Economics Spring Final Review

What is the difference between fixed and variable costs?

Fixed Costs are incurred regardless of activity. Variable costs change as a company's output changes

What is non-profit organization?

Economic organization that operates like a business but does not seek financial gain

What is a traditional economy? Give an example

Economic system in which the allocation of scarce resources and other economic activities are based on ritual, habit, or custom Many societies such as the central African Mbuti, the Australian Aborigines, and other indigenous peoples around the world have traditional economies

What term refers to the study of how people try to satisfy seemingly unlimited and competing wants through the use of relatively scarce resources?

Economics

What is the difference between elastic and inelastic demand? Give examples.

Elasticity is the general measure of responsiveness that shows how one variable responds to a change in another variable. Inelasticity is a type of elasticity where a change in price causes a relatively smaller change in quantity demanded When Netflix lowered its prices its overall revenues increased. When Blockbuster raised its prices its overall growth declined

What term refers to the movement of funds by electronic means?

Electronic Funds Transfer (EFT)

What term refers to a signature on the back of a check that entitles the payee to funds?

Endorsement

The point where the supply and demand curves intersect forms the ____________.

Equilibrium price

What is the difference between a factor and a product market?

Factor Market - Market where the factors of production are bought and sold Production Market - market where goods and services are bought and sold

What is the FDIC? What is its purpose?

Federal Deposit Insurance Corporation - federal agency that insures savings, checking and other deposits

What is a conglomerate?

Firm with four or more businesses making unrelated products, with no single business responsible for a majority of its sales

Give an example of a restrictive endorsement.

"For deposit only"

Give an example of a special endorsement.

"Pay to the order of ..."

Explain the differences between a commercial bank, a mutual savings bank, a savings and loan, a credit union and an internet bank.

A commercial bank is owned by shareholders and operates for their profit. A mutual savings bank is a state-chartered financial institution operated by trustees for the benefit of the depositors. A savings account is when the bank pays you interest for letting to use your money. A loan is when the bank loans money to people that is payed back to the bank with interest. A credit union is a non-profit financial institution owned by its members. An internet bank operates exclusively over the internet using online banking

What is a production possibilities curve (frontier)? Be able to interpret one.

A diagram representing the maximum combinations of goods and/or services an economy can produce when all productive resources are fully employed

Compare and contrast what it means for the government to have a direct role versus an indirect role.

A direct role means many government agencies producing and distributing goods and services to consumer. An indirect role means the government acts as an umpire to help the market economy operate smoothly and efficiently

What is the difference between a general and a limited partnership?

A general partnership has all partners responsible for the management and financial obligations of the business. A limited partnership is where at least one partner is not active in the daily running of the business

What is the difference between a horizontal and a vertical merger?

A horizontal merger takes place when firms that produce the same kind of product join forces. A vertical merger happens when companies involved in different stages of manufacturing or marketing join together

What is an overdraft?

A lack of sufficient funds to cover the check

What is a shortage? How do shortages affect pricing?

A shortage exists when supply does not meet demand Prices and quantities will go up to meet demand

What is a surplus? How do surpluses affect pricing?

A surplus is any unsold product on store shelves or in warehouses Sellers lower price to attract more buyers

What is utility?

Ability or capacity of a good or service to be useful and give satisfaction to someone

What are the advantages and disadvantages of a command economy?

Advantages Can change direction drastically through emphasizing/allocation Health and public services available to everyone at little or no cost Disadvantages Basic wants and needs of consumers ignored Economies tend to be unproductive, not producing a good product

What are the advantages and disadvantages of a price floor?

Advantages Helps the farmers Disadvantages Increases the number of people who do not have jobs because employers fire workers who work at higher wages

What are the advantages and disadvantages of a market economy?

Advantages High degree of individual freedom Adjusts gradually to change over time Disadvantages Not everyone is provided for May not provide enough of some basic goods and services

What are the advantages and disadvantages of price ceilings?

Advantages Some individuals are happy Individuals who could not afford the market price may be eligible Disadvantages Demand becomes too high Suppliers face lower profits Suppliers limit service or leave market altogether

What are the advantages and disadvantages of a traditional economy?

Advantages: Everyone knows which role to play Little uncertainty exists over WHAT to produce, How to produce, and FOR WHOM to produce Disadvantages: Tends to discourage new ideas and new ways of doing things The strict roles in a traditional society have the effect of punishing people who act differently or break

What is a trade-off?

