Im so fucked Flashcards
What is economics?
Economics is the study of how people satisfy their needs and wants by making choices
How do economics define scarcity?
Scarcity occurs when there are limited quantities of resources to meet unlimited needs or desires
What are the three factors of production?
LAND: All natural resources that are used to produce goods and services
LABOR: Any effort a person devotes to a task in which that person is paid
CAPITAL: Any human made resource that is used to create other goods and services
ENTREPRENEURSHIP: Human element that combines the factors of production.
What is the difference between a shortage and scarcity?
A shortage can be temporary or long-term, but scarcity always exists.
Which of the following is an example of using physical capital to save time and
money?
building extra space in a factory to simplify production
What is a shortage?
Shortages occur when
producers will not or cannot
offer goods or services at
current prices
Two types of capital
Physical Capital: All human made goods that are used to produce other goods and services
Human Capital: The skills and knowledge gained by a worker through education and experience
Trade offs
Are all the alternative that we give up whenever we choose one course of action over others.
Opportunity cost
The most desirable alternative given up as a result of a decision
Guns vs Butter
The trade offs countries face of military goods vs consumer goods.
Thinking at the margin
When you decide how much more or less to do, you are
thinking at the margin.
Marginal utility
who would pay more for a glass, someone who just drank or someone who is thirsty?
Opportunity cost
the most desirable alternative given up as a result of a decision.
Economists use the phrase “guns or butter” to describe the fact that
A nation must decide whether to produce more or less military or consumer
goods.
A production possibilities graph shows
Alternative ways that an
economy can use its resources.
The production possibilities frontier is the line that shows
The maximum possible output for that economy.
Efficiency
using resources in such a way
as to maximize the
production of goods and
services. An economy
producing output levels
on the production
possibilities frontier is
operating efficiently.
Underutilization
using fewer resources than an
economy is capable of
using
2 ways to grow on the production possibilities graph
- If more resources
become available - If technology improves
then an economy can
increase its level of output
and grow. When this
happens, the entire
production possibilities
curve “shifts to the right.”
Law of increasing costs
States that as we
shift factors of
production from
making one
good or service
to another, the
cost of
producing the
second item
increases.
A production possibilities frontier shows
the maximum possible output of an economy
An economy that is using its resources to produce the maximum
number of goods and services is described as
efficient
The three economic questions
What goods and services should be produced?
How should these goods and services be produced?
Who consumes these goods and services?
How do societies answer the three economic questions
on their goals,
efficiency,freedom,security
and predictability,equity,growth
and innovation,Other goals
Economic Goals Achieved by a Free Market Economy
Efficiency, growth, freedom, additional goals
The goals of Economic
Equity and Economic
Security are hard to
achieve in a free market
economy T or F
T !
4 Types of Economic Systems
Traditional, Mixed, Market, Command
Why Do Markets Exist?
Markets exist because none of us produces
all the goods and services we require to satisfy our
needs and wants.
What is a market?
an arrangement
that allows buyers and sellers
to exchange goods and
services.
Specialization
is the concentration of the productive
efforts of individuals and firms on
a limited number of activities.
In a free market economy,
households and business firms
use markets to exchange money
and products.
The product market
The market in
which households purchase the
goods and services that firms
produce.
Factor Market
Market in which
firms purchase the factors of
production from households.
Self interest
Self-interest is the motivating force in the free
market.
competition
is the regulating force of the free market.
the invisible hand
The interaction of buyers and sellers, motivated by
self-interest and regulated by competition
Laissez faire
is the doctrine
that government generally
should not interfere in the
marketplace.
In a centrally planned economy
the government
owns both land and capital. The government
decides what to produce, how much to produce,
and how much to charge.
socialism
is a social and political
philosophy based on the belief that
democratic means should be used
to distribute wealth evenly
throughout a society.
communism
is a political system
characterized by a centrally planned
economy with all economic and
political power resting in the hands
of the government.
soviet agriculture
In the Soviet Union, the government created large state-owned
farms and collectives for most of the country’s agricultural
production.
soviet industry
Soviet planners favored heavy-industry production (such as
steel and machinery), over the production of consumer goods.
soviet consumers
Consumer goods in the Soviet Union were scarce and usually
of poor quality.
problems of a centrally planned economy
Centrally planned economies face problems of
poor-quality goods, shortages, and diminishing
production.
In a socialist economy, central planning is useless T or F?
