Econ Test Out

Define economics

the branch of knowledge concerned with the production, consumption, and transfer of wealth.

Explain the concept of scarcity

The economic term that describes the condition of limited resources relative to unlimited wants

How are personal and societal choices impacted by scarcity

impacts personal decisions, like budgeting and prioritizing needs, and societal decisions, like resource allocation and policy choices. Essentially, scarcity means we can't have everything we want, leading to trade

4 types of factors of production

-Natural resources (land)
-Human resources (labor)
-Capital (equipment/tools has to be planned and made)
-Entrepreneur (person who makes it happen; must have vision, organizing power, and courage to take risk)

What are three questions economies must answer

What goods and services will be produced?

How will they be produced?

And for whom will they be produced?

Define opportunity cost

the loss of potential gain from other alternatives when one alternative is chosen.

Example of opportunity cost

If you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can't spend the money on something else

Describe marginal analysis

To analyze extent decisions by breaking down the decision into small steps and then computing the costs and benefits of taking another step. If the benefits of taking another step are greater than the costs, then take another step. Otherwise, step backward.

The three types of business structures

Sole Proprietorship

A business owned and run by one person, where the owner is personally liable for all business debts and obligations.
Partnership:
A business owned and run by two or more people who agree to share in the profits or losses of the business.
Corporation:
A business that is legally separate from its owners, offering limited liability to its shareholders (owners).

Describe the concept of economic efficiency

Economic efficiency involves the optimal use of limited resources for producing and distributing goods and services. The goal is to maximize societal well

Describe the production possibility and what it shows

A production possibilities curve (PPC) or production possibilities frontier (PPF) illustrates the different combinations of two goods or services that an economy can produce when all resources are fully and efficiently employed. It shows the trade

List and describe the 4 types of economic systems and who answers the three economics questions in each

Traditional Economies
Economic decisions are based on customs and traditions, often in rural areas. Focus is on subsistence activities like farming and bartering.
Who decides? Elders and community customs guide production and distribution to meet basic needs.
Command Economies
A central authority, usually the government, controls production, resource allocation, and prices.
Who decides? The government makes all economic decisions, including production and distribution.
Market Economies
Production and distribution are driven by supply and demand with minimal government interference.
Who decides? Individuals and businesses, based on competition and consumer demand.
Mixed Economies
A combination of market and command economy features, with both private and public ownership, and government regulation
Who decides? A mix of market forces and government intervention, aiming for efficiency and fairness.

Describe why the U.S would be considered a mixed, free market, capitalistic economic system

The U.S. economy is considered a mixed, free -market capitalist system because it combines elements of both free markets and government intervention. While the U.S. emphasizes private ownership and free enterprise, the government also plays a significant role in regulating markets, providing social services, and influencing economic activity.

Describe the law of supply and what group is associated with it

The law of supply states that, generally, as the price of a good or service increases, the quantity supplied by producers also increases, and vice versa, assuming other factors remain constant. This relationship is primarily associated with producers or suppliers, as they are the ones controlling the quantity of goods available in the market.

List and explain the determinants of supply

Price of the Good
Higher prices typically lead to more supply, as producers seek greater profit.
Cost of Production
Higher production costs reduce supply, while lower costs increase it.
Technology
Advances in technology improve efficiency, boosting supply.
Number of Producers
More producers increase supply; fewer producers decrease it.
Government Policies
Taxes and regulations can reduce supply, while subsidies can increase it.

What is the difference between a shift in supply and a movement along the supply curve

A movement along the supply curve represents a change in quantity supplied due to a change in the price of the good itself, while a shift in the supply curve represents a change in the quantity supplied at every price level due to factors other than price, such as production costs or technology

Describe the law of demand and what group it is associated with

The Law of Demand is a fundamental principle in economics that explains the relationship between the price of a good or service and the quantity consumers are willing to buy. It applies to the consumers

List and explain the determinants of demand

Price of the Good
As price rises, demand usually falls, and vice versa.
Consumer Income
Higher income increases demand for normal goods but decreases demand for inferior goods.
Prices of Related Goods
Substitutes: Demand rises if a substitute's price increases.
Complements: Demand falls if a complement's price increases.
Consumer Preferences
Shifts in tastes can increase or decrease demand for certain goods.
Consumer Expectations
Expected future price changes influence current buying behavior.

