Economic Midterm Study Guide

1. Efficiency - Most effective use of resources.

2. Barter economy - Trading good and services for other goods and services.

3. Profit motive - Wanting to earn a profit, or a larger profit--is what motivates producers in a perfect market.

4. Demand vs Supply - Supply is How much of a good or service is available for consumers to buy and Demand is How much of a good or service consumers want and are able to buy

5. Equity - Absolute equality of outcomes.

6. Public, Private, and Government sectors of the economy - Private Sector is Businesses and  Public Sector is Government owned or owned by the people and Government is aligns with the public sector, representing the part of the economy directly controlled by the government at all levels - local, state, and federal.

7. Voluntary exchange - Consumers and producers buy and sell goods and services at prices that both agree to.

8. Difference in degrees…masters, batchelors, doctorate - 

Master’s Degree – Two-year degree that shows mastery of a specialized field of study Doctorate Degree – Shows the highest level of specialization in a field Undergraduate Degree (Bachelor's Degree)–Usually takes four years at a college or university and represents study in an academic field

9. GED - Earned by passing a test that shows that you have learned a high-school level of knowledge.

10. Minor - Field that a student focuses on outside of their major.

11. Major - Undergraduate field that a student specializes in.

12. What are trade offs?  How to figure opportunity cost -  The act of giving up one item of value for another item of value  (p.179) So how to figure opportunity cost: How much it cost to produce another unit of output (goods or services).

13. Budget - How you decide to spend money.

14. Instant gratification - Immediate reward.

15. Gross Income - Money you earn from a job before taxes

16. Net income - Income after taxes

17. Disposable vs Discretionary Income…calculating - Disposable: income after taxes. Discretionary: income left after taxes and living expenses.

18. Taxable Income…calculating - 

19. Passive Income - Money you earn that is not from working.

20. Fixed vs variable expenses - Fixed Expenses–Expenses that remain the same from month to month. 

Variable Expenses–Expenses that change from month to month.

21. Escrow account - Money held by a third party for a specific purpose.

22. Aggressive vs Conservative investments - Aggressive Investment is Investments with a high chance of risk and Conservative Investment is Investments with a low chance of risk.

23. Excise tax - Taxes on specific products like airline tickets, cigarettes, and alcohol…used to pay for cost of the product or discourage use of the product.

24. Social security - Program meant to provide for income to individuals who have reached the age of legal retirement or are unable to work.

25. Medicare - Government-run health insurance program for seniors.

26. Estate tax - Taxes placed on the value of a percent of a person’s property (their estate) after they die…Serves the purpose of a tax on wealth.

27. Corporate tax - Taxes placed on business profits

28. Capital gains tax - Tax paid when an investment such as a stocks are sold for profit

29. Progressive vs flat tax - Progressive Tax is paid at a different rate depending on the level of income and flat tax is Tax paid in the same proportion regardless of income

30. Surplus vs deficit - Surplus is when the Government raises more funds in taxes than it spends and Deficit is when the Government spends more money than it takes in through taxes.

31. Medicaid - Government-run health insurance program for lower income people.

32. Goods vs Services - Goods are tangible, meaning they can be touched. And services are activities such as medical treatment that are bartered (traded) or sold as if they are products.

33. Consumers vs Producers - Producers produce goods or services and Consumers buy goods or services.

34. What is scarcity?  What does it cause? - It is the lack of adequate resources to obtain unlimited wants. it can cause  temporary lack of a good or service caused by an event in the market.

35. Know the differences between the 3 basic economic systems 

1. What to make

2. How to make it

3. For whom

36. Know the three basic economic questions that all economics systems must answer 

1. What to make

2. How to make it

3. For whom

37. Know the five steps in the rational decision making process in order 

A. Define the problem

            B.  List the alternatives 

            C. Understand your criteria 

            D.Evaluate alternatives on basis of your criteria

            E. Make a decision

38. Identify the three parts of a financial plan in order 

1. Looks at current financial situation 

2. Goals for future 

3. Plans to meet their goals

39. Be able to explain the two criteria for an economic activity to be considered a public good or service 

A. Citizens cannot be prevented from using them (nonexcludable)

B. They can be used by many and possibly all citizens at the same time (nonrivalrous)

40. Mandatory spending areas

Security

B. Medicare 

C. Interest on Federal Debt 

D. Entitlement Programs

41. Buyers vs sellers market

1. Buyer’s Market–Market with more sellers than buyers.

2. Seller’s Market–Market with more buyers than sellers.

42. Determinants of demand 

1. Income Price 

2. Taste and preferences 

3. Prices of related goods 

4. Services expectations

43. Finding disposable and discretionary income

Answer : disposable income is money you have after taking out/paying your taxes. Discretionary income is money left over after paying your taxes and other living expenses

44. Finding net income using federal, state and FICA taxes

Answer : Medicare: 1.45 

           Social security: 6.2 

                State: 4.99