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376 Cards in this Set
- Front
- Back
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Economics
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the study of how individuals and societies make choices about how they use scarce resources to fulfill their wants and needs.
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Scarcity
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basic problem of economics. We don’t have enough time, income, and other resources to satisfy every want (time)
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Needs vs. Wants
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anything other than basic needs is a want (food, water, shelter-3 basic needs)
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Factors of Production
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land, labor, capital, and entrepreneurship are used to produce all goods and services
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Land
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natural resources and surface, land, and water
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Labor
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human effort directed at producing goods and services
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Capital
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previously manufactured goods used to make other goods (tools and money)
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Entrepreneurship
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ability of risk taking individuals to develop new products in order to make money
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Technology
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(5th factor of production): advance in knowledge leading to new and improved goods and services and better ways of producing them
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Trade off
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sacrificing one good or service to purchase or produce another ($20, you want to go to the movie, but you need gas, pick one)
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Opportunity Cost
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value of the next best alternative to the alternative you have chosen (you decide to put gas in your car, the opportunity cost of your decision is that you can’t go to the movie now, unless you rob someone)
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What are the three basic questions of economics?
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-What should be produced?
-How should it be produced? -For whom should it be produced? |
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Traditional economy
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advantage: you know what is expected of you, disadvantage: an economy in which change is discouraged and perhaps even punished
-things are done the way they have always been done, beliefs often based on religion, has been handed down from gen. to gen., children will end doing what their fathers did |
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Command economy
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government leaders control the factors of production and make all decisions about their use, lose ability to choose a career, government decides what you get paid, advantage: the speed with which resources can be rerouted (war), disadvantages: a lack of incentives to work hard or to show inventiveness
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Market economy
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capitalism
-decisions are not made by government but by individuals looking out for their own and their families’, individuals won all factors of production |
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Market
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voluntary exchange of goods and services between buyers and sellers
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Mixed economy
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combines basic elements of a pure market economy and a command economy
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Adam Smith
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Wealth of Nations:
•Theory: Individuals left on their own would work for their own self-interest •Be guided by an “invisible hand”, to use resources efficiently •First man describe our economic system of Capitalism |
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Capitalism
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individuals own the factors of production (government doesn’t own)
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Laissez-faire
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government stays out of businesses and individual’s economic decisions
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Free Enterprise System
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Individuals own the factors of production
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Freedom of Choice
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we can do what we want with our money
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Profit
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money left after all costs of production have been paid wages, rent, interest, and taxes
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Profit incentive
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desire to make money motivates people to produce and sell goods and services
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Private property
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one of the most important aspects of the free enterprise system. Everything own by private individuals
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Competition
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rivalry among sellers of similar goods and services to win more business
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National Economic Goals:
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Economic Freedom-freedom to make all decisions
Economic Efficiency-wise use of resources so costs don’t exceed benefits Economic Equity-the attempt to be fair and just in economic policy (is this possible-no but they do the best they can) Economic Security- security for economic accidents beyond and individual’s control (example: stock market crash, oil spill) Economic Stability-we want as few ups and downs in the business cycle as possible Economic Growth-producing and increasing amounts of goods and services over the long term |
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What is credit and how is it calculated?
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credit: the receipt of money to buy goods or services with the promise to pay it back
credit debt=principal +interest |
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What is installment debt and what do most people buy with it?
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-type of loan paid in equal payments over time
-durable goods are usually purchased -durable goods-last longer than 3 years |
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What is a pro and a con of a longer repayment period?
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-pro: a smaller monthly payment
-con: the longer it takes to repay an installment loan, the greater the total interest the lender charges |
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What is the largest form of installment debt in the country?
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mortgage: payment on house or property (installment owed on property)
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Give a couple of reasons of why people go into debt.
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-forced to buy items on credit because they believe they require these items immediately
-they would rather buy on credit and enjoy the use of the item now -spread the payments over the life of the item being purchased |
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What is the decision a consumer makes when deciding whether to go into debt?
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whether the satisfaction the borrower gets from the purchases is greater than the interest payments
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What are the types of financial institutions?
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-commercial banks
-savings and loan associations -savings banks -credit unions |
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What is a charge account?
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allows a costumer to buy goods or services from a particular company and pay them later
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three different types of charge accounts.
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-regular charge accounts: also known as a 30-day charge, has a credit limit such as $500 or $1000. A credit limit is the maximum amount of goods or services a person or business can buy on the promise to pay in the future. At the end of the 30-days, the store sends a bill for the entire amount with no interest. The entire bill must be paid at that time, if not then interest is charged
-revolving charge accounts: allows you to make additional purchases from the same store even if you have not paid the previous month’s bill in full. -installment charge accounts: larger items (televions) are purchased and paid for through equal payments spread over a period of time. Part of the amount paid each month is applied to the interest, and part is applied to the principal |
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What is a credit card and what is the different between it and charge accounts?
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-allows a person to make purchases without paying cash
-credit cards can be used at many kinds of stores, restaurants, hotels, and other businesses throughout the U.S. and even foreign countries -charge accounts only be used at a particular store |
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What is the finance charge?
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-tell consumer the cost of credit
-the cost of credit expressed in dollars and cents -it must take into account interest costs plus any other charges connected with credit -cost of credit=interest paid plus other costs. (late fees, member fees ect.) |
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What is the APR and why is it important to know your card’s APR?
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-Annual percentage rate
-the cost of credit expressed as a yearly percentage -It is good to know the cost of your card if balances aren’t paid off |
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What is a debit card?
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-does not provide a loan, but instead makes cashless purchases easier by enabling customers to transfer funds electronically from their bank accounts directly to the store or restaurant where they purchased goods
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What is a credit bureau and what do they do?
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-a private business that helps determine a person’s credit worthiness by performing a credit check
-credit rating-rating the risk involved in lending to a person or business |
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Explain the three factors that a credit check reveals about a person
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-capacity to pay-what is your capacity to pay, how much debt do you already have
-character-looks at person’s reputation. Check educational background, any criminal record -collateral-size of your capital or personal wealth. It helps indicate your ability to save and accumulate |
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What is a secured loan?
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-loan that is backed up by collateral
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What is an unsecured loan?
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-loan guaranteed only by a promise to repay it
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What happens if you don’t pay your debt off on time or at all?
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-Business that lent may hire a collection agency
-the costs are passed on to the rest of consumers of a lending agency -you also get a bad credit history which may make it tough to get a loan in the future |
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Why do you need to keep a record of all your transactions with your credit card?
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-you need to notify the company when a card is lost or stolen or mistakes are made because the person may be liable to pay
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Why was the truth in lending act important and what did it say?