T
Which of the following is an advantage of a centrally planned
economy?
the system can work quickly to accomplish specific goals
Gross domestic product
GDP includes any work or production that happens in your country. It does not matter who produces it. the important thing is where it is produced
Free enterprise
An economic system that permits the conduct of business with
minimal government intervention i
The United States economy is a mixed economy because it is
based on the principles of the free market, but allows some government
intervention.
Government intervention in a modern economy is useful because
governments are able to provide some goods and services that the
marketplace has no incentive to produce.
Seven key characteristics make up the basic
principles of free enterprise.
- Profit Motive
- Open opportunity
- Legal equality
- Private property rights
- Free contract
- Voluntary exchange
- Competition
Governments role for protecting citizens
Public disclosure laws, public interest
what is a patent
A patent gives the
inventor of a new
product the exclusive
right to produce and
sell it for 20 years.
what is a trademark
a symbol or words representing a company or product
What is a copyright
exclusive legal right to publish record and film anything the right is given to originator
The basic principles of free enterprise do include
(a) competition.
(b) legal equality.
(c) profit motive.
Americans generally favor
limited government intervention in the economy.
Macroeconomics
the study of the behavior and
decision making of entire economies.
Microeconomics
- the study of the economic
behavior and decision making of small units,
such as individuals, families, and businesses
Business cycle
is a period of a macroeconomic
expansion followed by a period of contraction.
How to measure a nations macro-economy
GDP gross domestic product
GDP is
the total value of all final goods and services produced in a particular economy
Promoting economic growth policymakers pursue three main outcomes as they seek
to stabilize the economy.
Low Unemployment
(measured by the unemployment rate)
Steady Growth
measured by increase/decrease in GDP)
Stable Prices
(measured by general price levels - CPI)
Public good
a shared good or service for which it
would be impractical to make consumers pay
individually and to exclude nonpayers.
Public goods are funded by the
public sector
Free rider
is someone who would not choose to
pay for a certain good or service, but who would get
the benefits of it anyway if it is provided as a public
good
Market Failure
a
situation in which the
market, on its own, does
not distribute resources
efficiently.
an externality
an economic side effect of a good or
service that effects other people, something that happens
Welfare
is a general term that refers to government aid to
the poor.
care for the
aid the
elderly
poor
What is the production possibilities frontier (PPF) and why do we use it? What causes the production
possibilities frontier to move to the right? (remember there is no “up or down” only “right or left”)
- it shows the maximum possible outcome of an economy, To maximize production
- more resources and technology
entrepreneur
someone who takes the risk in starting a business
Adam smith created the invisible hand
cost benefit analysis
systematic process for identifying and comparing expected benefits and cost of an investment or action
What is a safety net? What are some examples of programs that are considered safety nets?
What are factor payments?
Payments made to scarce resources or the factors of production in return for productive services
What are the differences in a traditional economy, a market economy, a mixed economy, and a command (or centrally planned) economy? Can you name examples of each?
What is a standard of living?
wealth comfort material good, necessities
who wrote the wealth of nations
adam smith
What are the 4 advantages of the free market?
what is an interest group
Why are private property rights important in a free enterprise system?
the law of demand states that
(d) consumers will buy more when a price decreases.
If the price of a good rises and income stays the same, what is the effect on
demand?
fewer goods are bought
(b) When two goods are complementary, increased demand for one will cause
increased demand for the other.
2
Which of the following does not cause a shift of an entire demand curve?
change in price
What does elasticity of demand measure
how much buyers will cut back or increase their demand when prices rise or
fall
What effect does the availability of many substitute goods have on the elasticity of
demand for a good?
demand is elastic
What is the law of supply?
(b) the higher the price, the larger the quantity supplied
What happens when the price of a good with an elastic supply goes down?
some producers will produce less and others will drop out of the market
What are diminishing marginal returns of labor?
additional workers increase total output but at a decreasing rate
How does a firm set its total output to maximize profit?
determine the largest gap between total revenue and total cost
- What affect does a rise in the cost of raw materials have on the cost of a good?
The good becomes more expensive to produce.
When government actions cause the supply of a good to increase, what happens to
the supply curve for that good?
(b) It shifts to the right.
Equilibrium in a market means which of the following?
the point at which quantity supplied and quantity demanded are the same
The government’s price floor on low wages is called the
(c) minimum wage
When a new equilibrium is reached after a fall in demand, the new equilibrium has a
lower market price and a lower quantity sold.
What happens when any market is in disequilibrium and prices are flexible?
market forces push toward equilibrium
What prompts efficient resource allocation in a well-functioning market system?
businesses working to earn a profit
How do price changes affect equilibrium?
Price changes serve as a tool for distributing goods and services.
