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Senior Year > Economics - Trimester 1 Final > Flashcards

Economics - Trimester 1 Final Flashcards

0
Q

How are production possibility frontiers produced? (3)

A
  1. Calculate the maximum possible production of good 1; plot on y-axis
  2. Calculate the maximum possible production of good 2; plot on x-axis
  3. Draw a line connecting the two points
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1
Q

What are the four principals of economics? (4)

A
  1. Every decision has a cost
    - money, time, opportunity
  2. Humans face Trade-offs
    - type of decision where more of something necessarily means less of something else
  3. Humans respond to Incentives
    - humans make decisions by comparing benefits to costs (if benefits>costs = they’re motivated
  4. Humans make decisions at the margins
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2
Q

Define opportunity cost

How is opportunity cost calculated? (2)

A

The most highly valued opportunity or alternative forfeited when a choice is made

Calculate by finding total like normal math problem

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3
Q

Production possibilities frontier (PPF)

A

Graphic representation of all possible combination of two goods that an economy can produce

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4
Q

What are the 3 types of resources or factors of production? (4)

A

a. k.a. Inputs
1. Land - natural resources (ex. Water, minerals, animals, forests)
2. Labor - physical and mental talents that ppl contribute to the production of goods an services (ex. weatherman telling us the weather on TV)
3. Capital - produced goods that can be used as resources for further production (ex. Machinery, tools, computers, etc.)

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5
Q

Goods

A

Anything that satisfies a persons wants or brings satisfaction; also tangible products

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6
Q

Services

A

Tasks that people pay others to perform for them

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7
Q

Types of goods and services? (2)

A

Intangible / tangible goods

Services - intangible

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8
Q

What are the three allocation questions that all economic systems answer? (3)

A
  1. What to produce?
  2. How to produce?
  3. For whom to produce?
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9
Q

Define (Economic) risk

High risk trade-off

Low-risk trade-off (3)

A

Risk = the likelihood of an investment producing losses

High risk: more risk = losses are more likely; but, more risk = higher profits

Low risk: less risk = losses are less likely; but, less risk = smaller profits

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10
Q

Time-horizon (3)

A

Length of time

Owning a stock for a greater time-horizon = lower risk

Owning a stock for a smaller time-horizon = higher risk

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11
Q

Buying on the margin

A

Borrowing money to buy stock

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12
Q

Difference between private and public good? (2)

A

Private good - a good of which one person’s consumption takes away from another person’s consumption

Public good - a good of which one person’s consumption does not take away from another person’s consumption

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13
Q

Type of public goods (2)

A

Excludable public goods - a public good that individuals can be excluded from consuming (ex. concert ticket - takes away from someone else getting it)

Non-excludable public goods - a public good that individuals cannot be excluded from consuming (physically)

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14
Q

Characteristics of traditional market

Give example(s)

A

An economic system in which the allocation questions are answered based on customs, beliefs, religion, and habits

Ex. Amish communities, isolated African/Asian communities, aboriginal communities

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15
Q

Characteristics of a market economy? (5)

Example(s)

A
  • businesses decide questions of allocation
  • owns private property
  • individual freedom
  • individuals vote
  • free enterprise

Ex. The U.S., Japan, Germany

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16
Q

Characteristics of a command economy? (5)

Example(s)

A
  • state decides questions of allocation
  • state owns all property (public property)
  • characterized by high levels of equality among individuals
  • few or one individual makes a centralized decision by his decree
  • socialism

Ex. North Korea, Cuba, China

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17
Q

Free enterprise

Example

A

An economic system in which individuals (not government) own most, if not all, the resources and control their use; government plays small part in economy

Ex. Market economy

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18
Q

Socialism

Example

A

An economic system in which government controls and may own many of the resources

Ex. Command economy

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19
Q

Adam smith (6)

A

Free enterprise

Capitalism

Most ethical economic system

Ideas-

  • risks benefits society
  • division of labor = greater productivity and health

Major works-
- the wealth of nations

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20
Q

Karl Marx (5)

A

Socialism

Communism

Ideas-

  • all value in produced goods comes from labor (labor theory of value)
  • capitalists exploit laborers (surplus value)

Major work- Das Kapital

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21
Q

Labor theory of value

A

Theory that all value in produced goods is derived from labor

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22
Q

Surplus value

A

The difference between the total value of production and subsistent wages paid to workers

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23
Q

Why won’t a private company produce non-excludable public goods?

