Unit One Kaboom ;)

Countries close to market: Hong Kong, Singapore, Australia. & others Countries close to command: North Korea, Cuba, China, & others

Give an example of a country that is close to a true market economy and one that is close to a true command economy.

outputs/inputs

Give the formula for productivity.

When people invest in their education, they are more likely to find a higher paying job and they open themselves up to more variety of jobs.

How can investing in an education lead to a higher standard of living?

By investing in capital goods, businesses can lower their input costs in the long run and increase productivity. Increased productivity leads a nation to economic growth.

How does an investment in equipment and technology benefit economic growth?

Insurance businesses benefit because... they are paid premiums regularly by people who rarely file a claim (in fact, people often pay more to the insurance companies than they reap from insurance companies). Consumers benefit benefit because... it only takes one bad accident to reclaim much of the money paid towards premiums and to not go into financial debt when the unexpected occurs

How does insurance benefit both the consumer and the insurance company?

As a business decides to move to maximum production of one good (i.e. "butter" or consumer goods), that company must sacrifice increasingly more of the other good (i.e. "guns" or military goods).

How does the PPF show the Law of Increasing Opportunity Costs?

Tradeoff: when you give up one thing for something else. Opportunity cost: a type of tradeoff but it is the next-best thing that was given up.

How is opportunity cost different than a tradeoff?

Pros: 1. Build credit 2. Reward Points 3. Access to instant money 4. Fraud protection Cons: 1. Can spend money you don't have 2. Easy to accumulate debt & hard to get out of 3. Compounding interest on debt 4. Not accepted everywhere like cash is

Identify at least 2 pros and 2 cons of credit cards.

There is no opportunity cost because you wouldn't need to give up anything.

(Look at Figure A) What is the opportunity cost of moving from point D to point A?

Perverse Incentive: when someone choose to take an ulterior course of action that is unintended (i.e. the "Law of Unintended Consequences"). Example: If airplane industries banned children from airplanes, more parents would be incentivized to drive their kids and put them at more risk.

Define and give an example of a "perverse incentive."

Productivity: a measure of efficiency for a business based on its inputs and outputs.

Define productivity.

Scarcity: an economic problem that exists because our wants are unlimited and our resources are limited. Does it exist everywhere? explain. Yes, It exists everywhere because no scarce resource is unlimited. Thus, not everyone will be satisfied.

Define scarcity. Does it exist everywhere? Why or why not?

Specialization: when workers perform a particular task and become an expert at producing that one task. How do businesses specialize? Businesses often specialize by using an assembly line and/or assigning their workers specific tasks to help the business run. Why do businesses specialize? Businesses specialize in order to increase productivity.

Define specialization. How do businesses specialize? Why do businesses specialize?

Allocate: means "to distribute" a good or a service. Ways to allocate: Supply & demand (sell the good); Authority; Random; First come, first servee; Personal characteristics; and Competition

Define the word allocate. Give at least three ways to allocate a resource.

Someone would see getting a tattoo as a rational decision because the benefits of getting a cool design on your body outweighs the cost of the expensive price tag and inability to easily remove. Someone else might see getting a tattoo as an irrational decision because the high cost, the pain, and the inability to easily remove a tattoo later on outweighs the benefit of getting a cool design on your body.

Explain how getting a tattoo is seen by some to be a rational decision but by others an irrational decision. (Be specific)

Command Economy: An economy where the factors of production are controlled by the government. Market economy: An economy where the factors of production are determined based on supply and demand (there is no government involvement). A mixed economy: An economy that has some government involvement and some interaction of supply and demand.

Explain the difference between a command, a market, and a mixed economy?

Collision & Comprehensive insurance: covers damages to your own vehicle Liability insurance: covers damages to others (vehicles or people). Which is required by law? Liability insurance is required by law.

In the world of auto insurance, what is the difference between Collision & Comprehensive and Liability insurance? Which is required by law?

Market economy

In which economic system are you most likely to lose your job?

1. Cash 2. Savings 3. Mutual Funds 4. Stocks

Rank the following from smallest to greatest potential rate of return: mutual funds, savings account, stocks, cash

If you don't pay your balance off in full at the end of the month.

Under what circumstances would a credit card company charge you interest on your purchases?

Payment History (35%) Length of Credit History (15%) Amount Owed (30%) New Credit (10%) Blend of Credit (10%)

What 5 components are used to measure your FICO credit score?

