Econ Final
measures a country's output and economic health
Gross Domestic Product
Which of these most accurately describes the "income gap" in the United States?
It has widened despite governed assistance to low-income individuals
What is the main advantage of a mutual fund for an investor?
It offers diversity in investment.
developer of a new smartphone app
entrepreneurs
price at which the amount producers are willing to supply is equal to the amount consumers are willing to buy
equilibrium price
economic side effects that affect an uninvolved third party
externalities
Dave gets a job at a grocery store, which pays him an hourly wage in exchange for his labor. Dave is participating in
factor market
where all the factors of production are bought and sold
factor market
The word "equity" means
fair and just
When inflation occurs, the purchasing power of the dollar
falls, declines, goes down.
If the price of an item rises, quantity demanded usually
falls.
A network of savers, investors, financial assets, and financial institutions that work together to transfer savings to investment uses is called
financial system
process in which a lender reclaims the property due to a lack of payment by the borrower
foreclosure
The economic goals of the American free-enterprise system include
freedom, equity & growth
an agreement to buy or sell at a specific date in the future at a predetermined price
futures contract
The most comprehensive measure of a nation's wealth is provided by its
gross domestic product.
Which of these names a function of the Federal Trade Commission?
halting unfair business practices
Three ways people can save money with little risk include _____.
having a savings account, buying certificates of deposit, buying an insurance policy
the South's rainy season
land
economic rule stating that the quantity demanded and price move in opposite directions
law of demand
The principle that states that the more you have of something, the less satisfaction you will get from an additional unit is the
law of diminishing marginal utility.
economic rule stating that as more units of a factor of production are added, total output continues to increase, but at a diminishing rate
law of diminishing returns
economic rule stating that price and quantity supplied move in the same direction
law of supply
All of the following are components of a bond EXCEPT...
liquidity
Compared to a stock (generally speaking of course), a bond provides a
lower level of risk.
an additional amount of satisfaction
marginal utility
economic system in which economic decisions are made by individuals rather than the government
market economy
economic system in which individuals own the factors of production and make their own economic decisions
market economy
system in which economic activity is driven by supply, demand, and the price system
market economy
By promoting transparency, the government can improve _____
market efficiency.
condition that has none of the requirements for a competitive market—adequate competition, knowledge of prices and opportunities, mobility of resources, and competitive profits.
market failure
condition that lacks any of the requirements for a competitive market—adequate competition, knowledge of prices and opportunities, mobility of resources, and competitive profits
market failure
In a __ economy, questions of what, how, and for whom to produce are answered by the buying and selling activity of individuals.
market or free enterprise
classification according to number and size of firm, type of product, and type of competition
market structure
Which type of economy is most prevalent in the world today?
mixed
economic system that has some combination of traditional, command, and market economies
mixed economies
a market in which financial capital is loaned and/or borrowed for one year or less
money market
Which market structure is defined by a single producer?
monopoly
market structure characterized by a single producer in a market
monopoly
The producer price index (PPI)
monthly series of reports used to measure prices received by domestic producers
Generally, the more substitutes there are for a good, the
more elastic the demand
Which of the following results when businesses increase capital investment
more income for consumer spending
company that sells shares of a portfolio of securities, e.g. stocks and bonds issued by other companies
mutual fund
economic shift from private ownership to government ownership
nationalization
When a factory pollutes a river, the resulting water pollution is an example of a ______
negative externality
harm suffered by a third party because of the actions of others
negative spillover
food is an example of one
nondurable good
Business cycles in the United States
occur irregularly and often a combination of factors.
market structure in which only a few large sellers dominate and have the ability to affect prices in an industry
oligopoly
The value of the next best alternative that has to be given up for the action that is chosen is the
opportunity cost
What is the name of the fee paid for an insurance policy?
premium
The quantity demanded of a product is affected by
price
government-set maximum price that can be charged for particular goods or services
price ceiling
market in which only the original issuer can sell or repurchase a financial asset; government savings bonds, IRAs, small CDs
primary market
Under a market or free-enterprise system, most property is
private property
whatever is owned by individuals rather than by the government
private property
conversion of state-owned property to individual ownership
privatization
According to the law of supply, higher prices prompt producers to
produce more
represents the range of production possibilities
production possibilities curve
The amount of output in a specific amount of time with a given amount of resources is referred to as
productivity
The efficient use of scarce resources leads to an increase in
productivity
What condition differentiates a market of pure competition from one of monopolistic competition?
products
According to Adam Smith, what directs the choices business people make about how to use their resources? Extra Content "[E]very individual, therefore, endeavours as much as he can [to direct his resources toward his own business] so that its produce may be of greatest value; every individual . . . neither intends to promote the public interest, nor knows how much he is promoting it. . . . He intends only his own gain, and he is in this . . . led by an invisible hand to promote an end which was no part of his intention. . . . By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." Source: Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776.
