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AP Government and Economics > Unit 2: Microeconomics > Flashcards

Unit 2: Microeconomics Flashcards

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0
Q

Partnership

2 or more owners

A

General- Equal owners
Limited- One owner has over 50% of business (general partner)
Silent- Money only (no say)
Nominal- Name only
ADVANTAGES
Share the risk, share the work + decisions (designate a managing partner), easier to open 2nd location
DISADVANTAGES
Potentially unlimited liability (up to % owned! unless others cannot pay), no contract required (can have miscommunication, lost relationships), may not have right of 1st refusal (buyout)

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1
Q

Sole Proprietorship

A 
One owner
*Most common
Sell own skill/idea
*Franchise owners
ADVANTAGES
Easiest to open (minimal requirements), make all decisions, keep all profits, *most likely rags to riches
DISADVANTAGES
Hardest to get financed (loans), most likely to fail, limited life, unlimited liability (can lose personal assets)
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2
Q

Corporation

3 or more owners

A

File articles of incorporation (charter) with the gov’t
*Considered to be a legal entity (“person”)
ADVANTAGES
Can sell shares of stock (%ownership), limited liability (can only lose business), can sell corporate bonds, unlimited life, expand nationally/globally
DISADVANTAGES
Can lose control of the business (limited to 49% ownership)’ double taxation (corporate income tax [39.6%]), regulated by the SEC

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3
Q

Franchise Owner

A

Limited partnership between a sole proprietor and a corporation

  • Agree to use corporate supplies, etc. (Day to day decisions are sole proprietor’s)
  • Guarantee an exclusive area
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4
Q

Mergers and Acquisitions (hostile take over)

A
  1. Horizontal combination/merger
    * Join with competitor to reduce competition and gain market share (power)
    - DOJ approval
  2. Vertical combination/merger
    * Companies in the supply chain join (steps of production) to reduce costs (become more efficient)
  3. Conglomerate/Conglomeration
    * Parent company (3 or more) owns product lines (unrelated co.) in different industries
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5
Q

Nonprofit Business

A

*No single owner to profit from
*tax exempt status (no corporate tax)
TYPES
1. Nonprofit Association
-Church, charity, school, clubs, political parties, advocacy groups (“special interest”)
2. Co-operative (member owned to benefit members equally)
-Farm, labor union, credit union, NFL
3. (Subsidized or Controlled) Government/ Public Corporation
-USPS, PBS, Federal Reserve

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6
Q

Commercial Business

A

For profit to owner/shareholders (stockholders)

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7
Q

Commercial Structure

A

Common stock (share holders)- publicly traded, 1 vote/share, May or may not get dividend
V
Board of Directors ->Chairmen of Board- mergers, acquisitions, divestment decisions
V (hire)
CEO- *runs the company

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8
Q

Common Stock

A

Share Holders
Publicly traded
-1 vote/share
-May or may not get dividend

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9
Q

Preferred Stock

A

Board of Directors
CEO, COO, CFO
-No vote
*Guaranteed Dividend (share of profits)

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10
Q

Stock Market

A

Buyer- Investor
Seller- IPO (initial public offering) by corp
Product- Shares of ownership

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11
Q

Labor Market

A

Buyer- Employers: firms (private sector) or gov’t (public sector)
Seller- Individual worker
Product- Human resources; skill, education (time)

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12
Q

Competitions

A

Pure/perfect competition- Identical skills/product
^ Many sellers, no one has market effect
v
Monopolistic competition- *Most jobs have many (job specific req.) qualified applicants (substitutes)
|
Oligopoly- Few people have skill/education *Specialized
| ($)
Monopoly- Actor, artist, athlete (unique skill)

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13
Q

Unskilled Labor

A 
No skill/education requirement (on job training)
PAY
Minimum wage
BENEFITS
Earn them/few
AUTONOMY
No power
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14
Q

Semiskilled Labor (union jobs)

