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271 Cards in this Set

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We can categorize the income recieved by households by...
How it was earned and by how it was divided.
The ________ indicates how the nation's earned income is apportioned aong wages, rents, interest, and profits.
Functional Distribution of Income.
The greatest amount of money used by the functional distribution is used by _______.
Wages and Salaries.
The ________ indicates how the nation's money income is divided among individual households.
Personal distribution of income.
The greatest amount of money used by the personal distribution of income is used by ________.
Personal consumption expenditures (88%), then Personal taxes (12%), then personal saving (0%).
How do households dispose of their income?
Personal taxes, personal saving, and personal consumption expenditures.
"Saving" is defined by economists as...
That part of after tax income that is not spent; consumers can either use it to consumer, or save it. Saving is the portion of income that is not paid in taxes or used to purchase consumer goods but instead flows into bank accounts, insurance policies, bonds/stocks, mutual funds, and other financial assets.
Reasons for saving center on _______ and _________.
Security and Speculation.
To dissave is to...
spend more than your after tax income (particularily poor incomes)
Which order do consumers spend their income between durable goods, nondurable goods, and survices.
Services, then nondurable, then durable.
What is a durable good?
Products that have expected lives of 3 years or more.
What is a nondurable good?
Products that have lives of less than 3 years.
What is a service?
The work done for consumers by lawyers, babers, doctors, lodging personnel, and so on.
True or false: the USA is a service-oriented economy.
A _________ is a physical establishment- a factory, farm, mine, store, or warehouse- that performs one or more functions in fabricating and distributing goods and services.
What is a plant?
A physical establishment- a factory, farm, mine, store, or warehouse- that performs one or more functions in fabricating and distributing goods and services.
An/a _____ is a business organization that owns and operates plants. Some firms operate only one plant, but many own and operate several.
What is a firm?
A business organization that owns and operates plants. Some firms operate only one plant, but many own and operate several.
An/a _______ industry is a group of firms that produce the same, or similar, products.
What is an industry.
A group of firms that produce the same, or similar, products.
_________ firms may be organize horizontally with several plants performing much the same function
Multiplant firms.
__________ firms own plants that perform different functions in the various stages of the perform different functions in the various stages of the production process.
Vertically integrated.
_______ firms have plants that produce products in several industries.
A ____________ is a business owned and operated by one person.
Sole Propreitorship.
A ___________ is a business owned by two or more individuals.
A ________ is a legal creation that can acquire resources, own assets, produce and sell prodcts, incur debts, extend credits, sue and be sued, and perform the functions of any other type of enterprise.
The ________ is the most effective form of business organization for raising money.
A _______ represents a share in the ownership of a corporation.
A _______ doesn't bestow any corporate ownership on the purchaser.
A _____ purchaser is simply lending money to a corporation.
Bond purchaser.
Bonds are beneficial because...
They issue interest. and Sarah is the best :)!
Corporations provide _____________ to owners (stockholders), who risk only what they paid for their stock.
Limited Liability.
What business provides an opportunity for specialists in production, accounting, and marketing functions and thus imporove efficiency.
What is the principal-agent problem?
Principals are the stockholders who own the corporation and who hire executives as their agents to run the business on their behalf. But hte interests of these manabers (agents) and the wishes of the owners (principals) do not always coincide. Owners want maximum profit and stock price, however agent may want the power, prestige, and pay that often accompany control over a large enterprise, independent of its profitability and stock price.
Government role in corporations is...
Provides legal framework and services needed for a market economy, establish "rules of the game" that control relationships amoung businesses, resource suppliers, and consumers.
True or false: there is such a thing as too little or too much government regulation in corporation.
What is a monopoly?
Single seller controls an industry.
In the United States, government gas attempted to control monopoly through _______ and through _______.
Regulation and through antitrust.
What is a natural monopoly?
Industries in which technology is such that only a single seller can achieve the lowest possible costs.
Examples of ___________ are some firms that provide local electricity, telephone, and transportation services.
Regulated monopolies.
What are transfer payments?
In the form of welfare checks and food stamps, provide releif to the destitute, the dependent, the disabled, andolder citizens; unemployment compensation payments provide aid to the unemployed.
What is market intervention?
Government acts to modify the prices that are or would be established by market forces. Providing farmers with above-market prices for their output and requiring that firms pay minimum wages are illustrated of government interventions designed to raise the income of specific groups.
What is taxation?
