Economics Final Exam

Economics

the study of how people seek to satisfy their needs and wants by making choices

Horizontal Merger

the combination of two or more firms competing in the same market with the same good or service

Vertical Merger

the combination of two or more firms involved in different stages of producing the same good or service

Shortage

a situation in which a good or service is unavailable

Scarcity

limited quantities of resources to meet unlimited wants

Factors of Production

land, labor, and capital; the three groups of resources that are used to make all goods and services

Entrepreneur

ambitious leader who combines land, labor, and capital to create and market new goods or services

Trade-Off

the alternative we sacrifice when we make a decision

Opportunity Cost

the most desirable alternative given up as the result of a decision

Human Capital

the skills and knowledge gained by a worker through education and experience

Physical Capital

all human-made goods that are used to produce other goods and services; tools and buildings

Thinking at the Margin

deciding whether to do or use one additional unit of some resource

Production Possibility Graph

a graph that shows alternative ways to use an economy's resources

Production Possibility Frontier

the line on a production possibilities graph that shows the maximum possible output for a specific economy

Adam Smith

classic economist that believed the market could regulate itself

Classical Economics

the idea that free markets can regulate themselves

Free Market

individuals and privately owned businesses own the factors of production and therefore, make what they want and buy what they want

Command Economy

economic system in which the central government makes all of the decisions on the production and consumption of goods and services

Mixed Economy

economic system that combines tradition and free market with limited government involvement

Natural Monopoly

a market that runs most efficiently when one large firm supplies all of the output

Perfect Competition

a market structure in which a large number of firms all produce the same product

Monopolistic Competition

a market structure in which many companies sell products that are similar but not identical

Non-price Competition

a way to attract customers through style, service, or location, but not a lower price

Cartel

a formal organization of producers that agree to coordinate prices and production

Sherman Anti-Trust Act

law that outlawed mergers and monopolies that limit trade between states

Clayton Anti-Trust Act

law that outlawed practices that limit competition or lead to monopoly

Sole Proprietorship

a business owned and managed by a single individual

General Partnership

partnership in which partners share equally in both responsibility and liability

Limited Partnership

partnership in which only one partner is required to be a general partner

Corporation

a legal entity owned by individual stockholders

Law of Demand

economic law that states that consumers buy more of a good when its price decreases and less when its price increases

Law of Supply

tendency of suppliers to offer more of a good at a higher price

Equilibrium

the point at which quantity demanded and quantity supplied are equal

Normal Goods

a good that consumers demand more of when their incomes increase

Inferior Goods

a good that consumers demand less of when their income increases

Elasticity of Supply

a measure of the way quantity supplied reacts to a change in price

Elasticity of Demand

a measure of how consumers react to a change in price

Import Restrictions

restrictions imposed by a country that affect the supply of a good or service

Price Ceiling

a maximum price that can legally charged for a good or service

Price Floor

a minimum price for a good or service

Rationing

a system of allocating scarce goods and services using criteria other than price

Skilled Labor

labor that required specialized skills and education

Semi-skilled Labor

labor that requires minimal specialized skills and education

Unskilled Labor

labor that requires no specialized skills, education, or training

Collective Bargaining

the process in which union and company representatives meet to negotiate a new labor contract

Labor Union

an organization of workers that tries to improve working conditions, wages, and benefits for its members

Wagner Act

1935, also National Labor Relations Act; granted rights to unions; allowed collective bargaining

Price

the high value or worth of something

Law of Diminishing Marginal Utility

a general decrease in the utility of a product, as more units of it are consumed

Tax

a required payment to a local, state, or national government

Proportional Tax

a tax for which the percentage of income paid in taxes remains the same for all income levels

Progressive Tax

a tax for which the percentage of income paid in taxes increases as income increases

Regressive Tax

a tax for which the percentage of income paid in taxes decreases as income increases

Characteristics of a Good Tax

simplicity, efficiency, certainty, and equity

Federal Income Tax

a payroll deduction collected by employers by law and sent to the federal government to support governmental programs

FICA

taxes that fund Social Security and Medicare

Medicaid

entitlement program that benefits low-income families, some people with disabilities, and elderly people in nursing homes

Medicare

a national health insurance program that helps pay for health care for people over age 65 or with certain disabilities

Representative Money

objects that have value because the holder can exchange them for something else of value

Functions of money

medium of exchange, unit of account, and store of value

FDIC

the government agency that insures customer deposits if a bank fails

Financial Intermediary

institution that helps channel funds from savers to borrowers

Investment

the act of redirecting resources from being consumed today so that they may create benefits in the future

Diversification

spreading out investments to reduce risk

Fiat Money

money that has value because the government has ordered that it is an acceptable means to pay debts

Stock

a share representing a portion of ownership in a corporation

Dow Jones Average

averages 65 stocks in 3 different catagories to see how the market is doing