profit
amount left over after all the costs of production have been paid
profit
desire to make money that motivates people to produce and sell goods and services
profit incentive
each worker learns one task very well
specialization
Which stage of production is distinguished by negative marginal returns?
stage 3
quality of life
standard of living
the material well-being of an individual, group, or nation
standard of living
Entrepreneurship refers to the ability to
start new businesses, introduce new products and processes, and improve management techniques.
government payment to encourage or protect a certain economic activity
subsidy
When the price of a good is too high for consumers, they look for
substitutes.
economic rule stating that if two items satisfy the same need and the price of one rises, people will buy the other
substitution effect
the amount of a good or service that producers are able and willing to sell at various prices during a specified time period
supply
Under perfect competition, what sets the equilibrium price in the market?
supply and demand
shows the quantity that producers are willing to supply at each possible price
supply curve
If the price of a product is above its equilibrium price, the result is a
surplus
situation in which quantity supplied is greater than quantity demanded
surplus
Wealth is the accumulation of products that are __, are scarce, have utility, and are transferable.
tangible
not subject to tax by federal or state governments
tax-exempt
Which of these is the most striking example of the costs and risks of pure capitalism?
the Great Depression
What is the main difference between Treasury bonds, Treasury notes, and Treasury bills?
the amount of time for maturity
Which of the following descriptions best explains the meaning of opportunity cost
the cost of choosing one alternative over another item
Which of the following statements best defines a trend upward of a business cycle?
the economy reaches a turnaround point where real GDP stops going down
Which of the following is included in the unemployment rate?
the jobless who made an effort to find a job during the past month
A production possibilities curve helps determine
the maximum combinations of goods and services that can be produced in a given time.
Opportunity cost refers to
the value of the next best alternative
The market structure called perfect competition is best described as ____
theoretical
Junk bonds usually have low ratings because _______ .
they are a high risk investment
Consumers are powerful because
they drive decisions about what to produce.
When deciding how to use resources, you need to evaluate the costs and benefits of each choice to decide which meets your criteria. These are called
trade-offs.
The way the 19th-century Inuit divided the "spoils of the hunt" demonstrates a __ economy.
traditional
When is a firm's rate of hiring likely to be highest?
during a phase of increasing marginal returns
The main drawback to investing in a CD rather than a savings bond is...
early withdrawal fees
This passage best describes which goal of free enterprise? Extra Content "It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. The ta[i]lor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a ta[i]lor.... All of them find it [in their best interests] to employ their whole industry in a way in which they have some advantage over their neighbours, and to purchase...whatever else they have occasion for." Source: Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776
economic efficiency
using limited resources wisely
economic efficiency
the attempt to balance an economic policy so that it is just and fair
economic equity
When a nation's total output increases over time, the nation is experiencing
economic growth
expansion of the economy to produce more goods, jobs, and wealth
economic growth
Statistics that measure variables in the economy are called
economic indicators
Why would the sale of a secondhand car not be included in a calculation of GDP?
The car does not represent new production
What happens when inflation occurs?
The purchasing power of the dollar declines.
Which of these is a major advantage of a market economy?
There is a high degree of individual freedom.
What two investments are at opposite ends of the risk spectrum?
Treasury notes and futures
Which of the following is a feature of a command economy that distinguishes it from a socialist economy?
All production is managed by the government
manufactured good used to produce other goods or services
capital goods
increasingly efficient use of personnel, plant, and equipment as a firm becomes larger
economies of sale
Which of the following is a benefit for monopolies?
economies of scale
economic concept dealing with consumers' responsiveness to an increase or decrease in price
elasticity
economic concept dealing with consumers' responsiveness to an increase or decrease in the price of a product
elasticity
Karl Marx believed that
capitalism would die out & be replaced by socialism
receipt showing that an investor has made an interest-bearing loan to the financial institution
certificate of deposit
What are the causes of price changes most of the time?
changes in supply and demand
Which of these groups is most vulnerable to poverty?
children
economic system in which economic decisions are made by the government
command economy
economic and political system in which factors of production are owned and directed by the state
communism
movement that promoted the rights of buyers
consumerism
The part of the business cycle in which the economy starts to slow down is called a
contraction
calculation that compares the cost of an action to its benefits
cost-benefit analysis
The rate of return on a corporate, municipal, or government bond is its _______ .
coupon rate
Which type of financial organization is a nonprofit service cooperative?
credit union
In the economic system described in this passage, answers to the basic economic questions would be determined by Extra Content Diaguita Indians have lived in this region for generations... We grow beans, corn, and potatoes on the mountain slopes. To irrigate these crops, we still use the channels built centuries ago by our ancestors. We also breed llamas... In our community, the more llamas you own, the richer you are.
