Economics Chapter 3 Test Review
Describe welfare reform
Critics of welfare claim that it discourages productivity and further aggravates poverty. In 1996, new welfare reforms limited the amount of time people could receive welfare payments and gave states more freedom to experiment with antipoverty programs.
Describe the American work ethic.
Economic growth cannot occur without individual effort. Americans pride themselves on their strong work ethic, which has them not only working hard but caring about the work that they do. The American work ethic has long been seen as a key ingredient in the nation's productivity and economic success.
What are some negative effects of regulation?
Negative effects of government include: Rules are costly to implement Regulations stifle competition Increased government spending in industries because the government has to hire workers to do the actual oversight.
Describe medical and educational benefits
The government provides health care to the elderly (Medicare), the disabled, the poor (Medicaid), and children who are uninsured (SCHIP). The government also funds educational programs from preschool to college.
Why are public goods examples of market failure? CT Quesiton
ublic goods are examples of market failure because the marketplace in an economy fails to provide these certain goods and services to the consumers. In other words, the marketplace fails to distribute the resources efficiently to the consumers, which makes it inefficient and impractical to provide the goods on its own. It needs the government's help in order to provide these goods and services to the public. The government has to step in to provide the goods and services when the free marketplace fails to do so.
Why does a society provide public goods? CT Question
A government provides society with public goods to provide the public with goods or services that are inefficient and impractical to be provided by the marketplace alone, free from government intervention. Public goods also allow the good or service to be provided without excluding any person, which is important for when a person cannot pay for the good or service individually. These goods can be used repeatedly without reducing the benefit to anyone, so the use of it is better for individuals to have naturally provided to them without paying.
Give an example of one positive and one negative externality.
A positive and negative externality can be given in the event of a road/bridge construction public good. A positive externality would be that the government would earn money off of the tolls for that road/bridge or that people would be able to travel from all over into a city/town, meaning businesses would receive more customers and more profit. A negative externality, however, would be that traffic congestion would be increased, which could cause more pollution.
What are public goods?
A public good is a shared good or service for which it would be inefficient or impractical to make consumers may individually and to exclude those who do not pay. In the case of most public goods it's not practical for a private business to provide the service, charge those who benefit, and exclude non payers from using the source. Public goods can be used by any number of consumers without reducing the benefits to any single consumer. They are financed by the public sector. Examples include firefighters, maintaining street lights and street signs.
What are the three key economic rights that Americans enjoy? CT Question
Americans enjoy legal equity, private property, and the freedom to buy and sell as they please. With legal equity, everyone is entitled to the same legal rights so that everyone is equally protected by the government and law. Through private property, individuals are able to control their own resources and use them as they please. Through freedom to buy and sell, people decide what arrangement and contracts they want to enter into and what, when, and how to buy and sell.
What is an externality?
An externality is a positive or negative side effect of a public good. Positive externalities represent the beneficial side of having a public good, can also be generated by the private sector, and allows those who do not pay for the public good to be able to use that public good. Negative externalities cause part of a public good to be paid for by someone other than the producer of the public good.
What is an interest group?
An interest group is a group of people that share the same interests and concerns. For example, groups like PETA or the NRA are interest groups. These groups influence policymakers and government officials by lobbying them or persuading them to make rules and regulations that favor their causes.
Describe the characteristics of a free enterprise
Characteristics of a free enterprise include: Profit motive- The American economy rests on recognition of the profit motive as a key incentive. In a free enterprise, business people make decisions based on what will increase their profit. Open opportunity- The American principle of open opportunity says that anyone can compete in the marketplace
What role do consumers play int he free enterprise system?
Consumers are able to make their own economic decisions with economic freedom. They can send a message to individuals and businesses to tell them what products they like and dislike through their purchases. More purchases on a good or service send a signal to a producer to tell them what to produce and how much to make. They can also make their wishes on goods and services known by joining an interest group that reflects their wishes. These groups can influence public officials to make laws and act in their favor.
How does the government track business cycles?
Even under the free enterprise system, the government intervenes to influence macroeconomic trends. One measure of the nation's economic well-being is gross domestic products (GDP). During a period of growth, the GDP goes up, and in a period of contraction, the GDP goes down. This pattern of a period of expansion followed by a period of contraction is called a business cycle. Changes in the business cycle take place because individuals and businesses, acting in their own self-interest, make decisions about factors such as prices, production and consumption.
What is an example of actions taken by the public sector? By the private sector?
