BASIS SA Shavano Campus 8th grade economics comp study guide

What is scarcity?

Limited quantities of resources to meet unlimited wants

What are the factors of production?

land, labor, capital, entrepreneur

What are the 3 fundamental economic questions?

1. What to produce?

2. How to produce?

3. For whom to produce?

What is the law of diminishing marginal utility?

The satisfaction received by obtaining one more unit of a good declines as one consumes more of it

What is the law of demand?

as price increases, demand decreases

What is efficiency?

using resources to maximize production

What is the law of increasing opportunity cost?

As you produce more of any good, the opportunity cost will increase.

What is absolute advantage?

the ability to produce a good using fewer inputs than another producer

What is comparative advantage?

the ability to produce a good at a lower opportunity cost than another producer

What does a PPC show?

• Opportunity cost

• Scarcity

• What you can and cannot produce

• The cost of producing the other good

What is marginal cost?

the cost of producing one more unit of a good

What is diminishing marginal utility?

a law of economics stating that as a person increases consumption of a product while keeping consumption of other products constant, there is a decline in the marginal utility that person derives from consuming each additional unit of that product.

What is marginal utility?

The change in total utility when an extra unit of output is consumed.

What is total utility?

The overall benefit gained from consuming a good

What are the characteristics of market economy?

consumers and firms rule. they answer 3 questions

What are the characteristics of mixed economy?

consumers, firms, and government answers the 3 questions

What are the characteristics of a command economy?

government answers the 3 questions

What are the characteristics of a traditional economy?

habit, ritual, and custom answers the 3 questions

Who was Adam Smith?

Father of Economics

What are the determinants of supply?

technology, related goods, number of suppliers, and price expectations

What are the determinants of demand?

tastes and preferences, related goods, change in consumer's income, number of buyers, expectations

What is elasticity of supply?

a measure of how responsive producers are to price changes in the marketplace

What is elastic supply?

A small change in price causes a major change in the quantity supplied

What is inelastic supply?

exists when a change in a good's price has little impact on the quantity supplied

What is elasticity of demand?

a measure of how consumers react to a change in price

What is elastic demand?

consumers buy more or less of a product when the price changes

What is inelastic demand?

an increase or decrease in price will not significantly affect demand

What are two price controls?

price ceiling and price floor

What is a shortage?

when quantity demanded is greater than quantity supplied

What is a surplus?

when quantity supplied is greater than quantity demanded

What are fixed costs?

Costs that do not vary with the quantity of output produced

What are variable costs?

costs that vary with the quantity of output produced

What is total cost?

the sum of fixed and variable costs

What is economies of scale?

when the average cost of producing a good or service falls as the quantity produced increases

What is constant returns to scale?

the property whereby long-run average total cost stays the same as the quantity of output changes

What is diseconomies of scale?

the property whereby long-run average total cost rises as the quantity of output increases

What is marginal product?

the increase in output that arises from an additional unit of input

What is profit?

total revenue - total cost

When does profit maximization occur?

when MR=MC

What is perfect competition?

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

What is an oligopoly?

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

What is a monopoly?

when a single group controls the production of a good or service

What is monopolistic competition?

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

What is a public good?

a good that is both nonrivalrous and nonexcludable

What is a private good?

a good that is both rival and excludable

What is a progressive tax?

a tax in which the tax rate increases as the taxable amount increases

What is a regressive tax?

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

What is a proportional tax?

a tax that takes the same percentage of income from all taxpayers regardless of income level

What is a positive externality?

when one person's consumption positively effects a third party

What is a negative externality?

when one person's consumption negatively effects a third party

What is a tax?

a charge by the gov on people or property to meet public need

What is a subsidy?

A government payment that supports a business or market

What is the Coase Theorem?

under certain conditions, when externalities are present, private parties can arrive at the efficient solution without government involvement

What is GDP?

the market value of all final goods and services produced within a country in a given period of time

What is not included in GDP?

-Intermediate goods

-Non-production Transactions

-Non-Market (Illegal) Activities

What is included in GDP?

final goods and services

What is inflation?

a general increase in prices and fall in the purchasing value of money.

What is the consumer price index?

a measure of the overall cost of the goods and services bought by a typical consumer

What is real GDP?

the value of final goods and services evaluated at base-year prices

What is nominal GDP?

GDP measured in current prices

What is unemployment?

workers that are actively looking for a job but aren't working

What is structural unemployment?

When people do not have the necessary skills to fill available job openings.

What is frictional unemployment?

the unemployment which exists in any economy due to people being in the process of moving from one job to another.

What is cyclical unemployment?

unemployment caused by the lack of jobs during a recession

What is aggregate demand?

Demand for all goods and services produced in an economy.

What is aggregate supply?

Supply of all goods and services produced in an economy.

What determines AD?

C, I, G, M , and X

What determines AS?

size of labor force, input prices, technology, productivity, taxes/subsidies, and capital

What are sticky wages?

nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages

What is fiscal policy?

government adjusts its spending levels and tax rates to monitor and influence a nation's economy

What is expansionary fiscal policy?

means an increase in government spending and a decrease in taxes, which increases the aggregate demand and which shifts the aggregate demand curve to the right

What is contractionary fiscal policy?

means a decrease in government spending and an increase in taxes, which decreases the aggregate demand and which shifts the aggregate demand curve to the left.

What is national debt?

the total amount owed by the federal government

What are the 3 functions of money?

1. medium of exchange

2. unit of account

3. store of value

What are the characteristics of money?

durability, portability, divisibility, uniformity, limited supply, acceptability

What are the functions of the central bank?

open market operations, changing interest rates, changing discount rates, and reserve ratio

What is monetary policy?

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

What is expansionary monetary policy?

monetary policy that increases aggregate demand

What is contractionary monetary policy?

decreasing the money supply

What is a tariff?

A tax on imported goods