Download Final Exam Study Guide Chapter 1 1. What is the nature of human

Final Exam Study Guide
Chapter 1
1. What is the nature of human wants, and how are they satisfied?
You have needs (necessary for survival; physical wants) and
wants (psychological wants); obtaining goods and services
to satisfy us.
2. What are the four factors of production?
Land – natural resources
Labor – Work people do, human work
Capital – Already made products
(manmade/manufactured items)
Entrepreneurship
3. What is the meaning of scarcity?
Limited resources and unlimited wants;
an inequality exists between the two
4. What is opportunity cost, and why is it important?
The highest valued alternative given up as a result of making
a choice; every decision has one
5. What are the key ideas in the economic way of thinking?
Make choices
Choices involve alternatives
Make good choices
Response to incentives
Voluntary trade
Choices are future oriented
Influence others
6. What is the main difference between incentives and disincentives?
Incentives are positives and disincentives are negatives
7. What does it mean to “think at the margin,” and how do marginal costs and marginal benefits affect
daily decisions?
You think about the costs and benefits of your decisions (more or
Less); helps you decide what to choose
8. What kinds of choices do businesses face, and what is a major goal of a business?
How to use limited resources in production
Making a profit
9. What are the basic economic decisions facing all societies?
How to use limited resources
10. What are the two branches of economics?
Microeconomics and Macroeconomics
Chapter 2
1. What are the 6 “pillars of free enterprise”?
Private Property
Specialization
Voluntary Exchange
The Price System
Market Competition
Entrepreneurship
2. What are the two functions of price in a price system?
1. Messengers – are people going to buy things at a price?
2. Provide incentives to businesses and consumers
3. Define the term competition.
Rivalry among businesses for resources and customers
4. What is entrepreneurship?
The imagination, innovative thinking, and management skills
needed to start and operate a business (puts factors together)
5. What are the characteristics of the command, traditional, and mixed system economies?
Command – Everything goes through the government
Traditional – Based on the customs and beliefs of the people
(hunter/gatherer)
Mixed – Combination of two or more –
individuals and government involved (US)
6. How does the Circular Flow of Chart describe a free enterprise economy?
Shows the flow of money and resources between households
(consumers) and businesses (producers)
7. What is meant by the concept of bartering?
Trading (exchange of products without using money)
8. What activities in the economy contribute to economic growth?
Buying and selling
9. What is money, and what are its three major functions?
Anything that is accepted as final payment for goods and services
Medium of exchange, Store of Value, and Measure of value
10. Provide a description of Adam Smith and his contributions to economics.
Father of Capitalism; spoke of the invisible hand and
wrote a book known as The Wealth of Nations
11. What are the goals of the U.S. Economic System?
Full employment
Economic growth
Price stability
Economic freedom
Economic security
Economic equity
Efficiency
Chapter 3 Study Guide
1. What is the law of demand?
Inverse relationship that states as price goes up,
demand goes down, and vice versa
2. Know what the term demand means.
Amount of goods or services that people are willing
and able to buy
3. What are disincentives to consumers?
High prices
4. What are incentives to consumers?
Low prices
5. What is the price effect?
Inclination of people to buy less of something at higher
prices than they would buy at lower prices
(Definition from the book)
6. What are 4 factors used to explain why people are affected by price?
Buying power
Diminished marginal utility
Diminished personal utility
Substitutes
7. What does the term buying power refer to?
Quantity of goods and services a person can buy with a
given amount of money (Definition from the book)
8. What does the word utility mean when it comes to demand?
Usefulness and satisfaction of a product
9. What is the concept of diminishing marginal utility?
As you buy more and more of something, eventually
your satisfaction level will be met, causing you to
buy less of a product
10. What is a substitute?
Something that can replace another good or service
11. When do consumers buy less of a product?
When they are at high prices
12. What is the term used to describe looking at the total of all individual demands?
Market demand
13. Which direction does the demand curve go in?
Downward from left to right
14. What is the price elasticity of demand?
A measure of the impact of the price effect
(Definition from the book)
15. What is the type of demand when a price change has a large/great effect on consumers spending
habits?
Elastic
16. What is it called when the price effect has little to no impact on demand?
Inelastic
17. What are the 3 things that could impact price elasticity of demand?
Time
Substitutes
Budget
18. If there is a change in demand, does the curve shift, or simply move along the curve?
Shifts
19. How can income affect the demand curve?
More income you have, the more you can buy and
vice versa
20. What is the concept of a complementary good? How does this impact the demand for these goods?
A product that goes with another product,
both will either increase or decrease
21. How can population impact the demand in a certain area?
The more people in an area will result in more demand
22. What are 2 scenarios that show how consumer expectations can affect demand?
Future or Current Sales
Chapter 4 and 5
1. What is supply?
The quantity of a good or service producers are
willing and able to sell at different prices at a particular time
2. What is the law of supply?
As price increases, quantity supplied increases and vice versa.
3. What does the elasticity of supply measure?
The way quantity supplied reacts to a change in price.
4. When do diminishing marginal returns occur?
When marginal production levels decrease with new
investment/Benefit (profit) is no longer within the price of
production
5. What can cause a change in supply?
Cost of production
Number of producers
Expectations
6. What happens to demand if the price goes up?
People buy less
7. What happens to supply if the price goes up?
Companies supply more
8. What does the market-clearing price represent?
Amount supplied = amount demanded
9. What is the definition of a shortage? What do buyers want, but not getting?
Diff between the amt supplied and the amt demanded when
the asking price is less than a market-clearing price…
anything below market-clearing price/ buyers want more
10. How is a shortage fixed?
Prices rise
11. What is the definition of a surplus? What do sellers want, but not achieving?
Diff between the amt supplied and the amt demanded when
the asking price is greater than a market-clearing price….
above the market-clearing price/sell more
12. How is a surplus fixed?
Prices fall
13. List the 3 functions of price in a market economy.
Signal buyers and sellers to buy or spend
Ration products to or from people
Motivates people to buy or sellers to sell
Chapter 6
1. What is the meaning of gross domestic product?
The final value of goods and services produced within a country in a year.
2. What are the sources of income?
Work (salary or wage)
Wealth (value of what you own)
Chapter 12
1. What grants Congress the power to tax?
The Constitution
2. What is a progressive tax?
A tax for which the percent of income paid in taxes increases as income
increases.
3. What are the characteristics of a good tax?
Simple
Economic
Certainty
Equity
4. What is meant by “Pay-as-you-Earn” taxation?
Federal income taxes are collected throughout the course of the year as individuals earn income.
5. What is an excise tax? An estate tax?
Excise – tax on the sale or production of a good
Estate – tax on the estate, or total value of the money and property, of a person who has died. Paid
before inheritors receive their share.