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Econ semester 1
mr. brennan econ review
| Question | Answer |
|---|---|
| Difference between shortage and scarcity | shortage: consumers want more of a good or service than producers are willing to make available at a particular price Scarcity: limited amounts of goods and services are available to meet unlimited wants |
| Relationship between Opportunity Cost and Choice | opportunity cost is the most desirable alternative given up as the result of a decision ex) sleep late or get up early and study for a test |
| How many categories of goods are there on a production possibilities curve | two, one on each axis. Ex) hats on one axis, shoes on another |
| What is the Guns or Butter decision | a country produces more military goods than consumer goods or vice versa |
| Causes of underutilization | use of less resources than the country is capable of |
| Decision making at the margin: how is it done | look at all the options and look at the benefits and opportunity costs of each and choose the best choice |
| The Effect on of the Stock Market Crash on the US Business Cycle | chaos? |
| The Law of increasing cost to change from one thing to another | as production shifts from making one good or service to another, more and more resources are needed to increase production of the second good or service |
| What is a trade-off | giving up one benefit in order to gain another, greater benefit |
| Why does scarcity require us to make choices | there simply are not enough goods and services to supply all of society’s needs and wants. The resources themselves are scarce |
| What to societies use to answer the three basic economic questions | an economic system |
| How factors of production are combined will determine the answer to which economic question | How should goods and services be produced? |
| Who uses traditional economies | family communities (Amish) |
| What is the “invisible hand” | self-interest and competition that regulate the economy |
| How do the economies of China and North Korea differ | North Korea: totally dominated by government China: more private business owners |
| What does the circular flow model show | the interactions between households and firms in the free market |
| How does the constitution protect free enterprise | protects property rights, contracts, and other business activities |
| Ways the government might use to promote economic growth | cut taxes, increase spending |
| What are positive externalities | the beneficial side effects from public goods |
| How do education programs affect the economy | the more educated workers are generally more productive |
| Role of government in a free enterprise system | pass laws to protect consumers ex) drug safety |
| What is a negative externality | unintended costs to be paid for by someone other than the producer |
| How does a free market encourage new technology development | to operate more efficiently, increasing GDP, and giving competitive advantage over the world |
| How do rising prices effect demand | higher prices = lower demand |
| Effect of advertising on demand | advertising increases demand (fads) |
| Effect on demand by the availability of many substitutes | substitutes = drop in demand |
| How is total output set to maximize profit | output with the highest profit = biggest gap between total revenue and total cost |
| Total cost is what? | fixed costs + variable costs = total costs |
| Mathematical formula for calculating average cost | total cost/quantity |
| When demand goes up what happens to price | up |
| When sellers and buyers equal each other | equilibrium |
| What happens to price with excess demand | price goes down |
| What is rent control | a price ceiling placed on apartment rent |
| The effect on price when there is a surplus | price will fall until equilibrium is met |
| What is a commodity | a product that is considered the same no matter who produces or sells it Ex) petroleum or milk |
| Why do the Colts get Anti-Trust exemption | they only want one team per city, they don’t want a bunch of different leagues…they want competition |
| Types of businesses that take advantage of economies of scale | factories |
| Benefits of deregulation for consumers | price controls and barriers to entry are gone so competition is increased and prices are lower |
| Perfectly competitive markets and the control of price | lowest sustainable prices possible |
| What is frictional unemployment in the US | many people (when many people take time to find a job) |
| Programs that State and Federal government share the cost of | medicade and unemployment compensation and other social programs |
| The effect of sub-prime mortgages on the banking industry in 2006 | increased delinquencies and foreclosures… people couldn’t pay it. |
| Why does the government sometimes give monopoly power with patents | patents guarantee that companies can profit from their own research without competition. Can set prices that maximize opportunity to make a profit |
| What are complete barriers to entry in a monopoly | any factor that makes it difficult for a new firm to enter the market ex)start-up cost and technology |
| Beneficiaries of price discrimination | consumers! |
| Causes of imperfect competition | carriers to entry |
| Definition of price discrimination | the decision of consumers into groups based on how much they will pay for a good |
