FINAL EXAM REVIEW
Introduction to
Economics
Part I: Terms
1. economics - the study of how society meets its needs and wants.
2. microeconomics - the individual or "small" factors of the economy
3. macroeconomics - the economy as a whole; the "big economy"
4. scarcity - the most basic problem in economics; the condition of not having enough resources to satisfy needs and wants.
5. goods - tangible (physical) objects that can be used to satisfy needs and wants
6. services - intangible actions or activities that satisfy needs and wants
7. Factors of Production
a. natural resources - land and anything underground
b. labor - human effort
c. capital - tools used in production
d. entreprenuership - risk undertaken to start a business or produce goods
8. allocation - distribution
9. division of labor - breaking a job up into several tasks
11. specialization - doing only one job
12. trade-off - choosing one good over another
13. opportunity cost - what is given up when a choice is made; "what you lose when you choose"
14. Production Possibilities - shows all the possible combinations of goods a business or country may produce
15. interdependence - one country or region depending on another
Part II: Economic Systems
1. What 3 questions must every society answer?
a. what to produce?
b. how to produce it?
c. for whom to produce it?
2. Define economic system.
- how a
society answers the basic questions and meets it needs and wants
3. Complete the chart below
|
Economic System |
Who/what answers the 3 basic questions? |
Strengths |
Weaknesses |
|
TRADITIONAL
|
Activities are based on custom and tradition |
-
everyone knows role in society |
-
cannot adapt to change or
disaster well -
lack of development and
technology |
|
COMMAND |
The government controls production
and bases its decisions on what it feels is best for the entire society |
-
more equality (smaller gap
between “haves” and “have-nots” -
economy can change direction
on a large scale relatively quickly |
-
not suited for needs of the
individual -
lack of incentive to be
productive b/c wages are often controlled -
lower quality products |
|
MARKET
|
Individuals control the means of
production and use resources to make a profit. |
-
suited for needs of consumers -
incentives (profits) -
freedom of choice -
higher quality products -
|
-
more risk involved -
larger gap between rich and
poor |
Capitalism
1. According to Adam Smith, what guides the economy?
- “The Invisible
Hand,” which is made up of competition and free enterprise, should guide the
economy.
2. In market economy, what is the main incentive to produce? profit
3. List the 5 Fundamentals of Capitalism
a. competition
b. choice
c. voluntary exchange
d. incentives
e. free enterprise
ELP FINAL EXAM REVIEW
Supply & Demand
Part I: Terms
1. demand - the overall willingness and ability to buy a good.
2. quantity demanded - the amount we want at a specific price
3. Diminishing Marginal Utility - as we consume more of a good, we get less use from each additional good
4. substitutes - goods that may be used in place of each other
5. complements - goods used together
6. normal good - as income goes up, demand for this type of good goes up too; demand follows income
7. inferior good - as income goes up, demand for this type of goods goes down; demand moves opposite income
8. neutral good - as income changes, demand for this type of good stays the same
9. total revenue (TR) - Price times Quantity sold
10. Elasticity - measures the relationship between changes in price and changes in demand
11. elastic demand - a small change in price causes a major change in demand; demand changes more than price
12. inelastic demand - change in price has little impact on demand; price changes more than demand
13. unit-elastic demand - the change in demand is equal to the change in price
14. supply - the overall willingness to produce a good/service
15. quantity supplied - the amount produced at a specific price
16. equilibrium - the point where supply equals demand; the market is “at rest”
17. surplus - condition that exists when price is above equilibrium; supply is greater than demand
18. shortage - condition that exists when price is below equilibrium; demand is greater than supply
