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Economics Final
Final Date: Friday May 17, 2024
| Question | Answer |
|---|---|
| What is the difference between shortage and scarcity? | A shortage can be temporary or long-term, but scarcity always exists |
| What are the factors of production? | Land, Labor, Capital, and Entrepreneurship |
| What is an entrepreneur? | A person who starts a cleaning supplies business |
| What is an opportunity cost? | If you choose between two summer jobs, the one you do not choose is the opportunity cost of your decision. |
| Why do decisions involve trade-offs? | Everyone’s resources are limited |
| What is the production possibilities frontier? | The line on a production possibilities curve showing the relative amounts of two types of goods produced using all resources. |
| What is the law of increasing costs? | As production shifts from one item to another, more and more resources are necessary to increase production of the second item |
| When is an economy working at full efficiency? | When they are producing the maximum amount of goods and services |
| Why are goods and services scarce? | All resources are limited |
| A factory is an example of what factor of production? | Capital |
| What does a decision-making grid do? | Helps you determine some of the opportunity costs for your decision |
| What does the factor of production land include? | Iron ore, natural gas, fertile soil, water |
| The three basic economic questions are based on what? | Its unique combination of values and goals |
| To improve their standard of living, what must a nation do? | Grow through innovation |
| What are traditional economies? | Small, close communities that avoid change and new technology. |
| What do people supply in return for factor payments? | Land, labor, or capital |
| Who owns the factors of production? | Households |
| What do consumers do when the price is raised? | The negative incentive will cause consumers to purchase less of the good or service |
| What did Adam Smith mean when he said the “invisible hand”? | Competition and self-interest |
| Why are free market economies able to attain economic growth? | Competition encourages innovation, which causes growth |
| Why is a socialist economy more flexible than a communist economy? | Some free market practices can combine with central economic planning |
| What is the United States a mixed economy? | Based on a free market, but allowing some government intervention |
| Why does the U.S. government intervene in the economy? | Make sure exchanges are fair, no gouging |
| What types of services are handled by the government instead of individuals? | Energy, military, waste management, and education |
| What are the characteristics of a centrally planned economy? | The central government makes all economic decisions |
| What happens to a product when it goes on sale from the consumer’s point of view? | They purchase more |
| What happens according to the law of supply when prices rise from the producer's point of view? | They produce more |
| What are the 3 basic economic questions? | What, How, and For Whom are goods and services produced |
| What was Adam Smith’s idea on how the economy would regulate itself? | A free market would regulate itself with little government involvement |
| What is a traditional economy? | An economy in which all the boys become farmers when they are adults, just as their fathers and grandfathers did |
| Why do we create a market demand schedule? | To predict how people will change their buying habits when prices change |
| What is the law of demand? | Demand for a product rises when the price of the product falls |
| If prices rise and income stays the same, what is the effect on demand? | Fewer goods are bought |
| How does the substitution effect work when the price of an item drops? | Consumers buy the item as a substitute for other things |
| What does it mean to have demand? | You are willing and able to buy the good at the given price |
| What is the substitution effect? | As prices rise, or incomes fall, consumers replace more costly goods with cheaper alternatives. |
| What does advertising lead to? | A shift in the demand curve by helping to create fads and trends |
| How can expectations about future change impact what consumers buy now? | Demand for a good will go up if its price is expected to rise |
| How does an increase in population affect the demand curve? | The entire curve shifts to the right |
| What effect does the availability of many substitutes have on the elasticity of demand for a good? | Demand is elastic |
| Why is milk inelastic? | It's difficult to stop producing when it starts producing |
| What does inelastic demand mean? | The elasticity of demand for a good at a certain price is less than one |
| What is total revenue? | Businesses multiply the price they charge for a good by the quantity sold to calculate |
| What must consumers have in order to have demand? | Desire for the good and money to buy it |
| When the price of a product goes down, what happens? | Some producers produce less, and others drop out of the market |
| What is a supply curve? | It is always rises from the left to right |