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-first major credit law expanded the government’s role in protecting users credit
-suppose to give people equal access -creditors must keep people aware of card’s APR, Fees, and charges -3 day cooling off period -consumers liable for only the first $50 in unauthorized purchases |
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Summarize the rest of the major consumer credit laws.
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Fair credit reporting Act (1970)
-consumer can request the name of the credit bureau issuing the report -credit bureau must provide a summary of a person’s credit file -credit bureau must correct an error Equal Credit Opportunity Act (1974) -questions about age, gender, marital status can be asked only if it pertains to one’s ability to repay -must receive an answer within 30 days Fair Credit Billing Act -have 60 days to notify lender of mistakes -consumer can withhold payment of disputed sum -under certain circumstances, a consumer can withhold payment of defective merchandise Fair Debt Collection Practices Act -can only contract other people about person to find debtor’s location -debtor cannot be contacted at inconvenient times -all harassing behavior is prohibiting |
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What are the opposing viewpoints on increasing interest restrictions?
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-people would not be able to afford credit if interest payments were too high
-banks wouldn’t offer credit if they were not allowed to raise interest rates because they would not make enough money -this would hurt the low income people the most |
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What is bankruptcy and why should it be only used as a last resort?
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-if debtors take out too many loans, use too many credit cards, and pile up debts that they cannot pay off, they may have to file bankruptcy
-debtors must give up most of what they own -it is very difficult to reestablish credit and borrow funds for items such as a new car or home |
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What is comparison shopping and what are the tradeoffs when comparison shopping?
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Making comparisons among brands, sizes, and where to shop
Trade-offs – going too far to save too few cents -Spending too much time comparison shopping for food you lose time to do something else |
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What are club warehouse stores and what are the consumer decisions that are made when shopping at these places?
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Sell a limited number of items but are sold in bulk
Decisions – unless it is needed bulk items tie up your money with food in storage -You may not have to go to the store as often |
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What are Convenience stores?
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Usually open 16-24 hours, but carry a limited amount of items. You may pay more for those items
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What are private-labeled products?
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Lower priced store brand products, can save as much as 40%
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What is the trade-off between quality and price?
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Lower price store brands or generic might be cheaper but may not be the same quality
Larger quantities has lower per-unit-price |
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What is unit pricing?
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Compares items in like amounts
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What trade-offs are made when using coupons?
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Spend time finding coupons
Can save money Coupons tempt people to buy items they wouldn’t ordinarily buy |
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What three things does clothing value depend on?
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-Style, Durability, Cost of Care
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What is durability and define service flow?
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-Ability of an item to last a long time
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Why is cost of care important?
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-It will help you decide on which clothing to buy because one might need maintenance and one might not
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How has clothing become cheaper?
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-Because the work-time cost was cut by more than one half
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Why can clothing sales be bad for your budget?
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-You can become a bargain fanatic and buy sale items just because they’re on sale
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What are lender’s rules for buying a house?
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-Purchase price /annual income=2.0 or less
-Mortgage payment/monthly take-home income=33.3% or less -Loan amount/appraised value of the house=95% or less (often 80%) |
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What are closing costs and points?
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-Closing cost: fees involved in arranging for a mortgage or in transferring ownership of property
-Title search, legal costs, loan application, credit report, house inspections, taxes. Person buying house usually pays for these -Points: fees paid to a lender and computer as a percentage of a loan |
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What is a lease?
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-A contract for the rental of a house or apartment
-Usually lasts for 1 to 3 years or can be shorter in a college down |
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What are tenant’s rights?
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-The use of the property for the purpose stated in the lease
-Certain amount of privacy -Landlord can enter with permission |
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What are tenant’s responsibilities?
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-Paying rent on time, taking care of the property
-Notify landlord for major repairs -Limit how an apartment is used, people, pets, ect. -Security deposit |
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What are the landlord’s responsibilities?
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-Apartments have certain minimum services and are fit to live in (heat)
-Make repairs within a reasonable amount of time |
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What are the three major trade-offs when buying an automobile?
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-usually, the smaller the engine, the less gas an automobile burns.
-newer automobiles cost more, but they require fewer repairs than older ones -the smaller the automobile, the more energy efficient it is, but larger vehicles protect passengers better |
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What is a registration fee?
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A state licensing fee
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What are the steps that will reduce the probability of a major repair?
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You should check the repair records of different cars before deciding on a particular make or model
Have a mechanic check used cars Dealers may offer warranties on used cars, you will be able to purchase a longer one |
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What are the factors that affect insurance rates?
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The type of car you drive
Where you drive What you use the car for Marital status Safety record Number of drivers |
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What is an extended warranty?
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Extend a warranty up to a few years after original warranty runs out
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What is depreciation?
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A decline in value over time 20% a year
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What is liability insurance?
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Pays for bodily injury as well as property damage if you are in an accident
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Who has a high rate of accidents/low rate of accidents?
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Single males 16-25 has highest rates of accidents and married women 25-45 has the lowest rates
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Why can’t rate vary too widely?
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Because states set limits on the rates that companies can charge within state boarders
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How does the economy benefit when people save?
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-savings helps the economy by providing others with money to borrow
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What is interest and what should one do when comparison shopping for savings plans?
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-the payment people receive when they lend money
-you need to consider the trade-offs -some have high rates of interest but access is limited -some have immediate access but low interest rates |
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Passbook Savings Account
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the depositor receives a booklet to record transactions
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Statement Savings Account
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depositor received a monthly statement showing transactions
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Money Market Deposit Account
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high interest, able to write a few checks, able to withdraw money in person. You must keep a high minimum balance
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Explain what time deposits are.
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-accounts where investors are required to leave their money in the account for a certain period of time
-Maturity-period of time at the end of a timed deposit where interest is paid -these accounts are usually called CDs Certificates of Deposit. They state the amount of deposit, period of maturity, and rate of interest being paid |
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Explain the history of insuring deposits.
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-after the stock market collapsed in 1929, banks failed and people lost all their savings
-Gov. created the Federal Deposit Insurance Corporation (FDIC) -Insures people’s savings up to $100,000 if the bank fails |
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Stock
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part ownership in the company. Entitles the bearer to a share in the assets of the company
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Stockholders
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people who own stock in a company.
Make money in 2 ways: -selling stocks at a higher price than that it was bought at -dividends, money the stockholder receives for the amount they invested |
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Selling
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selling the stock for profit. Usually buy low sell high
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Speculation
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buying stock in hopes it goes up so they can sell soon
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Capital Gains and losses
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gain is any amount of profit made by the selling of a stock. Loss is any amount lost by selling of a stock
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Bonds
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a certificate issued by a company or the government in exchange for borrowed money. Promise to pay a rate of interest over a period of time
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Tax Exempt Bonds
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interest made is not subject to tax
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Savings Bonds
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Safe form of investment. Range from 50 to 10,000 dollars. Can be redeemed for face value when the bond becomes mature. You buy a bond for half the face value.