A 
Up to 2 years of training or certification
PAY
Wage
BENEFITS
Employee only
AUTONOMY
Little/can advance
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15
Q

Skilled Labor (union jobs)

A 
Up to 5 years training, and/or apprenticeship + license 
PAY
High wage
BENEFITS
Varied
AUTONOMY
Most power/independent contractors
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16
Q

Professional/Managerial (work up through company) Labor

A 
College degree 4 years or more
PAY
Salary
BENEFITS
Best benefits (paid leave, conveniences, pensions/retirement (401K) 
AUTONOMY
Varies
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17
Q

Economic Rent

A

Potential/increased value of a resource

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18
Q

Labor Union

A

Organized group of workers who negotiate collectively (strength in numbers)
AFL (American Federation of Labor)
-Union of skilled unions
*Political bloc/advocates
CIO (Congress of Industrial Organizations [unskilled])

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19
Q

Collective Bargaining

A

Union representatives secure one contract for all workers

  • Salary schedule/union contract
  • Sv Wages^ (inverse)
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20
Q

Wagner Act

A

Protects the right it form a union

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21
Q

Taft-Hartley Act

A
  • Right to work states

* Cannot be forced to join a union

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22
Q

Unemployment Rate

A

in labor force looking for a full time work
_____________________
Total # in labor force

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23
Q

Labor Force

A 
Civilians (not in military) 
16-65 years old
Willing and able to work
Have or looking for 30 hr/wk job (full time)
Not a full time student

Labor participation rate= 62.8%

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24
Q

Cyclical Unemployment

A

Laid off because of slow economy

  • Based on business cycle (boom and bust-> recession -> depression)
  • Most common-
  • Qualify for unemployment benefits (insurance)
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25
Q

Seasonal Unemployment

A
  • Job ends, restarts every year (discontinuous)

* Not counted in unemployment rate

26
Q

Frictional Unemployment

A

I between jobs -> quit, graduated, new entrants to job market
*Normal (always have) 5% = “Full Employment”

27
Q

Structural or Technological Unemployment

A

Economy changed

  • Replaced by a machine
    • Automation
  • Skill set is not in demand
  • Job outsourced

*Qualify for benefits

28
Q

Cost

A

What the seller/producer pays to make the product available
v
*Explicit Costs= Monetary costs (actual out buy of money)
-Implicit Costs= Opportunity costs (value of next best option)

29
Q

Fixed Costs

A

Do not change with level of production (output)

  • Sunk costs, opening costs, overhead
  • Example: , rent/lease/mortgage, capital equipment, insurance, taxes, permits,
30
Q

Variable Costs

A

Change with the level of production

  • MUST pay VC or no product to sell (marginal revenue)
  • Example: *Wages, raw materials/supplies, employee benefits
31
Q

Total Cost

A

TC=FC+VC

32
Q

Average [total/fixed/variable] Cost

A

? Cost/Quantity of ?

33
Q

Marginal Cost

A 
Additional costs for additional inputs to produce (one) more products
(Marginal) Additional Product= ΔQ
ΔTC/ΔQ
OR
ΔVC
34
Q

Total Revenue

A

Price x Quantity

TR - TC = profit

35
Q

Marginal Revenue

A

Price [if quantity is one]

ΔTR/ΔQ

36
Q

Marginal Revenue Product

A

ΔQ x price

37
Q

Marginal Revenue Product of Labor

MRPL

A

Why should you be hired?
ΔQ from ΔLabor
ΔQ x price

38
Q

MR.DARP

A

Marginal Revenue = Demand = Average Revenue = Price

39
Q

Marginal

A

Additional = Δ in?

*Subtract! When ΔQ=1

40
Q

Short Run

A

Current production cycle (now

41
Q

Long Run

A

Continuous production (now + future)
LRACurve = Tangent to low point on SRACurve
Dis economy of Scale: AC^ Production^
Economy of Scale: ACv Production^

42
Q

Predict Quantity?

