Download What is the difference between a scarcity and a

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Exam Date:
Review Sheet – Semester Exam
Instructions – the following concepts and terms will be on your final exam. Use your classroom notes and textbook (if
you have one) to make any type of notations that you think help you achieve as high of a score as possible on the final
exam.
o What is the difference between a scarcity and a
shortage?(Ch 1)
Scarcity – Limited Quantities & Shortage – Temporally
Unavailable
o Physical capital vs. Human capital (Ch 1)
Physical – Object (ex: Dishwasher) & Human –
Knowledge/Skills (ex: Chef)
o “Guns vs. Butter” (Ch 1)
Guns are Military/Government Goods & Butter are
Consumer Goods
o Opportunity Cost (Ch 1)
The most valuable alternative when making a decision or
what you could of had
o Production Possibilities Curve (Ch 1)
A graph of all the possibilities that a nation can produce
(be able to read for the exam)
o Three Economic Questions (Ch 2)
What to make, How to make it, & Who will use it? Also
they are answered based on the importance of society’s
values
o 4 Economic Systems (Ch 2)
Traditional – Customs; Command/Centrally Planed –
Government; Free Market – People; Mixed - Mixed
Final Exam Review Sheet
o The Factor & Product Market involve which type of
exchanges? (Ch 2)
Factor Market – Firms buy Factors of Production from
Households; Product Market – Households buy products
form Firms
o Know how to draw, label & explain the Circular Flow
Chart of the Factor & Product Market. (Ch 2)
o Regulating force of the free market economy (Ch 2)
Competition
o Adam Smith’s time (Ch 2)
Smith was a big fan of Laissez Faire, did not like the
Government in the market place; Believed in Selfregulation of the Market Place
o The purpose of the free enterprise system (Ch 3)
It gives consumers the freedom to make choices
o What are some of the basic principles of free
enterprise? (Ch 3)
Profit Motive, Legal Equality, Property Rights,
Competition
o Public Disclosure Law (Ch 3)
Requires companies to provide information about their
products to customers
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o Improvements in technology allow an economy to
produce more output from the same or a smaller
quantity of inputs. (Ch 3)
Technology will also help improve the standard of living
by providing more products to buy
Exam Date:
o Government’s influence on Supply (Ch 5)
Subsidies, Excise Taxes, & Regulations
o Equilibrium (Ch 6)
Where Quantity Demanded equals Quantity Supplied
o Public Goods (Ch 3)
It is a good that everyone can use; it is impractical to
make people pay for; & it is too expensive for a private
provider to maintain
o Price ceilings vs. Price floors (Ch 6)
Price Ceilings – Maximum Price (Rent Control)
Price Floors – Minimum Price (Minimum Wage)
o Law of Demand & Supply (Ch 4/5)
Demand – When Price increases Demand falls
Supply – When Price increases Supply rises
o Rationing (Ch 6)
Eased shortages during WWII; helped maintain the
standard of living
o Know how to draw & shift Demand & Supply Curves.