Describe the concept of equilibrium price

equilibrium price, also known as the market-clearing price, is the price point at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers. At this price, there is no surplus or shortage in the market. Graphically, it's represented by the intersection of the demand and supply curves,

Explain what as surplus is and where it is on a supply and demand curve

a surplus refers to a situation where the quantity supplied of a good or service exceeds the quantity demanded. On a supply and demand graph, a surplus is represented by the area above the equilibrium price and below the supply curve.

Explain what a shortage is and where it is on a supply and demand curve

A shortage occurs in economics when the quantity of a good or service that consumers want to buy (quantity demanded) exceeds the quantity that producers are willing to sell (quantity supplied) at the current price.It is found at the intersection of the supply and demand curves represents the equilibrium price and equilibrium quantity.

What is the concept of elasticity

the degree to which one economic variable responds to a change in another. It essentially measures the sensitivity of one variable to changes in another.

What makes a product more elastic

A product becomes more price elastic when its demand is highly responsive to changes in price.

What are sellers motivated by

Sellers are primarily motivated by a combination of financial factors, life circumstances, and property

What are buyers motivated by

Buyers are motivated by a variety of factors, broadly categorized as rational and emotional. Rational motives are based on logic and reason, like price, quality, or need. Emotional motives are driven by feelings and desires, such as seeking pleasure, status, or social acceptance.

What is a price ceiling

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

What is a price floor?

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

Why does the government set a price ceiling and floor

To support producers, ensure a minimum living wage, and to encourage production

Explain the term macroeconomics

the branch of economics studying the overall economy on a large scale. Macroeconomics means studying inflation, price levels, economic growth, national income, gross domestic product (GDP), and unemployment numbers.

List and describe the three main goals of the U.S economy

Economic Growth
An increase in goods and services produced over time, measured by GDP, leading to higher living standards and more opportunities.
Full Employment
Ensuring most people who want jobs can find them, reducing social issues and boosting economic contribution.
Price Stability
Keeping inflation and deflation in check to maintain purchasing power and economic confidence.

Explain what the business cycle is

the fluctuations in economic activity, specifically the rise and fall in production, trade, and overall economic activity over time.

What are the major components of the business cycle

Expansion
Economic growth, rising GDP, more jobs, and increased consumer spending.
Peak
The highest point of expansion before growth slows.
Contraction (Recession)

Economic decline with lower GDP, higher unemployment, and reduced spending.
Trough
The lowest point before recovery and a new expansion phase.

What is a economic recession

When a fall in demand leads to falling prices and businesses losing money. This can lead to businesses failing and unemployment going up.

What is a leading indicator

an objective measure that accurately predicts future labor demand

What is a lagging indicator

A measurable economic factor that changes after the economy has already begun to follow a particular pattern or trend.

Example of a leading indicator

Employee satisfaction indicates future retention rates and associated costs of hiring

Example of a lagging indicator

unemployment

Gross domestic product

The sum total of the value of all the goods and services produced in a nation

4 components that make up gross domestic product

imports
exports
government spending
investment

government spending

investment

Unemployment

the number of people who are actively looking for work but aren't currently employed

discouraged workers

individuals who would like to work but have given up looking for a job

Underemployment

workers are overqualified for their jobs or work fewer hours than they would prefer

full employment

the condition in which virtually all who are able and willing to work are employed.

Inflation

A general and progressive increase in prices

deflation

A situation in which prices are declining

How is inflation and deflation measured in the economy

using price indexes, with the most common being the Consumer Price Index (CPI) and the Producer Price Index (PPI).