Economic Midterm Study Guide

What is efficiency in economic terms?

The most effective use of resources.

What is a barter economy?

An economy where goods and services are traded for other goods and services.

What motivates producers in a perfect market?

The profit motive, or the desire to earn a profit.

What is the difference between demand and supply?

Supply refers to how much of a good or service is available, while demand refers to how much consumers want and are able to buy.

What does equity refer to in economics?

Absolute equality of outcomes.

What is the private sector?

The part of the economy consisting of businesses.

How do the public and government sectors of an economy relate?

The public sector is owned by the government or the people, and the government sector represents the part of the economy controlled by the government.

What is voluntary exchange?

When consumers and producers buy and sell goods and services at mutually agreed prices.

What is a Master’s Degree?

A two-year degree demonstrating mastery of a specialized field of study.

What does a Doctorate Degree signify?

The highest level of specialization in a field.

What is an Undergraduate Degree?

Usually a four-year degree representing a student's major area of study.

What is a GED?

A qualification earned by passing a test demonstrating high-school level knowledge.

What is a minor in education?

A field that a student focuses on outside of their major.

What is the definition of trade-offs?

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

How is opportunity cost determined?

It is how much it costs to produce an additional unit of output.

What is a budget?

A plan for spending money.

What does instant gratification refer to?

The immediate reward or pleasure from a decision.

What is gross income?

The total money earned from a job before taxes.

What is net income?

Income remaining after taxes are deducted.

What is disposable income?

Income after taxes are deducted.

What is discretionary income?

Income left after taxes and living expenses.

What is passive income?

Money earned without direct work effort.

What are fixed expenses?

Expenses that remain the same from month to month.

What are variable expenses?

Expenses that fluctuate from month to month.

What is an escrow account?

Money held by a third party for a specific purpose.

What is the difference between aggressive and conservative investments?

Aggressive investments carry high risk, while conservative investments have low risk.

What is an excise tax?

A tax on specific products designed to pay for the product or discourage its use.

What is the purpose of social security?

To provide income for individuals who are retired or unable to work.

What does Medicare provide?

Government-run health insurance for seniors.

What is an estate tax?

A tax on the value of a person's property after they die.

What is a corporate tax?

A tax imposed on business profits.

What is a capital gains tax?

A tax paid when an investment is sold for a profit.

What is the difference between progressive and flat tax?

Progressive tax varies with income level, while flat tax is the same regardless of income.

What is a surplus in economics?

When the government collects more in taxes than it spends.

What is a deficit?

When the government spends more money than it collects in taxes.

What is Medicaid?

A government program providing health insurance for lower income individuals.

What is the difference between goods and services?

Goods are tangible items, while services are activities performed for others.

What is scarcity?

The lack of adequate resources to meet unlimited wants.

What are the three basic economic questions?

What to make, how to make it, and for whom to make it.

What are the five steps in the rational decision-making process?

Define the problem, list alternatives, understand criteria, evaluate alternatives, make a decision.

What are the three parts of a financial plan?

Current financial situation, goals for the future, plans to meet those goals.

What are the criteria for a public good or service?

Nonexcludable (citizens cannot be prevented from using) and nonrivalrous (used by many at the same time).

What are some mandatory spending areas of the government?

Social Security, Medicare, interest on federal debt, and entitlement programs.

What is a buyer's market?

A market with more sellers than buyers.

What is a seller's market?

A market with more buyers than sellers.

What are the determinants of demand?

Income, price, taste and preferences, prices of related goods, and expectations.

How do you calculate disposable and discretionary income?

Disposable income is what remains after taxes; discretionary income is what's left after taxes and living expenses.

How is net income calculated using taxes?

By accounting for Medicare, Social Security, and state taxes.