A

Because once a nonexcludable public good is produced, no one will pay for it, because people won’t wanna pay for something they cannot be excluded from consuming

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24
Q

How does a circular flow diagram represent a free market economy? (5)

A

3 stakeholders:
1. Households- SELL factors of production, BUY goods and services

  1. Firms- SELL goods, BUY factor of production
  2. Government- collect taxes, make transfers, & demand goods & services

Two markets:

  1. Resource market- factors of production are exchanged for money
    - land, labor, and capital
  2. Products market- goods/services are exchanged for money
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25
Q

Law of demand

A

If Price⬆️; Quantity demanded⬆️

P = price of the good
Qd = quantity demanded of the good
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26
Q

Demand

A

Willingness and ability of buyers to purchase different quantities of a good at different prices during a specific time period

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27
Q

Quantity demanded (2)

A

Number of units of a good purchased at a specific price

When price of the good changes, quantity demanded will also change and a new point will be added to the demand curve

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28
Q

Law of diminishing marginal utility

A

Law states that as a person consumes additional units of a good, eventually the utility gained from each additional unit of the good decreases

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29
Q

What happens to the demand when circumstances other than price change? (2)

A

Economists say that demand changes

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30
Q

Determinants of demand (5)

A
  1. Consumer preferences-
    - consumer pref.⬆️; demand⬆️
  2. Consumers’ income-
    - normal goods –> income⬆️; demand⬆️
    - inferior goods –> income⬆️; demand⬇️
  3. Price of related goods
    - complementary goods –> price⬆️; demand⬇️
    - substitute goods –> price⬆️; demand⬆️
  4. Market size, or # of consumers
    - market size⬆️; demand⬆️
  5. Consumers’ expectation of future price
    - consumers’ expectation of price⬆️; demand in the present⬆️
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31
Q

Elasticity of demand

A

The degree to which a price change affects the quantity demanded

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32
Q

Inelastic goods (4)

A

Necessity, goods w/o a substitute, goods that cost a small portion of consumers’ income, small time-horizon

Quantity demanded is not sensitive to a change in price

A large change in price = small change in quantity demanded

Result is a demand curve that is steep or nearly vertical

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33
Q

Elastic goods (4)

A

Luxuries, many substitutes, costs a large portion of consumers’ income, large time-horizon

Quantity demanded is sensitive to change in price

Small change in price = large change in quantity demanded

Result is a demand curve that is shallow or nearly horizontal

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34
Q

Inferior good

A

Income⬆️; demand⬇️

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35
Q

Normal good

A

Income⬆️; demand⬆️

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36
Q

Substitute (2)

A

A similar good

Price⬆️; demand⬆️

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37
Q

Complement (2)

A

A good that is consumed jointly with another good

Price⬆️; Demand⬇️

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38
Q

How to calculate price elasticity (elasticity of demand)? (2)

A

inelastic goods:
- price⬆️; TR⬆️

Elastic goods:
- price⬆️; TR⬇️

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39
Q

Law of supply

A

If Price⬆️; Quantity supplied⬆️

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40
Q

Quantity supplied (2)

A

Number of units of a good produced and offered for sale at specific price

When price of a good changes, quantity supplied will also change and a new point is added

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41
Q

Supply

A

The willingness and ability of sellers to produce and offer to sell different quantities of a good at different prices during a specific time period

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42
Q

How to find Total revenue

A

TR = price x quantity

43
Q

Incentives for consumers and producers (2)

A

Consumers - low prices

Producers - high prices

44
Q

What happens to quantity supplied and supply when circumstances other than prices change?

