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2011FinalExam Study Guide Flash Cards

Define ECONOMICS. social science dealing with the study of how people satisfy unlimited and competing wants with the use of scarce resources.
What is SCARCITY? economic problem facing everyone that results from scarce resources and people's unlimited wants.
What is the difference between MICROECONOMICS and MACROECONOMICS? MICROECONOMICS:branch of economics that deals with behavior and decision making of small units such as individuals & firms. MACROECONOMICS:branch of economics dealing the economy as a whole and decision making by large units such as governments and unio
WHAT IS MACROECONOMICS? branch of economic theory dealing with the economy as a whole and decision making by large units such as governments and firms.
Define OPPORTUNITY COST. Given and example. cost of the next best alternative use of money, time, or resources when one choice is made rather than another. (SEE PP.20, 444, 522 for examples)
Identify the 4 factors of production. Land, labor, captital, and entrepreneurship
A ____ exchange occurs when both buyers and sellers engage freely and willingly in market transactions resulting in both thinking that they will be better off. free market
Define CAPITALISM. Explain the role of the consumer in a capitalist system. an economic system in which private citizens own and use the 4 factors of production to generate profits. The consumers make decision into what they like most. They decide what is produced, how much is produced, and whom it is produced for and set prices.
Define COMMAND ECONOMY. Who controls prices in a command economy? What the social goals of a command economy? A command economy is an economic system with a central authority that makes economic decisions.The central authority controls prices. Limit individual freedom, limit personal choices, provide medical care and jobs for people.
Who is KARL MARX? Which economic system did he write about? Economic historian who was the father of communism. He wrote about the communist economic system.
What is a FREE ENTERPRISE SYSTEM? Who aregoods produced for in a free enterprise system? A market economy in which privately owned businesses have the freedom to operate for a profit with limited government intervention. Goods are produced for consumers.
What is the function of PRICE in a free-market system? The changes in supply and demand can result in changes in price.
What is the LAW OF DEMAND? List the factors that may influence DEMAND. Rule stating that more will be demanded at lower prices and less at higher prices; inverse relationship between price and quantity demanded. Substitutes,complements, number of consumers, consumer tastes, expectations, consumer incomes
What is the LAW OF SUPPLY. List the factors that may influence SUPPLY. Principle that more will be offered for sale at higher prices than at lower prices and less will be offered at higher prices. Factors that affect supply:cost of resources, productivity, technology,taxes,substitutes,governments regulations, number of selle
What does a PRODUCTION POSSIBILITES FRONTIER (PPF) show? PPF is a diagram representing maximum combinations of goods and/or services an economy can produce when are fully employed.
Explain the LAW OF DIMINISHING MARGINAL UTILITY. Give an example. A decrease in satisfaction or usefulness from having one more unit of the same product. (p.95 for examples)
How is EQUILIBRIUM PRICE PRICE achieved? It is the price where the quantity supplied equals the quantity demanded.
Define SURPLUS. Market conditions in which quantity supplied is greater than quantity demanded.
How does surplus affect price? If there is a surplus of an item, the price will fall.
Define SHORTAGE. Market conditions in which quantity demanded is greater than the quantity supplied.
How does shortage affect price? If there is a shortage of an item, the price will increase.
Describe 4 TYPES of MARKET STRUCTURES. Draw a CONTINUUM identifying the placement of each market structure. CONTINUUM: Perfect Competition--Monopolistic Competition--Oligopoly--Pure Monopoly (based on many suppliers to one supplier)
What is a PERFECT COMPETITION? PERFECT COMPETITION: market structure characterized by a large number of buyers and sellers who exchange identical products.
What is a MONOPOLISTIC COMPETITION? MONOPOLISTIC COMPETITION: market structure having all conditions of pure competition except for identical products; form of imperfect competition (p.173)
What is a OLIGOPOLY? OLIGOPOLY:market structure in which a few sellers dominate and have the ability to affect prices in the industry; form of imperfect competition. (p.174)
What is a PURE MONOPOLY? PURE MONOPOLY: market structure in which there is one seller, one product, extensive influence over price, and almost impossible entry into the market (p.175)
List the effects of monopolies on the US economy. There are few pure monopolies in US;there are near monopolies. They can cause price fixing,and monopolies can maximize their profits at the consumers' expense due to technology, geography, the government monopolies.
