Download Economics Final Exam review

Name _________________
Date/Period ____________
Economics Final Exam review - Key
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Explain the difference between shortage and scarcity. Give an example of each.
Shortage is temporary, scarcity is permanent
Introduction of new gaming system – shortage
Water and natural resources - scarcity
What are capital goods? Give an example:
Anything used to manufacture another thing. Example: Robot in auto plant
What are the factors of production?
Land, labor, capital
Explain economic efficiency.
Happens when a society uses all of its resources to its fullest benefit.
Why are all goods and services scarce?
Because there are never enough to go around.
Explain the difference between trade-offs and opportunity cost. Give an example of each.
A tradeoff is a choice that does not involve money. Opportunity cost happens when you have to give up
something because you done have enough money for both items.
Tradeoff – go to school or sleep in.
Opportunity cost – Spend money on a new pair of shoes or a pair of pants.
What does “guns or butter” refer to?
The decision a society has to make when it spends money on defense or security or other things like roads or
schools.
What makes someone an entrepreneur?
A person who combines the factors of production to create a new business.
Explain the difference between a market, centrally planned and traditional economy.
Market economy is based on the free enterprise system.
Centrally planned the government makes all the economic decisions.
Traditional is based in rural areas and based on how things have traditionally been done.
What types of economies would China and France have?
China – Centrally planned
France - market
What is the struggle among producers called?
Competition
What are the 3 key economic questions that all countries must ask?
What goods and services should be produced?
How should the goods and services be produced?
Who gets the goods and services?
Why do producers produce?
To make a profit
Karl Marx and Adam Smith had different views about the role of government in our economy. Explain each
view.
Marx saw economics as a struggle between the workers and the entrepreneurs (capitalists) while Smith believed
in the free market and capitalism.
15. What is the purpose of an economic system?
To answer the three key economic questions.
16. What is the most effective way for consumers to make their desires known to businesses?
By choosing where they will shop.
17. What are disclosure laws and why are they important?
Disclosure laws give consumers information that they need to know about the products they buy so they can
make informed choices.
18. Explain the difference between a positive and negative externality. Give an example of each.
Externalities are the consequences of decisions that are made and can either be positive or negative.
Positive externality – Gessner is widened and more companies locate on the street which provides more jobs to
the students at Spring Woods and Northbrook.
Negative Externality – as a result of Gessner being widened there is more traffic which results in more traffic and
pollution
19. What are public goods? Give an example.
A shared good or service that is provided by the government – schools, roads, ports
20. Explain Social Security, Medicare, and FICA.
Government programs that the government takes taxes out of a person’s check to pay for
21. What is the law of supply and demand?
Law of Supply – tendency of producers to offer more of a good at a higher price
Law of Demand – consumers will buy more of a good at a cheaper price and less at a higher price
22. What is the most important determinant of supply and demand?
The consumer and the choices they make
23. What are other determinants of supply?
Consumer demand, availability of raw materials
24. What are other determinants of demand?
Substitutes available
25. Who are free riders?
People who benefit from a service without paying for it
26. What determines the price of most goods?
The interaction of supply and demand
27. Explain the difference between elastic and inelastic demand. Give an example of each.
Products that are elastic have substitutes such as soft drinks which limits the ability to raise prices.
Products that are inelastic have few substitutes, such as insulin, and the consumes will pay what they have to for
the item.
28. What occurs when buyers buy exactly the amount produced?
Equilibrium between supply and demand
29. What is a natural monopoly? Give an example.
A market that runs most efficiently when only one firm supplies all the output. Ex: utilities
30. What types of monopolies does the government generally permit?
Natural
31. Explain non-price competition. Give an example.
Competition based on anything other than price. Location, style, celebrity endorsements
32. Name and explain the 4 types of market structures.
Perfect competition – a large number of firms all produce the same product
Monopoly – a market dominated by a single seller
Monopolistic competition – many companies compete to sell products that are similar but not identical
Oligopoly – market dominated by a few large profitable firms
33. Name and explain the 4 types of business organizations.
Sole proprietorships
Partnerships
Corporations
Francizes
Non Profit Organizations
34. What is a merger? Name and explain the 2 types of mergers. Provide an example of each
A merger happens when two or more companies join together.