Law of demand
The law of demand states that consumers buy more of a good when its price decreases and less when its price increases
Elasticity of demand
a measure of how consumers react to a change in price ( cut back or increase demand with prices).
elastic
demand for a good that it is very sensitive to its changes in price is elastic (steak)
inelastic
demand for a good that isn’t sensitive to change ( insulin )
Normal goods define and give examples
a good consumers demand more of when their income increase
inferior good define and give examples
a good consumers demand less of when their income increases
inferior good define and give examples
a good consumers demand less of when their income increases
ceteris paribus
latin phrase “ all other things held constant “
What causes a shift in the demand curve ( 5 factors
1.income
2. population
3. consumer expectations
4. advertising/consumer taste
5. change in price or complimentary or substitute goods
supply
law of supply
suppliers will offer more of a good at a high price
elasticity of supply
A measure of the way quantity supplied reacts to change in price
subsidy
a government payment that supports a business or market, subsidy cause the supply to increase
excise tax
is a tax on the production or sale of a good
marginal product of labor
its the change in output from hiring one additional unit of labor
equilibrium
the point at which the quantity demanded and quantity supplied meet
price ceiling
a maximum price that can be legally charged for a good
Price floor
the minimum price set by the government that must be paid for a good or service
What causes the supply curve to shift
- price of resources input costs
2 number of producers
3 technology
4 government regulations, taxes, subsidies - Expectations future
surplus
where quantity supplied is greater than quantity demanded
`
shortage
where quantity demanded is smaller than quantity supplied
Complete the Production Costs Chart below. The fixed costs are $36 per hour and the selling price of the shirts is $24 each.
What is the optimum (most profitable) level of production for this business?
What happens when a business adds employees to the same set of resources – (3
stages)
perfect competition conditions
many buyers and sellers participate
(b) identical products are offered
(d) buyers and sellers are well-informed about goods and services
How does a perfect market influence output?.
(a) Each firm adjusts its output so that it just covers all of its costs.
Monoply
A market dominated by a single seller
Price discrimination
division of costumers into groups based on how much they would pay for a good
The differences between perfect competition and monopolistic competition arise
because
in monopolistic competition competitive firms sell goods that are similar
enough to be substituted for one another.
Antitrust laws allow the U.S. government to
(a) regulate business practices
(b) stop firms from forming monopolies
(d) break up existing monopolies
The purpose of both deregulation and antitrust laws is to
promote competition
- Any establishment formed to carry on commercial enterprises is a
business organization
sole proprietorship are the most common form of business in the us? t or f
t
What advantage does a partnership have over a sole proprietorship?
The responsibility for the business is shared
How is a general partnership organized?
Each partner shares responsibility and liability
All of the following are advantages of incorporation
(a) the responsibility for the business is shared
(b) capital is easier to raise than in other business forms
(d) corporations have more potential for growth
A horizontal merger
combines two or more firms competing in the same market with the same good or service.
A business franchise
) is a semi-independent business tied to a parent company.
consumer cooperatives
are owned and operated by consumers.
consumer cooperatives
are owned and operated by consumers.
oliogopoly
market dominated by a few large profitable firms
Monoply
a market dominated by a single seller
monopolistic competition
Bond
May borrow money for expansion or other businesss neeeds
Perfect competition
a market structure in which a large number of firms produce the same product
What is the relationship between the four market structures when considering quantity of goods
What is the relationship between the four market structures when considering price
What is the relationship between the four market structures when considering number of firms
What is a patent
a license that gives the inventor of a new product the exclusive right to sell it for a certain period of time
what is a collusion
an agreement among members of an oligopoly to set pricesand production levels\
what is the relationship between 4 market structures when considering barriers to entry
What is a natural monopoly
a market that runs most effieciently when one large firmprocides all the output
what are economies of scale
start up costs high average cost fall each additional unit provided
what is a cartel, what market structure is it
An association by producers established to coordinate prices and production
horizontal merger
combine two or more firms competing in the same market with the same good or service
vertical merger
combine 2 or more firms involved in different stages of producing the same good or service
what is a mnc
they are large coorps headquarted in one country that have subsidies throughout the world
what are the different types of partnerships, what are the differences
understand the 4 main characteristics for the 4 types of market structure
conglomerate
a business combination merging more than 3 businesses that make unrelated products
what is the point at which businesses produce at make profit
what are commodities
anti trust laws
laws that encourage competition in the market place
assets
business organization
an establishment forced to carry on commercial enterprise
cooperative
sole proprietorship
a business owned and managed by a single individual
corportation
trade association
corporation
What is the purpose of deregulation and anti trust laws.