Personal income tax is used to take a larger proportion of the income of the rich than of the poor, thus narrowing the after-tax income difference between high-income and low-income earners.
What are three formsof redistributing income?
Transfer payments, market intervention, taxation
What are two possibilities of market failure?
1) produces the "wrong" amounts of certain goods and services
2) fails to allocate any resources whatsoever to the production of certain goods and services whose output in economically justified
Producing the wrong amount of goods/services results from what economists call _______ or _________.
Externalities or spillovers.
An _________ occurs when some of the costs or the benefits of a good are passed on to or "spill over" someone other than the immediate buyer or seller.
Why are externalities called externalities?
Because they are benefits or costs that accrue to some third party that is external to the market transaction.
What are negative externalities?
Production or sonsumption costs inflicted on a third party without compensation.
What is an example of negative externalities?
Environmental pollution. When a firm avoids some costs by polluting, its supply curve lies farther to the right than it does when the firm bears the full costs of production. As a result, the price of the product is too low and the output of the product is too large to achieve allocative efficiency.
How can a postive (underallocated)externalities be corrected?
Subsidize consumers, subsidize suppliers, provide goods via government.
How does subsidizing consumers (increase demand)help correct positive (underallocated)externalities?
US government provides low-interest loans to students so that they can afford more education. Those loans increase the demand for higher education.
Who does subsidizing suppliers (increase supply)help correct positive (underallocated)externalities?
In higher education, state gov provide substantial portions of the budgets of public colleges and universities. Such subsidies lower the costs of producing higher education and increase its supply.
What are some examples of subsidizing suppliers to correct positive (underallocated) externalities?
Publically subsidized immunization programs, bospitals, and medical research.
How does providing goods via government help correct positive (underallocated) externalities?
Where positive externalities are extremely large; Government may finance or, in the extreme, own and operate the industry that is involved.
What are some examples of goods via government used to correct positive underallocated)externalities?
US Postal Service and Federal aircraft control systems.
What are positive externalities?
Externalities appear as benefits to other producers/consumers.
What are some examples of positive externalities?
Education (benefits individual consumers: berrer-educated people generally achieve higher incomes than less well educated people. But education also provides benefits to society.
Certain goods called ________ are produced through the competitive market system.
Private Goods.
Private goods have two characteristics- ______ and _______.
Rivalvry and Excludability.
The inability to exclude creates a _______ problem, in which people can recieve benefits from a public good wihout contributing to its costs.
Free-rider problem.
What is an example of a free-rider good?
National security; you can't pay for only one person's protection. The nation portects everyone. Wireless internet...
________ goods include education, streets/highways, police/fire protection, libraries and museums, preventive medicine, and sewage disposal.
Quasi-public goods.Goods
What are quasi-public goods?
Goods in which exclusion is impossible.
What are some examples of Quasi-public goods?
Education, streets/highways, police/fire protection, libraries and museums, preventive medicine, and sewage disposal.
How are resources reallocated from the production of private goods to the production of public and quasi-public goods?
Government must free up resources by reducing private demand for them by levying taxes on househlds and businesses, taking some of their income out of the circular flow.
Why does levying taxes on households/businesses reallocate resources from the production of public/ quasi-public goods?
Lower incomes and les purchasing power, households and businesses must curail their consumption and investment spending resulting in a private demand for goods/services to decline, as does private demand on resources.
An economy's level of output depends on its level of total _______ relative to its ________ capacity.
Total spending relative to its production capacity.
Government promores stability by addressing these two problems.
Unemployment and Inflation.
When ________ occurs there is inadequate spending, when _______ occurs there is excessive spending.
Unemployment and Inflation.
Government enhances the operation of the market system by providing and appropriate ________ foundation and promoting __________.
Legal foundation and promoting competition.
__________, __________, and __________ are among the ways in which government can lesson income equality.
Transfer payments, direct market intervention, and taxation.
Government can correctfor the overallocation of resources associated with negative externalities through _________ or ________.
Legistlation or taxes
Government can offset the underallocation of resources associated with positive externalities by granting __________.
Government subsides.
Government provides many ________ goods because of their large external benefits.
Quasi-Public goods.
Government purchases are _______ (exhausive or non).
Exhastive; the products purchased directly absorg (require the use of) resources and are part of the domestic output.
What is an example of a government purchase?
The purchase of a missile absorbs the labor of physicists and engineers along with steel, explosives, and a host of other things.
