Gov

Opportunity Cost

The next best alternative given up as a result of a decision.

What is the opportunity cost of moving from point X to Y?

-2 apples and +2 peaches

What are the three major economic systems in the world?

Traditional, command, and market.

What is the major problem that all societies face?

Scarcity.

What are the 3 major economic questions?

What, How, and for Whom.

List the 4 factors of production.

Land, Labor, Entrepreneur, and Capital.

What do low prices signal buyers to do?

Buy more.

What could have caused the change in demand for typewriters?

People are using computers instead of typewriters.

What happened to the equilibrium price and quantity of typewriters?

They went down.

What could have caused the shift above?

The resource price decreases.

Explain the acronym MERIT in terms of demand change.

M- market size (# of consumers), E- future expectations, R- related goods ( substitutes/complements), I- consumer income ( normal/inferior), T- tastes and preferences.

Explain the acronym ROTTEN in terms of supply change.

R- resource cost, O- opportunity cost of alternative production, T- taxes and subsidies (government action), T- technology, E- future expectations, N- number of sellers.

What signal do high prices give to producers?

To produce more.

What needs to happen to prices if there is a surplus of goods?

Prices must decrease.

Explain collective bargaining.

When labor and management agree to mediation, a neutral person helps settle the dispute.

How does inflation affect people on a fixed income?

They won’t be able to buy much.

Difference between stock and bond?

A bond is lending the company a loan; a stock is a share of ownership in a company (you’re a shareholder).

Define Multinational.

A firm that sells and produces products in multiple countries.

Define Conglomerate.

A firm made up of many unrelated divisions or subsidiaries.

Define Vertical merger.

Companies at different stages of the supply chain.

Define Horizontal merger.

Companies in the same industry.

Examples of nonprofit organizations?

Schools, churches, hospitals.

Advantages of forming a corporation?

No personal risk to entrepreneurs' private assets, ease of raising start-up capital by selling stock.

Disadvantages of forming a corporation?

Complicated to set up, costly to establish, more government regulation.

What is the riskiest investment that can give you the highest return?

Stocks.

What is the purpose of the FDIC?

To protect deposits in a bank in case the bank fails, insuring $250,000.

List the 3 functions of money.

Medium of exchange, measure of value, store of value.

Difference between fiat money and commodity money?

Commodity Money uses items like tea and tobacco; Fiat Money is declared by government decree with no intrinsic value.

Money loses its value when what happens?

Inflation, because there is too much of it in the system.

Difference between mandatory spending and discretionary spending?

Mandatory spending is regulated by law; discretionary spending is optional.

Where do local governments spend the most money?

Education.

Where does the federal government get most of its revenue?

Individual income taxes.

Where do states get most of their revenue from?

Intergovernmental revenue from the federal government.

What are the 4 sectors of the economy?

Consumer, government, investment, export.

What is the largest sector of our economy?

The consumer.

Write down the output expenditure model.

C + G + I + (X-M) = GDP.

Difference between real and nominal GDP?

Nominal GDP is not adjusted for inflation; Real GDP is adjusted for inflation.

Who is included in the unemployment rate?

People who are unemployed but are looking for a job between the ages of 16-65.

Define inflation.

The rate at which prices go up over time.

Explain structural unemployment.

A reduction in demand for workers due to a fundamental change in the operations of the economy.

Explain cyclical unemployment.

Unemployment caused by a low level of aggregate demand due to swings in the business cycle.

Explain frictional unemployment.

Individuals temporarily between jobs who suffer little economic hardship.

Why is GDP important?

It indicates how mature a country's economy is over the course of a year.

Who is included in the unemployment rate?

People aged 16 and older looking for a job.

What does increasing overall price level indicate?

The economy is experiencing inflation.

What types of unemployment is the economy experiencing during a recession?

Structural and frictional unemployment.

What is the most important measure of a country's economy?

The real GDP.

Example of discretionary spending?

Spending on entertainment.

What does the wavy line in a business cycle represent?

GDP.

What happens after the peak in the business cycle?

Recession.

Where does the federal government get most of its revenue from?

Individual income taxes.

Define a liquid investment.

A state of matter that flows, has a definite volume but no fixed shape.

What is the ideal interest rate for an investment?

4-6%.

What is the goal for the annual inflation rate in the United States?

1-2%.

Who insures your bank deposits for up to $250,000?

The FDIC.

Example of a corporation?

Nike.

What is the cost of borrowing money?

Interest rate.