories that economists use in their work are called economic models, which are simplified representations of the real world. Solutions that emerge from testing economic models often become the basis for actual decisions by private businesses or government agencies.
Models can show visual representations of consumer, business, or other economic behavior. The production possibilities curve is an economic model. One of the most common economic models is a line graph (example below) explaining how consumers react to changes in the prices of goods and services.
Economics
the study of how individuals, families, businesses, and societies use limited resources to fulfill their unlimited wants
Goods
tangible objects that can satisfy people’s wants or needs
Services
actions that can satisfy people’s wants or needs
Productivity
the amount of output (goods and services) that results from a given level of inputs
Technology
advance in knowledge leading to new and improved goods and services and better ways of producing them
Economy
the production and distribution of goods and services in a society
Economic model
a theory or simplified representation that helps explain and predict economic behavior in the real world
Hypothesis
an assumption involving two or more variables that must be tested for validity
The study of how individuals, families, businesses and societies use limited resources to fulfill their unlimited wants is
Economics
________________ means that people do not have and cannot have enough income, time and other resources to satisfy their every want.
Scarcity
A company’s office building is an example of
capital
Everything other than a basic survival need is considered a
want
Sacrificing one good or service to purchase or produce another is known as
Trade-off
Economic system
way in which a nation uses its resources to satisfy its people’s needs and wants
Traditional economy
system in which economic decisions are based on customs and beliefs that have been handed down from generation to generation
Command economy
system in which the government controls the factors of production and makes all decisions about their use
Market economy
system in which individuals own the factors of production and make economic decisions through free interaction while looking out for their own and their families’ best interests
Market
freely chosen activity between buyers and sellers of goods and services
Circular flow of economic activity
economic model that pictures income as flowing continuously between businesses and consumers
mixed economy
system combining characteristics of more than one type of economy
capitalism
economic system in which private individuals own the factors of production
Laissez-faire
economic system in which the government minimizes its interference with the economy
free enterprise system
economic system in which individuals own the factors of production and decide how to use them within legal limits; same as capitalism
Profit
money left after all the costs of production - wages, rents, interest, and taxes - have been paid
Profit incentive
desire to make money that motivates people to produce and sell goods and services
Private property
whatever is owned by individuals rather than by government
Competition
rivalry among producers or sellers of similar goods and services to win more business
A system in which government lets people and businesses make their own decisions without government restraints is
Laissez faire system
Another name for a Market Economy is
Capitalism
When considering for whom it should be produced, you must consider
Who gets the new item
When considering what should be produced, you must consider
How to use limited resources
This is a rivalry among producers or sellers of similar goods and services to win more business.
competition
Individuals have little if any influence over how the basic economic questions are answered.
Command
Effective competition requires
A large number of independent sellers
Business owners in Metropolis can decide what business they wish to start, what they want to produce, how they will produce it, how much they want to produce, and to whom they want to sell their production. What economic system is this?
Market
All are true of a Mixed Economy except
changes are slow
Market
the process of freely exchanging goods and services between buyers and sellers
Voluntary exchange
a transaction in which a buyer and a seller exercise their economic freedom by working out their own terms of exchange
Demand
the ability and willingness of people to purchase goods and services at various prices during a specific period of time
Law of demand
refers to how people react to change in price. It says that when the price of a good or service increases, the quantity demanded of that product or service decreases
Demand curve
downward-sloping line that shows in graph form the quantities demanded at each possible price
Supply
the amount of product that producers are willing and able to offer for sale at various prices at a specific period of time
Law of supply
when the price of goods decreases, the quantity supply decreases and when the price of the product increases the quantity supply also increases, all things remaining the same
Supply curve
upward-sloping line that shows in graph form the quantities supplied at each possible price
Equilibrium price
the price at which quantity demanded by consumers equals the quantity that is supplied by producers
Elasticity of demand
the degree of responsiveness of change in quantity demanded to change in price
Elasticity of supply
the degree of responsiveness of change in quantity supplied to a change in price
Government just gave subsidies to Farmers for the production of poultry products. What will happen to the supply of poultry products?
It will shift to the right
What happens to the demand for Pepsi when the price of Coca Cola increase?
Increase in Demand of Pepsi
When the price of cars increases, the quantity demanded of cars
Decreases
Which of the following will cause the supply curve to shift to the right?
Decrease in the input cost for producing that good
At equilibrium price, which of the following will NOT happen?
shortage or surplus
A decrease in the price of gas will:
Decrease the quantity Supplied
When an increase in the price of one good leads to a decrease in demand for the other, the two goods are:
Complementary
When the price is above the equilibrium price, what will happen?