Transfer payments are ________(exhaustive or non).
Nonexhaustive; they do not directly absorb resources or create output.
What are examples of transfer payments?
Social Security benefits, welfare payments, verteran's benefis, and unemployment compensation.
What is the key characteristic of transfer payments?
Recipients make no current contribution to domestic output in return for tnem.
What 4 areas of federal spending stand out?
1) pensions and income security
2) national defense
3) health
4) interest on the public debt.
________ and _________ federal expenditures include many income-maintenance programs for aged, disablities, handicaps, unemployed, retired, or families with no bread winners.
Pensions an income security.
Social security is an example of ________ federal expenditures.
Pensions and income security.
__________ federal expenditures underscores the high cost of military preparedness.
National defense.
_________ federal expenditures reflects the cost of government health programs for the retired (_______) and poor (________).
Health related federal spending; health programs for retired (Medicare) and poor (Medicaid).
Personal income tax is levied on __________, that is, on the incomes of households and unincorporated businesses after exemptions, deductions...
Taxable income.
The federal personal income tax is a _________ tax, meaning that people with higher incomes pay a larger percentage.
Progressive tax.
A ______ is the rate at which the tax is paid on each additional unit of taxable income.
Marginal Tax Rate.
The _______ is the total tax paid divided by total taxable income.
Average Tax Rate.
A tax whose average rate rises as income increases is a ________ tax.
Progressive tax.
Is the federal personal income tax progressive?
Social Security contributions are _________.
Payroll taxes.
What are payroll taxes?
Taxes based on wages and slaries, used to finance two compulsory federal programs for retired workers (social security, and medicare)
What is social security?
An income enhancement program.
What is Medicare?
Pays for medical services.
The ________ is levied on a corporation's profit- the difference between its total revenue and its total expenses.
Corporate income tax.
Taxes on commodities or on purchases take the form of ________ and _______ taxes.
Sales and Excise taxes.
What is the difference between sales and excise tax?
Sales taxes fall on a wide range of products whereas excises are levied individually on a small, select list of commodities.
What is the primary source of tax revenue for state governments?
Sales and excise taxes- 48%.
Distinguish between the functional distribution and personal disribution of income.
Functional distribution of income indicates how the nation's earned income is apportioned among wages, rents, interest, and profits. The personal distribution of income indicates how the nation's income is divided among individaul households.
What are 4 international likages involved with economics?
Goods and services flows (trade flows), Capital and labor flows (resource flows), Information and technology flows, and financial flows
What are international goods and services flows (or trade flows)?
US exports and imports goods and services.
What are international capital and labor flows (or resource flows)?
US firms extablish production facilities in foreign countries and foreign countries do the same in the US>
What are international information and techonology flows?
US transmits info to other nations about US products, prices, interest rates, and investment opportunities and recieves such info from other nations.
What are international financial flows?
Money is transferred btween the US and other countries; paying for inmports, buying assets, paying interest and debt, and providing foreign aid.
What does GDP stand for?
Gross Domestic Product.
A _________ occurs when imports exceed exports.
Trade Deficit.
A ________ occurs when exports exceep imports.
Trade Surplus.
What is OPEC?
Organization of petroleum Exporting Countries
Who is the USA's most important trading partner?
What is an open economy?
One that includes the international sector.
What are multinational corporations?
Firms that have sizable production and distribution activities in other countries.
What is are some examples of multinational corporation?
Coca-Cola (USA), Mitsubishi (Japan), Nestle (Switzerland)
Which country is the worlds leading trader?
United States.
Output per worker producing soybeans and avocados in the US exceeds that of Mexico, this means that the US has an/a ________in producing either soybeans or avocados.
Absolute Advantage
What are tariffs?
Exise taxes or duties on imported goods.
A nation has a comparative advantage in some product when...
It can produce that product at a lower domestic opportunity cost than its trading partner.
Terms of trade are...
Mutually beneficial to both trading nations since each can "do better" through such trade than through domestic production alone.
What is a foreign exchange market?
A market in which various national currencies are exchanged for another, serves this need.
An/a ________ is the rate at which the currency of one nation can be exchanged to the currency of another ntion.
Exchange rate.
The maret price or exchange rate of a nation's currency is an unusual price because...
It links all domestic prices with all foreign prices. Enables consumers in one country to translate prices of foreign goods into units of their own currency.
When the dollar price of yen increase, we say a _________ of the dollar relative to the yen has occurred.
