Economics Final Exam Review

Economics Final Exam Review Flashcards

Economics

The study of choices, how we satisfy our unlimited wants with limited resources.

Wants

Unlimited and always changing, and not a necessity to live.

Needs

Required in order to live - Food, water, clothing, shelter, Air, sleep.

Land

Location, natural resources.

Labor

Humans that make the goods.

Capital

Anything needed to make a good or service (tools, input material, $$).

Entrepreneurship

Someone who starts a business, the risk takers that make products.

“There’s no such thing as a free lunch”

Nothing is free! Everything costs something. Time, Money, materials

Cost Benefit Analysis

Analyzing the costs and benefits of a choice…. benefits of the good or service and how it relates to the cost. Was it worth it?

Opportunity Costs

The thing you give up in order to get more of something else.

Fundamental Problem of Economics

WE don’t have enough resources. How to satisfy unlimited wants with limited resources. (Scarcity)

Scarcity

Fundamental problem in economics, it is also a limited supply of goods because of finite resources (unlimited wants, limited resources) OIL, WATER

Shortage

Lack of a good or service, inability to meet demand (man- made) TOILET PAPER

Paradox of value

Also known as the diamond-water paradox, the paradox of value describes the vast difference seen in the prices of certain essential goods and non -essential goods.

Mixed Market

A mixed economic system protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims.

Command Economy

Government controls the means of production.

Market Economy

Free market anyone can get in or out of the market, buy anything anywhere.

“Laissez faire”

To let alone, the government has a hands off policy (Adam Smith)

Sole Proprietorship

1 owner and liability, limited life

Partnership

2 or more people working together in a business.

Corporations

A business owned by individual stockholders who share in profits

Franchise

Individual business that pays a fee to a parent company for the right to sell the company’s products or services (ex: Subway, Starbucks, a national chain)

Goal of All Businesses

Make Money

Vertical Merger

Refers to the merger between two or more business units that operate at different stages of production along the same industry

Horizontal Merger

A horizontal merger is the combination of two companies that operate in the same market. It’s typically performed to reduce competition.

Capital

All of a company's assets that have monetary value, such as its equipment, real estate, and inventory.

Financial Capital

Money

Law of Supply

Supply changes directly with changes in price.

Law of Demand

Demand changes inversely as price changes

Elastic Demand

When price goes up, consumers chose an alternative

Inelastic Demand

Demand for a good or service that does not change with price

Shortage

Demand exceeds supply, not enough of a good to meet consumer demand.

Equilibrium

The point in which quantity demanded and a particular price is equal to quantity supplied (supply and demand are equal and perfect)

Substitutes

The next best alternative (mighty and Taco Bell)

Complementary Products

Goods/services that are typically used together, for example keyboard and computers, tennis balls and rackets, and milk and cookies.

Law of Diminishing Marginal Return

Less satisfaction with each additional unit.

Price Floor

A set minimum price that sellers may charge for a good or service

Price Ceiling

A set maximum price that sellers may charge for a good or service

Stock

Stock share or ownership in a corporation

Dividend

Corporate profits paid to the stockholder

Securities & Exchange Commission (SEC)

Security Exchange Commission, watchdog agency for wall street

Credit Score

A number or score that lets lenders know how creditworthy you are. It represents how likely you are to pay back your debts.

Adam Smith

Encouraged Free Trade & Laissez-Faire

Fiscal Policy

Taxes and spending. How the Government Affects our money. Government decisions on spending and taxation

Expansionary Fiscal Policy

Put money in the hands of the consumer, Less taxes, more spending

Contractionary Fiscal Policy

Slow down the economy Less money in the hands if the consumer - raises taxes and less spending

Monetary Policy

How the FED (Federal reserve) controls and influences the economy to control inflation → primarily through INTEREST RATES → increase rates to slow down the economy (money is more expensive to borrow) and decrease the rates to speed up the economy (make money less expensive to borrow)

Unemployment

Anyone of the age and ability to work that does not have a job. Must be actively looking for work.

Structural Unemployment

A direct result of shifts in the economy, including changes in technology or declines in an industry.

Frictional Unemployment

The temporary unemployment of workers out of work for a short period of time or moving from one job to another.

Cyclical Unemployment

Unemployment caused by the part of the business cycle with decreased economic activity.

Seasonal Unemployment

Unemployment linked to seasonal work

Underemployment

When a highly skilled worker is employed in a lower skilled job.

Gross Domestic Product (GDP)

Everything that the private sector, including consumers and private firms, make or produce within the borders of a particular country.

Inflation

A sustained increase in the average price level of the goods and services produced in the economy. Hurts those on a fixed income

Consumer Price Index (CPI)

Measures the level /rate of inflation, Tracks the goods (in a Market Basket) that consumers buy month to month, or year to year. This indicates the rate of inflation.

Poverty

A person’s income and resources do not allow a person to achieve a minimum standard of living

Poverty Rate

Census Bureau sets the Poverty Threshold Income level below which Family is considered impoverished

Monopoly

A market structure that has one seller and no close substitutes, (ex. Natural Gas)

Predatory Pricing

Prices set very low with the intent of eliminating the competition

Perfect Competition

A large number of well-informed independent buyers and sellers who exchange identical products

Expansion

A period of economic growth, Increase in real GDP, Low unemployment → jobs easier to find, People are beginning to spend more money, Drives prices; buying more durable goods, Low interest rates; start to slowly rise, Businesses increase investments, Rising consumer confidence

Peak

Real GDP is at its highest, Unemployment % is low, Stock prices are high, Consumers are confident, Prices are high, BUT as prices rise and resources tighten, businesses become less profitable and cut back on production, Leads to real GDP dropping

Contraction

Real GDP is falling, Increase in unemployment, Businesses are forced to cut back on production, People can’t spend as much, Resources become less scarce, Prices decline, Stock prices fall, ,Consumer confidence falls

Trough

Lowest point of the cycle, Real GDP stops declining: it cannot get any worse Unemployment is high, Consumer confidence is at its lowest.

Efficient

On the line, perfect utilization of all of the factors or production. Satisfying demand and making profit.

Inefficient / Underutilization

Under the line, inefficient use of the factors of production. Making less goods and profit, not to full potential

Unattainable / Unachievable

Impossibility without additional resources.