Alternative that is available whenever a choice is to be made

What is supply?

Amount of a product offered for sale at all possible prices

Explain the paradox of value.

Apparent contradiction between the high monetary value of a nonessential item and the low value of a nonessential item and the low value of an essential item

What is secured credit?

Backed by a pledge of property

What term refers to a profit-seeking enterprise that serves as the main link between scarce resources and consumer satisfactions?

Business Organization

What are a couple reasons why a change in supply might occur?

Cost of resources Productivity Technology Taxes and Subsidies

What three questions can be asked when determining demand elasticity?

Can the purchase be delayed? Are adequate substitutes available? Does the purchase use a large portion of income?

What is the difference between a capital good and a consumer good?

Capital Good - tools, equipment, and factories used in the production of goods and services Consumer Good - good intended for final use by customers rather than business

What term refers to the sum of net income and non-cash charges?

Cash flow

What is a deficiency payment?

Cash payment making up the difference between the market price and the target price

What are the three C's of credit? These are what lenders consider when deciding whether to extend credit or not.

Character - person's reputation, especially concerning repaying debt on time Capacity - person's earning power and ability to pay debts from regular income Capital - items owned

What is the difference between closed and open-ended credit?

Closed - one-time extension of credit for a specific amount and time period Open - can be used repeatedly

What is a merger?

Combination of 2 or more businesses to form a single firm

What is demand?

Combination of desire, ability, and willingness to buy a product

What is a command economy? Give an example

Command Economies rely on a central authority to make most of the economic decisions

What is net income?

Common measure of business profits determined by subtracting all expenses, including taxes, from revenues

What are the two types of stocks corporations sell? What is the difference between the two?

Common stocks represent basic ownership of a corporation. Preferred stocks represent non-voting ownership shares of the corporation

What is a corporation?

Corporation - form of business organization recognized by law as a separate legal entity

What term refers to a person with a strong established credit history who signs the credit application and contract along with the borrower?

Cosigner

What firm collects information about the credit-worthiness of consumers?

Credit Bureau

What is the difference between a credit rating and credit score?

Credit rating - evaluation of a customer's credit history Credit Score - numerical rating, based on credit report information, that represents a person's level of creditworthiness

Define diminishing marginal utility.

Decrease in satisfaction or usefulness from having one more unit of the same product

What is a demands schedule? Demand curve? Be able to interpret both a demand schedule and a demand curve.

Demand Schedule - a table that lists how much of a product consumers will buy at all possible prices Demand Curve - a curve that shows the quantities demanded at all possible prices

What are the three things that determine demand?

Demand schedule Demand curve Law of demand

What term refers to the situation where quantity demanded is equal to the quantity supplied?

Disequilibrium

Describe the Rule of 72.

Divide by 72 by interest rate

What is an economic institution?

Economic Institution - a company or an organization that deals with money or with managing the distribution of money, goods, and services in an economy

What is a price ceiling?

Highest legal price that can be charged for a product

What term refers to the extra output or change in total product caused by adding one more unit of variable input?

Marginal Product

What term refers to the extra usefulness or satisfaction a person gets from acquiring one more unit of a product?

Marginal Utility

What term refers to the usefulness or satisfaction from consumption?

Marginal Utility

What is a market economy? Give an example

Market Economy - consumers and businesses jointly answer the questions of WHAT, HOW, and FOR WHOM to produce

What term refers to the fee paid for the opportunity to use someone else's money over a period of time?

Interest

What term refers to an organization formed to work for its member's interests in various employment matters. Their most common responsibility is collective bargaining.

Labor union

What are the factors of production?

Land Capital Labor Entrepreneurs

What is a price floor?

Lowest legal price that can be paid for a product

Explain how markets "talk" to each other. Give an example

Markets bring buyers and sellers together Markets are said to "talk" when prices in them move up or down significantly in reaction to events that take place elsewhere in the economy

What is value?

Monetary worth of a good or service as determined by the market

What term refers to a corporation that has manufacturing or service operations in a number of different countries?

Multinational

What is economic interdependence?

Mutual dependency of one person's, firm's, or region's economic activities in another's

What is a cooperative?

Nonprofit association performing some kind economic activity for the benefit of its members

What is the difference between an online and offline POS transaction?

Online requires a PIN number. Offline can be processed by having the customer sign a receipt

What is microeconomics?