(Ch 4/5)
o Barriers to Entry (Ch 7)
Factors that make it harder for new companies to enter a
market
o Inferior goods vs. Normal goods (Ch 4)
Inferior – Generic products (what we settle for)
Normal – Brand names (what we want)
o Factors Affecting Elasticity (Ch 4/5)
Availability of Substitutes; Products Importance; Is the
product a Need or Luxury
o How does a Fad affect the demand curve? (Ch 4)
A Fad will shift the demand curve rapidly to the right (Inc)
o Marginal Product of Labor (Ch 5)
A gain or loss in production as an additional unit of Labor
is added
o Negative Marginal Return (Ch 5)
A loss in production as an additional unit of labor is
added
Final Exam Review Sheet
o Why can an industry that enjoys economies of scale
easily become a natural monopoly? (Ch 7)
As they produce more they cost of production decreases
allowing business to drop prices & push out competition
o Price Discrimination (Ch 7)
Charging different prices for the same product to different
groups of customers
o What is an oligopoly? (Ch 7)
A market in which a few large firms dominate the market
o Monopolistic Competition (Ch 7)
Business will compete for the dollars of customers in
order to increase their profits
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o Sole Proprietorship (Ch8)
1 owner business; Unlimited personal liability; Must follow
zoning laws
o Taft-Hartley Act of 1947 (Ch 9)
Right-to-Work Act; Curbs union power & mandatory
union membership
o What is the difference between a general partnership
and a limited liability partnership (LLP)? (Ch 8)
General – All partners share liability
LLP – All partners are limited from liability
o Collective Bargaining, Mediation, and Arbitration(Ch9)
All forms of Negotiations between Unions & Companies
o Corporation (Ch 8)
Owned by stockholders (who are not liable)
o Vertical vs. Horizontal Mergers (Ch 8)
Vertical – Companies in different stages of production
Horizontal – Companies in the same field (BMW & GM)
o Money as a Unit of Account (Ch 10)
Money can be used to compare the value of products
o Six Characteristics of Money (Ch 10)
Divisibility, Portability, Uniformity, Acceptability,
Durability, Limited Supply
o Franchising (Ch 8)
Must pay royalties; receive training & support; keep some
control; financial assistance
o What is the difference between commodity money
and representative money? (Ch 10)
Commodity – Objects that are valuable
Representative – Objects that can be exchanged for
something of value
o Learning Effect (Ch 9)
More education leads to higher wages
o National Banking Acts of 1863 and 1864 (Ch 10)
Gave the federal government the power to charter banks
o How can competition in a scarce labor market affect
wages? (Ch 9)
A lack of workers will cause firms to raise wages
o How did the Federal Reserve System improve the
banking industry in the twentieth century? (Ch 10)
Created a central bank that can lend money in times of
need to member banks
o Why have minorities historically tended to earn lower
salaries and wages than their white counterparts,
despite nondiscrimination laws? (Ch 9)
Historically less access to education opportunities
o What event and industry initiated the labor union
movement in the United States? (Ch 9)
Industrial Revolution & a Manufacturing economy
Final Exam Review Sheet
o What is the gold standard? (Ch 10)
Money system where currency is backed by gold
o Define Return (Ch 11)
Money earned above & beyond the initial investment
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o How does investing contribute to a free enterprise
system? (Ch 11)
Gives money to Business so they can expand & hire
more people
o Financial Intermediary (Ch 11)
An entity that can loan, store, & save money; (bank,
credit union…)
o Why should you consider liquidity, not just return,
when making savings and investment decisions?
(Ch 11)
You may need to have ready access to your funds
Exam Date:
o Real GDP vs. Nominal GDP (Ch 12)
Real GDP – Uses a constant price
Nominal DGP – Uses a current price
o Limitations of Calculating the GDP (Ch 12)
Non-Market Activities; Underground Economy; Negative
Externalities; Quality of Life
o In a real economy, which two factors can change the
level of nominal GDP? (Ch 12)
Inflation & Deflation
o Types of Bonds (Ch 11)
Saving; Treasury; Corporate; Junk;
o Four factors, both expected and unexpected, of the
business cycle (Ch 12)
Interest Rate & Credit; External Shocks; Business
investments; Consumer Expectations
o Money Market Mutual Funds (Ch 11)
Short-term investments that offer higher interest rates
o Stock Market Crash of 1929 (Ch 11/12)
Speculation buying; beginning of great depression
o Primary market vs. Secondary market (Ch 11)
Primary – New investments
Secondary – Resale investments
o Capital Deepening (Ch 12)
Increasing the Human Capital of workers which will lead
to higher wages
o Bear vs. Bull market (Ch 11)
Bear – Falling market (Investors Sell)
Bull – Rising market (Investors Buy)
o What source of economic growth is reflected in the
economy by an increase in productivity without an
increase in land, labor, or capital? (Ch 12)
Technological Progress
o Standard & Poor’s 500 (S & P 500) vs. Dow Jones
Industrial Average (Ch 11)
S&P 500 – Market index that sample 500 companies
Dow Jones – Market index that sample 30 companies
o Securities and Exchange Commission (Ch 11)
A government agency that regulates financial markets
Final Exam Review Sheet
o 4 types of unemployment (Ch 13)
Structural; Frictional; Cyclical; Seasonal;
o What has inflation done to consumers’ purchasing
power? (Ch 13)
Inflation has reduced purchasing power of customers
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o How does inflation affect families with Fixed Incomes?
