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Economics Final
Cumulative exam on the material covered in Spring Semester
| Question | Answer |
|---|---|
| Traditional Economy | The use of scarce resources stems from ritual, habit, or custom. Economic decisions are made by ancestors or elders. |
| Market Economy | The use of scarce resources is dispersed throughout the society. Economic decisions are made by individuals. |
| Command Economy | The use of scarce resources is determined by a central authority. Economic decisions are made by the government. |
| Mixed Economy | The only kind of economic system that exists in the real world. All other systems are theoretical ideals. |
| Socialism | Basic productive resources are gov't owned, the rest are privately owned. Gov't plans and directs allocation of resources in key industries. |
| Capitalism | Productive resources are privately owned and operated. Resources for production are obtained by individuals' desire for profit but the gov't may promote competition and provide public goods. |
| Communism | All productive resources are gov't owned and operated, centralized planning directs resources, and gov't makes all economic decisions. |
| Name 3 examples of command elements in the US economy: | Monopoly Laws, Emissions Standards, Quality Assurance Laws, Licenses |
| In the circular flow matrix, businesses sell goods and services where? | The product market |
| What is money paid to businesses for goods and services called? | Revenue |
| What is money paid by businesses for resources called? | Costs |
| What is money paid to households for resources called? | Income |
| What is money paid by households for goods and services called? | Spending |
| What kind of income is paid for land? | Rent |
| What kind of income is paid for capital? | Interest |
| What kind of income is paid for labor? | Wages |
| What kind of income is paid for entrepreneurs? | Profits |
| What is government money given as incentives to businesses called? | Subsidies |
| What is government money given directly to households called? | Welfare |
| What is money given by businesses and households in exchange for public goods? | Taxes |
| Monopoly | Market structure with only one seller of a particular product. |
| Oligopoly | Market structure in which a few very large sellers dominate an industry. |
| Monopolistic Competition | Market structure that has all the conditions of perfect competition except identical products. |
| Perfect Competition | A market structure characterized by a large number of well informed independent buyers and sellers who exchange identical products. |
| Benefits of competition: | Higher quality goods and services, improved service, lower prices, increased innovation , more adaptive workforce |
| In the circular flow matrix, households sell the factors of production where? | The resource market |
| Advantages of a command economy: | Capable of quick, dramatic change; many basic public services available at little or no direct cost |
| Disadvantages of a command economy: | Does not meet the needs and wants of consumers; Lacks effective incentives to get people to work; Requires large bureaucracy, which consumes resources; Has little flexibility for day to day change; Inefficient allocation of resources |
| Advantages of traditional economies: | Sets forth clear economic roles for all members of the community; stable, predictable, and continuous life |
| Disadvantages of traditional economies: | Discourages new ideas; Stagnation and lack of progress; Lower standards of living |
| Advantages of market economies: | Individual freedom; capable of gradual adjustment to change; lack of gov't interference; high variety of goods and services; higher degree of consumer satisfaction; higher standards of living |
| Disadvantages of market economies: | rewards only productive resources (not the young, old, or sick); does not produce public goods; workers and businesses face uncertainty from competition or change |
| Good | Tangible economic product that is useful, relatively scarce, transferable to others; used to satisfy wants and needs |
| Scarcity | fundamental economic problem facing all societies that results from a combination of limited resources and people's virtually unlimited wants |
| Economic | social science dealing with the study of how people satisfy seemingly unlimited and competing wants with the careful use of scarce resources |
| Need | basic requirement for survival; includes food, clothing, and/or shelter |
| Want | something we would like to have but it is not necessary for survival |
| Factors of Production | productive resources that make up the four categories of land, capital, labor, and entrepreneurship |
| Land | natural resources or "gifts of nature" not created by human effort; one of four factors of production |
| Capital | tools, equipment, and factories used in the production of goods and services; one of four factors of production |
| Labor | people with all their abilities and efforts; one of the four factors of production, does not include the entrepreneur |
| Entrepreneur | risk-taking individual in search of profits; one of four factors of production |