Excess
Entrepreneur
person who organizes, manages, and assumes the risks of a business in order to gain profits
startup
a beginning business enterprise
Small business incubator
private or government-funded agency that assists new businesses by providing advice or low-rent buildings and supplies
Inventory
extra supply of the items used in a business, such as raw materials or goods for sell
receipts
income received from the sale of goods and/or services
Sole proprietorship
business owned and operated by one person
Proprietor
owner of a business
Unlimited liability
requirement that an owner is personally and fully responsible for all losses and debts of a business
Assets
all items to which a business or household holds legal claim
Partnership
business that two or more individuals own and operate
Limited partnership
special form of partnership in which one or more partners have limited liability but no voice in management
Joint venture
partnership set up for a specific purpose just for a short period of time
Corporation
type of business organization owned by many people but treated by law as though it were a person
Stock
share of ownership in a corporation that entitles the buyer to a certain part of the future profit and assets of the corporation
Limited liability
requirement in which an owner’s responsibility for a company’s debts is limited to the size of the owner’s investment in the firm
Common stock
shares of ownership in a corporation that give stockholders voting rights and a portion of future profits
Dividend
portion of a corporation’s profits paid to its stockholders
Preferred stock
shares of ownership in a corporation that give stockholders a portion of future profits but no voting rights
Franchise
contract in which one business (franchiser) sells to another business (franchisee) the right to use the franchiser’s name and sell its products
One of the advantages of being in a partnership is
Losses are shared
I am a senior in high school who earns spending money by doing yard work for my neighbors. I have decided that I could easily support myself in this business when I graduate. What type of business organization should I choose?
Sole proprietorship
A beginning enterprise is known as a
Startup
To form a corporation you must do all but which one?
Form a partnership
I am 35 years old. For ten years I have been running a delivery service. Three years ago, I purchased another vehicle and hired one person. I now have enough demand for my services that I need to hire five more people and purchase vehicles for them. I do not have the money to invest in five vehicles. What type of business organization should I choose to help me raise the necessary money?
Corporation
One advantage of a corporation is
They can handle large and complicated operations
My business partner and I are 25 and 26 years old. We run a small but growing business. We make cupcakes and sell them around our city. We are now getting requests for our cupcakes in the surrounding cities. If we want to meet this demand, we will need a larger production space, more employees, and a means of delivery. What type of business organization should we form?
Corporation
You have a great idea for a business but need help to get it started. Who can you turn to for help?
Small business incubator
I am 43 years old. My best friend and I have been helping people who are unable to get out of their homes by doing grocery shopping and running other errands. We have decided to turn this into a formal business. What type of organization should we choose?
Partnership
I am a 40-year-old real estate salesperson. I have just passed the state examination to be a real estate broker, which means I can now work on my own. I plan to leave the company I work for and open my own office. What type of business organization should I choose?
Sole proprietorship
Market structure
the extent to which competition prevails in particular markets
Perfect competition
market situation in which there are numerous buyers and sellers, and no single buyer or seller can affect price
Monopoly
market situation in which a single supplier makes up an entire industry for a good or service with no close substitutes
Barriers to entry
obstacles to competition that prevent others from entering a market
Oligopoly
market situation in which industry dominated by a few suppliers who exercise some control over price
Product differentiation
manufacturers’ use of minor differences in quality and features to try to differentiate between similar goods and services
Monopolistic competition
maker situation in which a large number of sellers offer similar but slightly different products and in which each has some control over price
Which is not a condition in pure competition?
No substitutes
Which is not a condition in a monopoly?
a) Complete control of market price
b) Geographic monopoly
c) No substitutes
d) Single seller
Geographic monopoly
Obstacles to competition that prevent others from entering a market are known as
Barriers to entry
Which is not a type of monopoly? Geographic monopoly Government monopoly Technological monopoly Competition monopoly
Competition monopoly
Which is not a condition in an oligopoly? Non-price competition Substitutions Barriers to entry Interdependence
Substitutions
Which is not a condition of monopolistic competition? Numerous sellers Some control over price Differentiated products Government regulations
Government regulations
The extent to which competition prevails in particular markets is known as Perfect competition Free enterprise system Market structure Monopoly
Market structure
Manufacturers’ use of minor differences in quality and features to try to differentiate between similar goods and services is known as Product differentiation Oligopoly Perfect competition Command economy
Product differentiation
Market situation in which a single supplier makes up an entire industry for a good or service with no close substitutes is
monopoly
Market situation in which industry dominated by a few suppliers who exercise some control over price is
Oligopoly