| When the price goes down, what happens to producers? | Some produce less, and others leave the market |
| How do producers maximize profit? | Set production at the point where marginal revenue equals marginal cost |
| When should a factory that is losing money stay open? | If the total revenue from the goods being produced exceeds the operating cost |
| How is profit determined? | Total revenue minus total cost |
| How does specialization affect production? | It makes workers more efficient |
| What effect do rising input costs have on the price of a good? | The good becomes more expensive to produce |
| How does new technology affect production? | It lowers cost and increases supply |
| What is one reason governments give farmers subsidies? | To keep food supplies up |
| What do fixed costs include? | Rent |
| What happens to the price of a good or service when a shortage of that good or service occurs? | It increases until quantity demanded equals quantity supplied |
| What is the government's goal in buying excess crops or other agricultural products? | To keep prices from going down |
| What happens when a market is in disequilibrium and prices are flexible? | Market forces push toward equilibrium |
| Why does the government place price ceilings on things such as rent control? | To keep the goods from becoming too expensive |
| What happens to the price of a good when there is excess demand? | The price goes up |
| How does a firm respond to higher demand? | It raises prices |
| What is market equilibrium? | When quantity demanded equals quantity supplied |
| Why did the U.S. use rationing during WWII? | Meet tremendous shortages |
| What prompts efficient resource allocation in a market system? | Business profits |
| How does rationing encourage black markets? | Rationing creates high demand |
| How does the free market benefit from the profit incentive? | The profit incentive promotes efficient resource allocation |
| According to Adam Smith, what motivates people to provide goods and services? | Profit incentives |
| Who is responsible for debts in a sole proprietorship? | The sole proprietor |
| What are the major disadvantages of a sole proprietorship? | Lack of permanence |
| What are the advantages of a sole proprietorship? | It is the least-regulated form of business organization |
| What advantages does a partnership have over a sole proprietorship? | A partnership has more personal stability and access to more money |
| What is a major advantage of a franchise? | Built in reputation, quality is the same, national advertising |
| What are the differences between horizontal and vertical mergers? | Horizontal are on the same level of industry whereas vertical is at different stages of production |
| What is the function of a consumer co-op? | To get lower prices for their members |
| What is true about ALL nonprofit groups? | They are tax free |
| Who pays for debts in a general partnership? | All of the partners |
| Why does the government watch mergers? | To make sure that business do not get too big and price gouge consumers |
| What business type gives you the easiest way to set it up? | Sole proprietorship |
| What is the durability of money? | The fact that money can withstand the wear and tear that comes from being used over and over again |
| What does the divisibility of money mean? | Money can easily be divided into smaller units of value |
| What is the difference between representative and fiat money? | Representative money can be converted into silver or gold; fiat money cannot |
| What is the portability of money and why is it important? | If we could not carry money with us, it would be hard to use |
| Which type of money has no value of its own, but is valuable because it can be exchanged for something else of value? | Representative |
| Why is commodity money hard to use in most societies? | It is often not portable, durable, or divisible |
| Why did the Federalists favor a national bank? | A centralized banking system |
| During the Free Banking Era, banking in the U.S. was dominated by what? | State-chartered banks |
| What did the government create during the Great Depression? | The Federal Deposit Insurance Corporation |
| Why was the savings and loan crisis caused? | High interest rates, bad loans, and fraud |
| Why was the 1st Bank of the U.S. established? | The money system was confusing because every state had its own currency |
| What happened to the gold standard during the Great Depression? | The banking system was taken off |
| What is the difference between how simple and compound interest are paid? | Simple interest: on principal only; compound interest: on both principal and interest |
| What is a credit union? | A cooperative lending institution for a particular group |
| How does a bank make profits? | By paying out less in interest on deposits than it earns in interest on loans |
| Why are checking accounts called demand deposits? | They are available whenever the account holder wants them |
| What is fractional reserve banking? | Banks keep some money on hand and lend out the rest |
| Why did anti-federalists oppose the national bank? | They feared the wealthy would use it to increase their power |
Created by:
NoahTownsend
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