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Treasury Bill, Notes, Bonds
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bills mature in 3 months to a year for a minimum of $1000. Notes matures in one to ten years. Bonds matures in ten years or more
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Broker
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acts as a go between for buyers and sellers
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Stock Exchanges
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where buyers and sellers trade their stock bonds
NYSE-largest U.S. stock exchange Regional Exchange-Chicago etc. sell items other than stocks Foreign Exchange- Tokyo Nikkei, London FTSE |
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Over the Counter Markets
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electronic sale of stocks usually from smaller companies
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NASDAQ
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National Association of Securities Dealers Automated Quotations. Largest OTC market
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Mutual Funds
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investment company that pools money of individuals to invest
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Money Market Fund
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type of mutual fund that uses investors’ money to make short term loans to businesses and banks
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Regulation
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SEC, Securities and Exchange Commission. Regulates all businesses and exchanges. Created as a result of the stock market crash in 1929
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What are pension plans?
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company plans that provides retirement income for employees
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What is the 401(K) plan?
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-you allow a certain amount of your paycheck withheld and your company may match it
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What is Social Security?
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payments when people reach retirement
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Why is it important to save for your own retirement?
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Social Security is not enough for retirement
Program may or may not be there when you reach retirement |
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Keogh plan
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self employed can set aside 15% of income each year and is tax deductable
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Individual Retirement plan- (IRA)
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single person earning less than $30,000 can set aside $3,000 and tax deductable
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Roth IRA
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can set aside $3000, is not tax deductable, but interest is tax free forever
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What is good and bad reason for investing in real estate?
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-buying raw, or undeveloped, land is a much riskier investment. No one can guarantee that there will be a demand in the future for a particular piece of land.
-buying a home, condo, or co-op has proven to be a wise investment in many parts of the country. -has been a good investment -not easy to turn into cash |
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Risk is extremely important when it comes to saving and investing. What is the most important factor about risk that you should consider?
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what amount of risk you are willing to take with your savings
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What is diversification and why should you do it when investing?
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Spreading your investing out in order to lower risk
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Demand
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how people decide what to buy in the marketplace at what price, only exists when people have the ability to buy something
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Supply
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how much a producer is willing to supply at any given price
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Market
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free choice between buyers and sellers
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Voluntary Exchange
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a buyer and seller exercise their freedom to come to an agreement on terms
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Law of Demand
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as price goes up quantity demanded goes down. As price goes down quantity demanded goes up
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Quantity Demanded
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the amount of a good or service that a consumer is willing and able to purchase at a specific price
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Real Income Effect
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an individual cannot keep buying an item if its prices rises while the individual’s income stays the same
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Substitution Effect
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if there are two items satisfying the same need and the price of one goes up, then people will buy the other item
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Utility
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the ability of any good or service to satisfy consumer wants
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Law of Diminishing Marginal Utility
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additional satisfaction a consumer gets form purchasing one or more units of product will lessen with each additional unit purchased.
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What is a Demand Schedule?
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table of prices and quantity demanded
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What is the Demand Curve?
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downward-sloping line that shows in graph form the quantities demanded at each possible price
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What is a change in demand and how does it affect the curve?
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-a change in how much of an item people are willing to buy
-curve to left-decrease in demand -curve to right-increase in demand |
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What are determinants of demand?
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-change in population-increase or decrease in population changes the demand
-change in taste and preferences-what people like and prefer and when item becomes a fad. These affect the curve -substitutes-price of substitutes affects the curve (butter and margarine) -complementary goods-goods that are complementary affects the curve (nutella and bread) |
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What is elasticity and price elasticity of demand?
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-elasticity- economic response dealing with consumer’s responsiveness to an increase or decrease in price of a product
-price elasticity of demand- deals with how much demand varies according to changes in price |
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What is elastic demand and inelastic demand?
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-situation where the change in price greatly affects how the amount people buy
-situation in where the rise and fall of a price has little impact on the quantity demanded. (insulin, oil, pepper) |
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What three factors determine price elasticity of demand and explain each?
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-the existence of substitutes- if there is no product to satisfy the consumer at a lower price people will buy the other
-the percentage of a person’s total budget devoted to the purchase of that good- if an item is a small part of the family budget then they will continue to buy it at its price no matter what it is. If an item is large part of the budget they will no t continue to buy it if the price doubles -the time consumers are given to adjust to a change in price- if the price of something goes up tomorrow (gas) you will still buy it at its current price but given time you will reduce the consumption of it. |
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What is the law of supply?
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-economic rule stating that price and quantity supplied move in the same direction
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What is Quantity supplied?
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the amount of a good or service that a producer is willing and able to supply at a specific price
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What are the producer’s incentives to produce?
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-the higher the price of a good, the greater the incentive is for a producer to produce more
-the higher price not only returns higher profits, but it also must cover additional costs of producing more |
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Price of Inputs
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- if the price of inputs drops, a producer can supply more at a lower production cost
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Number of firms in the industry
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as more firms enter an industry, greater quantities are supplied at every price, and the supply curve shifts to the right
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Taxes
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if the government imposes more taxes, businesses will not be willing to supply as much as before because the cost of production will rise
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Technology
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-new ways to make products will increase supply, because their cost of production will be lower
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Law of Diminishing returns
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economic rule that says as more units of a factor of production (such as labor) are added to other factors of production (such as equipment), after some point total output continues to increase but at a diminishing rate
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What is the equilibrium price?
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the price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy
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What is a shortage and a surplus?
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-situation in which the quantity demanded is greater than the quantity supplied at the current price
-situation in which quantity supplied is greater than quantity demanded at the current price |
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How does our market help to limit shortages and surpluses?
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-when it operates without restriction, it eliminates shortages and surpluses
-when shortages occur, the market ends up taking care of itself-the price goes up to eliminate the shortage -when surpluses occur, the market again ends up taking care of itself-the price falls to eliminate surplus |
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Price Ceiling
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a legal maximum price that may be charged for a particular good or service. Government may limit a price so it stays in a tolerable range for consumers. (rent, utilities)
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Rationing
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the distribution of goods and services based on something other than price. Limiting scarce items can help make it fair for consumers to get items they need
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Black Market
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-illegally high prices are charged for items that are scarce. (Sporting events, concerts, communist countries)
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Price Floors
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a legal minimum price below which a good or service may not be sold (farmers and government subsidies)
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Entrepreneur
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someone who organizes, manages, and assumes the risks of a business in order to gain profit
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Starting a business
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-help from government
-Small business Administration-may help finance -Startups- new businesses -State Dept. of Commerce, universities may help a business get started -Small business incubator-private or government funded agency that assists new business by providing advice or low rent buildings and supplies |
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Expenses
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-new equipment, wages, insurance, taxes, electricity, telephone
-inventory-supply of items that are used in the business -have to pay yourself -subtract your expenses from receipts, you have profit |
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Advertising
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-you must tell people about a business
-newspaper, flyers, tv, etc |
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Record Keeping
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-important to keep a record of all expenses and receipts
-you will need these for taxes |
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Risk
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-must assess risk
-spending too much on expenses leaves very little to cover losses |
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What is a Sole Proprietorship?
