EPF Midterm Review

efficiency

efficiency

most effective use of resources for everyone’s needs

barter economy

people trade goods/services for goods/services

profit motive

wanting to earn a profit, motivates producers in perfect competition

supply

how much of a good/service is available for consumers to buy

demand

how much of a good/service consumers want and are able to buy

equity

fairness, equality of opportunity, and lack of extreme disparities in wealth

public sector

government, owned by the people, people pay for through taxes

private sector

businesses that are privately owned, distributes resources in mixed economies

voluntary exchange

consumers and producers buy/sell goods and services at prices that both agree to

undergraduate degree (bachelor’s degree)

takes 4 years to complete, represents study in an academic field

master’s degree

additional 2 years of university education to show an advanced level of knowledge in a specialized field of study

doctorate degree

shows the highest level of specialized knowledge, takes 3-8 years

GED (general educational development)

earned by passing a test that shows you have a high school level of knowledge

minor

field that focuses on a topic that often relates to the major

major

field a student specializes in by taking classes on the subject

trade offs

act of giving up one item of value for another item of value

opportunity cost

the item you don’t choose in a trade off

budget (spending plan)

how you decide to spend money

50/30/20 plan

50% of income for necessary expenses, 30% for discretionary income spending, 20% for savings

pay yourself first plan

fixed amount in savings first, then budget for expenses and discretionary income (savings → expenses → discretionary)

zero-based spending plan

plan with goal to end up with a zero balance in checking account

instant gratification

immediate reward

gross income

money you earn from a job before taxes

net income (disposable income)

income after taxes

passive income

money you earn that is not from working

variable expenses

expenses that change from month to month (ex. car maintenance, water/electric bill, groceries, gas)

fixed expenses

expenses that remain the same from month to month (ex. cell phone plan, car insurance, mortgage/rent)

escrow account

money held by a third party for a specific purpose

aggressive investment

investments with a high chance of risk (high risk, high reward) (ex. stock market)

conservative investment

investment with low chance of risk (low risk, low reward) (ex. savings account, bond, certificate of deposit/CD)

excise tax

taxes on specific products (ex. airline tickets, cigarettes, alcohol), used to pay for cost of a product or to discourage use

social security

provide an income to individuals who have reached the age of retire, while working it is taxed at 6.2%

medicare

government run health insurance program for seniors and disabled

estate tax

taxes placed on the value of a percent of a person’s property after they die, tax on wealth

corporate tax

tax placed on business profits

capital gains tax

tax paid when an investment (ex. stocks) is sold for a profit

flat tax

tax paid in the same proportion regardless of income

progressive tax

tax paid at a different rate depending on income level (more money means high taxes)

surplus

make more than you spend/sell

deficit

spend more than you make

medicaid

government run health insurance program for low income

goods

physical or tangible products that are bartered or sold

services

activities that are bartered or sold, intangible

producers

make goods and/or provide services

consumers

buys/purchases goods and/or services

scarcity

limited resources and unlimited wants

traditional economy

what/for whom/how: tradition/family

mixed/market economy

what: consumer decided

for whom: both (producer: who you are targeting, consumer: how much money you make)

how: producers

command

what/for whom/how: government

3 basic economic questions

what will be produced? how will it be produced? for whom will it be produced?

5 steps in rational decision making process (in order)

1: define problem

2: list alternatives

3: understand your criteria

4: evaluate alternatives on basis of criteria

5: make a decision

3 parts of a financial plan (in order)

1: look at current financial situation

2: goals for the future

3: make plans to meet goals

criteria for an economic activity to be a public good/service

nonexcludeable (can’t be prevented from using), nonrivalrous (can be used by many/all at the same time)

mandatory spending areas

social security and medicare, interest on federal debt, entitlement programs

buyer’s market

market with more sellers than buyers (buyers have more negotiating power)

seller’s market

market with more buyers than sellers (buyers have far less ability to negotiate)