Examples of actions from the public sector are providing national defense through the military, and collecting taxes. They can also provide public goods like law enforcement, road construction, traffic lights and other goods where the benefits to the public outweigh the costs. The private sector can include plumbers, trades, or anything else that would be provided by individuals or businesses.
How does tax law provide an incentive to help the needy?
Federal tax laws allow both individuals and corporations to take tax deductions for charitable donations. The government may also provide grants and other assistance to organizations that provide social services.
Identify four programs that provide cash benefits to the poor.
Four programs that provide cash benefits to the poor are Temporary Assistance for Needy Families, or TNAF, Social Security, Unemployment insurance, and Worker's compensation. TNAF sends monthly welfare payments to the states, which create their welfare program and redistribute the money to families who need it for basic purposes. Social security takes taxes from the people who are currently working in country and distributing that money to retired and disabled people. Unemployment insurances provide people who have lost their jobs money as long as they are searching for another career. Finally, worker's compensation provides money to laborers who have been injured in their job and are unable to work for a temporary period of time.
What are the benefits of free enterprise? CT questions
Free enterprise allows people who have ideas and persistence to start their own businesses and make themselves successful. Anyone can form an idea and through economic freedom and private property, can choose what to do with their land and resources. Everyone has the chance to succeed in the marketplace to try and make themselves successful. Additionally, free enterprise offers a large amount of economic freedom to the customer. Through voluntary exchanges, self-interest profit motive, and competition, there are many different goods and services available, which grants the consumer the freedom to choose to purchase what they please.
Describe the Constitution's relation to the free enterprise system.
Free enterprise in the United States is written into the framework of the U.S. Constitution. One right granted by the Constitution is the 5th amendment, which protects private property from being taken from a citizen without due process. However, the government is allowed to take property from an individual, paying fair market value for that property, when there is a public reason. This is known as eminent domain. The Constitution also spells out how government can tax individuals and businesses. According to Article 1, Congress could levy taxes, but not until the passage of the 16th amendment. In 1913, Congress could levy an income tax on individuals and businesses. Finally, the Constitution guarantees people and businesses the right to make contracts.
What are the benefits of free enterprise?
Free enterprise makes it possible for people who have ideas and persistence to start businesses and make themselves successful. Free enterprise also offers a great deal of economic freedom to the consumer.
Why does the government place some limits on the freedom of businesses?
Government places some limits on the freedom of businesses because they need to protect the consumers in the marketplace from unjust actions. They make sure to protect property rights, contracts and other activities that take place through their constitutional responsibilities. They also make sure that the businesses are providing consumers with information, such as ingredients in food or nutritional value, so that consumers can make educated decisions when making purchases. Finally, the government will protect the health, safety and well-being of consumers.
Describe government redistribution programs.
Government redistribution programs include the following: Cash transfer programs- Temporary Assistance for Needy Families (TNAF) sends welfare payments directly to the states, which design and run their own welfare programs. Social Security - collects money from current workers and redistributes funds to retired and disabled persons Unemployment insurance- provides money to workers who have lost their jobs as long as recipients offer proof that they have made efforts to get work. This help is only temporary, offering benefits for only 26 weeks in most states. Worker's Compensation- provides state funds to workers injured on the job
How does GDP provide a means to analyze economic growth?
Gross domestic product provides a means to analyze economic growth because the higher the GDP, the more economic growth a nation has. Gross domestic product is the total value of all final goods and services produced in a country in a given year. It's a part of the business cycle, which depicts the expansion and contraction of the economy. During a period of growth, the GDP of a nation goes up, and in a period of contraction, the GDP goes down due to individuals and businesses acting in their own self-interest and making decisions based on price, production and consumption. The GDP is something that economists can take a look at when the economy is struggling to locate the issue in production and try to solve it in order to improve the economy. It can show what part of the business cycle the economy is at to determine if were in a recession, expansion, depression or prosperity.
What three goals does the government try to meet when promoting economic strength?
High employment- the government strives to make sure there are enough jobs for everyone who is able to work. An unemployment rate between 4% and 6% is considered healthy Economic growth- To help spur economic growth, the government can cut taxes or increase spending Stability and security- one indicator of economic stability is the general level of prices. The government seeks to prevent sudden, drastic shifts in prices so that neither the consumer or the producer suffers. Another indicator of stability is financial institutions such as banks and the stock market. Government regulations seek to keep these institutions as stable as possible.
Describe free-riders
One issue associated with public goods is known as the "free-rider problem". Free riders are people who are not willing to pay a particular good or service but would benefit from it if it were offered as a public good. The free-rider problem suggests what would happen if the government stopped providing public goods; people would refuse to pay and many services would be eliminated.