What is a depreciation?
When the international value of the dollar has declined.
A decrease in the dollar price of yen is called an/a __________ of the dollar relative to the yen.
What is an appreciation?
When the international value of the dollar has increased.
________ are excise taxes or duties placed on imported goods.
Protective tariffs.
What are protective tariffs designed for?
Designed to shield domestic producers from foreign competition. They impede free trade by causing a rise in the prices of imported goods, thereby shifting demand toward domestic products.
________ are limits on the quantities or total value of specific items that may be imported.
Import quotas.
What are Import Quotas useful for?
All imports are prohibited once the quota is filled.
_________ include onerous licensing requirements, unresaonable standards pertaining to product qualitiy, or simply bureaucratic red tape in customs procedure.
Nontariff barriers.
What are nontariff barriers useful for?
Some nations require that importers of foreign goods obtain licenses and then restrict the number of licenses issued.
_______ consist of government payments to domestic producers of export goods.
Export Subsides.
Why are export subsides useful?
By reducing production costs, the subsides enable producers to charge lower prices and thus to sell more exports in world markets.
What are some examples of export subsides?
The US and other nations have subsidized domestic farmers to boost the domestic food supply. Such subsidies have lowered the market price of food and have artificially lowered export prices on agricultural produce.
The ________ Act is an example of a trade war in which escalating tariffs choke world trade and reduce everyone's economic well-being.
Smoot-Hawley Tariff Act of 1930. Although the Act was meant to reduce imports and stimulate US productionk the high tariffs it authorized prompted adversely affected nations to retaliate with tariffs equally high.
True or false the Smoot-Hawley Act may have been a contributer to the Great Depression.
The Reciprocal Trade Agreements Act of 1934 started the downward trend of tariffs. Aimed at reducing tariffs, this act had two main features:
Negotiating authority and Generalized reductions.
The _______ Act of 1934 started the downward trend of tariffs.
Reciprocal Trade Agreements Act.
The specific tariff reductions negotiated between the United States and any particular nation were generalized through ________ clauses, which often accompany such agreements.
Most-favored-nation clauses
___________ was based on three principles: 1) equal, nondiscriminatory trade treatment for all member nations 2) the reduction of tariffs by multilateral negotiation, and 3)the elimination of import quotas.
GATT- General Agreement on Tariffs and Trade
What did the GATT provide for trade agreement?
Provided a forum for the negotiation of reduced trade barriers on a multilateral basis among nations.
What does GATT stand for?
General Agreement on Tariffs and Trade
What 3 principals was the GATT based upon?
1) equal, nondiscriminator trade treatment for all member nations
2) the reduction of tariffs by multilateral negotiation
3)elimination of import quotas
Which came first, the Smoot-Hawly Tariff Act, General Agreement on Tariffs and Trade, or Reciprocal Trade Agreement Act?
Smoot-Hawley Tariff Act, then Reciprocal Trade Agreements Act, then
_______ is GATT's successor.
What does WOT stand for?
World Trade Organization.
The ________ oversees trade agreements reachedby the member nations and rules on trade disputes among them.
The ________ was launched in Doha, Quatar in 2001. The hegotiates are aimed at further reducing tariffs and quotas, as well as agriculture subsides that distort trade.
Doha Round.
Countries have sought to recude tariffs by creagin regional _______ also called ______.
Free-Trade zones, also called Trade Blocs
The most dramatic example of a free-trade zone is the _________.
European Union, formally called the European Economic Community.
The EU is now a strong _______: a group of countries having common identity economic interests, and trade rules.
Trade bloc.
In 1993, Canada, Mexico, and US formed a major trade bloc called ___________.
North America Free Trade Agreement (NAFTA).
What is globalization?
The integration of industry, commerce, communication, travel, and culture among the world's nations.
Of the ________ members of EU, _______ use the Euro.
25 members, 12 use the Euro.
What does national income accounting measure?
The economy's overall performance. It does for the economy as a whole what private accounting does for an individual firm.
What does BEA stand for?
Bureau of Economic Analysis.
What does NPA stand for?
National Income and Product Accounts.
The ________ (BEA or NPA)compiles the _______ (BEA or NPA)for the US economy.
GDP is a _______ measure.
Monetary measure. Without such a measure we would have no way of comparing the relative values of th vast number of goods and serves produced in different years.
__________ are goods and services that are purchased for resale or for further processing or manufacturing.
Intermediate goods.