customs and beliefs
A prolonged decline in price levels is called
deflation
the amount of a good or service that consumers are able and willing to buy at various possible prices during a specific time period
demand
the amount of a good or service that consumers are able and willing to buy at various possible prices during a specified time period
demand
stage of production at which output increases at a decreasing rate
diminishing marginal returns
the technique of spreading funds over a large number investments to reduce the portfolio's risk
diversification
The Sherman Act, the Clayton Act, and the Federal Trade Commission Act were all designed to ______
ensure competition.
philosophy that government should not interfere with business activity
laissez-faire
Based on the passage and what you know about demand, why might sales of baseball cards have dropped since 1987? Extra Content Coaches and youth sports organizations say a lot of American kids are losing interest in baseball.... Some youngsters are lured by the speed and individual glory of such extreme sports as skateboarding, inline skating and stunt bicycling. Others are riveted to their chairs by computer games.... And many are simply choosing other team sports with more action and faster play. Once America's signature sport, amateur baseball now ranks sixth behind basketball, soccer, softball, football and volleyball in number of players. ... Since 1987, when amateur baseball attracted more than 15 million players, the number has plummeted 27%, while soccer, ice hockey and lacrosse are swelling with new players. Source: Los Angeles Times, August 12, 2004
Baseball cards are complementary to baseball, whose popularity has declined..
forced common ownership of factors of production
Collectivization
reliance on others to produce goods and services we need
Economic interdependence
In the Keynesian model, GDP = C + I + G + (X - M), "G" stands for
Government
Which of the following is an advantage of a 401(k) plan?
Most employers match a portion of your contributions.
Which of these statements describes a disadvantage of a traditional economy?
New ways of doing things are discouraged
Which of these states a difference between personal income (PI) and disposable personal income (DPI)?
PI is measured before taxes are taken; DPI is measured after taxes are taken.
Which of these helps explain why mixed economies develop?
People become unhappy with aspects of their current economy.
Which of the following is a cause of struggle in the process of privatization?
People must adjust to the costs and risks that are part of capitalism.
A government program helps pay the medical expenses for a worker who is injured on the job. On the diagram, should this program be located in P, Q, R, or S?
Q (both Economic Security & Equity)
The Americans with Disabilities Act bans discrimination in employment against people with disabilities. On this diagram, would you locate this law in P, Q, R, or S?
R
How did business cycles change after WWII?
Recessions were shorter and periods of expansion became longer
During the 1930s, the United States experienced
a depression.
Which of the following financial organizations specializes in buying installment contracts from merchants who sell on credit?
a finance company
Which of the following could raise the cost of production in a command economy?
a large and inefficient bureaucracy
What do externalities indicate?
a market failure
A can of soup is an example of a
a non-durable good
In which of these systems is the government most likely to provide people with goods and services they could not otherwise afford?
a socialist economy
The Dow-Jones Industrial Average is
a stock market index.
A car is an example of a
durable good
According to Alice Rivlin in the passage, if you have a rudimentary (basic) working knowledge of economic concepts, you will be Extra Content Economic literacy is [like] having a working knowledge of a foreign language. If you are with a group of foreigners and don't speak their language at all, . . . you feel excluded. . . . If you have a rudimentary working knowledge of the language, you can at least follow the drift of the conversation, ask a few questions and feel that, even if you are not getting the fine points, you are not totally left out and you have a basis for acquiring more knowledge. That, it seems to me, is what economic literacy means—a rudimentary working knowledge of the concepts and language of economic activity. . . .
able to ask questions to gain more knowledge
This passage suggests that the low savings rate is partially due to Extra Content The U.S. personal saving rate (PSR) fell into negative territory during the third quarter of 2005 and has remained close to zero since then.... Simply put, a negative PSR implies that U.S. households are spending more income than they have to spend. Why? Households may expect that their incomes will increase in the long-run. They also have access to ... credit cards, home equity loans, and subprime mortgages that allow expected future wealth to be transformed into current purchasing power. Other possible reasons for the recent "consumption boom" include low inflation, low long-term interest rates, and the perception that programs such as Social Security will provide financial support in later years. Source: U.S. Bureau of Economic Analysis, 2007
access to credit, like credit cards and home equity loans.
Diminishing marginal utility refers to the fact that
additional satisfaction declines as additional units of an item are consumed
What goods and services should be produced, how they should be produced, and who should share in what is produced are three basic questions addressed by
all economies
If a shoe company pays a professional athlete to wear shoes it makes, it is an example of _____
all of the above
Which of the following do economists use to classify markets?
all of the above
The study of economics involves
all of the above.
A nation's wealth is made up of
all tangible items
Pure competition and monopoly _____
are opposites.
