ONLINE ECON Flashcards
What is Economics
The study of how people deal with scarcity.
Scarcity
Unlimited wants, limited resources.
Trade-Offs
All the options that are given up when a choice is made
Opportunity Cost
The next best option that is given up when a choice is made
Factors of Production
Land – natural resources
Labor – people and their skills
Capital – tools, machinery, factories
Entrepreneur – risk-taker that starts new businesses
Three Basic Questions of Economics
What to produce?
How to produce?
For whom to produce?
Division of Labor
Assigning workers small tasks
Specialization of Labor
Assigning each worker the task he is best at
What does a PPC show?
A PPC shows opportunity cost.
What shifts a PPC outward?
An increase or improvement in:
Technology
Labor
Capital
Taxes and gov’t regulations
Inputs
Resource used to make a good or service
Outputs
The good or the service
Economic System (aka an Economy)
Organized way to provide for the needs and wants of a society.
Three Major Economic Systems
Traditional – based on ritual/custom
Market – private citizens control the resources
Command – government controls the resources
Private Goods
Provided by businesses
Public Goods
Provided by the government
Capitalism (Market Economy)
Private ownership
Profit motive (people work for their own self-interest)
Competition among sellers
Little government regulation
Lots of freedom, growth, efficiency
Communism (Command Economy)
Government owns everything
No profit motive or incentive to work hard
Government has total control
Little freedom, growth, efficiency
High taxes
Consumer Sovereignty
Ultimately, consumers decide what will be made because each purchase is a “vote”
Adam Smith
Father of Capitalism; wrote about the invisible hand
Karl Marx
Father of Communism; wrote about the bourgeoisie (upper class) and the proletariat (lower class)
Mixed Economy
Any economy that has characteristics of more than one economic system
Three Types of Business Organization
Sole Proprietorship – owned by one person
Partnership – owned by more than one person
Corporation – legally separate from its owners
Four Types of Market Structure
(From most competitive to least competitive)
Perfect Competition
Monopolistic Competition
Oligopoly
Monopoly
Perfect competition
Lots of small sellers
Identical products (don’t advertise)
Each seller has no ability to affect price
Easy for a new company to enter the market
Monopolistic Competition
Lots of small sellers
Differentiated products (advertise)
Each seller has no ability to affect price
Easy for a new company to enter the market
Oligopoly
A few, very large sellers
Differentiated products (advertise)
Each seller can affect the price
Difficult for a new company to enter the marke
Monopoly
One seller
Doesn’t need to advertise
Controls the price
Nearly impossible for a new seller to enter the market
Limited Liability
Limited responsibility for the losses/debts of a business.
Unlimited Liability
Unlimited responsibility for the loses/debts of a business.
Limited Life
The business ceases to exist once the original owner dies/quits.
Unlimited Life
The business continues to exist even after the original owner dies/quits.
Law of Demand
As price goes up, quantity demanded goes down.
Quantity Demanded
The amount demanded at one price (a point on the curve)
Demand
The amount demanded at all prices (the curve itself).
What changes QD?
A change in the price of the product
What changes D?
Change in # of consumers
Change in consumer incomes.
Change in consumer t / p / e
Change in a substitute
Change in a complement
Quantity Supplied
The amount supplied at one price (point on the curve).
Supply
The amount supplied at all prices (the curve itself).
Law of Supply
As price goes up, QS goes up.
What changes QS?
A change in the price of the product.
What changes S?
Government regulations
Technology
Inputs – changes in resources
Number of Sellers
Surplus
Surplus – QS > QD (too much)
Shortage
Shortage – QS < QD (not enough)
Price Floor
Lowest legal price; goes above equilibrium and causes surplus (minimum wage)
Price Ceiling
Highest legal price; goes below equilibrium and causes shortage (rent control)
Post High school Options
College, Trade schools, Military, Apprenticeship, Job Market
Workplace skills
Work ethic, Punctuality, Time management, Teamwork, Communication skills, Good character
Paying for College
Loans, Grants, Scholarships, Savings, Work Study
FAFSA
Federal student aid, such as federal grants,work-study, and loans to help pay for college.
GAfurtures
Includes national college and scholarship search to explore different schools and alternative ways to pay for their education.
Generational Wealth
Assets passed by one generation of a family to another. Ex: stocks, bonds, real estate, family business
Effects of social media
Your personal social media can help or hurt your career.
Net Worth
Assets a person owns, minus the liabilities they owe.
Three Categories of Taxes
Proportional – as income goes up, % of tax stays the same (flat tax)
Progressive – as income goes up, % of tax goes up (income tax)
Regressive – as income goes up, % of tax goes down (sales tax)
What are the two FICA taxes?
Social Security and Medicare
Gross Pay
Gross Pay – pay before anything is taken out
Net Pay
Net Pay – pay after taxes and deductions are taken out
What type of tax is the Social Security tax? The Medicare tax?
Social security is a proportional tax up to the cap of $106,800; regressive after the cap.
Medicare is a proportional tax.
Why is Social Security collected? Medicare?
Social security is for living expenses during retirement.
Medicare is for healthcare during retirement.
