EPF Midterm Review

benefit

monetary or non-monetary gain received because of an action taken or a decision made

marginal benefit

the additional gain from consuming or producing one or more unit of a good or service (dollars OR satisfaction)

human resources

the effort of people which is applied to the production of goods/services

capital resources

2 types - physical and human

physical capital

man-made goods (machines, tools, buildings, etc.) used in the production of goods/services

human capital

skills/knowledge a person has acquired through experience/education

entrepreneurs

individuals who are willing to take risks, to bring the other resources together and develop new products, and start new businesses.

opportunity cost

the 2nd best alternative

trade-off

giving up a benefit to gain another that is seen as more advantageous

resources

things we have a limited supply of (personal resources and productive resources)

scarcity

not being able to have everything you want; unlimited wants and limited resources

values

things that are important to you

needs vs. wants

needs = required

wants = want, but not need

characteristics of a *traditional* economy

means to produce products are passed down through generations (tribes/remote areas)

characteristics of a *command* economy

gvnmt makes most econ decisions... individuals have no say in production/what their job will be

characteristics of a *market* economy

people own resources and businesses; purpose of business is to make a profit; businesses are free to choose what they offer; customers are free to buy whatever w/o gvnmt involvement

mixed economy

market and command economies combined

consumer economics

the study of the role a consumer plays in an economic system

consumer sovereignty

consumers rule!!

Adam Smith

"Father of Economics" and author of The Wealth of Nations

Federal Trade Commission (FTC)

Protects consumers from unfair or deceptive business practices (misleading info)

Consumer Product Safety Commission (CPSC)

protects consumers from dangerous products (sets safety standards)

Environmental Protection Agency (EPA)

enforces laws that protect environment (disposing of hazardous waste correctly, setting standards of air/water quality, etc.)

Better Business Bureau (BBB)

Nonprofit organization; resolves disputes btwn consumers/sellers; keeps a file of computers by providing info to consumers; promotes honest advertising

1. right to safety

2. right to be informed

3. right to choose

4. right to be heard

5. right to redress

6. right to a consumer edu.

7. right to a healthy environment

List the 7 Consumer rights

payroll taxes

placed on income earned (based on individual's total earnings and tax laws)

income taxes

taxes you pay on most types of income you receive

FICA (Federal Insurance Contributions Act)

requires workers and their employers to contribute to Social Security and Medicare

withholding

employer deductions are an ex. of this

gross income

amount you earn before taxes are withheld

net income

amount you earn after taxes are withheld

1. gross income

2. # of dependents

3. other expenses

what does your income tax depend on?

W-4 form

must fill out when hired; provides employer w/ proper amount to withhold from your paycheck

your allowance

what reduces the amount of income withheld from your pay?

...the smaller the amount withheld will be.

the more allowances you claim...

wages, interest earned, dividends, tips, allowance, etc.

income includes...

tax return

a set of forms that taxpayers use to calculate their tax obligation

form W-2

summary of earnings and withholdings - yearly (must be provided no later than Jan. 31 each year)

form 1099-INT

statement of the interest your bank paid on your savings that year (bank must send to you and the IRS)

20%

how much of all income goes to the gvnmt each year?

from income taxes

where does the gvnmt get most of its funds?

employers and employees

who pays for social security and medicare

benefit principle

those who use a good/service provided by the gvnmt should pay for it

ability to pay principle

those who have larger incomes should pay a larger share of what they receive

progressive taxes

larger share of higher incomes (Federal Income Tax)

regressive taxes

smaller share of higher incomes than of lower incomes (Sales tax)

proportional taxes

same share of all incomes (Property tax)

direct taxes

taxes paid directly to the gvnmt (income and property taxes)

indirect taxes

taxes that are included in the cost of a good or service (rent helps landlord pay for property taxes)

pay-as-you-earn taxes

paid as you earn income (Federal income tax)

sales tax

added to the price of goods and services at the time of purchase

property tax

taxes on the value of real property

excise taxes

collected on the sale of specific goods and services

estate tax

tax on property received by the legal heirs when someone dies

gift tax

tax paid by the giver of gifts worth more than $13,000

business/license tax

fee paid for a license, permit, or stamp to operate certain kinds of businesses

customs, duties, or tariffs

taxes imposed on imports

bring in revenue and to influence consumer spending

gvnmts use taxes to...