A 
PDMU (demand?) + PDMR (cost of input vs output)
AVC > AR
1. Shut down (temporary)
2. Exit (go out of business)
MC=S
AVC < AR
1. Stay producing
43
Q

Normal Profits

A
  • Willing to keep business open
  • Intangible benefits
  • Implicit costs
44
Q

Labor Market

Buyers and Sellers

A

Buyers: employers
Private sector- firms
*Wages v Costs v
Public sector- gov’t

Seller + product 
-Skill set and/or education
*Specialization = Wages^
Why work?
-Money vs. time
  -Income effect
-Satisfaction of job (utility)
  -Substitution effect (trade off)
45
Q

Monopsony

A

Buyer has control of the market (maybe only buyer)

46
Q

Monopsonist

A
  • Overprice
  • Maybe on quantity/quality
  • Walmart
  • US gov’t
47
Q

GDP

A

Gross Domestic Product
National income measurement
Economic growth = 2-3% increase annually = normal growth

48
Q

Gross Income

A

[Part of GDP]

  • Before voluntary and involuntary deductions
    • Retirement (pretax 401K) [VOLUNTARY]
    • Income tax [INV]
    • HSA/HDMSA (medical savings account) [VOL]
    • Social Security [INV]
    • (State Retirement) Public Sector job [INV]
49
Q

Net Income

A
  • After all deductions/pay check -> used for economic needs (normal consumption)
  • Real income (adjust for inflation) = purchasing power
50
Q

Discretionary/Disposable Income

A

Income used for economic wants

51
Q

Economic Needs

A

What is required to be able to participate in the economy (economic security safety net programs) as a worker and a consumer
Normal consumption based on standard of living:
1. Food/Sustenance (medicines)
-SNAP (food stamps), WIC, Medicaid (AHCCCS), Medicare, SCHIP
2. Shelter (housing + urban development dept)
3. Clothing
4. Transportation

52
Q

Economic Wants

A

Everything else -> Quality of Life

  • Higher quality + quantity of “needs”
  • Art, jewelry, travel, entertainment
  • Investments + savings
53
Q

Normal Consumption

A

Daily living expenses

54
Q

Derived Consumption

A

Comes from a change in status

  • One time expense
  • New normal
55
Q

Induced Consumption

A

Forced expenditure -> Immediate, no option (savings? Or loan/credit)

56
Q

Conspicuous Consumption

A

Buy to be seen/showy

57
Q

Investment

A

Invest for a return (gain) on the principle (amount invested)
-Buy low, sell high = gain from profit
-Dividends paid quarterly (share of profit)
Risk of Loss ^ + Return ^

58
Q

Uses of Income

A

Spend Now
Save- Less risk, interest rate (return), fairly low, accessible
Invest- Potential higher risk, return ^, long term (years)

59
Q

Time-Value of Money

A

From compound interest (Earn interest on earned interest)

-Simple interest on principle only

60
Q

Pretax Investments

A
  1. Reduce taxable income (pay less income, tax now)
    - 401K- Private sector (often employer matches $)
    - 403B- Public sector (income limit of $150,000)
    - Health Savings Account (Income limit)
    - 459 Plans -> college savings (employer or financial institution)
  2. Grow tax free, contribution limits ($15,000) per year
  3. Can withdraw at 59 1/2 yrs old, MUST at 70
  4. TAXED as normal income
61
Q

Post Tax Investments

Dollars taxed as income

A

ROTH IRA (Individual Retirement Account)

  1. Income limit ($150,000) unless employer pension/ret. plan + contribution limit
  2. Grow tax free, no taxes at withdrawal
  3. Can take at 59 1/2
62
Q

Non retirement

Annuity

A

Risk v
Insurance- (Share the risk w/others [expenses covered])
-Pay premium -> make a claim
Bonds- Gov’t or corporate
-“loan” repaid at maturity with a guarantee return (unless bankrupt)
Mutual Funds
-Diversified investment into many stocks and/or bond funds

AP Government and Economics (3 decks)

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