Part II: Concepts
1. What causes movement along the demand and supply curves? Change in price
2. What causes a change in demand (a shift in the entire curve)? These are Determinants of Demand
a. Income
b. Price of Related Goods
c. # of customers
3. A shift to the left means that supply or demand has decreased
4. A shift to the right means that supply or demand has increased
5. If a good has elastic demand, how would lowering the price affect total revenue? TR would increase
6. List each of the following as elastic (E) or inelastic (I).
I a. milk E d. yacht
E b. gold watch I e. pencil
E c. gas at BP E f. American Eagle jeans
7. Tell whether supply would increase or decrease for each scenario.
decrease a. increased govt. regulation decrease c. price of key resource increases
increase b. increased technology increase d. the government offers a subsidy
8. Tell whether the equilibrium price would increase or decrease for each scenario.
increase a. natural disaster wipes out key resource decrease d. the cost of a resource decreases
increase b. a competitor goes out of business increase e. technology becomes more efficient
decrease c. customers suffer job losses increase f. a product becomes unpopular
|
D 1. Cost that changes with output C 2. Cost that does not change with output. E 3. Cost of producing 1 more good. A 4. Increase in revenue from selling 1 more good B 5. Sum of all costs. |
A. marginal revenue B. total cost C. fixed cost D. variable cost E. marginal cost |
FINAL EXAM
REVIEW
1. labor union - group of workers that band together to negotiate with employers for better wages, improved working conditions,
and job security
2. partnership - business owned by 2 or more people
3. sole proprietorship - business owned by 1 person
4. closed shop - workers are required to join the union in order to be hired
5. open shop - workers do not have to join the union
6. corporation - business owned by many people, but it operates as a single individual
7. strike - workers refuse to work
8. diminishing returns - because resources are limited, the rate of production will decline at some point
9. dividend - the profit paid to a stockholder
10. horizontal merger - combining companies that make similar or identical products
11. arbitration - a 3rd party settles a dispute, and the settlement is binding (both sides must follow it)
14. monopoly - type of competition in which the market is dominated by 1 seller
15. perfect competition - the best type of competition for the buyer b/c there are many sellers and a great amount of choice and
available product information
16. oligopoly - type of competition in which a few sellers dominate the market
17. trust - companies remain separate, but combine their board of directors in an effort to work together and control price
18. lockout - the owners of a company refuse to allow the employees to work
19. mediation - a 3rd party settles a dispute, but neither side must follow the settlement
20. right-to-work laws - laws that prohibit closed shops (protects your right not to join a union)
21. patent - issued by the government to an inventor; protects the inventor’s right to make a profit from the invention.
22. Sherman Antitrust Act - the first government effort to ban monopolies; too vague to be effective
23. Clayton Antitrust Act - a later attempt to ban monopolies; it was more effective b/c it was more specific
24. Wagner Act - also called the National Labor Relations Act; guaranteed the right to join a union and bargain collectively; requires
management to bargain with unions; established National Labor Relations Board to monitor unions and management
25. Taft-Hartley Act - banned closed shops; allowed right-to-work laws
26. collective bargaining - negotiating as a group
27. board of directors - group that runs a corporation
28. stock - a piece of ownership in a corporation
29. preferred stock - guarantees a dividend to the shareholder
30. common stock - does not guarantee a dividend, but provides the shareholder a say in company issues
31. vertical merger - merging different steps in the production process
32. conglomerate - merger of unrelated companies
33. injunction - a court order
34. collusion - secretly agreeing to work together to control price
Type of Business |
Advantages |
Disadvantages |
|
Sole Proprietorship |
|
|
|
Partnership
|
|
|
|
Corporation |
Company
Stockholder
|
Company
~ corporate
income tax ~ personal income tax Stockholder
1. little say in how your money is
used |
|
Perfect Competition - many sellers - similar/identical products - much advertising & product information - very easy entry into the market - no control over price - examples - fishing industry - farming |
Monopolistic Competition - many sellers - different products - much advertising & product information - fairly easy entry into the market - little control over price - examples: - long distance phone - jeans |
Oligopoly - few sellers (3 or 4) - similar or slightly different products - much advertising & product information - entry into the market is difficult - some control over prices - examples: - US car industry - breakfast cereals |
Monopoly - one seller - unique products - no substitutes - some product info. - entry into the market is impossible - complete control over price - examples: - cable TV service - electricity |
1. What makes perfect competition best for the buyer?
2. Give an example of how a company in an oligopoly would engage in “non-price competition.”
a.
give away promotions
4. Why does the government allow certain monopolies like CP&L and Time Warner?
a. sometimes competition isn’t practical
5. Why does the government pass and enforce antitrust laws?
a. to protect consumers and ensure high quality
products and reasonable prices
6. What makes a monopoly best for the seller?