lowering taxes

...can help to improve the economy

- roads

- fire/police officers

- criminal justice system

- schools

- state colleges/universities

- sewage treatment

- unemployment compensation programs

gvnmts provide...

1. have credit/use it responsibly

2. maintain bank account balances

3. earn a paycheck

4. pay bills on time

5. pay rent

5 positive steps to take to establish credit

P

principle amount

r

annual rate of interest (formula value)

t

# of years the amount is deposited or borrowed for

A

amount of money accumulated after n years (including interest)

n

# of times the interest is compounded per year

APR (annual percentage rate)

rate + any fees or loan costs

(applies to credit cards, car financing options, etc.)

fixed interest rates

stay the same for the life of the loan/account

adjustable interest rates

change at specified times (month/year - changes payment amount)

credit limit

max. amount to be borrowed at one time

min. balance requirement

a sum of money that must remain in a savings/investment account (often higher in MMDAs than savings account)

origination fee

charge to process your loan (lowest is best)

grace period

amount of time before interest starts accumulating on a loan/credit card

down payment

Money you pay upfront toward the purchase to reduce the loan amount (Some car and mortgage loans will require a down payment for approval)

garnish **

an enforceable, legal action wherein the lender takes money from your wages to collect on a debt

revolving credit

lets you borrow up to a maximum dollar amount whenever you want without applying for credit each time (no set payoff date) (ex. CREDIT CARD)

installment credit (close-ended credit)

entire amount is paid to you at one time (then you repay the loan with interest in a set # of equal payments by a specific payoff date) (ex. MORTGAGE, STUDENT LOAN, CAR LOAN)

Bureau of Labor Statistics

what agency calculates the CPI, inflation, and unemployment rates?

1. growth in money supply

2. changes in aggregate demand

3. changes in aggregate supply

list 3 causes of inflation

1. decrease in purchasing power

2. erodes income

3. decrease in interest rate

list 3 effects of inflation

structural unemployment

economy changes or different skills are needed

seasonal unemployment

slow or shut down production schedules (farming)

cyclical unemployment

rises during economic downturns/falls when economy improves

frictional unemployment

taking time to find a job

risk

the uncertainty of achieving a desired result

insurance

popular means of sharing risk (reimburses you for unexpected losses or damages caused by a specific set of hazards)

premium

fee that is only a fraction of the pay out

deductible

the fee insurers require you to pay (relatively small fraction of the loss before they will pay out)

1. the unexpected does happen

2. mandated by law

3. lender says so

list 3 reasons NOT to ignore insurance

insurance policy

a legal contract btwn an insurance company and the policyholder buying the insurance

policy holder

the person obtaining the insurance

coverage limit

max. amount the insurer will pay for losses, which is described in the policy

conditions

spell out what the insurer won't pay for and what you must do to get payment for a loss

riders

specific items (usually high in value) that additional coverage can be purchased to supplement your regular insurance policy

appraisal

a professional opinion on the value of your property (determines replacement cost)

1. auto insurance

2. property (homeowners'/renters') insurance

what are the "big ticket" insurance policies?

1. unemployment insurance

2. disability insurance

what insurances protect your income?

1. liability insurance

2. fidelity bonds

what insurances protect others?

1. health insurance

2. workers' compensation

3. life insurance

what insurances protect you AND your family?

auto insurance

covers you in case of a vehicle accident, break in, or theft (covers passengers/anyone you hit w/ car, too)