Economics: Semester Exam Review Flashcards
What is economics?
Study of how we make choices using scarce resources to satisfy unlimited wants
What is the fundamental economic problem?
Scarcity
What are the 4 factors of production?
- Land
- Labor
- Capital
- Entrepreneuship
What is the difference between needs and wants?
Need - must have to survive
Want - Something desired
What is the difference between a good and service?
Goods are tangible (touchable) items
Service is work performed for someone else
What is scarcity?
There’s only a finite amount of resources - not enough resources to satisfy human wants
What is opportunity cost? List some examples.
- The most desirable alternative given up when you make a decision.
Ex: John studies all night, so the next day he is tired. Opportunity cost = a good night’s sleep
What is a production possibilities curve (PPC)? KNOW HOW TO READ
A graph showing 2 different goods you can produce when using resources.
- Straight line is constant cost
- Bowed out is decreasing
- Concaved is increasing
What is the importance of efficiency? What is underutilization?
Efficiency is an idea within the PPC, where the condition resources are being used to produce the maximum amount of goods and services.
Underutilization is when resources are not being used to their full potential
Explain the Guns and Butter scenario.
A nation chooses between 2 options - either guns (defense/military) or butter (consumer goods) or a combination
What is the significance of Adam Smith?
- Father of economics
- 1776 - wrote “Wealth of Nations”
Explain TINSTAFFL.
“There is no such thing as a free lunch”
- Goods and services must be paid by someone - don’t get something for nothing
What are the three basic economic questions?
- What will be produced?
- How will it be produced?
- Who will get what is produced?
What is a circular flow diagram? KNOW HOW TO READ
A visual that shows how we exchange money, resources (LLCE) and products in 2 types of markets
What is the difference between a factor market and a product market?
Factor - Make our money (sell resources)
Product - spend our money (buy goods and services)
What are the 4 types of economic systems?
- Traditional
- Market
- Command
- Mixed
What is an economic system?
A system to determine how resources will be used to provide for the wants and needs of people because of scarcity
What are the advantages of a traditional economy? (Hint: there are 6)
- family/tribe based economy
- simple/constant way things are done
- works with natural environment
- tradition determines who gets what
- sharing/support
- bartering (trading) heavily
What are the disadvantages of a traditional economy? (Hint: there are 5)
- isolation
- overwhelmed with outside economies
- unpredictability creates uncertainties with survival (natural disasters)
- economic stagnation (no economic growth) from lack of progress
- lower quality of life
What are the advantages of a command economy? (Hint: there are 4)
- industrial power boosted
- citizens get free healthcare, edu., etc.
- low unemployment
- equal income; no extreme poor people
What are the disadvantages of a command economy? (Hint: there are 9)
- corrupt leaders
- restricted freedom
- societal needs ignored
- limited to propaganda
- cut off from world
- production of low quality goods
- takes a large government
- no competitions offered
- unbalanced amounts of goods
What are the advantages of a market economy? (Hint: there are 6)
- high degree of individual freedom
- adjust change overtime
- small degree of government interference
- decentralized decision making
- large variety of goods and services
- private ownership of resources
What are the disadvantages of a market economy? (Hint: there are 3)
- does NOT provide for everyone
- may NOT provide enough basic goods/services
- high degree of uncertainty
What is a traditional economy?
Economy where decisions are made based on customs and habits found in rural non-developed countries
What is a command economy?
All decisions made by government - centrally planned - decisions made for you NOT by you Ex: Cuba, North Korea, China
What is a market economy?
System where laws of supply and demand direct production of goods and services; buyer and sellers determine goods and services
What is a mixed economy?
Combines elements of all 3 systems
Japan (in terms of economy)
- What economy are they considered?
- What has contributed to their success?
Never communism - has always been a SUCCESSFUL CAPITALISTIC MARKET ECONOMY
- tech. advancement
- industrial robots
- cars
South Korea (in terms of economy)
- What is their history?
- What has contributed to their success on the global economy?
In the aftermath of the Korean War, South K’s economy was destroyed and considered the poorest country in Asia
- Leading producer in automobiles (Kia and Hyundai)
- skilled production and exports
- world trade in textiles
PERFECT EX. of economic change
Russia:
- What type of economy/gov. do they have?
- When did communism begin? How long? When did it fall?
- How many five-year plans?
- Who is Mikhali Gorbachev?
- Who is now leader?
- A federal democratic state (on paper, but in practice, a dictatorship)
- 1912-1991; lasted 79 years
- Had 13 five year plans
- 8th and final leader of USSR and introduced Perestroika (restructuring Soviet Union)
- Vladimir Putin
What is a five-year plan?
Series of nationwide centralized economic plans designed to achieve rapid industrialization
China:
- When did they become communists? Under whose lead?
- What was Great Leap Forward?
- What type of economy/gov. do they have?
- 1949 under Mao Zedong
- GLF - economic plan designed to transform China’s agrarian culture towards an industrialized one
- Regarded as 1-party communist dictatorship in which communist party has a monopoly on power - transformed into socialist market economy
What are 4 reasons nations trade?
- unequal distribution of resources
- different levels of tech.
- lack of raw materials
- specialization
What is absolute advantage?
ability to produce more of a good using same resources
What is comparative advantage?
Ability to produce a good at a lower opportunity cost than another
What is the difference between a trade deficit and trade surplus?
Deficit - (negative balance) (also called trade gap) consists of a country importing more than it exports
Surplus - (positive balance) consists of exporting more than is imported
What are the barriers of trade?