Which is an example of a public good?
army
Why are intermediate products excluded from macroeconomic calculations of GDP?
because their value is included in that of the final product
economic sector in which goods and services are sold illegally
black market
_________ is a contract between investor and borrower to repay money plus interest regularly over time.
bond
Governments and businesses are the largest ______________ in the US economy.
borrowers
Which of the following helps determine something's value?
both A and C
person who acts as a go-between for buyers and sellers of stocks and bonds
broker
Which of the following terms describes a strong stock market?
bull market
cryptocurrency
capital
computers used to produce magazine articles
capital goods
According to this author, a good economic theory is one that Extra Content The study of economic theory is not defensible on aesthetic grounds--it hardly rivals in elegance the mathematics or physics our sophomores learn. The theory is studied only as an aid in solving real problems, and it is good only in the measure that it performs this function. Source: George J. Stigler, "Monopolistic Competition in Retrospect," in Five Lectures on Economic Problems, London: Longmans, Green and Co., 1949, p. 22
helps solve real problems.
Paradox of value refers to the
high value of a nonessential item and the low value of an essential item.
Which condition is present in pure competition but missing in monopolistic competition?
identical products
Which of the following factors contribute to market failure?
inadequate competition
a price change does not result in a substantial change in the quantity demanded
inelastic demand
The prolonged rise in the general price levels of goods or services is called
inflation
When the general level of prices rises, the economy is experiencing ___________.
inflation
This cartoonist would like government to
interfere with business less
Banks, Credit Unions, Life Insurance Companies, Finance Companies, Pension Funds are all...
intermediaries
Division of labor is practiced because
it increases efficiency by ensuring that workers become good at specific tasks.
a third-grade teacher
labor
Based on this passage, what type of economic system did Adam Smith believe would bring the most benefit to society as a whole? Extra Content "[E]very individual, therefore, endeavours as much as he can [to direct his resources toward his own business] so that its produce may be of greatest value; every individual...neither intends to promote the public interest, nor knows how much he is promoting it...He intends only his own gain, and he is in this...led by an invisible hand to promote an end which was no part of his intention...By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." Source: Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776.
laissez-faire
According to Karl Marx in the passage, who were the "bourgeois"? Extra Content The distinguishing feature of communism is not the abolition of property generally, but the abolition of bourgeois property. But modern bourgeois private property is the final and most complete expression of the system of producing and appropriating products that is based on class antagonisms, on the exploitation of the many by the few. In this sense, the theory of the Communists may be summed up in the single sentence: Abolition of private property. . . . It has been objected that upon the abolition of private property, all work will cease, and universal laziness will overtake us. According to this, bourgeois society ought long ago to have gone to the dogs through sheer idleness; for those of its members who work, acquire nothing, and those who acquire anything, do not work. Source: Karl Marx, The Communist Manifesto, 1848.
property owners
economic products that are paid for and consumed collectively, such as highways, national defense, police and fire protection
public good
Which term describes commodities such as police and fire protection?
public goods
when the government limits items that are in short supply
rationing
A decline in real GDP lasting at least two quarters or more is called a ____.
recession
Consumers are expected to read the full information about a product before making a purchase. This is an example of a consumer's
responsibilities
the dollars that become available for investors to use when others refrain from consuming
savings
Societies embrace various economic systems to deal with the fundamental problem of __.
scarcity
What is the basic problem of economics?
scarcity
a fundamental problem in every society
scarcity
market in which all financial assets can be sold to someone other the original issuer; corporate bonds, government bonds
secondary market
What does a mutual fund sell?
shares of a portfolio of securities, e.g. stocks and bonds, issued by other companies
situation in which the quantity demanded is greater than the quantity supplied
shortage
__ is a system in which government owns and controls some, but not all, productive resources.
socialism
economic system in which there is little private property and the government owns virtually all the factors of production
socialism
In what kind of economy does the government own some of the factors of production?
socialist
What type of economic system does this passage describe? Extra Content "So long as mankind lived by raising crops and herding animals, there was not much need for measuring small units of time. The seasons were all important—to know when to expect the rain, the snow, the sun, the cold. Why bother with hours and minutes? Daylight was the only important time, the only time when men could work." Source: Daniel J. Boorstin, The Discoverers: A History of Man's Search to Know His World and Himself, 1985.
traditional economy
economic system in which economic decisions are based on customs and beliefs
traditional economy
In the United States, the federal government enforces antitrust laws and regulations to try to maintain effective levels of competition.
true
Separation of tasks to be performed by different workers is division of labor.
true
illegal combinations of corporations or companies organized to suppress competition
trust
Which of the following is NOT a form of unemployment?
underemployment
It is estimated that every year 20 million American investors
use the internet to make trades
ability of any good or service to satisfy customer wants
utility
certificate used to purchase government-owned property during privatization
voucher
Societies are faced with which three basic questions about production of goods?
what, how, and for whom