How does improved technology help the economy?
Improved technology helps the economy by allowing the economy to operate more efficiently. Progress is the main goal of technology and productivity in the economy, which can be reached through innovation and improving technology. Different technological innovations use the resources available in the nation more efficiently and therefore increase the economic growth of the country. It can increase efficiency, boost the GDP, lower prices, grow the economy, and increase production within the economy. Inventions such as the lightbulb and assembly lines are examples of technological inventions that have helped the economy and improved productivity in the U.S. The government can promote these technological advances by funding research and development projects, establishing their own research institutions and granting patents and copyrights. They can fund education and use those patents, copyrights, and trademarks to protect a person's right to profit.
What is the poverty problem?
In a free market, the wealth is spread unevenly throughout society, which leaves some people below the poverty threshold. The U.S. Bureau of the Census sets the poverty threshold based on the cost of the goods a family needs to buy.
What role do consumers play in a free enterprise system?
In the free enterprise system, consumers have the freedom to make their own economic choices. Through voluntary exchange, consumers send a signal to businesses, telling them what to produce and how much to make. Consumers can also make their wishes known to businesses by joining interest groups, which influence public officials to act in ways that benefit its members.
What are in-kind benefits? Give two examples
In-kind benefits are government welfare programs that provide people with goods and services at a reduced price, based on the qualifications determined by the government. Some examples of in-kind benefits are food stamps, subsidized housing, and legal aid. Food stamps allow people who are living in poverty to be able to afford basic necessities like food and water. However, there are restrictions on what items can and cannot be bought. Subsidized housing allows people to rent out a building for shelter at a reduced cost. Legal aid provides people with legal assistance when a lawyer or attorney cannot be paid for individually.
What are the three key economic rights that Americans enjoy?
Legal equity- American free enterprise believes in the principle that everyone has the same legal rights Private property- The free enterprise system allows people to make their own decisions about their own property Freedom to buy and sell- people can decide what agreements to enter into, as well as what, when, and how they want to buy and sell.
What are major federal regulatory agencies?
Major federal regulatory agencies are examples of ways that the federal government intervenes in the marketplace. Examples include the CPSC, the SEC and the EEOC
What is the difference between microeconomics and macroeconomics?
Microeconomics refers to the study of economic behavior and decision making in small units such as households and firms. Macroeconomics refers to the study of economic behavior and decision-making in a nation's economy. Macroeconomics functions on a larger scale, representing and looking at the economic decisions of the entire nation, while microeconomics focuses more on businesses and individuals' economic decisions.
How to patents act as an incentive to technological innovation?
Patents act as an incentive to technological innovation because they protect the owner's ideas from being stolen and passed off and their own for profit. A patent is a government license that gives the inventor of a new product the exclusive right to produce and sell it. Technological innovation generally occurs as a result of self-interest and profit motive. If people were afraid that their ideas would be stolen and they would lose out on profit, they wouldn't strive for innovation. Patents reassure people that their ideas and private property will be protected and it encourages economic freedom for people to produce what they want how they want. As a result, individuals and businesses compete in the marketplace to create the best quality products and services since they'll be protected by the patent for their ideas. Patents hold that only the inventor of the product may produce and sell it. It protects the creator's right to profit.
What is the poverty threshold? Why does it vary according to how many people are in a household?
Poverty threshold is the standard of living that a government determines in order to be considered living in poverty. The government will make a qualification and standard of living, and if a person is living below that threshold, or earning less money than determined, then they are considered to be living in poverty. This can vary according to how many people are in a household because the more people there are, the more money that is expended for goods and services. For example, a family of 2 would likely spend less money in the marketplace than a family of 5. However, a family of 5 might try to bring in more money than a family of 2 if more members are working. In other words, the threshold has to be looked at from the perspective of how much money is needed in order to have a livable standard of living. If a family is below that threshold, then they are in poverty.
Why are public goods an example of a market failure?
Public goods are examples of a market failure, where the free market doesn't distribute resources efficiently. For example, the free market wouldn't be able to build roads efficiently because building roads doesn't meet the criteria for a properly functioning market system. Thus, road construction is a market failure.
Describe positive and negative externalities.
Public goods involve externalities, which may be either positive or negative. Positive externalities: represent the beneficial side effects of public goods, can also be generated by the private sector, and allow someone who didn't purchase a good to enjoy part of the benefits of that good. Negative externalities cause part of the cost of producing a good or service to be paid for by someone other than the producer.