- tariffs - tax
- quotas - limit
- embargo - prohibit movement
- inspections
- licenses
- health concern
- nationalism and culture
What is the Smoot-Harley Tariff Act of 1930?
- Goal was to protect American farmers against agricultural imports
- Raised prices 50% (highest protective tariff)
- Increases U.S tariffs on agricultural imports
What are imports?
Goods coming in
What are exports?
Goods coming out
What is the difference between fixed exchange rate and flexible exchange rate?
Fixed - currency system in which price does not change
Flexible (floating) - currency system that allows exchange rate to be determined by market (changes)
What are the advantages of sole proprietorship? (Hint: There are 6)
- Easy to start
- Ease of management (full control)
- ONLY receiver of profit
- No separate business income tax
- Psychological satisfaction
- Easy to end
What are the disadvantages of a sole proprietorship? (Hint: there are 6)
- Unlimited liability - fully responsible for ALL losses and debts
- Hard to raise financial capital
- Being small
- Limited managerial experience
- Hard to get qualified employees
- limited life
What are the advantages of a partnership? (Hint: there are 5)
- Easy to start
- Easy to manage
- Lack of separate taxes
- Attract money
- Potential for growth
What are the disadvantages of a partnership? (Hint: there are 3)
- Unlimited liability
- Limited life
- Potential for conflict
What are the advantages of a corporation? (Hint: there are 5)
- Ability to attract capital (potential growth)
- Limited liability for owners
- Hire professional managers/experts
- Unlimited (long) life
- Ease of transferring ownership
What are the disadvantages of a corporation? (Hint: there are 4)
- Double taxation
- Difficult, expensive, time consuming, hard to get a charter
- Little voice (loss of control)
- More regulations by gov. (Watched by government)
What is the difference between a horizontal and vertical merger?
Horizontal - Involves 2 firms operating and competing in the same kind of business activity (ex: Merger of Exxon and Mobil)
Vertical - Merger between 2 companies producing different goods/services (ex: Pixar-Disney Merger)
What is a multinational corporation (MNC)?
International corporations whose business activities are spread among 2+ countries
What is a franchise? Who started it?
Renting/leasing another firm’s successful business model
- Issac Singer started franchises
What is the difference between a franchisor and franchisee?
Franchisor - Actual owner of business that let owners rent/lease
Franchisee - investor who rents/leases business model from franchisor
What are the advantages of franchises? (Hint: there are 4)
- Respected product, excellent quality, standards
- National advertising program
- Management training and support
- Centralized buying power- bulk buying
What are the disadvantages of franchises? (Hint: there are 5)
- Sacrifices some freedom
- High fees and royalties
- Strict operating standards
- Purchasing restrictions
- Limited product line
What are the 3 types of cooperatives?
- Consumer - retail outlet owned and operated by consumers
- Service - provide service rather than goods
- Producer - help members sell their products
What was the Great Depression? How long did it last?
Was the worst economic downturn. Lasted 10 years (1929-1939)
What is Black Tuesday? When was it?
Stock Market Crash
- October 29, 1929
What year was the lowest point during the Great Depression?
1933 - Unemployment rose 800%
Who was president in the beginning of the Great Depression?
Herbert Hoover
Who was president for the remaining of the Great Depression?
Franklin D. Roosevelt
What is the Labor Force? Who is NOT considered for the Labor Force?
Those who have jobs or seeking a job, are at least 16 years old, no serving in the military, and are not institutionalized.
NOT INCLUDED - military personnel – prison – handicapped/mental health facilities – rest homes – retirees – at home not looking (discouraged workers)
What is full employment?
Unemployment is 3-6% due to only frictional and structural unemployment, not cyclical
What does underemployed mean?
Workers who are very overqualified at their job
What is a discouraged worker?
Considered the long-term unemployed - those who have given up on finding a job
What are the 3 types of inflation?
Creeping - rise 3% or less
Galloping - rise 10% or more
Hyperinflation - rises 50% per month
What are the 5 types of unemployment?
- Frictional - Occurs when people change jobs
- Structural - Occurs when workers’ skills do not match available jobs
- Technological - When people are replaces by technological advancements
- Seasonal - Occurs when jobs slow down or pick up with seasonal changes
- Cyclical - Occurs with the changes in the business cycle
What is the Gross Domestic Product (GDP)?
The total market value of all FINAL goods and services produced within a country’s borders in 1 year
What is not included in GDP?
- Intermediate goods
- Secondhand Sales
- Nonmarket transaction
- Underground economy
What are the 4 sectors of the GDP?
- Household (Largest sector)
- Business/Investor
- Government
- Net Foreign
What is the difference between urban and rural population?
Urban - 2500 or more
Rural - 2500 or less
What are baby boomers?
Those born during high birthrate years
- 1946-1964
What is fertility rate?
Rate at which the number of births in a population offsets U.S rate; barely above replacement population rate
What is life expectancy?
Average remaining life span of a person who’s reached a given age
What is net immgration?
Overall change in population caused by people moving in and out of the country
What are some causes of poverty/income inequality?
- Education
- Wealth
- Tax law changes
- Decline in unions
- More service jobs
- Advances in tech.
- Monopoly power
- Discrimination
- Changing family structure
What is the Lorenz Curve?
Graph representation of distribution of income or wealth
What are some efforts to help the poor?
Antipoverty programs
- Welfare
- TANF (Temporary Assistance for Needy Families)
- Medicaid
- Social Service Planning
- Earned Income Tax Credit (EITC)
- Enterprise zones
- Workfare programs
- Negative income tax