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owned and operated by the same person
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What is a major disadvantage and advantage of a Sole Proprietorship?
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-Ad-full pride and all the profits
-Dis-unlimited liability for all expenses. Personal assets can be seized to pay off debts |
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What is a partnership and what are an advantage and disadvantage of it?
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-business that two or more individuals own and operate
-Ad: the pride of sharing ownership in a business-and contributing to it in a specialized way that benefits all the partners -Dis: the partners have unlimited liability |
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What is a limited partnership and its advantages and disadvantages?
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-where one partner has limited liability but no say in management
-ad: they have no liability for the losses beyond what they initially invest -dis: they have no say in how much business is run -dis: for the other partner, all liability and responsibility for the business is the majority partner -silent partner- another term of the limited partner |
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Joint venture
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set up for a short period of time for a specific purpose. Real estate deals ect
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What is a corporation?
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an organization owned by many people but treated by the law as a single person
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What is the difference between the stock of a company and a corporation?
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stock represents ownership rights to a certain portion of the future profits and assets of the company that issues the stock
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What is limited liability and why is it such an advantage for corporations?
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-requirement in which an owner’s responsibility for a company’s debts is limited to the size of the owner’s investment in the firm
-only liable in what you invest in company -if a corporation goes bankrupt or is sued, only the business loses money and assets, not the stockholders |
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What is a major disadvantage of corporations?
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-they are taxed more heavily than other forms of business organizations
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What are three steps in order to become a corporation?
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1. register with state.
2. sell stock 3. elect a board of directors with officers |
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How do you register a corp.?
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File articles of incorporations in the state you are in
-explains everything about the corp -state will grant a corporate charter |
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What are different types of stock you can sell in order to make money?
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-common stock: part ownership, voting rights at annual stockholders meeting
-preffered stock: no voting rights but the investor gets a dividend |
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How is a board of directors chosen?
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-partners choose initial board, then board is elected at stock holders meeting
-hires officers to run the business, Pres, VP, Treasurer, etc. |
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What is a franchise and what are the responsibilities of each in a franchise agreement?
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-contract in which one business (the franchiser) sells to another business (the franchisee) the rights to use the franchiser’s name and sell its products
-the franchisee pays a fee, may include % of total of all money taken in -franchiser helps set up business, maybe offers training program |
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What is market structure?
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-the extent to which competition prevails in a market
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What is perfect competition and what are the five conditions that must be met?
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-numerous buyers and sellers, no single buyer or seller can affect the price
1. a large market 2. similar product 3. easy entry and exit-getting into market 4. easily obtainable information 5. independence, possibility of buyers or sellers working together to control the price is almost non-existent |
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If there is perfect competition, why can no one person control the price?
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-there are so many buyers and sellers that it is difficult for one person to control the market
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What market comes the closest to perfect competition and why?
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-agriculture market
-it is often used as an example of perfect competition because individual farmers have almost no control over the market price of their goods |
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Why is demand side and supply side of agricultural markets different?
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-demand is inelastic, price goes up or down demand will not change drastically
-supply is highly dependent on things the farmer cannot control. Weather, disease, insects etc. |
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Why is a perfectly competitive industry a benefit to society?
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-forces the price down to one that just covers the costs of production plus a small profit
-consumers are only paying for what goes into making the product |
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Why is a monopoly an example of imperfect competition?
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-differ from another on the basis of how much competition and control over price the seller has
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What are the characteristics of a monopoly?
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1)A single seller-only one seller exists for a good or service
2)No substitutes-there are no close substitutes for the good or service that the monopolist sells 3)No entry-the monopolist is protected by obstacles to competition that prevent others from entering the market 4)Almost complete control of market price-by controlling the available supply, the monopolist can control the market price |
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What are a couple of examples of barriers to entry?
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-some state laws prevent a competing electric, gas, or water company from operating in an area where a public utility company already provides service
-the cost of getting started, found in industries such as cars and steel, in which initial investment is high because of the amount and cost of the equipment |
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List and explain four types of monopolies?
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1)Natural monopolies: providers of such things as utilities, bus service, and cable TV
2)Geographic monopoly: the potential for profits is so small, other businesses choose not to enter, thus giving the sole provider 3)Technological monopoly: a government patent gives the exclusive right to manufacture, rent, or sell your invention for a specified number of years-usually 20 4)Government monopoly: similar to natural, except the monopoly is held by the government itself |
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Why are monopolies not as important as they once were?
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-geographic monopolies have little effect because of potential competition from mail-order businesses and electronic commerce on the Internet
-natural monopolies are being broken up by technology and government deregulation -technological monopolies rarely last longer than the life of the patent because computers can make a patent slightly variations in new products quickly |
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What is an oligopoly and what are the five conditions that must be met?
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-industry dominated by a few suppliers who exercise some control over price
1) Domination by a few sellers, 70-80% 2) Barriers to entry, capital costs too high 3) identical or slightly different products 4) Nonprice competition, emphasizes minor differences and attempts to build loyalty 5) Interdependence, a change in one firm will affect the other firms -cars, airlines, chocolate stores |
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Product differentiation
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the real or perceived differences in the good or service that make it more valuable in consumers’ eyes
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Interdependent behavior-
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price wars lead to companies going out of business, collusion or setting prices with other companies is illegal
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Cartel
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reducing international competition by controlling price, production, and distribution of goods
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What is monopolistic competition and what re the five conditions that must be met?
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-market situation in which a large number of sellers offer similar but slightly different products and in which each has some control over price (toothpaste, cosmetics, clothes)
1) Numerous sellers 2) Relatively easy entry 3) Differentiated products, slightly different 4) Nonprice competition, use differentiation by advertising 5) some control over price, building a consumer base will allow a company to control its prices somewhat |
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Why is advertising important for monopolistic competition?
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-allows businesses to change more for a product if advertising is successful
-allows businesses to stress minor differences between products |
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Historically what is one goal of the U.S. when dealing businesses?
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encourage competition in the economy
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What are interlocking directorates and what else did Rockefeller do to make Standard oil doiminant in the industry?