A

Economists say that the supply has changed

45
Q

Determinants of supply (6)

A
  1. Price of resources (land, labor, capital)
    - price⬆️; supply⬇️
  2. Government tools:
    - regulations: regulations⬆️; supply⬇️
    - taxes: taxes⬆️; supply⬇️
    - subsidies: subsidies⬆️; supply⬆️
  3. Price of producers’ options
    - price of option⬆️; supply⬇️
  4. Competition
    - competition⬆️; supply⬆️
  5. Producers expectations of future profits
    - expectations of profits⬆️; supply in present⬆️
  6. Technology
    - technology⬆️; supply⬆️
46
Q

Equilibrium (3)

A

Demand = supply

Quantity demanded = quantity supplied

When producers and consumers agree on price and quantity

47
Q

Equilibrium price

Equilibrium quantity (2)

A

Equilibrium price - the price at which a good is bought and sold in a market that is in equilibrium

Equilibrium quantity - the quantity of a good that is bought and sold in a market that is in equilibrium

48
Q

Surplus

A

Qs > Qd

Only occur at prices ABOVE equilibrium price

49
Q

Shortage (2)

A

Qd>Qs

Only occurs at prices BELOW equilibrium price

50
Q

Price ceiling

A

Legislated price-set lower than equilibrium price - above which buyers and sellers cannot legally buy and sell a good

51
Q

Price floor

A

A legislated price - set above the equilibrium price - below which buyers and sellers cannot legally buy and sell a good

52
Q

Why do price controls create surpluses and shortages? (2)

A

Ceiling price = shortage

Floor price = surplus

53
Q

Demand ⬆️

A

equilibrium quantity ⬆️

equilibrium price ⬆️

54
Q

Demand ⬇️

A

Qe⬇️

Pe⬇️

55
Q

Supply ⬆️

A

Qe ⬆️

Pe ⬇️

56
Q

Supply ⬇️

A

Qe⬇️

Pe⬆️

57
Q

Demand⬆️ and supply ⬆️

A

Qe⬆️

In determinant Pe

Compass method - East

58
Q

Demand⬇️ and supply⬇️

A

Qe⬇️

Indeterminate equilibrium price

Compass method: west

59
Q

Demand⬆️ and supply⬇️

A

Indeterminate equilibrium quantity

P⬆️

Compass method: north

60
Q

Demand⬇️ and supply⬆️

A

Indeterminate equilibrium quantity

Pe⬇️

Compass method: south

61
Q

Business firm

A

An organization that uses resources to produce goods and services that are sold to consumers, other firms, or the government

62
Q

Law of diminishing marginal productivity

A

If a factor of production is added to another factor of production in fixed supply eventually total output will peak and thereafter decrease

63
Q

4 types of business ownerships? (4)

A
  1. Sole proprietorships
  2. franchise
  3. Partnership
  4. Corporation
64
Q

Sole proprietorship

Advantages (2)

Disadvantages (3)

(6)

A

One person or family owns the business

Advantages:

  • all profits belong to one person
  • complete control of enterprise

Disadvantages:

  • unlimited liability (responsible for all debts)
  • limited ability to raise funds for business expansion
  • sole proprietorships usually end with retirement or death of proprietor
65
Q

Partnership

Advantages (2)

Disadvantages (2)

A

Business owned by two or more partners (co-owners)

Advantages:

  • specialization (one person works on a job that they are good at and the other person does the same – increases chances of success)
  • profit of partnership = income of the partners (only income taxes need to be payed)

Disadvantages:

  • 2 types of partners
    • general: partners who are responsible for the management of the firm; they face unlimited liability, too t usually get involved in management of firm or contracts
  • potentially difficult decision-making process
66
Q

Corporation (3)

Advantages (3)

Disadvantages (4)

A

A legal entity that can conduct business in its own name in the same way that an individual does

Owned by its stockholders (ppl who own shares of stock in the corp)

Assets: anything of value to which the firm has a legal claim

Advantages:

  • limited liability (owner of business firm can lose only the amount he/she has invested (in the firm))
  • perpetual existence (they live forever)
  • can raise money by selling stocks

Disadvantages:

  • double taxation (corporate income tax and personal income tax)
  • dividends=shares of the corp’s. profits distributed to stockholders
  • more complicated to set up and organize
  • “corporate citizenship”
67
Q

Board of directors (2)

A

Decision making body in a corporation

Decides corporate policies and goals

68
Q

Bonds

A

Debt

69
Q

Franchise

Advantage

Disadvantage

A

A contract by which a firm (usually a corporation) lets a person or group use its name and sell its goods in exchange for certain payments and requirements

Advantages:
- ready made product/business

Disadvantages:
- profits and decision making shared with the corporation

70
Q

Stocks

A

Dividends

71
Q

How do businesses decide where to locate?