| Effect of deregulation on the travel industry | airlines competed for busiest routes and prices decreased |
| What is durability of currency | withstands wear and tear that comes with being used over and over |
| Problems of commodity money | not portable, durable, or divisible |
| Difference between simple and compound interest | simple: interest paid only on principal (amount borrowed) Compound: interest paid on both interest and accumulated interest |
| Federalist’s beliefs about banking | strong central bank – national bank |
| A prospectus | an investment report that provides information to potential investors |
| Why would you buy a junk bond | they can yield a greater percent interest than the gov. |
| The effect on stock prices during the Great Crash of 1929 | rising prices lead to speculation and the great depression |
| What is a Blue Chip stock | the companies that are the most sound, and are expected to do very well so they are in the highest demand. |
| What is a savings bond and how is it different from other bonds | savings bonds are low denomination ($50-$10,000) to pay for public projects. Difference: doesn’t send interest payments to bond holders on a regular schedule. Purchaser buys them for less than par value |
| What is diversification in investing and how do you do it | the strategy of spreading out investments to reduce risks How to: put it in different places, pool with other people |
| Nondurable goods | goods that last a short period ex) food, light bulbs, and sneakers |
| Limits of GDP | nonmarket activities (cooking dinner), underground economy (baby sitting), negative externalities (dust from power plant is hurting environment), quality of life (pleasant surroundings, safety) |
| What happens when interest rates go up | consumers are less likely to buy the product |
| Uses of real GDP per capita versus real GDP | real GDP: can discover whether an economy is actually producing more goods and services regardless of changes in prices Real GDP per capita: it shows if the GDP is growing with the increase in population |
| Durable goods | goods that last a relatively long time ex) DVD players or cars |
| How can negative consumer expectations affect GDP | reduce spending which causes a contraction and low GDP |
| What is capital deepening | increasing the amount of capital per worker |
| Why do we have seasonal unemployment | it occurs as a result of harvest schedules, vacations, or when industries make seasonal shifts in their production schedule. |
| What is underemployed workers | over qualifies or working part-time when full-time is desired |
| Return on investment minus the effect of inflation | real interest rate |
| What is the Earned Income Tax Credits’ purpose | to offset the impact of the social security payroll tax on low-income families (antipoverty program) |
| Why are Americans shocked by inflation in the 1980’s | it spiked to the highest level ever, sharp increase |
| Causes of sharp increases in inflation | demand for a good or service exceeds supply at current prices or production in restricted ex) drought = poor harvest |
| What gives the government the right to collect taxes | the constitution |
| Progressive tax rate and the income tax rate | progressive and income are both the more you make the higher percentage of taxed you pay |
| Reason for growing Social Security and Medicare costs in the future | the baby boomers |
| How do states finance capital budgets | long-term borrowing or sale of bonds |
| Sales taxes are what type of tax | state tax |
| Examples of state spending | education, public safety, highways and transportation, public welfare, arts and recreation, administration |
| What can Congress do if the President veto’s the budget | they can either vote to override the veto or work with the president to write an appropriations bill on which both sides agree |
| Economic Theory behind the Great Society | Keynesian |
| Keynesian view on controlling recession | increase government spending or cut taxes until equilibrium is back |
| Reason’s the Fed controls the money supply | to stabilize the economy and the demand for money |
| The reason for streamlined inside lag of monetary policy | it takes time to identify a problem, and additional time to enact policies |
| Monetary policy used to control rising inflation | tight money policy (reduces money supply) |
| US position in world trade | largest exporter of services and largest importer |
| Meaning behind a strong currency | dollar increases in value in the currency |
| Ways to protect domestic economy from multinational corporations | make rules requiring multinationals to export a certain percentage of their products |
| Effects of lower tariffs for consumers | lower tariff = lower prices |
| What are factors of production | land, labor, capital |
| Why portability important characteristic of money | it’s easier to carry it around |
| Reason for expansionary fiscal policy | to raise the level of output in an economy, to promote growth to get out of recession or prevent one |
| Law of comparative advantage | a nation is better off when it produces goods and services for which it has a comparative advantage |
| What is the FOMC and it’s main job | federal open market committee makes hey monetary policy decisions about interest rates and the growth of U.S. money supply |
| Relataionship between start up costs and competitive market | high start up costs decrease competition |
Created by:
kelseystein
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