How does improved technology help the economy? CT Question
Technological progress has enable the U.S. economy to operate more efficiently. Many inventions have improved productivity in the United States, including: the light bulb, which made a longer workday possible the assembly line, which led to mass production at affordable costs
How does the U.S. government encourage growth and stability?
The U.S. government encourages growth and stability by: tracking business cycles, promoting a high unemployment rate, keeping prices stable, encouraging the development of new technologies, and taking pride in the American work ethic.
What is free enterprise?
The United States is considered by many to be a "land of opportunity". The American tradition of free enterprise has been a key factor in supporting this belief. It includes 9 main points: economic freedom, contracts, voluntary exchange, customer sovereignty, legal equity, profit motive, self-interest, competition, and private property
What are the two criteria that must be present for a public good?
The benefit to each individual is less than the cost that each individual would have to pay if it were provided privately. The total benefits to society are greater than the total cost. The government pays for public goods through taxes. Thus, the financial burden on each individual is significantly less than if a few people decided to fund a project privately.
What is the goal of government welfare programs? CT Question
The goal of government welfare programs is to create a safety net to help people who are living in poverty and cannot provide for themselves. They take money from people through taxes and redistribute it to the needy in order to protect everyone. They can do this through the welfare system such as cash transfers, in-kind benefits, medical and educational assistance, and grant money. They create a poverty threshold as well as qualifications and standards to provide people who struggle with finances to make sure everyone has a way to purchase basic necessities for themselves. They can also encourage private action to have firms and other businesses to provide for the needy through incentives.
Describe in-kind benefits
The government also provides poor people with in-kind benefits such as: food stamps: qualified people receive assistance with their monthly food purchases Subsidized housing- qualified people are allowed to rent housing for less than the regular rent Legal aid- qualified people receive legal advice at no charge
What is the role of the government in the free enterprise system?
The government plays many roles in the marketplace. These roles include: carrying out the constitutional responsibilities to protect property rights, contracts, and other business activities. making sure that producers provide consumers with information protecting the health, safety, and well-being of consumers.
What's the government's role in promoting innovation?
The government promotes innovation and invention to help maintain the country's technological advantage by: funding research and development projects at universities establishing their own research institutions, like NASA granting patents and copyrights, which are an incentive to innovation
What is the goal of the government welfare program?
The government provides a safety net to groups like the very young, the very old, the sick, the poor, and the disabled through various federal, state, and local government programs. One government program, the welfare program, collects funds from taxpayers and redistributes this money to those in need. This system began during the Great Depression and continues today.
Why does a society provide public goods?
The government provides society with certain public goods because it would be inefficient or impractical for a free market economy to provide these goods on its own.
How does the tax law provide an incentive to help the needy? CT Question
The tax law provides an incentive to help the needy because federal tax laws allow businesses and corporations to take tax deductions for charitable donations for the needy. The government can also provide grants and other assistance to organizations to provide for social services.
How does the government help the poor?
To help the poor, government programs take money from some people and redistribute it to others. Such programs include: the welfare system, cash transfers, in-kind benefits, medical and education benefits, and grant money
Describe the government's goals with externalities.
Understanding externalities helps us see more roles that the government plays in the U.S. economy. The government may take action to create positive externalities such as improving education. The government aims to limit negative externalities like pollution. Many economists feel that the private sector produces more positive externalities than the government does. This belief shows itself in the debate over how to stop pollution to the environment.
Describe economic citizenship in the free enterprise system
Voters have a say in promoting economic strength by: voting for public officials and voting on referendum
What 3 goals does the government try to meet when promoting economic strength?
When promoting economic strength, the government tries to meet high employment, economic growth and stability and security. With employment, the government strives to make sure there are enough jobs for everyone who is willing and able to work. An unemployment rate between 4 percent and 6 percent is considered healthy. The government can either create new programs like the New Deal to help increase jobs, or they can decrease taxes on businesses or corporations, which will make those businesses more likely to hire more employees and pay more as a salary. To help spur economic growth, the government can cut taxes or increase their own spending. They want the nation to have a high GDP and standard of living. Improvements in technology and innovation can affect this. Stability is achieved when there are stable prices and goods and services are available for purchase for the consumers. One indicator of economic stability is the general level of prices. The government seeks to prevent sudden, drastic shifts in prices so that neither the consumer or producer suffers. Inflation can be an issue in the economy, where the value of money decreases, so the prices of goods and services increase. Shortages of supplies, resources, and labor can also cause inflation. Another indicator of stability is institutions such as banks and the stock market. Government regulations seek to keep these institutions as stable as possible. They can put money into the economy through grants, patents, copyrights, and trademarks.
