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3 Cards in this Set
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Explain Adam Smith and his theories, books etc. What are the five components of capitalism? What according to Smith is capitalism "perfect?" What is the "American Version" of free enterprise? What are the four types of economic systems? |
Adam Smith was a Scottish philosopher and economist. He wrote the Wealth of Nations that explains the factors of production are: land, labor, and capital and these factors generate the nation's wealth. Theories: A) Laissez faire: government must leave individuals as free as possible to pursue their own interests in the economy B) The Invisible Hand: each person pursues what is best for him or her that benefit the nation. 5 components of capitalism: freedom, private property, profit motive, competition, and consumer sovereignty. Perfect capitalism: freedom of buyers and sellers, a lot of participation and little oppression. av of free enterprise: it is largely capitalistic, there is some government regulation on private businesses and minimum wage. 4 economic systems: traditional (community based; rely on custom and rituals), market (consumption choices of consumers), centrally planned (government makes all decisions), mixed (some government involvement in the market). |
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Explain the importance of the banking system, interest rates, and financial intermediaries. Tell me about IRAs, pensions, and CD's. Explain liquidity. |
Banking systems: A) commercial (take deposits and make loans) B) investment (specialize in capital market issues and trading) C)national central (issue currency and set monetary policy). Interest rates: control inflation by affecting consumer spending. Financial intermediaries: connects surplus and deficit agents, such as banks, it helps individual/firms to borrow or save money. IRAs: savings accounts that people can invest in to help save for retirement with tax free advantages. Pensions: guarantee a given amount of monthly income in retirement for a worker that has met specific qualifications in their workplace. CD's: savings certificate entitling the bearer to receive interest, issued by banks. Liquidity: important because they easily be converted into cash at a time of emergency, they can be bought or sold without compromising their value. |
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Define the laws of supply and demand (make sure you indicate how prices affect both) What are the five determinants of supply and demand? explain diminishing marginal utility and the effect it has on prices and thus demand. Explain the difference between quality demand and market demand. How are these depicted on a graph. |
Law of supply: all other factors being equal, if price of a good or service increases, then the quantity of goods or services that suppliers offer will increase. Law of demand: all else being equal, price of product increases, quantity decreases, likewise as product decreases, quantity of demand increases. 5 det of supply: cost of resources, technology, other prices, future expectations, and number of sellers. 5 det of demand: tastes and trends, price of related goods, income, future expectation, and number of buyers. Law of diminishing marginal utility: states that the marginal utility of a good or service declines as its available supply increases, effect on price: change in price of a good alters the consumer EQ combination of goods consumed; effect on demand: shows buyers are willing to consume a good at the given price. quality demand: depends on income, if income rises, demand for inferior goods decrease and vice versa. Graph can shift left or right, indicating a reduction or increase in demand at a given price. Market demand: total demand for a product or service in the market as a whole, is calculated to determine at what level to set production output and help determine prices to maximize revenue. Graphed downwards. |
