Economics Midterm

Income Effect

the portion of a **change in quantity demanded caused by a change in the consumer's real income** when the price of the product changes

Social Security

federal program of disability and **retirement benefits** that covers most working people

Consumer Sovereignty

role of **consumer as ruler** of the market when determining the types of goods and services produced

Collusion

agreements, usually illegal, among producers to **fix prices, limit output, or divide markets**

Trade-Off

alternatives that must be **given up** when one is chosen rather than another

Value

**worth** of a good or service as determined by the market

Price

**monetary value** of a product as established by supply and demand

Good

tangible economic product that is **useful, relatively scarce, transferable to others**; used to satisfy wants and needs

Consumer Good

**good** intended for final use by **consumers** rather than businesses

Rebate

partial **refund** of the original price of a product

Better Business Bureau

**business-sponsored** nonprofit organization providing information on local companies to consumers

Marginal Utility

**satisfaction or usefulness** obtained from acquiring one more unit of a product

Free Enterprise

market economy in which privately owned businesses have **freedom** to operate for a profit with little government intervention

Inelastic

Demand - when a change in price causes a **small** change in demand

Supply - when a small increase in price causes **little** change in supply

Entrepreneur

**risk-taking** individual in search of profits

Law of Demand

**rule** stating that more will be **demanded** at lower prices and less at higher prices

Paradox of Value

apparent contradiction between the **high value of nonessentials and low value of essentials**

Excess Demand

shortage

Stock

**certificate of ownership** in a corporation; common or preferred stock

Chamber of Commerce

nonprofit organization of local businesses whose purpose is to **promote their interests**

Fixed Income

income that **does not increase** even though prices go up

Economic System

organized way a society provides for the **wants and needs of its people**

Human Capital

sum of people's **skills, abilities, health, and motivation**

Microeconomics

**branch of economic theory** that deals with behavior and decision-making by **small** units such as individuals and firms

Elasticity

a measure of responsiveness that tells us how a **dependent variable such as quantity responds to a change in an independent variable such as price**

Competition

the **struggle** among sellers to attract consumers while lowering costs

Private Property Rights

fundamental feature of capitalism, which allows **individuals to own and control their possessions as they wish**

Depreciation

gradual **wear** on capital goods during production

Product Market

**market** where **goods** and **services** are offered for **sale**

Unit Elastic

Demand - when a change in price causes a **proportional** change in demand

Supply - when a change in price causes a **proportional** change in supply

Elastic

Demand - when a change in price causes a **large** change in demand

Supply - when a small increase in price leads to a **larger** increase in output and supply

Demand

combination of **desire, ability, and willingness to buy a product**

Excess Supply

surplus

Stockholders/Shareholders

person who owns **shares** in a corporation

Capitalism

economic system in which private **citizens** own and use the factors of production in order to **generate profits**

Diminishing Marginal Utility

**decreasing satisfaction or usefulness**, as additional units of a product are required

Principal

amount **borrowed** when getting a loan or issuing a bond

Income Statement

**report** showing a business's sales, expenses, and profits for a certain period

List the basic economic question

1. **What** goods and services are to be produced? (demand)
2. **How** are these goods and services to be produced? (machinery)
3. For **whom** are they to be produced for? (consumers)

Why does every choice involve an opportunity cost?

because every choice has at least **one other alternative that must be bypassed**

List and define how labor management settles disputes

1. **Negotiation** - effort by a 3rd party to bring labor/management **together to work out their differences** on their own
2. **Mediation** - process of solving a dispute by bringing in a **neutral 3rd party**
3. **Arbitration** - settling differences by allowing a **3rd party to hand down a decision that is final** + binding

List the characteristics of the Physiocrats

1) Agriculture and other natural resources were the true source of wealth

2) opposed favorable balance of trade

3) believed in Laissez-Faire → let the people do as they choose

List the two types of partnerships

1. **general**
2. **limited** → form of partnership where **1 or more partners are active in the daily running of the business** and where **liability for the partnership’s debt is restricted** to the amount invested in the business

List and define the types of economic systems and give one advantage and one disadvantage of each

1. **Traditional (custom based)** - economic system in which the allocation of resources and other economic activity is the result of **ritual, habit, or custom**; **ADVANTAGE** - little uncertainty, **DISADVANTAGE** - discourages new ideas
2. **Command (planned)** - economic system characterized by a **central authority** that makes most of the major economic decisions; **ADVANTAGE** - little uncertainty; **DISADVANTAGE** - doesn’t meet the wants of consumers
3. **Market-economic system** - based on **supply, demand, and the price system** helps people make decisions and allocate resources; **ADVANTAGE** - can adjust to change; **DISADVANTAGE** - doesn’t provide for the basic needs

List the economic goals

1) Economic Freedom

2) Economic Efficiency

3) Economic Equity

4) Economic Security

5) Full Employment

6) Price Stability

7) Economic Growth

List and define the types of mergers

1. **Horizontal** - a combination of **2 or more firms** producing the same kind of product
2. **Vertical** - a combination of **firms** involved in different steps of manufacturing or marketing

List the determinants of demand elasticity

1. **Can** the purchase be delayed?
2. **Are** the adequate substitutes available?
3. **Does** it use a large portion of your income?

