Economics Final Exam Study Guide

Opportunity Cost

Opportunity Cost

The value of the next best alternative

Scarcity

Limited goods and services but unlimited needs and wants

Gross Domestic Product (GDP)

Dollar value of all final goods and services produced within a country's borders in a year

Substitutes

Products that are similar to each other

Complements

Products that are bought or used together

Diminishing Marginal Utility

The decrease in satisfaction from consuming additional units of a good or service

Subsidy

A cash payment from the government or a targeted tax cut

Break-Even Point

The point at which total cost and total revenue are equal

Profit-Maximizing Quantity of Output

The production output at which the difference between revenues and costs is the largest

Portfolio Diversification

Investing in different asset classes and securities to minimize overall risk

Hyperinflation

Uncontrollable and rapid increase in inflation

Stagflation

Persistent high inflation combined with high unemployment and stagnant demand

Sales Tax

A consumption tax imposed by the government on the sale of goods and services

Internal Revenue Service

Responsible for enforcing and administering federal tax laws

Economic Systems

Traditional, command, free market, mixed

Factors of Production

Land, capital goods, labor, entrepreneurship

Factors that Shift PPF Outward

Better technology, more resources, productive/skilled workers, more workers

Factors that Shift PPF Inward

Unemployment, poor technology, no skilled workers

Need

Necessity for survival

Want

Desire that is not necessary for survival

Law of Demand

As prices decrease, quantity demanded increases

Factors that Shift Demand

Price of substitutes, consumer income, price of complements, consumer taste, number of consumers

Determinants of Elasticity

Can the purchase be delayed? Substitutes? Cost a lot of money?

Elastic Good

Responsive to price changes

Inelastic Good

Not very sensitive to price changes

Change in Quantity Demanded

Change in specific quantity at a given price

Change in Demand

Change in quantity demanded at every price

Individual Demand Curve

Demand of one consumer at different price levels

Market Demand Curve

Aggregate demand in an entire market at various price levels

Law of Supply

As price increases, quantity supplied increases

Factors that Shift Supply

Subsidies, taxes, productive/skilled workers, technology, government regulation, number of sellers

Change in Quantity Supplied

Movement along the supply curve

Change in Supply

Shift of the supply curve

Individual Supply Curve

Supply of one company in an industry

Market Supply Curve

Total supply of all companies in an industry

Short Run

At least one input is fixed

Long Run

a situation where all main factors of production are variable.

Total Costs

Fixed costs + variable costs

Budget Deficit

Expenditures are greater than taxes collected

Budget Surplus

Expenditures are less than taxes collected

Frictional Unemployment

Workers changing jobs or waiting for new ones

Structural Unemployment

Fundamental change in the economy reduces demand for workers

Technological Unemployment

Automation makes workers' skills obsolete

Cyclical Unemployment

Unemployment related to swings in the business cycle

Seasonal Unemployment

Unemployment due to annual changes in weather or conditions

Sin Tax

High tax on socially unacceptable goods/services

Benefit Principle of Taxation

Taxes based on benefits received

Ability-to-Pay Principle of Taxation

Taxes based on level of income

Proportional Tax

Same percentage tax for everyone

Progressive Tax

Higher percentage rate on higher incomes

Regressive Tax

Higher percentage rate on lower incomes

Peak

Highest point in the business cycle

Trough

Lowest point in the business cycle

Expansion

Period of economic growth

Recession

Period of economic decline