________ are goods and services that are produced for final use by a consumer.
Final goods.
Why is the value of final goods included in GDP, but not intermediat goods?
Because the value of final goods already includes the value of all theintermediate goods that were used in producing them.
If you included intermediate goods in the GDP, they would amount to _______, and that would distort the value of the GDP.
Multiple counting.
___________ is the market value of a firm's output less the value of the inputs the firm has bought from others.
Value added. By measuring value added, we could avoid multiple counting.
Nonproduction transactions are of two types:
Purely financial transactions, and secondhand sales.
_________ are of two types: purely financial transactions, and secondhand sales.
Nonproduction transactions.
Purely financial transactions include the following:
Public transfer payments, Private transfer payments, and stock market transactions
What are public transfer payents?
Social security payments, welfare payments, and veteran's payments that the government makes directly to households.
What are private transfer payments?
The money that parents give children or the cash gifts given at X-mas. They produce no output, they only transfer funds from one private individual to another.
Under the heading _________, the accountants include the following items: All final purchases of machinery, equiptment, and tools by business enerprises. All construction. Chanes in inventories
Gross private domestic investment.
Why do the accountants regard residential construction as investment rather than consumption?
Because apartment buildings and houses, like factories and stores, earn income when they are rented or leased. Owner-occupied houses are treated as investment goods because they could be rented to bring in an income return.
net investment= ___________ - __________________.
net investment= gross investment - depreciation
What is gross investment?
All investment goods. Both those that replace machinery, equiptment, and buildings that were used up (worn out or made obsolete) in producing the current years output and any net additions to the economy's stock of capital.
What is net investment?
Includes only investment in the form of equal capital. The amount of capital that is used up over the course of a year is called depreciation. So net investment= gross investment-depreciation
What is depreciation?
The amount of capital that is uesd up over the course of a year.
True or false: Gross investment need not always exceed depreciation.
________ happens when the economy uses up more capital than it is producing. The nation's stock of capital shrinks.
National income accountants use the symbol _ for private domestic investment spending.
National income accountants use the symbol _____ to signify gross investment.
National income accountants use the symbol ___ to signify net investment.
Government purchases include these two things:
1) expenditures for goods and services that government consumes in providing public services
2) expenditures for social capital such as schools and highways, which have long lifetimes.
Net exports (Xn)= _______ (X)- _________ (M)
exports - imports
Personal Consumption (_), Gross Private Domestic Investment (_), Government purchases (_), and Net Exports (_) put together equals GDP
Personal Consumption (C), Gross Private Domestic Investment (Ig), Government Purchases (G), Net Exports (Xn)
Taxes on _________ and _______ includes general sales taxes, excise taxes, business property taxes, license fees, and customs duties.
Taxes on Production and Imports.
Why do national income accountants add these indirect business taxes to wages, rent, interest, and profits in determining national income?
Mainly for accounting convenience.
The huge depreciation charge made against private and social capital each year is called ________ because it is the allowance for capital that has been "consumed" in producing the years GDP.
Consumption of fixed capital.
________ is the meausere of the total market value of all final goods and services produced by the economy in a given year.
The expenditures approach to GDP wums the total spending on final goods and services: GDP= _+_+_+_
GDP= C+Ig+G+Xn
The economy's stock of private capital expands when net investment is _______; stays constant when net investment is ________; and declines when net investment is _________.
Positive, constant, negative.
The _________ approach to GDP sums compensation to employees, rent, interest, proprietors income, corporate profits, and taxes on production and imports to obtain national income, and then subtracts net foreign factor income and adds a statistical discrpancy and consumption of fixed capital to obtain GDP.
What does NDP stand for?
Net domestic product.
NDP= GDP - _________
consumption of fixed capital (depreciation)
NI stands for ______, PI stands for ______, and DI stands for ______.
National Income; personal income; Disposable income.
_______ income includes all income received whether earned or unearned.
Personal Income. Earned from working, unearned from social security, welfare payments, disability,(transfer payments)
_________ income is personal income less personal taxes. (personal taxes include personal income taxes, personal property taxes, and inheritance taxes)
Disposable income.
Equation for disposable income: DI= C (_________) + S (__________)
DI= Consumption and Savings
A GDP based on the prices that prevailed when the output was produced is called unadjusted GDP or _________.
Nominal GDP.
What is Nominal GDP?
A GDP based on the prices that prevailed when the output was produced.