A

Similar firms have an incentive to locate near each other due to the competition for customers

72
Q

Nader vs Friedman view (2)

A

Nader:

  • Ralph Nader believes businesses have ethical and social responsibilities
    • no asymmetrical info
    • encourage to make sure they get exactly what they want
    • treat employees well
    • consider “quality of life” issues
    • donate funds to meet social needs in community

Friedman:
- Milton Friedman believes that the only responsibility of a business is to use its resources and engage in activities designed to increase its profits (free competition w/o deception or fraud)

73
Q

4 types of market structures (4)

A
  1. Perfect competition
  2. Monopolistic competition
  3. Oligopoly
  4. Monopoly
74
Q

Perfect competition:

Characteristics (4)

Issues (1)

Examples (3-4)

A

Characteristics:

  • many buyers/sellers
  • sells identical products
  • no asymmetrical info
  • no barriers to enter/exit market

Issues:
- sellers=price takers
*a seller that can sell all its output at equilibrium price but can sell no other
output at any other price

Ex. Agriculture products; stocks or bonds; gas

75
Q

Monopolistic competition

Characteristics (3)

Issues (1)

Examples (2)

A

Characteristics:

  • many buyers and sellers
  • different or unique products
  • few barriers to enter/exit market

Issues:

  • sellers are price makers
    • seller that can sell some of its output at various prices

Ex. Athletic shoes (NIKE, Adidas, Reebok); fast food (mcds, BK, Wendy’s)
- sellers use advertising to differentiate products

76
Q

Oligopoly

Characteristics (3)

Issues (3)

Examples (3)

A

Characteristics:

  • few sellers
  • identical or similar products
  • many barriers

Issues:

  • sellers may try to collude (conspire to fix prices)
  • if seller collides, they can act as a cartel (group w/ monopoly power)
  • cartels don’t last long due to large temptation to cheat

Examples: OPEC (Saudi Arabia,Ilya, Venezuela), airline industry (American, United, delta), broadcast TV (CBS, NBC, ABC, FOX)

77
Q

Monopoly

Characteristics (3)

Issues (2)

Types of monopolies (2)

Examples (3)

A

Characteristics:

  • one seller
  • no subs
  • many barriers

Issues:

  • price makers; they choose price
  • Sherman antitrust act (outlawed monopolies in the u.s. In 1890)

Types of monopolies:

  • government monopoly
    • ex. Rogaine
  • natural monopoly
    • Alcoa, AT&T
78
Q

Government monopoly (3)

A

Government sanctioned monopolies

  • patent: form of intellectual property granted to an inventor
  • copyright: form of intellectual property granted to an author or artist
79
Q

Natural monopolies (2)

A

A business that can produce at an unusually low cost

  • many have exclusive ownership of a resource
80
Q

Flat money (3)

Why do most modern economies use flat money?

A

Money that has extrinsic value
- Flat money has value by authoritative decree

It’s most used because it durable, portable, and divisible

81
Q

Bank panic “bank run”

A

Occurs when too many depositors simultaneously try to withdraw their deposits from a bank, which depletes the banks’ reserves

82
Q

Federal reserve system structure? (3)

A

Structure: decentralized central bank

  • 12 district banks
  • board of governors of the federal reserve systems: the governing body of the Fed.
83
Q

Why was the Fed created? (2)

A

Result of the panic of 1907

- didn’t have strategy for circulating $

84
Q

Responsibilities of Fed? (3 w/ bullets)

A
  • Regulate banks to ensure they follow federal laws
    • reserve requirement: regulation that requires a bank to keep a certain percentage of its deposits in its reserve account with the Fed or the vault
  • a bank for banks
    • holds required reserves of all banks
    • lender of last resort
  • conducts monetary policy by controlling the money supply
    • Fed is SOLELY responsible for monetary policy
    • monetary policy: how much currency should be here in the economy?
85
Q

How can the Fed change the money supply ?