Horizontal – when two companies selling the same good or service join together. Ex: Verizon buys Sprint.
Vertical – when two or more firms involved in different stages of the manufacturing process join together. Ex:
McDonalds buys a potato farm and potato process plant to ensure they have enough French fries.
35. Why does the government sometimes give monopoly power to a company by issuing a patent?
To encourage technological innovation so the developers of a new product have a chance to recoup money
spent developing a product
36. What is a fringe benefit? Give an example.
Payment other than wages or salaries – paid vacation, sick days
37. Explain the difference between limited and unlimited liability.
Unlimited liability means a person has full liability for debts incurred by a business.
Limited liability means the corporation assumes liability for debts occurred by a business and not necessarily the
owner.
38. Explain cooperatives and non-profit organizations.
Non Profit Organizations are created to benefit a charity or organization such as the American Heart Association
Cooperatives are owned and operated by a group of individuals to increase their buying power – Farmers Coop.
39. What is GDP? What is counted and what is not counted?
The Gross Domestic Product. See Ppt that covers the 8 thins not counted
40. Explain the difference between durable and nondurable goods. Give an example of each.
Durable goods last for a long period of time and non-durable goods do not.\
Car – durable
Non – durable is a - pencil
41 Explain the CPI. What is counted?
This is used to calculate the growth of the economy (inflation). The government has a market basket of items
they measure on a monthly basis
42 Name and explain the four types of unemployment.
Frictional – happens when people leave one job for another
Structural – happens when jobs go away because of a change in technology or relocation of the industry
Cyclical – happens when there is a downturn in the business cycle and people lose their jobs
Seasonal – happens due to seasonal demand for a job or skill
43. Explain the difference between cost push and demand pull inflation.
Cost push happens then the cost or raw materials increases which increases the price of goods while demand
pull is an increase in prices because of the demand for a product exceeds supply
44. Why does the federal government collect taxes as we earn?
So they will have a steady stream of income to support the government
45. What is an entitlement? Give an example.
A social welfare program that people are “entitled to receive” as long as they meet certain requirements.
Ex: Social Security
46. What is a tax? Name the sources of revenue and expenditures for each level of government.
A required payment to the local state or national government
47. What is the federal budget and how often is it put together?
The budget for the United States government. It begins in the executive branch and is approved by the
legislative branch
48. Explain the difference between expansionary and contractionary fiscal policy.
Expansionary polices are designed to try to make the economy grow and contractionary to to slow the economy
down if it is growing too fast
49. What is a U.S. Savings Bond?
A low denomination (value) bond issued by the United states Government
50. Define interest rate.
The amount of interest you pay to borrow money
51. How many Federal Reserve Districts are there?
12
52. How could the Fed encourage banks to lend out more money?
Lowering the reserve requirement and reducing the interest rate
53. Explain the difference between a trade surplus and a trade deficit.
In a trade surplus you are selling more thins to other countries than you are buying, in a deficit you are buying
more than you are selling
54. Who is the largest U.S. trading partner?
China
55. Explain NAFTA and the EU, and the World Trade Organization.
56. Which country is the largest exporter of services?
United States
57. What is specialization?
The concentration of productive efforts of individuals and firms on a limited number of activities
58. Draw and label a business cycle
Expansion, peak, recession, trough
59. Do protectionist policies hurt or help countries? Explain.
They hurt a country as other countries retaliate when protectionist policies are out in place
60. Explain the difference between a developed country and a developing country.
Developed countries generally have higher GDP’s and standards of living than developing countries
61. What is the purpose of a PPC?
A curve or graph that shows alternate ways to use a countries resources
62. What are assets?
Money or other valuables that belong to a business
63. What is disposable income?
The amount of money a person has to spend after paying bills.
64. What is the natural rate of unemployment?
4 to 6 percent
65. What does it mean to be underemployed and what are discouraged workers?
When a person is working at a job that he/she is overqualified for. Discouraged workers are people who have
given up hope of finding a job and dropped out of the workforce
66. Explain the difference between easy and tight monetary policy. What are the tools for each?
67. What is the purpose of a credit score?
The evaluation of a person’s credit history. Determines how much they will pay for loans in interest rate
68. What is the difference between a deficit and a debt?
Deficit is how much more money you are spending than you have, debt is the total amount of money you owe