A GDP that has been deflated or inflated to reflect changes in the price level is called adjusted GDP, or _______.
Real GDP.
What is real GDP?
A GDP that has been deflated or inflated to reflect changes in the price level.
A _______ is a measure of the price of a specified collection of goods and services, called a "market basket" in a given year as compared to the price of an identical collection of goods and services in reference year.
A price index.
Price index in given year= ___________/___________ X 100
Price of market basket in specific year/ price of same market basket in base year.
________ GDP is output valued at current prices. _____ GDP is output valued at constant base-year prices.
Nominal GDP; Real GDP.
The GDP price index compares the _______ (market value) of all the goods and services included in GDP in a given year to the price of the same _________ in a reference year.
Price; market basket
Average workweek has declined from ___ to ___.
53 hours to 35 hours
Short comings of GDP include:
1) certain productive activities (such as homemakers) are not shown
2) average workweek has declined (doesn't account for "psychic income", satisfaction that people derive from their work), doesn't measure quality (only quantity), doesn't include underground economy (black market), costs of pollution aren't included, doesn't tell us whether the mix of goods and services is enriching or potentially detrimental to society. (GDP assigns equal weight to a rifle as an encycolpedia)
Intermediate goods, nonproduction trajsactions, and seconhand sales are purposely exclueded in calculating ______.
GDP may be calculated by summing _________ on all final output or by summing ________ derived from the production of that output.
Summing all expenditures on final output or summing the income derived from the production of that output.
Gross investment is divided into (a)_________ and (b) ________.
(a) replacement investment, required to maintain the nation'sstock of capital at its existing level.
(b) net investment, the increase is positive and therefore the economy's stock of capital and production capacity increase.
By the _______ or allocations approach, GDP is calculated as the sum of compensation to employes, rents, interest, proprietors' income, corporate profits, taxes on production and imports MINUS net foreign factor income, PLUS a statistical discrepancy and consumption of fixed capital.
Income approach.
________(current dollar) GDP measures each years output valued in terms of the prices prevailing in that year.
Nominal GDP.
________ (constant dollar) GDP measures each year's ouput in terms of hte prics that prevailed in a selected base year.
Real GDP.
Because ______ GDP is adjusted for price-level changes, differences in _______ GDP are due only to differences in production activity.
Real GDP.
GDP's limitations include:
fails to account for nonmarket and illegal transactions, changes in leisure and product quality, the composition and distribution of output, and the environmental effects of production.
___________ economic resources mean limited goods and services.
Scarce economic resources.
What are opportunity costs?
To obtain more of one thing, society forgoes the opportunity of betting the next best thing
Economists assume that human behavior reflects _______. Individuals look for and pursue opportunities to increase their _______.
Reflects "self-interest"; increase their utility
What is utility?
The pleasure, happiness, or satisfaction obtained from consuming a good service
Business firms are purposeful in deciding what ______ to produce and how to produce them. Government entities are purposeful in deciding what ________ to provide and how to finance them.
Businesses are useful in deciding what products to produce; Government is useful in deciding what public services to provide.
What is marginal analysis?
The comparison of marginal benefits and marginal costs, usually for decision making. Marginal means "extra", "additional" or "change in"
What is the scientific method?
The observation of real-world behavior and outcomes.
What is an economic principle?
A statement about economic behavior or the economy that enables prediction of the probable effects of certain actions
What are economic generalizations?
Economic principles are generalizations relating to economic behavior or to the economy itself
What is the other-things-equal assumption?
In constructing their theories, economists use this, the assumption that factors other than those being considered do not change
________ examines either the economy as a whole or its basic subdivisions or aggregates, such as the gov, household, and business sectors.
_________ is concerned with individual units such as a person, household, firm, or industry
________ is a collection of specific economic units treated as if they were one unit
________ economics focuses on facts and cause-and-effect relationships.
__________ economics is involved in economic policy.
______ economics avoids value judgments, tries to establish scientific statements about economic behavior and deals with what economy is actually like
_______ economics is concerned with what is and _____ economics is concerned with what aught to be.
Positive; normative.
What is an Individuals' economizing problem?
The need to make choices because economic wants exceed economic means
The individual's economizing problem involves what two ideas?
a. Limited income
b. Unlimited wants
What is the difference between necessities and luxeries?
i. Necessities- food, shelter, and clothing
ii. Luxuries- perfumes, yachts, sports cars
_________ the budget line is attainable; _______ budget line is unattainable
Inside; Outside.