Gross Domestic Product
All final goods / services
Made in a year
In a nation’s borders
Output Expenditure Model
GDP = C + I + G + (X – M)
Recession/ Contraction
Real GDP is decreasing (peak to trough)
Recovery/Expansion
Real GDP is increasing (trough to peak)
Inflation
General increase in prices; decreases purchasing power and devalues the dollar.
Definition of Unemployment
Someone looking for a job but cannot find one.
Three Types of Unemployment
Frictional – looking for first job or between jobs
Structural – one’s skills are not valuable to an employer
Cyclical – unemployment due to recession
What are the tools of Expansionary Fiscal Policy?
Decrease taxes
or
Increase government spending
What are the tools of Contractionary Fiscal Policy?
Increase taxes
or
Decrease government spending
Expansionary Fiscal Policy fixes what problem?
Unemployment
Contractionary Fiscal Policy fixes what problem?
Inflation
Expansionary Fiscal Policy causes what problem?
Inflation
Contractionary Fiscal Policy causes what problem?
Unemployment
Fiscal Policy causes which curve to shift?
Aggregate Demand
Stagflation
Real GDP goes down and price level goes up.
Three Functions of Money
Medium of Exchange
Measure of Value
Store of Value
Three Main Branches of the Fed
Board of Governors – heads the Fed
Federal Advisory Council – provides advice for the BOG
Federal Open Market Committee – decides monetary policy
Three Tools of Expansionary Monetary Policy
Expansionary Monetary Policy:
Decrease required reserves
Decrease discount rate
Buy bonds/securities
Three Tools of Contractionary Monetary Policy
Contractionary Monetary Policy:
Increase required reserves
Increase discount rate
Sell bonds/securities
Expansionary Monetary Policy fixes…
and causes…
Fixes unemployment but causes inflation.
Contractionary Monetary Policy fixes…
and causes…
Fixes inflation but causes unemployment.
Absolute Advantage
Absolute Advantage – can make more of a product or can produce the same amount using less resources
Comparative Advantage
Comparative Advantage – can produce at a lower opportunity cost
The Five Major Barriers to Trade
Protective tariff – tax on an import that causes the domestic consumer to switch to the domestic product
Revenue tariff – tax that does not make the domestic consumer switch to the domestic product
Quota – limit on the # of foreign goods allowed in the country.
Subsidy – the government helps the domestic producer pay for production.
Embargo – ban on trade with a particular country
Foreign Exchange
Foreign Exchange – purchasing foreign currency
Foreign Exchange Rate Equation
Cost of the item in the old currency
How much of the old currency it takes to buy 1 of the new
Appreciation
Appreciation – when a currency buys more of a foreign currency
Depreciation
Depreciation – when a currency buys less of a foreign currency
Trade Deficit
Trade Deficit: Exports < Imports
Trade Surplus
Trade Surplus: Exports > Imports
A strong dollar leads to a …
…trade deficit
A week dollar leads to a …
…trade surplus
Commercial Bank
Commercial Bank – for-profit bank
Credit Union
Credit Union – run like a bank but is nonprofit
Principal
The original amount of the loan or investment; it’s what you earn/pay interest on.
Simple Interest
Simple Interest – interest is earned/charged only on the principal
Compound Interest
Compound Interest – interest is earned/charged on the principal and on the interest previously earned/charged
Payday loans
Short term loan with high interest usually borrowing against your next paycheck. For people with bad credit, no bank account etc.
Title Pawn Loans
Secured loan using the title of your car.
How do we pay for things
Cash, credit, debit, pre-paid
Three Rules for Investing
Start early.
Buy and hold.
Diversify.
Six Types of Investment
(from least risky to most risky)
Least to Most Risky:
Savings Account
Certificate of Deposit
Bond – loan to the government or a corporation
Stocks
Mutual Funds – package of a variety of investments
Real Estate – the purchase of land / buildings
Five Major Types of Credit
Car Loans
Student Loans
Home Loans (Mortgages)
Personal Loans
Credit Cards
Six Major Types of Insurance
Health
Car
Life
Homeowner’s
Disability
Renter’s
Premium
Premium – regular payment to have insurance
Deductible
Deductible – what you must pay before the insurance company will pay (when the accident occurs)
Better Business Bureau
Handles complaints related to consumer purchases
Steps in Consumer Complaints
- Contact the business 2. Leave a review 3. Contact owner or corporate office 4. Contact BBB
5 Major Pieces of Consumer Protection Laws (know them)
Truth in Lending Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Equal Housing Act, Dodd-Frank Act
Phishing
Email ploy to “fish” for your information
Data breach
Can expose your sensitive information through several different means
Skimming
Steals your credit card information by adding a device to gas pumps or ATM machines.
Ponzi Schemes
Investment scams that offer very high returns with very little risk.
Pump and Dump
Types of speculative investments like stocks and cryptocurrency. GameStop and AMC
Advanced Fee Scheme
Contact you out of the blue with winnings, inheritance promising large sums of money for a fee.
Ways to protect yourself from Identity theft
Freeze your credit, regularly change passwords, monitor your credit report, use secure networks, shredding, etc.