(Ch 13)
Prices will increase but income will stay the same which
can cause stress on the family
o Entitlement programs (Ch 14)
Means tested programs that the government must spend
money on; (Social security)
o Cost-push vs. Demand-pull Theories (Ch 13)
Cost-push – Increase in costs will increase prices
Demand-pull – Increase in demand will increase prices
o State taxes vs. Local taxes (Ch 14)
State – Revenue from Sales & state income tax
Local – Revenue from Property tax
o Poverty Threshold (Ch 13)
The income needed to support a household; based on
family size
o What is the role of the Congressional Budget Office
(CBO) in the federal budgetary process? (Ch 15)
The CBO provides congress with economic data during
the budget process
o Distribution of Income (Ch 13)
Has become more imbalanced of the past decades
o Consumer Price Index (Ch 13)
The cost of living for the average US household
o Expansionary vs. Contractionary fiscal policies
(Ch 15)
Expansionary – Increase spending & Cut taxes
Contractionary – Decrease spending & Raise taxes
o The Constitution places what two limits on the
government’s power to tax? (Ch 14)
Federal Taxes must be the same in all states & the
revenue must be used for general welfare & national
defense
o Classical economics vs. Keynesian economics
(Ch 15)
Classical – Market is self-regulating
Keynesian – Government interaction help in times of
need
o Tax Bases (Ch 14)
The dollar value of goods & services, property &
corporate profit
o How did economic events during World War II
demonstrate the principles of Keynesian economics?
(Ch 15)
Government spending increased and America came out
of the great depression
o Progressive vs. Regressive taxes (Ch 14)
Progressive - % paid in tax increase as income increases
Regressive - % paid in tax decreases as income
increases
o Crowding-out-effect (Ch 15)
Increased government borrowing leads to less money for
firms & households to borrow
o Medicaid vs. Medicare (Ch 14)
Care for the old Aid the poor
Final Exam Review Sheet
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o Gramm-Rudman-Hollings Act (Ch 15)
Created automatic cuts in federal spending when deficits
got to high
o The law of comparative advantage states that a
nation is better off when it produces goods and
services for which it has the comparative advantage.
How is a comparative advantage obtained? (Ch 17)
By producing the products with the lowest opportunity
cost
o The United States as an importer and exporter(Ch17)
The US is the largest importer and exporter of products
Exam Date:
o How trade is affected as currency Appreciates or
Depreciates. (Ch 17)
Appreciation – Trade will decrease because of higher
prices
Depreciation – Trade will increase because of lower
prices
o In contrast to a fixed-rate system, what does a flexible
exchange-rate system allow? (Ch 17)
Fixed-rate – remains constant
Flexible-rate – changes based on supply & demand
o U.S. Balance of Trade (Ch 17)
US has increased its trade deficit over the past decades
o Why would a country impose a voluntary export
restraint on products? (Ch 17)
Helps reduce future trade barriers
o What are the advantages & disadvantages of
Protectionism? (Ch 17)
Advantage – Helps protect American companies and
workers
Disadvantages – can eliminate competition which can
lead to higher prices for customers
o North American Free Trade Agreement (NAFTA)
(Ch 17)
International trade agreement between Canada, US &
Mexico; Also, came with the fear that American jobs
would be lost; this did not happen
Final Exam Review Sheet
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