Give an example of trade off and opportunity costs.
To obtain the first DVD, you trade off 2 books. The opportunity cost of the first DVD is two books
What happens to the budget line when income changes?
Location of budget line varies with money income
What are the factors of production?
Land, Labor, Capital, and Entrepreneurship
What assumptions are made by hte production possibilities model?
Produciton possibilities model Assumptions:
Full employment
Fixed resources
Fixed technology
Two goods
Under the production possibilities model there are two types of goods:
1)________- products that satisfy our wants directly
2)________- products that satisfy our wants indirectly by making possible more efficient production of consumer goods
Consumer goods; Capital goods
The ________ curve displays the different combos of goods/services that society can produce in a fully employed economy, assuming a fixed availability of supples of resources and constant technology
The production possibilities curve
What is economic rational?
rational is that economic resources are not completely adaptable to alternative uses. Many resources are better at producing one type of good than at producing others
________ is when MB (marginal benefit) and MC (marginal cost) are equal; MC=MB
Optimal Allocation
What are some reasons for a growing economy?
1) Increases in resource supplies
2) Improvements in resource quality
3) Advances in technology
A/an __________ is a particular set of institutional arrangements and a coordinating mechanism- to respond to the economizing problem.
Economic System.
The economic system has to determine ____ goods are produced, ____ they are produced, ____ gets them, ____ to accommodate change, and ____ to promote technological progress
What; how; who gets them; how to accommadate change, and how to promote technological progress.
The _______ system- socialism, or communism. Government owns most property resources and economic decision making occurs through a central plan.
Command system.
What is an example of a command system?
North Korea and Cuba. Also Turkmenistan, Laos, Belarus, Libya, Myanmar, and Iran
The _______ system, or _________- Characterized by the private ownership of resources and the use of markets and prices to coordinate and direct economic activity. Participants act on their own self-interest
The market system or capitalism.
______ capitalism or ________: government's role would be limited to protecting private property and establishing an environment appropriate to the operation of the market system. Means "let it be"
Pure capitalism or laissez-faire
Describe capitalism in the US.
Gov plays a substantial role in the economy. Provides the rules for economic stability and growth, provides certain goods and services that would otherwise be under produced or not produced at all, and modifies the distribution of income.
Give an example of intellectual property rights.
Patents, copyrights, trademarks.
Competition enables the economy to adjust to...
changes in consumer tastes, technology, and resource availability.
Compitition requires:
1) Two or more buyers and two or more sellers
2) Freedom of sellers and buyers to enter or leave markets, on the basis of their economic self-interest
What is a market?
An institution or mechanism that brings buyers (demanders) and sellers (suppliers) in contact. Conveys the decisions made by buyers and sellers of products/resources
What is specialization?
Use of resources of an individual, firm, region, or nation to produce one or a few goods or services rather than the entire range of goods and services.
________ is a medium of exchange. It makes trade easier.
____________ is the swapping goods for goods.
Profits and losses are the difference between ________ and _____________.
Total Revenue and Total opportunity Costs.
________ costs include not only wage and salary payments to labor, and interest and rental payments for capital and land, but also payment to the entrepreneur for organizing and combining the other resources to produce a commodity
Opportunity Costs.
What happens when continuing economic profits?
1) Existing firms grow and new firms enter
2) Industry expands
What happens when continuing economic losses?
1) Some existing firms shrink and others go out of business
2) Industry contracts
Define Dollar-votes.
Consumers spend their income on the goods they are most willing and able to buy.
Dollar-votes determine:
which industries will continue to exist but also which products will survive or fail
Most efficient production technology depends on:
1) The available technology; the various combos of resources that will produce the desired results
2) The prices of the needed resources- the least amount of resources is often the least expensive
Who wrote the Wealth of the Nations?
Adam Smith. Introduced the "invisible hand"
Of the various virtues of the market system, three merit reemphasis:
1) Efficiency
2) Incentives
3) Freedom
What are two reasons for the demise of the command system?
1) coordination problem (if one fails, then all others fail)
2) incentive problem (quantity is important, not quality)
What does the circular flow model emphasize.
The dynamic market economy creates continuous, repetitive flows of goods and services, resources, and money.
What is the resource market?
The place where resources or services of resource suppliers are bought and sold.
What is the product market?
the place where goods and services produced by businesses are bought and sold.