Part of economics that studies small units, such as individuals and firms

What term refers to bringing a bank statement and your records of transactions into agreement?

Reconcile

What is a PIN?

Personal Identification Number - secret code that protects the security of the accounts

What term refers to the original amount borrowed?

Principal

What is the Law of Supply?

Principle that more will be offered for sale at higher prices than at lower prices

What term refers to the measure of the amount of goods and services produced with a given amount of resources in a specific time period?

Productivity

What term refers to the amount producers bring to market at any given price?

Quantity Supplied

What is rationing? Give an example

Rationing - system used to allocate scarce goods and services Government decides everyone's fair share

What is an income statement?

Report showing a firm's sales, expenses, net income, and cash flows, for a certain period, usually three months or a year

What is the break-even point?

Revenue that is just enough to cover costs

Describe the Law of Demand.

Rule stating that consumers will buy more of a product at lower prices and less at higher prices

What is the difference between saving and investing?

Saving - setting aside money for future use Investing - committing money for the purpose of making a profit over time

What is the fundamental economic problem of all societies? Explain what it is.

Scarcity - fundamental economic problem of not meeting people's virtually unlimited wants with scarce resources

What is the difference between simple and compound interest?

Simple - interest calculated only on the money you've deposited, not on prior interest earned Compound - interest calculated on both deposits and prior interest earned

What is the difference between single and installment payments?

Single - borrower pays entire amount due at one time Installment - borrower must pay at regularly scheduled intervals

What is the most common form of business organization in the U.S.?

Sole Proprietorship

What is a sole proprietorship?

Sole Proprietorship - business owned and run by a single person who has the rights to all profits and unlimited liability for all debts of the firm

Explain the three stages of production and how this helps a firm determine how many workers to hire.

Stage 1 - Increasing Marginal Returns Marginal product of each additional worker increases As more workers are added, they can cooperate to make better use of their equipment Stage 2 - Decreasing Marginal Returns Total production keeps growing, but by smaller and smaller amounts Stage 2 illustrates diminishing returns - stage where output increases at a diminishing rate as more variable inputs (labor) is added Stage 3 - Negative Marginal Returns If the firm hires too many workers, they will get in each other's way, causing output to fail Marginal products of additional workers are negative

Explain some strengths and weaknesses of a partnership.

Strengths Easy to startup Ease of management The lack of special taxes on a partnership Weaknesses Each partner is fully responsible for the acts of the other partners The potential for conflict between partners

Explain some strengths and weaknesses of a corporation.

Strengths The ease of raising financial capital The corporation provides limited liability for its owners Weaknesses The double taxation (taxation of dividends both as corporate profit and as personal income) of corporate profits The difficulty and expense in getting a charter

Explain some strengths and weaknesses of a sole proprietorship.

Strengths Easy to start up Management is relatively simple If someone has an idea or an opportunity to make a profit, he or she only has to decide to go into business and then do it The owner can keep the profits of successful management without having to share them with other owners Weaknesses To owner of the business has unlimited liability (the owner is personally and fully responsible for all losses and debts of the business) The difficulty of raising financial capital

What is total cost?

Sum of fixed and variable costs

What is human capital?

Sum of people's skills, abilities, health, knowledge and motivation

What is the difference between supply elastic and supply inelastic?

Supply elastic - the change in price causes a proportionally larger change in quantity supplied Supply Inelastic - a change in price causes a proportional change in the quantity supplied . As the price doubles, the quantity brought to the market also doubles

What is Annual Percentage Yield (APY)?

Tells you the actual annual rate at which your interest is earned, including the effects of compounding

Compare and contrast the income and substitution effect.

The income effect is part of a change in quantity demanded due to a change in the buyer's real income when a price changes. The substitution effect is part of a change in quantity demanded due to a price change that makes other products more or less costly

Explain the concept of TINSTAAFL

There Is No Such Thing As A Free Lunch The business that gives it away still has to pay for the resources that went into the meal, so it usually tries to recover these costs by charging more for its other products

What are the three basic questions of economics?

WHAT to Produce? HOW to Produce? FOR WHOM to Produce?

Explain the concept of opportunity costs.

When Jesse decided to purchase the jersey, his opportunity cost was the MP3 player — the next-best choice he gave up

customer sign a receipt How much are you responsible for if your report an ATM or debit card missing:

Within 2 business days: $50 Within 2 months: $500 After 2 months: All charges