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-a board of directors, the majority of whose members also serve as the board of competing company
-drove competitors out of business -pressuring costumers not to deal with competitors |
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What did the Sherman Anti-trust act do?
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sought to protect trade and commerce against unlawful restraint and monopoly
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Why was the Clayton act needed and what did it attempt to do?
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prohibited or limited a number of very specific business practices
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What is a merger and what are the three types of mergers?
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-a combined company that results when one corporation buys more than half the stock of another corporation and, thus, controls the second corporation
-horizontal (company buys a competing company that does exact same thing, staples buys office max), vertical (something in line of production, mcdonalds buying farm for direct meat), and conglomerate (many companies in one-Johnson and Johnson) |
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Why have some industries been deregulated and do economists think would happen if the government left businesses alone?
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-in an effort to promote efficiency and competition
-economists feel prices would rise but as profits got too excessive others would find their way into the market causing prices to go lower |
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What is marketing?
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-involves all of the activities needed to move goods and services from the producer to the consumer
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What is the estimate for the cost of marketing for a good?
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-50% of the cost of the item goes into marketing
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What are the four areas that marketing focuses on?
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-production
-sales -advertising -consumer sovereignty-consumer as ruler |
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What is marketing’s sole purpose today?
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-convince consumers that a certain product will add to their utility-the ability of any good or service to satisfy consumer wants
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Explain the four types of utilities.
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1)Form utility: the conversion of raw materials to finished goods
2)Place utility: having a good or service available where a consumer wants to buy it 3)Time utility: having a good or service available when a consumer wants to buy it 4)Ownership utility: the satisfaction one receives from simply owning the good or service |
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What is market research?
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-a company gathers, records, and analyzes data about the types of goods and services that people want
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Why is early market research done?
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-to find a market for an item
-what the market is -changes in quality and feature |
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Why is market research done after the release of the product?
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-to test advertising
-attempt to see what should be done to maintain sales |
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What is a market survey?
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-info gathered by researchers about possible users, characteristics, age, gender, income, education, and location
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What is test marketing and why is it done?
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-offering a product in a limited area to see how it will sell
-company knows to make changes to a product or not to sell it |
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What are the four P’s of marketing?
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-product, price, place, promotion
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What additional services help make a sale?
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-warranties
-special services free of for a small charge |
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What about packaging helps make a sale?
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-combines size, design, and color to attract potential consumers
-new and improved, economy size words, coupons, rebates all attract customers. -butter is example |
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What is product identification?
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-logo, color, song, motto, all helps identify with a product
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What is price leadership?
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-selling similar goods at prices close to other companies
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What is penetration pricing?
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-selling a new product at a low price in an effort to pull costumers away from an established product
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Why is where a company sells a product obvious most of the time?
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because of past experience with similar products
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What is promotion?
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the use of advertising to get a costumer to buy it
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What companies direct mail advertising?
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magazine catalogs, credit card companies, and insurance companies
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What are a couple of promotional efforts used to sell goods?
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-direct mailer, free samples, coupons, gifts and rebates
-where products are positioned in the store |
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What is the product life cycle?
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series of stages that a product goes through from first introduction to complete withdrawal from the market
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How do marketers try to expand the life of a product?
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they may redesign the packaging or find new uses for the product
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What are channels of distribution?
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-routes by which goods are moved from producers to consumers
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What do wholesalers do?
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-businesses that purchase large quantities of goods from producers for resale to other businesses (coca cola distributor in plover)
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What are retailers and how are they associated with e-commerce?
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-businesses that sell directly to the businesses
-many stores have set up on the internet where they can sell to anyone |
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Why is storage and transportation important?
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retailers keep a 2 to 3 month supply on hand but getting goods to retailers the cheapest keeps costs down
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How does a club warehouse store do business?
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-requires a membership
-they buy a limited number of models and brands in huge quantities that they can get low prices from manufacturers |
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How is direct marketing done and why is it beneficial to customers?
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-mainly through catalogs and over the internet
-newspapers -sometimes sales tax is not paid if the company is located in another state, this is always changing |
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What is the civilian labor force, who is included and who is not?
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-total number of people 16 years old or older who are either employed or actively seeking work
-not able to work: disabled people, mentally ill, prisoners are not included, people in armed forces, those not looking for a paying job like full time students and homemakers |
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What are the three categories of workers and what are the trends among them?
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-blue-collar: employed in crafts and manufacturing, non farm labor
-white-collar: offices, sales, or professional positions -service workers: provide services directly to individuals, plumber and electrician -shift away from blue collar and farm to service -white collar has had steady growth |
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List and explain the three skill level of workers.
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-unskilled: people whose jobs require no specialized training
-semiskilled: people whose jobs require some training often using modern technology -skilled: people who have learned a trade or craft through a school or as an apprentice -professionals: highly educated individuals with college degrees and usually additional education of training |
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List and explain the three supply and demand factors that affect wages.
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-skill: ability a person brings to a job
-type of job: jobs that are unpleasant or dangerous may pay more -location: location of jobs affect pay. Where workers are scarce, employers may pay more |
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List and explain the three restrictions of wages.
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-market failure-not knowing what other employers pay
-federal minimum wage-lowest legal hourly wage rate -union vs. management-very little supply and demand here and more about how much company can and will pay |
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What are labor unions and what idea are they based on?
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-association of workers organized to improve wages and working conditions
-workers as a group will have more influence on owners than workers acting alone |
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What were working conditions like in the 1800s?
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-poorly lit and ventilated
-machinery was dangerous -work week was long and wages low -no unemployment insurance -no health care -no sick leave -no paid vacations |
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When workers began to unionize, how did companies and businesses react?
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- fired and blacklisted-kept from being employed
-businesses refused to hire union members or deal with unions |
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What did strikes often result in?
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violence between strikers and police
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What is a craft union and who founded the first permanent group?
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-union made up of skilled workers
-American Federation of Labor, led by Samuel Gompers |
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What is an industrial union and who founded the first union?
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- workers in an industry regardless of job or skill level
-Eugene V. Debs, founder of the American Railway Union |
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When did AFL and CIO merge and why?
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-1955
-labor movement would make greater gains if craft and industrial unions worked together -they were competing for the same workers |
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What does a local union do?
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-negotiate a contract
-make sure terms are met |
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What are the three types of unions?
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-closed shop: only members could be hired
-union shop: company that requires employees to join a union after a period time -agency shop: not required to join but must pay union dues |
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What are right to work laws and why are unions in those states weaker than unions in non right to work states?
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-state laws forbidding unions from forcing workers to join and pay union dues
-unions in those states are weaker because the union didn’t speak for all members |
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What do the national unions do?
