Honors Economics Final Exam

Economics

study of how people and societies use limited resources to satisfy unlimited wants; the management of scarcity and choice

Resources

A source or supply or support

Scarce

In short supply; not plentiful

Allocate

To distribute according to some plan or system

Opportunity Cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

Marginal Cost

Extra cost of producing one additional unit of production.

Marginal Benefit

The additional benefit to a consumer from consuming one more unit of a good or service

Specialization

Development of skills in a specific kind of work

Market

A group of buyers and sellers of a particular good or service

Command

An economic system controlled by strong, centralized government, which usually focuses on industrial goods. With little attention paid to agriculture and consumer goods.

Mixed

An economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion.

Traditional

An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next.

Production Possibility Curve

A graph that describes the maximum amount of one good that can be produced for every possible level of production of the other good

Microeconomics

Study of individual consumers and businesses.

Circular Flow of Goods and Services

manufacturers--wholesalers--retailers--consumers

the movement of goods and services from firms to households, and of resources from households to firms

Supply

A stock of a resource from which a person or place can be provided with the necessary amount of that resource.

Law of Supply

Tendency of suppliers to offer more of a good at a higher price

Law of Demand

consumers buy more of a good when its price decreases and less when its price increases

Equilibrium Price

the price that balances quantity supplied and quantity demanded

Equilibrium Quantity

The quantity supplied and the quantity demanded at the equilibrium price

Factors Effecting Price Determination

Costs of inputs, changes in technology, changes in prices of other goods, substitute goods, complementary goods, changes in income, changes in preference

Price Floor

A legal minimum on the price at which a good can be sold

Price Ceiling

A legal maximum on the price at which a good can be sold

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price

Inelastic

Describes demand that is not very sensitive to a change in price

Elastic

A measure of the responsiveness of quantity demanded or quantity supplied to a change in one of its determinants

Three Business Organizations

Sole proprietorship, partnership, corporation

Sole Proprietorship

A business owned by one person

Ex- A Restaurant

Partnerships

Business organizations in which two or more persons share responsibilities, costs, profits, and losses.

Corporations

businesses that are owned by many investors who buy shares of stock

Monopoly

Number of Firms- one

Barriers to entry- very high

Products: one

Competition- none

Pure (Perfect) Competition

Number of Firms- unlimited

Barriers to entry- none, or very very little

Products: one, similar throughout the market

Competition- unlimited

Monopolistic Competition

Number of Firms- a large number

Barriers to entry- low

Products: similar but not exactly alike

Competition- Must be aware of their competitor's actions, but can control some of their prices

Oligopoly

Number of Firms- few, often between 2-10

Barriers to entry- high

Products: varies

Competition- All firms are aware of each others prices

GDP

Gross Domestic Product- the total market value of all final goods and services produced annually in an economy

Gross Domestic Product formula

GDP= (C+I+G+X)

Consumer spending+Business investments+Government expenditures+Net Exports (exports-imports)

Price Index

A measurement that shows how the average price of a standard group of goods changes over time

Aggregate Demand

the amount of goods and services in the economy that will be purchased at all possible price levels

Aggregate Supply

the total amount of goods and services in the economy available at all possible price levels

Recession

A period of declining real GDP, accompanied by lower real income and higher unemployment.

Depression

A long-term economic state characterized by unemployment and low prices and low levels of trade and investment

Stagflation

A period of falling output and rising prices

Inflation

A continuous rise in the price of goods and services

Structural Unemployment

People not having jobs due the change in structure of the industry or firm

Frictional Unemployment

A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.

Cyclical Unemployment

laborers lose jobs during an economic downturn

Deficit

An excess of federal expenditures over federal revenues.

National Debt

the debt of the national government (as distinguished from the debts of individuals and businesses and political subdivisions)

The Federal Reserve

The US central bank consisting of 12 regional banks are run by a board of governors appointed by the president for overlapping 14-year terms; formally independent of the executive and congressional branches of government; private bank members of the system own their assets.

Monetary Policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

Fiscal Policy

A government policy for dealing with the budget (especially with taxation and borrowing)

Balance of Trade

the difference in value over a period of time of a country's imports and exports of merchandise

Balance of Payments

A measure of the total flow of money into or out of a country.

Absolute Advantage

The ability to produce a good using fewer inputs than another producer

Comparative Advantage

The ability of a country to produce a good at a lower cost than another country can.

Tariff

A government tax on imports or exports

Embargo

A government order imposing a trade barrier

Standards

An internationally recognized definition of technical specifications that ensure worldwide consistency.

Subsidy

A government payment that supports a business or market

Exchange Rate

The measure of how much one currency is worth in relation to another.

Appreciate

To increase in value

Depreciate

To decrease in value

Mutual Fund

a regulated investment company with a pool of assets that regularly sells and redeems its shares

Bonds

A certificate issued by a government or private company which promises to pay back with interest the money borrowed from the buyer of the certificate: The city issued bonds to raise money for putting in new sewers.

Progressive Tax

A tax in which the average tax rate rises with income. People with higher incomes will pay a higher percentage of their income in taxes.

Savings

Disposable income not spent for consumer goods.

Investment

A component of aggregate demand, it includes all spending on capital equipment, inventories, and technology by firms. This does not include financial investment, which is the purchase of financial assets (stocks and bonds), not included in GDP because they are only purely financial investments.

Regressive Tax

A tax in which the burden falls relatively more heavily on low-income groups than on wealthy taxpayers. The opposite of a progressive tax, in which tax rates increase as income increases.

Proportional Tax

A tax by which the government takes the same share of income from everyone, rich and poor alike for example, when a rich family and a poor family both pay 20%.

Credit Worthiness

a measure of whether a borrower is able to pay back a loan in a timely manner