Whatwas the SHERMAN ANTI-TRUST ACT? A law that outlawed all contracts in restraint of trade to stop the growth of trusts and monopolies.
What is the most common business organization? What form makes the most money? a. Sole proprietorship b. Corporation
What is the difference between INFLATION AND DEFLATION? a. INFLATION:rise in the general level of prices b. DEFLATION:decrease in the general level of the prices of goods and services
What is the FEDERAL RESERVE SYSTEM? List the responsibilities of the FED. FED: private owned, publicly controlled, central bank of the US.
List the responsibilities of the FED. a.In charge of monetary policy. b. Increase or decrease amount of money in economy; c.central bank of US; d. lends money to other banks e. regulate interest rates to achieve national economic roles
Describe a tight (CONTRACTIONARY)monetary policy. Federal Reserve increases the reserve rate to discourage loans to businesses and people and lessen money in economy; The fiscal policy of the government means increasing taxes;cut federal programs so that less money is in circulation.
Describe an easy, loose (EXPANSIONARY) monetary policy. Federal Reserve decreases the reserve interest rate which encourages loans to people and businesses and people getting jobs, more spending money, and more money in circulation.
Who has the ability to raise or lower or raise interest rates to stablize the economy? (MONETARY POLICY) Federal Reserve System
Who has the ability to raise or lower taxes and/or increase decrease spending to changing needs of the economy? (FISCAL POLICY) President and Congress
Define UNEMPLOYMENT. How can Congress use fiscal policy to lower unemployment? (USE YOUR BOOK TO HELP YOU) Unemployment is total number of civilians, excluding military, children, and those who are actively looking for work. Normal unemployment is 5-6%.
How would Congress use FISCAL POLICY to lower unemployment? Congress would lower taxes and increase the money supply which would put more money in the economy. People would have more money, businesses would have more money and hire more people--more jobs. Money supply would increase.
IDENTIFY and GIVE EXAMPLES of the 4 DIFFERENT TYPES OF UNEMPLOYMENT. a. Structural Employment: people who do not have skills to match job openings that available; b. Frictional Unemployment: unemployment that occurs between having a job and finding another job.
NAME 2 MORE TYPES OF UNEMPLOYMENT. c. SEASONAL UNEMPLOYMENT: unemployment that occurs as a result of harvest schedules or vacations when businesses are shut down for the season; d. Cyclical unemployment: result of overall decrease of goods and services caused in business by a recession.
Demand-side inflation will if what happens to the demand curve? Shift to the left.
At what points do economists consider the civilian labor force fully employed? 4-6%
What is Social Security? Who receives Social Security? Is a federal social program of disability and retirement benefits that covers most working people. One receives Social Security if he/she is disabled. One receives it when she/he reaches retirement age.Child may receive it a parent is deceased.
Explain the 4 phases of the BUSINESS CYCLE. a.PEAK:point in time when the GDP stops expanding and begins to decline. (P.354) b.RECESSION:decline in the GDP,higher unemployment, higher inflation,and last 2 quarters; c.TROUGH(depression):state of economy with high unemployment;low GDP;
4th PHASE OF THE BUSINESS CYCLE. d. EXPANSION: period of uninterrupted growth; more consumer confidence; growing GDP; less unemployment and new business cycle begins
DEFINE GDP. GDP (Gross Domestic Product): dollar value of final goods and services and structures produced within a country's national borders during one-year period.
Define COMPARATIVE ADVANTAGE. Ability to produce goods or services at a lower opportunity cost than other investor.
Define TARIFF. tax placed on an imported product
What is the North Atlantic Free Trade Agreement (NAFTA)? What is its goal? Agreement signed in 1993 to reduce tariffs and increase trade among the US, Canada, and Mexico.
What is the European Union (EU)? What is its goal? The European Union is 15 country international trade agreement made in 1993. Its goal is to abolish tariffs, create a trade-free zone in Europe, allow for workers to move, and move the Continent to a single currency, the EURO.
Define ECONOMIC INTERDEPENDENCE.Give an example. Mutual dependency of one person's, firm's, or region's economic activities on another's. EXAMPLE: We rely on grocery stores to provide us with our produce, meat, and dried goods most of the time.
List 2 reasons for an increase in GLOBAL INTERDEPENDENCE. Because of trade and the uneven distribution of resources, the global economy is interdependent.
Created by: khelms