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helps negotiate a contract with locals and the company. UAW (united auto workers), Teemsters (transports, over road truckers)
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What is collective bargaining?
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where workers as a group and owners negotiate a contract
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What are some of the issues that unions and management will negotiate?
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hours, benefits, and a cost-of-living adjustment (COLA)
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What is mediation and how does the federal government help both sides?
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-a neutral person tries to get both sides to reach an agreement during negotiations
-Fed Gov. through the Federal Mediation and Conciliation service provides a mediator free of charge |
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How does arbitration work?
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-both sides submit issues to an arbitrator and agree to agree with whatever the arbitrator says
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What is the purpose of picketing?
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-discourage workers from crossing the picket line to work for the employer
-aimed at embarrassing the company and build support for the strike |
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What is a boycott?
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not buying goods or services from a company
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How is a lockout used?
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-occur when management prevents workers from returning to work until they agree to a new contract
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What are scabs?
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willing to cross a picket line to work for the terms the company offers
-strikebreakers |
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What is an injunction and what power does the President have in these matters?
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court order preventing something
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What are some reasons for the declining enrollment of unions?
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-better wages and working conditions for all employees
-many workers enjoy a sense of security that helps to maintain some control over their jobs and lives -collective bargaining makes unions much less |
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What are the arguments against unions?
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-union rules decrease productivity
-point to rules that slow the introduction of new technology or require more employees than necessary to do a job -out of touch with members -increase wages…. -slow introduction to new technology |
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What is National Income Accounting and why does this exist?
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-measurement of the national economy’s performance, dealing with the overall economy’s output and income
-to determine how healthy the American economy is |
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What are the 5 major stats that measure the National economy?
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gross domestic product, net domestic product, national income, personal income, and disposable personal income
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What is GDP and what does it measure?
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gross domestic product: broadest measure of economy’s size. Total dollar value of all final goods and services produced in a nation in a single year
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Why is GDP expressed in dollars?
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use dollar as a common measure
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Why does GDP only measure the final good or service?
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to avoid double counting
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Why are second hand items not counted in GDP?
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-such a sale is not due to the production of the nation, but only transfers an existing product from one owner to another
-already counted |
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How is GDP calculated?
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-G (good and services bought by govt) + C (goods and services bought by consumers for their use) + I (business investment) - Net exports
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What are 2 weaknesses of GDP as a measuring device?
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-doesn’t include workers wages given in food, fuel, or housing
-GDP omits areas unpaid work |
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What is NDP?
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-net domestic product: value of the nation’s total output (GDP) minus the total value lost through depreciation on equipment
-GDP-depreciation |
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What is NI and what is included in its calculation?
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-national income: total income earned by everyone in the economy
-includes wages, rental income, corporate profits, interests on savings and other investments |
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What is PI and how is it calculated?
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-Personal income: total income that individuals receive before taxes are taken out
-transfer payments-money gained form a transfer not exchanged for goods and services (social security, unemployment) |
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What is DI and how is calculated and why is this number important?
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-disposable personal income: income remaining for people to spend or save after all taxes have been paid
-equals PI minus personal taxes -shows actual amount of money people have to spend |
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What is inflation?
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a rise in the general price level of goods and services
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What is purchasing power?
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-the real goods and services that money can buy
-determines the value of money |
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How does a drop a purchasing power skew GDP?
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-GDP will go up-inflation will cause an item to increase in value. Output hasn’t changed
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What is deflation and what can be said about it?
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-general decline in prices
-rarely happens |
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What is the CPI?
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-Consumer Price Index
-measure of the change in the price over time of a specific group of goods and services used by household |
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What is included in the calculation of CPI?
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-market basket: 900,000 specific goods and services used to compile CPI
-the market basket is looked at compared to a base year |
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What is the PPI?
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-producer price index: change in price over time that United States producers charge for their goods and services
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Why does the PPI usually increase before the CPI?
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-PPI usually measures mining, agriculture, and manufacturing. If they have a bad year or part of a year the raw goods used to make final goods and services sold to consumers goes up. PPI will rise before a CPI
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What is the GDP deflator and why is it used?
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-price index that removes the effect of inflation from GDP so that the overall economy in one year can be compared to another year. We get real GDP or GDP adjusted for inflation.
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What are aggregates?
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The summation of all the individual parts in the economy
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What is aggregate demand?
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Total quantity of goods and services in the entire economy that all citizens will demand at any single time
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On the demand curve the number on the side is the price. What is the price when it is related to aggregate demand?
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Aggregates include millions of products. Aggregate demand cannot be related to prices. It is related to a price level. The price level was the average of all prices
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What are the two reasons for the inverse relationship of the aggregate demand curve?
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-real purchasing power of your cash. When price level goes down purchasing power goes up.
-value of goods sold to other countries. When price level goes down, foreigners demand more of our goods. |
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What is aggregate supply?
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Producers will produce more if the price level goes up
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Where aggregate demand and supply meet is called the what and describes what?
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GDP price deflator. At this price there is no inflation or deflation. The amount supplied evens out with the price level
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What are business fluctuations?
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ups and downs in an economy
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What is the business cycle?
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-irregular changes in that level of total output measured by real GDP
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Peak or boom
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period of prosperity in a business cycle in which economic activity is at its highest point
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Contraction
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GDP levels off and begins to decline
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Recession
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part of the business cycle in which the nation’s output (real GDP) does not grow for at least six months
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Depression
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a really bad recession
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Trough
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lowest part of the business cycle in which the downward spiral of the economy levels off
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Expansion or Recovery
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part of the business cycle in which economic activity slowly increases
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Summarize the business cycle in the 20th Century.
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-huge downturn after the stock market crash followed by a boom after WWII. Small ups and downs until the early 1980’s. A recession that ended in 1982. Boom in the late 1980’s into the 1990’s. A small downturn after 9/11. A large downturn after 2008
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Why can’t the government take actions to smooth out all business fluctuations?
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there are always several factors working, so it is difficult to narrow down the fix
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Business Investment
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businesses decision’s are key to fluctuations. Businesses that invest more capital. Innovations cause competitors to rush to copy
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Government Activity
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can influence through taxing and spending
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External Factors
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wars, increase spending from gov. Raw materials, new ones cause lower prices, loss of them causes higher prices
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Psychological factors
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people’s reaction to events cause business fluctuations (9/11)
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What are economic indicators and why are they important?
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-statistics that measure variables in the economy
-they help aid businesses in predicting the present and future condition of the market |
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What are leading indicators?
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-statistics that point to what will happen in the economy
-weekly initial unemployment claims, new orders for consumer goods |
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What are coincident indicators?
