Macroeconomics Study Guide Flashcards
What is the name of the book written by Adam Smith? What economic system was described in this book?
Wealth of Nations. Capitalism.
Describe how a command economy works
Communism. An economic system where property and business are owned by the government. The government makes choices about producing and pricing. The consumers have no choice.
Describe how a market economy works.
An economic system where businesses and property are privately owned. The price and amount of goods traded are based on supply and demand and has little government regulation.
What is an entrepreneur? Who are some examples of entrepreneurs?
The founder of a business. Someone who assumes the risk of organizing resources to produce goods and services. Someone who sees an opportunity to make money and takes it. Steve Jobs, Elon Musk, Bill Gates.
Under what circumstances can the government seize property through the use of eminent domain?
If it’s for public use (projects like roads or bridges)
Define “scarcity.”
Resources are always limited compared with the number and variety of wants people have.
What is the difference between producers and consumers?
Producers are the people who make goods. Consumers are people who buy goods and services.
Define “competition.”
When different businesses compete for consumers’ money such as Walmart v. Target or Microsoft v. Apple.
How can a business determine their profit?
A business can determine their profit by totaling the money left over after all expenses have been paid.
What is the market price?
The price at which buyers and sellers agree to trade. Demand and supply meet.
What is the role of the government in a market economy?
To protect property rights
What is the law of demand?
Buyers will demand more products when they can buy them at lower prices. They will purchase fewer products when they must purchase them at higher prices.
What is the law of supply?
Businesses will provide more products when they can sell them at higher prices. They will provide fewer products when they must sell those goods at lower prices
Define “income.”
The money received in payment for goods and services (rent, wages, interest).
Under what circumstances are Americans unable to purchase or sell any product of their choosing?
If it’s against the law or there are government limitations.
In general, why is the United States able to take advantage of a great deal of economic success?
There is an abundance of natural resources. Rights to private enterprise (non-government controlled businesses). People are free to make their own choices. The government is limited in its ability to interfere with the economy.
How do property rights differ between command and market economies?
In command economies (communism), all property is owned by the government. All property rights are confiscated. In market economies, property rights are a very important factor.
List and define the three ways in which businesses are owned in a market economy.
A sole proprietorship is a business owned by an individual. A partnership is owned by multiple people. A corporation is a business that is separate from the people who own it and legally acts as a single person.
What are the three types of resources necessary for producers to be successful?
Labor, land, and capital
What is the difference between human and physical capital? Why does the government invest in both types of capital?
Human Capital is the knowledge and skills a person uses to produce goods and services. Physical Capital is the human made goods used to produce other goods and services. The government invests in both types of capital to promote economic growth, stability, and fairness.
What are the possible effects of a government’s investment in human capital?
Human capital contributes to the output of businesses in America. Output= profit! Better-trained and more educated workers lead to more output per hour for each worker. As the United States moves toward a service oriented economy, human capital is increasingly important to economic growth.
What are the possible effects of a government’s investment in physical capital?
With more physical capital each worker can be more productive and efficient per hour of work. More physical capital will lead to more output, or economic growth. Many tools will produce goods faster and more efficiently than humans. Three main benefits: more time, more education that can be applied to other devices, more productivity.
What are the possible effects of a government’s investment in both physical and human capital?
Investing in human and physical capital also leads to higher wages. As workers increase output per hour, they become more valuable to their employers. Also employers will demand more workers, giving more people jobs, and increasing economic growth.
Why do corporations sell stocks?
Corporations sell stocks to make large amounts of money. These stocks are shares of the corporation, resulting in profit for the people who invest. The money earned from the stocks can then be transported into growing and supporting the corporation.
