Quiz 5 Part 1 & 2

Question 1

What are the six basic Economic Systems?

Answer 1

Traditional, Command, Market, Mixed, Capitalism, Socialism

Question 2

Traditional System

Answer 2

Customs determine production and distribution. Generally slow to change. Not good at sustained growth for a society. Found in poorer countries. EX: Aboriginal Societies

Question 3

Command System

Answer 3

Central authority makes majority of decisions; may be a dictator or a democratically constituted government. EX; Venezuela

Question 4

Market System

Answer 4

In a pure market system there is no central authority and customs play a very small roll. Heavy competition in every market. Each consumer makes purchasing decisions based on their own needs, desires, and income. Each producer decides what to produce, what price to charge, resources to use. (motivated by profit)

Question 5

Mixed System

Answer 5

Contain elements from the traditional, command, and market systems. All real WORLD economies are mixed. EX: U.S.-Market system with some Command mixed in. SOVIET- Command system with some Market

Question 6

Capitalism

Answer 6

Productive resources are owned by private individuals

Question 7

Socialism

Answer 7

Productive resources are owned collectively by society or under control of government

Question 8

What is a conglomerate?

Answer 8

a business firm that competes in two or more unrelated industries

Question 9

Define Multinational

Answer 9

A firm that has factories or offices in more that 1 country

Question 10

Progressive Tax System

Answer 10

Tax payers with higher incomes pay a higher average tax or as income increases, not only are more taxes paid, but taxes are paid at a higher rate

Question 11

Proportional Tax System

Answer 11

All tax payers pay the same average tax rate; As income increases, taxes paid increase but taxes are paid at the same rate

Question 12

Regressive Tax System

Answer 12

Taxpayers with higher incomes pay a lower average tax rate; As income increases, taxes paid increase but the average tax rate fall; Marginal tax rate decreases as income increases

Question 13

What are the characteristics of a good tax?

Answer 13

1. Raise Revenue 2. Horizontal Equity 3. Vertical Equity 4. Incentives 5. Simplicity

Question 14

Define Budget Deficit

Answer 14

When the government spends more than it brings in via revenue from taxes and user charges

Question 15

Define Budget Surplus

Answer 15

When the government expenditures are less than the revenues brought in via taxes and user charges.

Question 16

What are the 4 sources of Market Failures?

Answer 16

Public Goods, Externalities, Market Power, Inequity

Question 17

Public Goods

Answer 17

A good or service whose consumption by one person does not exclude consumption by others (non-rival). Public goods are available to everyone regardless of who pays for them (non-excludable). Example: street lighting, national defense

Question 18

Private Goods

Answer 18

A good or service whose consumption by one person excludes consumption by others (rivalry) and a private good must be purchased (excludability). Example: donuts, soda

Question 19

Externalities

Answer 19

Externalities occur when costs or benefits accrue to an individual who is external to the market transaction. The market will under-produce goods that yield external benefits. The market will overproduce goods that generate external costs.

Question 20

Positive Externalities

Answer 20

Occurs when the benefits of a good are received by others in the community although they did not pay for them. Example: Fireworks or Bees

Question 21

Market Power

Answer 21

The ability to alter the market price of a good or service. A monopoly is the strongest form of Market Power. Created By: Patents, Copyrights, Control of Resources, etc.

Question 22

What are the two types of taxes that affect consumers?

Answer 22

1. Income Tax 2. Excise or Lump Sum Tax: Per Unit Tax, Example: Sales Tax

Question 23

What are the three main types of business organizations?

Answer 23

1. Sole Proprietorship (1 owner, little access to brain power) 2. Partnership (difficult divisibility of ownership) 3. Corporation (many owners, is a legal entity, double taxation)