mr. brennan econ review
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| 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
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| 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
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| 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
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| What is the Guns or Butter decision | a country produces more military goods than consumer goods or vice versa
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| Causes of underutilization | use of less resources than the country is capable of
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| 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
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| The Effect on of the Stock Market Crash on the US Business Cycle | chaos?
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| 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
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| What is a trade-off | giving up one benefit in order to gain another, greater benefit
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| 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
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| What to societies use to answer the three basic economic questions | an economic system
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| How factors of production are combined will determine the answer to which economic question | How should goods and services be produced?
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| Who uses traditional economies | family communities (Amish)
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| What is the “invisible hand” | self-interest and competition that regulate the economy
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| How do the economies of China and North Korea differ | North Korea: totally dominated by government China: more private business owners
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| What does the circular flow model show | the interactions between households and firms in the free market
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| How does the constitution protect free enterprise | protects property rights, contracts, and other business activities
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| Ways the government might use to promote economic growth | cut taxes, increase spending
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| What are positive externalities | the beneficial side effects from public goods
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| How do education programs affect the economy | the more educated workers are generally more productive
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| Role of government in a free enterprise system | pass laws to protect consumers ex) drug safety
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| What is a negative externality | unintended costs to be paid for by someone other than the producer
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| How does a free market encourage new technology development | to operate more efficiently, increasing GDP, and giving competitive advantage over the world
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| How do rising prices effect demand | higher prices = lower demand
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| Effect of advertising on demand | advertising increases demand (fads)
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| Effect on demand by the availability of many substitutes | substitutes = drop in demand
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| How is total output set to maximize profit | output with the highest profit = biggest gap between total revenue and total cost
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| Total cost is what? | fixed costs + variable costs = total costs
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| Mathematical formula for calculating average cost | total cost/quantity
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| When demand goes up what happens to price | up
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| When sellers and buyers equal each other | equilibrium
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| What happens to price with excess demand | price goes down
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| What is rent control | a price ceiling placed on apartment rent
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| The effect on price when there is a surplus | price will fall until equilibrium is met
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| What is a commodity | a product that is considered the same no matter who produces or sells it Ex) petroleum or milk
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| 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
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| Types of businesses that take advantage of economies of scale | factories
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| Benefits of deregulation for consumers | price controls and barriers to entry are gone so competition is increased and prices are lower
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| Perfectly competitive markets and the control of price | lowest sustainable prices possible
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| What is frictional unemployment in the US | many people (when many people take time to find a job)
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| Programs that State and Federal government share the cost of | medicade and unemployment compensation and other social programs
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| The effect of sub-prime mortgages on the banking industry in 2006 | increased delinquencies and foreclosures… people couldn’t pay it.
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| 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
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| 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
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| Beneficiaries of price discrimination | consumers!
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| Causes of imperfect competition | carriers to entry
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| Definition of price discrimination | the decision of consumers into groups based on how much they will pay for a good
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| Effect of deregulation on the travel industry | airlines competed for busiest routes and prices decreased
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| What is durability of currency | withstands wear and tear that comes with being used over and over
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| Problems of commodity money | not portable, durable, or divisible
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| Difference between simple and compound interest | simple: interest paid only on principal (amount borrowed) Compound: interest paid on both interest and accumulated interest
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| Federalist’s beliefs about banking | strong central bank – national bank
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| A prospectus | an investment report that provides information to potential investors
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| Why would you buy a junk bond | they can yield a greater percent interest than the gov.
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| The effect on stock prices during the Great Crash of 1929 | rising prices lead to speculation and the great depression
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| 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.
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| 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
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| 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
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| Nondurable goods | goods that last a short period ex) food, light bulbs, and sneakers
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| 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)
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| What happens when interest rates go up | consumers are less likely to buy the product
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| 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
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| Durable goods | goods that last a relatively long time ex) DVD players or cars
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| How can negative consumer expectations affect GDP | reduce spending which causes a contraction and low GDP
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| What is capital deepening | increasing the amount of capital per worker
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| 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.
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| What is underemployed workers | over qualifies or working part-time when full-time is desired
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| Return on investment minus the effect of inflation | real interest rate
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| What is the Earned Income Tax Credits’ purpose | to offset the impact of the social security payroll tax on low-income families (antipoverty program)
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| Why are Americans shocked by inflation in the 1980’s | it spiked to the highest level ever, sharp increase
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| 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
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| What gives the government the right to collect taxes | the constitution
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| Progressive tax rate and the income tax rate | progressive and income are both the more you make the higher percentage of taxed you pay
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| Reason for growing Social Security and Medicare costs in the future | the baby boomers
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| How do states finance capital budgets | long-term borrowing or sale of bonds
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| Sales taxes are what type of tax | state tax
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| Examples of state spending | education, public safety, highways and transportation, public welfare, arts and recreation, administration
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| 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
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| Economic Theory behind the Great Society | Keynesian
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| Keynesian view on controlling recession | increase government spending or cut taxes until equilibrium is back
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| Reason’s the Fed controls the money supply | to stabilize the economy and the demand for money
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| The reason for streamlined inside lag of monetary policy | it takes time to identify a problem, and additional time to enact policies
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| Monetary policy used to control rising inflation | tight money policy (reduces money supply)
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| US position in world trade | largest exporter of services and largest importer
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| Meaning behind a strong currency | dollar increases in value in the currency
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| Ways to protect domestic economy from multinational corporations | make rules requiring multinationals to export a certain percentage of their products
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| Effects of lower tariffs for consumers | lower tariff = lower prices
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| What are factors of production | land, labor, capital
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| Why portability important characteristic of money | it’s easier to carry it around
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| 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
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| Law of comparative advantage | a nation is better off when it produces goods and services for which it has a comparative advantage
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| 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
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| Relataionship between start up costs and competitive market | high start up costs decrease competition
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