A
  1. The reserve ratio
    - reserve ratio⬆️; money supply⬇️
  2. The discount rate (interest rate for banks charged by Fed)
    - discount rate⬆️; money supply⬇️
  3. Open market operations (buying/selling of Federal securities–> treasury bonds)
    - FED sells securities/treasury bonds; money supply ⬇️
    - FED buys securities/treasury bonds; money supply ⬆️
86
Q

What does GDP measure? (Or nominal GDP)

A

Value of all final goods and services produced in a country

87
Q

BRIC countries (5)

Why are thy important?

A
  1. Brazil
  2. Russia
  3. India
  4. China

Countries with rapidly increasing GDP

88
Q

Components of GDP (4)

A
  1. Consumption (C)
    - household purchases in product market
    - NO new housing
  2. Investment (I)
    - anything firms purchase in resource market
    - military spending, road construction
    - NOT social security or welfare
  3. Net exports (NX)
    - Exports-imports
    - exports: products made in US; sold to other countries
    - imports: products made in foreign countries; sold in U.S.
89
Q

What does real GDP measure ?

How do you calculate it? (4)

A

Compares output from year to year

Real GDP - GDP that has been adjusted for price changes
- measured in base years

Real GDP = base yr price x current year quantity

90
Q

Inflation (4)

A

An increase in prices on average, or an increase in price level

  • Decreases purchasing power
  • doesn’t all prices increase
  • % of change in the CPI
91
Q

Purchasing power

A

The quantity of good money buys

92
Q

How is inflation measured?

A

Inflation rate = [(CPI later y - CPI earlier yr) / CPI earlier yr] •100%

93
Q

Sources of inflation (3)

A

Demand side inflation

Supply side inflation

The federal reserve

94
Q

Demand-side inflation (3)

A

⬆️demand = ⬆️inflation

⬆️demand for all goods = inflation

Growing population = inflation

95
Q

Supply side inflation (3)

A

⬇️supply = ⬆️price

⬇️supply for all goods = inflation

Supply shock- unforeseen disruption in supply; causes inflation

96
Q

How is the federal reserve a source of inflation? (3)

A

⬆️population = ⬆️need for more $

⬆️money supply more than needed = inflation

Hyperinflation - only occurs when money supply increases very rapidly

97
Q

How does inflation affect individuals on fixed incomes? (2)

A

Incomes don’t change, but cost of goods ⬆️

Includes senior citizens and/or retirees

98
Q

How does inflation affect savers? (4)

A

Earned interest = ⬆️purchasing power of $

⬆️inflation = ⬇️️purchasing power of $

Interest rate > inflation rate; purchasing power ⬆️

Interest rate < inflation rate; purchasing power ⬇️

99
Q

How does inflation affect borrowers? (2)

A

Incomes eventually ⬇️ with inflation

Debts become easier to repay with inflation

100
Q

Phases of the business cycle (5)

A
  1. Peak - GDP at temp. high
  2. Contraction - when GDP ⬇️ (recession = Real GDP fails for 2 consecutive quarters)
  3. Trough - low point in real GDP
  4. Recovery - when real GDP is rising; begins at the trough)
  5. Expansion - refers to ⬆️ in real GDP after recovery
101
Q

Consumer price index (3)

A

Measure of price level based on a ‘basket’ of goods

Basket mainly contains household goods

Most expensive good in basket = housing

102
Q

Calculate CPI

A

CPI = (basket current yr value) ÷ (basket base yr value) x 100

103
Q

How to find out how much something would cost today?

A

Yr 1 price x (CPI yr 2 / CPI yr 1) = Equivalent Yr 2 price

104
Q

What GDP omits? (5)

A
  1. Illegal goods and services
  2. Legal goods w/ no record of transaction (ex. Mowing neighbors lawn)
  3. Used goods
  4. Stocks and bonds
  5. Gov. Transfer payments (social security and welfare payments = entitlements)

Senior Year (31 decks)

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