Economics State Test

Traditional Economy

An economic system that runs on the people and their family farms

Command Economy

An economy that the government decides on what to produce

Free Market Economy

An economic system which the people decide on what they want to produce

Mixed Economy

In England, for instance, most shops and companies operate pretty freely, but the government takes charge of healthcare, making sure everyone has access

Demand

Demand is the amount of products consumers are willing and able to buy at a given price

Law of Demand

As the price increases the quantity demanded decreases people buy less at higher prices and if the price decreases than the quantity demanded increases people will buy more at lower prices. PRICE ONLY CHANGES QUANTITY DEMANDED

Supply

The amount of products producers are willing to and able to sell at a given price

Law of Supply

As the price increases the quantity supplied increases (people want to sell more at higher prices) and if the price decreases then the quantity supplied decreases (people want to sell less at lower prices). PRICE ONLY CHANGES QUANTITY SUPPLIED

Market Equilibrium

Prices are set at market equilibrium where buyers and sellers are most at agreement. It is where quantity supplied is equal to quantity demanded (QS=QD). There will be no waste. Meaning no surplus (located above equilibrium QS>QD) and no shortage (located below equilibrium QS<QD)

Demand Determinants

1. Change in consumer income

2. Change in number of consumers

3. Change in taste or preference (fad/fashion/popularity)

4. Change in the price of a complementary good (example: peanut butter & jelly)

5. Change in the price of a substitute good. (Example: (Coke vs Pepsi)

Demand Shifts

An increase in demand would cause the demand line to shift to the right. A decrease in demand would cause the demand line to shift to the left. (IRDL)

Supply Determinants

1. Change in amount of productive resources (human, natural, capital)

2. Change in cost of productive resources (human, natural, capital)

3. Change in number of producers

4. Change in technology

5. Change in government action - subsidies or taxes

Supply Shifts

An increase in supply would cause the supply line to shift to the right. A decrease in supply would cause the supply line to shift to the left. (IRDL)

Uses of Money

1. Medium of exchange (people accept it - eliminates double coincidence of wants)

2. Unit of account - (It measures value. $5 < $10) 

3. Store of value - (it can be saved over time without losing value)

Banks

Banks help stimulate, or grow the economy and increase the money supply by making loans

Federal Reserve

The Federal Reserve tries to keep the value of money stable. They also help to try and fight out inflation and reccesion

Tax Revenue (Collected)

1. Income tax (tax taken out of paychecks)

2. Sales tax (tax on purchases)

3. Excise tax (tax on unhealthy items like cigarettes, alcohol, or gasoline)

4. Property tax (tax on land, houses, or luxury items)

Tax Revenue (Used)

1. Government purchase of public goods/services (roads, police, military, education)

2. Transfer payments (Social Security, welfare, unemployment)

3. Interest payments (paying off the national debt)

Tax Revenue (Systems)

1. progressive tax = higher incomes pay higher percentage of their earnings

2. regressive tax = lower incomes pay a higher percentage of their earnings

3. proportional (flat) tax = everyone pays the same percentage of their income