What is the difference between demand elasticity and supply elasticity?

the **ability to delay a purchase and the number of substitutes are important for demand** elasticity but not supply elasticity

List the characteristics of a perfect market

1. there should be a **large number of buyers and sellers**
2. **products** should be **identical**
3. buyers and sellers should **act independently**
4. buyers and sellers should be **well-informed**
5. buyers and sellers should be **free to enter, conduct, or get out of a business**

What problems did the program of loan support create?

fairness, high administrative costs, no incentive to work, and large surpluses

Explain the Clayton Antitrust Act

outlawed price discrimination

List the characteristics of a private/free enterprise system

1) Economic Freedom

2) Profit Motive

3) Voluntary Exchange

4) Private Property

5) Competition

List the advantages of competition

1) lower prices

2) good quality

3) newer products

4) improved services

T or F: All societies face the problem of scarcity.

true

T or F: Financial capital is the money used to buy the tools and equipment used in production.

true

T or F: Productivity applies to all factors of labor.

false

T or F: Adam Smith is considered the Father of Modern Economics.

true

T or F: A durable good is one that lasts less than three years.

false

T or F: With economic freedom, both people and businesses make their own economic choices.

true

T or F: Competition has no effect on prices.

false

T or F: The U.S. Government is the second largest consuming group in the economy after corporations.

false

T or F: The value of the dollar increases during inflation.

false

T or F: The United States is said to have a mixed economy.

true

T or F: At times, multinationals have been known to pay low wages to their employees.

true

T or F: Multinationals produce tax revenues for host country.

true

T or F: Since the late 1980’s the number of conglomerates in the U.S. has declined.

true

T or F: Diversification is one of the main reasons for a conglomerate in the U.S. has declined.

true

T or F: Multinationals are likely to pay taxes in each country where it has operations.

true

T or F: Kenneth I. Chenault is the first African-American to serve as president of a top-100 company.

true

T or F: Chenault was the president and COO of American Express.

true

T or F: Common shareholders are first to receive dividends from a corporation if that corporation turns a profit.

false

T or F: If you own one share of stock of that corporation you are considered an owner of the corporation.

true

T or F: The market demand curve is a curve that shows only the females who are interested in purchasing a product.

false

T or F: The demand schedule is a history that shows various quantities supplied of a particular product at all prices that might prevail in the market at a given time.

false

T or F: When prices go down, quantity demanded goes up.

true

T or F: If the answer is yes to all of the determinants of demand elasticity, then the demand is unit elastic.

false

T or F: In general, if a product is a necessity then the demand will be inelastic.

true

T or F: The shift in the demand curve is right to left when there is an increase in demand.

false

T or F: Jeff Bezos is the founder of Amazon.com.

true

T or F: One reason supply elasticity is different than demand elasticity is because there is no need to worry about substitutes.

true

T or F: When management motivates its workers productivity should increase.

true

T or F: If the price of an item drops, producers may offer less for sale.

true

T or F: Employee hourly wages are considered a fixed cost.

false

T or F: Rent is considered a variable cost.

false

T or F: Richard Sears partnered with Alva C. Roebuck to form Sears and Roebuck.

true

T or F: Low prices are signals for producers to produce less and for buyers to buy more.

true

T or F: High prices are signals for producers to produce more and buyers to buy less.

true

T or F: Milton Friedman is well-known economist with a column in Time Magazine.

false

T or F: Prices help buyers and sellers allocate resources between markets.

true

T or F: Prices are a result of competition between buyers and sellers.

true

T or F: Minimum wage is considered a price floor.

true

T or F: Laissez-faire is a French term meaning “allow them to do.”

false

T or F: Economists group industries into three different market structures.

false

T or F: Most firms and industries in the United States fall in the category of imperfect competition.

true

T or F: If a seller can differentiate a product in the mind of the buyer, the firm may be able to raise the price above its competitors’ prices.

true

T or F: The government support of the Internet is an example of indirect disclosure.

true

T or F: Toys “R” Us violated anti-trust laws and as a result was sued by Mattel and Hasbro.

false

name 1?

surplus

name 2?

shortage

3?

supply