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-stats that change at the same time as changes in overall business activity
-radio industrial production -sales of manufacturers wholesalers and retailers |
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What are the two reasons for the inverse relationship of the aggregate demand curve?
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-real purchasing power of your cash. When price level goes down purchasing power goes up.
-value of goods sold to other countries. When price level goes down, foreigners demand more of our goods. |
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What is aggregate supply?
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Producers will produce more if the price level goes up
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Where aggregate demand and supply meet is called the what and describes what?
|
GDP price deflator. At this price there is no inflation or deflation. The amount supplied evens out with the price level
|
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What are business fluctuations?
|
ups and downs in an economy
|
|
|
What is the business cycle?
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-irregular changes in that level of total output measured by real GDP
|
|
|
Peak or boom
|
period of prosperity in a business cycle in which economic activity is at its highest point
|
|
|
Contraction
|
GDP levels off and begins to decline
|
|
|
Recession
|
part of the business cycle in which the nation’s output (real GDP) does not grow for at least six months
|
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|
Depression
|
a really bad recession
|
|
|
Trough
|
lowest part of the business cycle in which the downward spiral of the economy levels off
|
|
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Expansion or Recovery
|
part of the business cycle in which economic activity slowly increases
|
|
|
Summarize the business cycle in the 20th Century.
|
-huge downturn after the stock market crash followed by a boom after WWII. Small ups and downs until the early 1980’s. A recession that ended in 1982. Boom in the late 1980’s into the 1990’s. A small downturn after 9/11. A large downturn after 2008
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|
Why can’t the government take actions to smooth out all business fluctuations?
|
-there are always several factors working, so it is difficult to narrow down the fix
|
|
|
Business Investment
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businesses decision’s are key to fluctuations. Businesses that invest more capital. Innovations cause competitors to rush to copy
|
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Government Activity
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can influence through taxing and spending
|
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External Factors
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wars, increase spending from gov. Raw materials, new ones cause lower prices, loss of them causes higher prices
|
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Psychological factors-
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people’s reaction to events cause business fluctuations (9/11)
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What are economic indicators and why are they important?
|
-statistics that measure variables in the economy
-they help aid businesses in predicting the present and future condition of the market |
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What are leading indicators?
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-statistics that point to what will happen in the economy
-weekly initial unemployment claims, new orders for consumer goods |
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What are coincident indicators?
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-stats that change at the same time as changes in overall business activity
-radio industrial production -sales of manufacturers wholesalers and retailers |
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What are lagging indicators?
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indicators that seem to lag behind changes in overall business activity
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What is the definition of money?
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-anything customarily used as a medium of exchange a unit of accounting, and a store of value
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What is a medium of exchange?
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-use of money in exchange for goods or services
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Why is bartering difficult and where can bartering work?
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-requires a double coincidence of wants. Each party must have the other is offering
-It rarely happens, therefore you spend great amounts of time making trades -works in small societies with fairly simple economic systems |
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What is the definition of unit of accounting?
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-use of money as a yardstick for comparing the values of goods and services in relation to one another
-helps for accurate accounting |
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How is money used as a store of value?
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-use of money to store purchasing power for later use
-can sell something and store it till you want to buy something |
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List and briefly explain the six characteristics of money
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-durable: must be able to withstand the wear and tear
-portable: must be easy to carry -divisible: must be easily divided into small parts so that purchases of any price can be made -stable in value: money must be stable. Usefulness as a store of value can decrease -scarce: that is what gives it its value -accepted: must be accepted as a medium of exchange for all debts |
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List and briefly explain the four types of money
|
-commodity money: a medium of exchange that has value besides its value as money. (cattle, gems)
-representative money: money that is backed by an item of value, such as gold or silver. Banks used to accept deposits of gold and silver in exchange for paper money called banknotes. Don’t always have enough gold and silver on hand though. -fiat money: money that has value because a government fiat, or order, has established it as acceptable for payment of debts -legal tender: money that by law must be accepted for payment of public and private debts |
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What restrictions did England put on its colonies?
|
-did not permit the American colonies to print money or mint coins
-Spanish dollar was the most common -Congress printed worthless paper money -Phrase, “Not worth a continental” was common |
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What events lead to the creation of the Federal Reserve System in 1913?
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-creation of 2 U.S. banks ended in 1832 (Jackson vetoed the bill)
-Civil War-Congress creates National Banks. All paper money printed to be backed by Government bonds -Shifts to Gold Standard in 1869 -No way to regulate greenbacks so panics occurred. Banks are forced to close -created FED in 1913 to control money in circulation. Controls money in circulation. Uses Federal Reserve Notes for the first time |
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What led to the creation of the FDIC?
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-run on banks after 1929 caused many banks to close
-to restore confidence in the banks, the FDIC is created. It insures deposits up to $100,000 -switch to Fiat standard instead of gold. Illegal to own gold |
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What are some services that banks offer today?
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checking accounts, direct deposits, auto payments, storage
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What is EFT and what are the concerns?
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-EFT: electronic funds transfer
-security is always a problem |
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What are token coins and who makes all U.S. coins?
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-value of the metal in each coin is less than its exchange
-the Bureau of the Mint, which is part of the Treasury Department -Philadelphia and Denver |
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What percentage of U.S. currency is in coins?
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-5 percent
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Who prints Federal Reserve Notes and why do they not make denominations over $100?
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-the Bureau of Engraving and Printing, part of the Treasury Department
-make it harder for criminals to hide large amounts of cash |
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What are checkable deposits and what did they used to be called?
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-money deposited in a bank that can be withdrawn at any time by presenting a check
-demand deposits |
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Who can offer checkable deposits today?
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-commercial banks used to be the only now all thrift institutions can offer this
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Explain what a credit card really is.
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-credit cards are loans, not money
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What is a debit card and how does it work?
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-automatically withdraws money from a checking account and transfers to businesses bank account
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What are Near Moneys?
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-assets, such as savings accounts, that can be turned into money relatively easily and without the risk of loss of value
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Explain what M1 and M2 are.
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-narrowest definition of money. Money that can be spent immediately
-includes M1 plus near money. Money market, CD’s, Euros |
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When was the FED created and what was the reason for its creation?
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-created 1913 as the central banking organization of the U.S. It was supposed to end the financial panics that had occurred during the 1800s and into early 1900s. Many responsibilities have been added over time. (value of money was fluctuated)
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How is the FED organized?
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-made up of board of Governors, Federal Advisory Council, the Federal Open Market Committee, 12 Federal Reserve district banks, 25 branch banks, and about 4,000 member banks. Power is not concentrated in a single bank but in the 12 district banks.
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What is monetary policy?
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-policy that involves changing the rate of growth of the supply of money in order to affect the amount of credit, thereby affecting business activity in the economy
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How is the board of governors organized?