| Gross Domestic Product | dollar value of all final goods, services, and structures produced within a country's national borders during a one-year period |
| Service | work or labor preformed for someone; economic product that includes haircuts, home repairs, forms of entertainment |
| Value | worth of a good or service as determined by the market |
| Paradox of Value | apparent contradiction between the high value of a nonessential item and the low value of an essential item |
| utility | ability or capacity of a good or service to be useful and give satisfaction to someone |
| wealth | sum of tangible economic goods that are scarce, useful, and transferable from one person to another; excludes services |
| Economic Growth | increase in a nation's total output of goods and services over time |
| Productivity | measure of the amount of output produced with a given amount of productive factors; normally refers to labor, but can apply to all factors or production |
| human capital | sum of peoples' skills, abilities, health, and motivation |
| Specialization | division of work into a number of separate tasks to be preformed by different workers |
| opportunity cost | the loss of the next best alternative use of money, time, or resources when one choice is made rather than another |
| economic model | simplified version of a complex concept or behavior expressed in the form of an equation, graph, or illustration |
| cost-benefit analysis | way of thinking that compares the cost of an action to its benefits |
| Standard of Living | quality of life based on ownership of necessities and luxuries that make life easier |
| Commodity | Kind of money where items of value are traded of other items of roughly the same value: |
| Representative | Kind of money where a paper note can be exchanged at a financial institution for pre-determined amount of valuable goods (i.e. gold, etc...) |
| Fiat | Kind of money based on trust in the stability and power of the government that mints currency: |
| 1900 | When did the first paper money get created in the United States? |
| Three basic questions of economics: | What is the produce? How to produce it? For whom to produce? |
| Inflation | a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency |
| Which statistic measures the total size of an economy? | GDP |
| Which measures (roughly) the average wealth of individuals in an economy? | GDP per capita |
| Which is better for comparing a countries economic growth from year to year? | Real GDP |
| What is generally considered to be a healthy level of inflation for a developed economy? | 3% |
| At 3% inflation prices double every... | 24 years |
| What are the 4 pillars of the American Free Enterprise system? | Economic Freedom, Voluntary Exchange, Private Property Rights, Profit Motive |
| Proportional Tax | imposes the same percentage tax rate on everyone, regardless of income |
| Progressive Tax | imposes a higher percentage rate of taxation on higher incomes than lower incomes |
| Regressive Tax | imposes a higher percentage tax rate on lower incomes than higher incomes |
| Example of Proportional Tax | Medicare |
| Example of Progressive Tax | Federal Income Tax |
| Example of Regressive Tax | Sales Tax |
| Name 3 sources of income that are taxable | Wages, investment interest, lottery winnings, rental income, cash earnings, salary, commissions, |
| Name 3 sources of income that are non-taxable | gifts, inheritance, welfare, child support, retail cash rebates, alimony |
| Federal Tax Return Form | 1099 |
| New employer tax withholding form | W-4 |
| Employer end of year income reporting for individual tax returns | W-2 |
| Retirement account opened by the retiree apart from any employer | Individual Retirement Account (IRA) |
| Type of retirement account that taxes contributions but not withdrawals | Roth IRA |
| Type of retirement account that taxes withdrawals, but not contributions | Traditional IRA |
| Type of retirement account sponsored by a for-profit employer | 401(k) |
| Type of retirement account sponsored by a non-profit employer | 403(b) |
| Structural | Type of Unemployment that involves changes in the structure of the labor market that make some skills obsolete. Most of these jobs will never come back. |
| Frictional | Type of unemployment where people are temporarily unemployed or between jobs |
| Cyclical | Type of unemployment that results from an economic downturn or recession. Drop in demand for goods & services result in drop in demand for labor and employers are forced to lay off workers. |
| Natural Rate of Unemployment | 3-6%, sum of structural & frictional unemployment (two kinds of unavoidable unemployment) |
| Highest Unemployment in US History | Great Depression 25.6% |
| Name 3 groups of people who aren't considered part of the labor force | retired, children, disabled, military personel, full time students, homemakers, prison inmates & mentally insane (the institutionalized) |
| What 2 categories of people with major financial needs are not calculated in the unemployment rate? | the underemployed and discouraged workers (those who have stopped looking for a job) |
Created by:
dosselaer
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