Capital (tools, machines, robots, etc.) Entrepreneur (a person who starts their own restaurant, ie. Mark Zuckerberg) Land (oil, water, wood, animals, etc.) Labor (cashier, factory worker, model, etc.)

What are the 4 factors of production? Give an example of each resource.

Character Capacity Conditions Collateral Capital

What are the 5 C's of creditworthiness (what banks use to determine whether or not to give you a loan)?

A PPF (or PPC) shows all the different possible combinations that a business can produce two different goods.

What does a Production Possibilities Frontier/Curve (PPF/PPC) show?

Below the line: inefficient use of resources Above the line: unobtainable in the short-run On the line: efficient use of resources

What does a point below, above, or on a PPF show?

What is a mutual fund? Mutual funds are a collection of stocks with low, medium, and high risk stocks in the mix. How are they safer than individual stocks? They are safer than individual stocks because they are less likely to collectively fail like an individual stock might. How are they riskier than savings accounts? They are riskier than a savings account because the money is not protected (like by the FDIC) and, although unlikely, you can actually lose money through a mutual fund.

What is a mutual fund? How are they safer than individual stocks? How are they riskier than savings accounts?

Incentive: something that motivates you to do something. Examples will vary.

What is an incentive? Give an example of an incentive in your life.

Human capital: the knowledge or education gained in order to perform a job, task, or skill better. How is it beneficial to productivity? It is beneficial to productivity because it makes for greater output and often less input.

What is human capital? How is it beneficial to productivity?

BEST answer: More human capital, capital resources OK answer: or other factors or production

What is needed in order to produce at point E?

Opportunity cost: the value of the next best alternative given up when you make a choice/decision. Example: The opportunity cost of you being in school for first period today is the amount of sleep you lost in order to be on time.

What is opportunity cost? Give an example (this can be a scenario if you would like).

Positive Incentive: when someone chooses to take a course of action in order to receive a benefit or a reward. Negative Incentive: when someone chooses to take a course of action in order to avoid a penalty or negative consequences.

What is the difference between a positive and negative incentive?

Simple Interest: charges interest based on the principal (initial deposit) ONLY Compound Interest: charges interest based on the principal + any accrued interest.

What is the difference between compound and simple interest?

Debit cards: withdraw money from a person's checking account Credit cards: have purchases initially paid for by businesses and then later reimbursed by the consumer (with interest if not paid in full).

What is the difference between debit and credit cards?

Scarcity: relates to resources that will not be renewed (there is a finite [limited] supply on earth. Shortage: when a business or industry is temporarily out of a good or service (i.e. the grocery store ran out of milk for the day)

What is the difference between scarcity and a shortage?

60,000,000 DVD players

What is the opportunity cost of moving from point A to point C?

10,000,000 MP3 players

What is the opportunity cost of moving from point C to point B?

The are inversely related: Higher premiums = lower deductibles Lower premiums = higher deductibles

What is the relationship between an insurance premium and an insurance deductible?

Rational decision: A decision where the benefits outweigh the costs Irrational decision: A decision where the costs outweigh the benefits.

What would economists say is the difference between a rational and an irrational decision?

Market economy

Which economic system has the most competition?

Market economy

Which economic system has the most consumer sovereignty?

Command economy

Which economic system has the most government regulation?

Market economy

Which economic system has the most private ownership?

Market economy

Which economic system has the most profit motive?

Market economy

Which economic system is likely to see the most growth?

Market economy

Which economic system is most likely to operate ON the PPF line?

Command economy

Which economic system is most stable?

Command economy

Which economic system puts the nation above businesses?

Efficient: A, B, C ... Inefficient: D Unobtainable: E

Which points on the graph are efficient, inefficient, and unobtainable?

In order for a true command economy to occur, all people of a country would have to be equal. This means that the leader (who has enormous power) would have to give up his power and become a common citizen like the rest. Very few people who have immense power want to give it up.

Why are true command economies so difficult to find in today's world?

Governments of countries are often concerned about promoting their economy on a global scale and do not like to sit by idly when the economy is in need. Also, governments often play the role of ensuring that non-fraudulent exchanges take place.

Why are true market economics so difficult to find in today's world?

Because this does not take into account the input costs. Ex: If the entire nation of China makes the same amount of goods in the same amount of time as 100 US workers, the US workers would be much more productive.

Why can't you measure productivity solely by how much is produced?

Guns represent military goods and butter represents consumer goods. They use these to show the opportunity costs countries must face through various times (war times, peace times, etc.)

Why do economists use the terms "guns" and "butter" on the axes for the PPF?