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-supervises the 12 Federal Reserve district banks
-7 members are appointed by the President with approval of the Senate -president chooses one as chairperson -their decisions are not subject to President’s approval -takes politics out of decision making |
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What is the FOMC and what does it do?
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-Federal Open Market Committee: meets 8 times a year to decide what to do with the money supply
-decide whether to raise or lower interest rates |
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What is the benefit for being a member in the FED?
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-member banks, as stockholders in their district bank, receive dividends on their stock
-credit unions not part of this |
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What are the functions of the FED?
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-clearing checks: banks could cash quickly, acting as the federal government’s fiscal agent: government’s bank-you get a check at the end of the year from Uncle Sam, supervising member banks: making sure they follow rules, holding reserves and setting reverse requirements: telling banks how much to have on hand, supplying paper currency, regulating the money supply
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What does the FED have to do with consumer protection?
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-FED decides what truth in lending information has to be told to the public when buying things with credit
-like interest rate and monthly payment |
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What is the cost of credit?
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interest
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What is loose-money policy?
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-expansionary
-policy that makes credit inexpensive and abundant |
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What is tight-money policy?
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-contractionary
-makes credit expensive and in short supply |
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Why would loose-money policy be implemented?
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-to encourage economic growth
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Why would tight money policy be implemented?
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-to control inflation
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What is fractional reserve banking?
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system in which only a fractional of the deposits in a bank is kept on hand or in reserve. The remaining is available to lend
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What is the reserve requirement?
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-regulations set by the Fed requiring banks to keep a certain percentage of their deposits as cash in their own vaults or as deposits in their Federal Reserve district bank. Currently around 10%
-1913 |
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Briefly explain money expansion.
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-loaning to others and only keeping the reserve
-this process creates expansion of money |
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How can the FED control the money supply?
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-can raise or lower the reserve requirement
-raise=less money to spend -lower=more money to spend |
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Why has changing the reserve requirement not been used recently to change the money supply?
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-even small changes can have major effects, so some feel it is not precise enough to make small adjustments
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What is the discount rate?
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-interest rate that the Fed charges to member banks who need to meet their reserve requirement
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What is the prime rate?
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-rate of interest that banks charge on loans to their best customers
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What tool does the FOMC typically use to control the money supply?
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the interest rates
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What is the Fed Funds Rate?
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-Would use this if the discount rate is too high, if the fed raises fed funds rate there would be less money available to lend, interest rates are passed on to costumers
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What is open market operations?
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-Buying and selling of US securities by the fed to affect money supply
-Buying treasury bills causes more money to be put into circulation |
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What have critics of the FED suggested?
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-That money supply be increased at the same rate every year
-They recommend the Fed not engage in monetary policy |
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What is the FED’s overall task?
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- Consider everything including taxing and spending of the government in trying to keep up the growth of the economy
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What can be said about the growth of government workers from the early 20th century to today and what is the cause of this change?
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-3 million to 20 million
-government functions rose |
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What can be said about tax dollars that the government spent before and after 1970 as opposed to state and local government?
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-more spent by state and local since 1970
-public works projects began to be paid for by state and local governments |
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What is one theory as to why the government has increased its spending since WWII?
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-nation got wealthier since WWII especially in late 60’s and early 70’s
-people demanded more government services to even out inequalities |
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What is the opportunity cost of increased government taxing and spending?
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-displaces private economic decision making
-private economic decision making is the core of wealth creation and a rising standard of living for all citizens |
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1. How does the federal government protect human rights, promote a stable legal environment, and to promote policies that support the general well-being of all citizens?
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–providing public goods, redistributing income, regulating economic activity, ensuring economic stability
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Public goods
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goods or services that government supplies to its citizens
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Merit goods
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deemed socially desirable by government leaders (museums, ballets)
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Demerit goods
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deemed socially undesirable by government (gambling, drugs, alcohol, tobacco)
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3. How does the government try to provide everyone in the nation a certain level of income and health care support?
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Income redistribution: using taxing to assist citizens in need (take from rich, give to poor)
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What are social insurance programs and what are two types of them?
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-government programs that pay benefits to retired and disabled workers, their families and the unemployed
Social security: a federal program that provides monthly payments to people who are retired or unable to work Workers’ compensation: a government program that extends payments for medical care to workers injured on the job |
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What are public assistance programs and explain the three that are mentioned?
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1.Supplemental Security Income: provides food stamps, vet benefits, and payments to the disabled
2.Temporary Assistance to Needy Families: a state-run program that provides money to needy single parents 3.Medicaid: a state and federal program that provides free health care for low-income and disabled persons |
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What are externalities?
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Economic side effects or by-products that affect are uninvolved third party, can be negative or positive (pollution)
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What are the arguments of critics of the government?
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Feel merit goods should be supported by private citizens not taxes
Government assistance discourages personal initiative All these causes prices to go up |
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When does the budget process start?
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about 18 months before the fiscal year begins on October 1
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How does the budget process start?
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-executive branch prepares it
-OMB makes an outline of a tentative budget for the next fiscal year -the various departments and agencies receive this outline and usually start bargaining with the OMB for more money |
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What does the President do with the budget?
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-reviews and approves budget plan
-it’s printed and set to congress |
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What does Congress do with the budget?
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-committees and subcommittees meet and examine budget while CBO advises committees about the budget. Committees meet to discuss money allocations
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What happens when budget resolutions are not passed on time?
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-congress is supposed to pass a budget on time
-if they don’t government operates on continuing congressional resolutions to give money to agencies to spend. Agencies must spend based on last year’s budget until a new budget is passed. |
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What is a budget deficit and how does the government cope with it?
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-spend more than they take in
-government borrows money using credit called deficit financing |
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How does the government borrow money?
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-sells securities to individuals and businesses
-T bonds, Notes, and Bills, and U.S. savings bonds. State and local governments do the same with bonds -government pays off old debts and starts new ones |
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What is national debt?
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-total outstanding debt for federal government. Around 14 trillion dollars
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What halted the planned surpluses of the early 21st century
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-terrorism (9/11)
-costs of fighting terrorism |
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List and explain the two principles that justify our taxes.
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-benefits-received principle: people who use it should support it proportional to the benefit they receive (hunting license)
-ability-to-pay principle: higher income pays more |
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List and explain the three forms of taxation.
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-proportional tax: pays taxes proportional income you receive
-progressive tax: larger % is taken from higher income -regressive tax: large % taken from low income. Food sales tax-poorer families spend a larger proportion of their money on food than wealthier families so the food sales tax hurts poorer families more |
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List the major taxes listed in figure 16.9.
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personal income, social insurance, corporate income, excise, estate, inheritance, gift, sales, property, customs duties
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