POD B Final Exam Review

Economics

the study of how society manages its scarce resources.

Opportunity Cost

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

Resources are limited wants are

unlimited

economic system

the method used by a society to produce and distribute goods and services

Economic system of the United States

capitalist economy

market economy

command economy

An economic system in which the government makes all economic decisions.

factors of production

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

labor

Human effort directed toward producing goods and services

Capital

Assets that are owned in the production of goods and services. Examples include machine, or experts in production.

scarce

limited

Entreprenuer

a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.

Key Economic Questions

What goods and services should be produced?

How should these goods and services be produced?

Who consumes these goods and services?

Law of Supply

producers offer more of a good as its price increases and less as its price falls

Law of Demand

consumers buy more of a good when its price decreases and less when its price increases

quantity supplied

the amount a supplier is willing and able to supply at a certain price

quanitity demanded

the amount of a good that buyers are willing and able to purchase

demand

the quantity of a good or service that consumers are willing and able to buy

supply

The quantity of something that producers have available for sale

Demand Curve Shifters

number of buyers, income, prices of related goods, tastes, expectations

supply curve shifters

input prices, technology, \# of sellers, expectations

movement along the demand curve

a change in the quantity demanded of a good that is the result of a change in that good's price

movement along the supply curve

a change in the quantity supplied of a good arising from a change in the good's price

substitute goods

Products or services that can be used in place of each other. When the price of one falls, the demand for the other product falls; conversely, when the price of one product rises, the demand for the other product rises.

complementary goods

Goods that are commonly used with other goods

Oligoploy

A market structure in which a few large firms dominate a market

clothing brands often belong in monopolistic competition because

Many companies have a small share of each market

Monopoly

A market in which there are many buyers but only one seller.

positive externality

beneficial side effect that affects an uninvolved third party

GDP

Gross Domestic Product- the total market value of all final goods and services produced annually in an economy

final goods and services

goods and services sold to the final, or end, user

Nominal GDP

GDP measured in current prices

Real GDP

the production of goods and services valued at constant prices

purchasing power

a comparison of income versus the relative cost of a standard set of goods and services in different geographic areas

frictional unemployment

A type of unemployment caused by workers voluntarily changing jobs and by temporary layoffs; unemployed workers between jobs.

seasonal unemployment

unemployment caused by seasonal changes in the demand for certain kinds of labor

structual unemployment

Unemployment caused by changes in production

cyclical unemployment

unemployment that rises during economic downturns and falls when the economy improves

GDP per capita

Gross domestic product divided by the number of people in the population.assesses standard of living

recession

a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

fiscal policy

Government policy that attempts to manage the economy by controlling taxing and spending.

mandatory spending

Federal spending required by law that continues without the need for annual approvals by Congress.

discretionary spending

Federal spending on programs that are controlled through the regular budget process

public goods and services

Goods and services provided by a government for the use of all people.

Credit

An arrangement to receive cash, goods, or services now and pay for them in the future.

401(k) plan

a tax-deferred investment and savings plan that acts as a personal pension fund for employees

Certificate of Deposit

a certificate issued by a bank to a person depositing money for a specified length of time.

W-4 Form

a form employment form required by law that you complete so that your employer can determine the proper amount to withhold from your paycheck

W-2 Tax Form

the form that an employer must send to an employee and the Internal Revenue Service (IRS) at the end of the year.

Net Pay (Take Home Pay)

Amount of income left after taxes and deductions have been taken out.

interest rate

Percentage of amount borrowed to be added to the amount loaned and paid back

savings

Portion of income not spent on consumption

investment

the act of redirecting resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit

1040

A tax form filled out by an individual and filed with the IRS that determines the amount of income tax owed in a single year.

free rider problem

For a group, the problem of people not joining because they can benefit from the group's activities without joining.

Monetary policy

the setting of the money supply by policymakers in the central bank

Federal Reserve System

The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates

expansionary monetary policy

Federal Reserve system actions to increase the money supply, lower interest rates, and expand real GDP; an easy money policy.

contractionary monetary policy

the Federal Reserve's policy of increasing interest rates to reduce inflation

discount rate

the minimum interest rate set by the Federal Reserve for lending to other banks.

regressive tax

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

progressive tax

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

automatic stabilizers

changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policymakers having to take any deliberate action

flat tax

proportional tax on individual income after a specified threshold has been reached

Stocks

shares of ownership in a company

compound interest

interest earned on both the principal amount and any interest already earned