Economics test one-cantwell

Milton Friedman

"There is no such thing as a free lunch" -everything in life has a cost

Economic goals

- 7 goals total -freedom -efficiency -equity -security -full employment -price stability -economic growth

Production posibilities frotier

-A diagram representing various combinations of goods and/or services an economy can produce when all productive resources are fully employed -Guns and butter

Productivity

-A measure of the amount of output produced by a given amount of inputs in a specific period of time. -writing vs. typing

Command economic system

-Central authority (government) makes all major economic decisions Advantages -able to dramatically change in a short period of time -public services at little or no cost Disadvantages -not satisfying consumers -lack of an incentive to work -little flexibility for day to day changes Ex: Soviet Union

Disadvantages of corporation

-Difficult and costly to obtain charter -Separation of owners and management -Double taxation 35% -More government regulation

Unlimited liability

-Disadvantage of a sole proprietorship -business will always be liable

Advantages of corporation

-Easy to raise financial capital -Able to hire managers -Limited liability -Unlimited life

Corporation

-separate legal entity with all the rights of an individual -must file for permission from government (charter) -issues shares of stock Preferred stock Common stock

Voluntary exchange

-the act of buyers and sellers freely and willingly engaging in Market transactions -transactions are made in such a way that the buyer and the seller are better off after the exchange occurs -free (not money free) exchange of goods and services

Scarcity

-the condition that results from society not having enough resources to produce all the things people would like to have -it is a fundamental economic problem -usually a resource with more than one valuable use

Opportunity cost

-the cost of the next best alternative use of a resource, money or time. When one choice is made rather than the other. -ex: going out with your friends instead of studying for a test. Cost is not getting a good grade. -ex: not going out with friends. Cost, getting a good grade.

Gross domestic product (GDP)

-the dollar value of all final goods, services, and structures produced within a country's boarders in a 12-month period. -within boarders because the people working jobs in other countries are working for those countries.

Profit motive

-the driving force that encourages people and organizations to improve their material well being for profit -motivates firms to operate so that they can maximize their profits

Standard of living

-the quality of life based on possessions that make life easier -GDP list -GDP per capita

Competition

-the struggle among sellers to attract consumers while lowering cost -is the rivalry among sellers trying to achieve goals such as increasing profits, market share, and sales volume through price, pr oduct distribution, and promotion

Freedom (characteristics of Capitalism)

-to purchase, sell, and use money as you see fit for economic growth -free markets, free enterprise, and freedom of choice -people are able to open up their own businesses and sell what they want

Functions of money

1.) medium of exchange- all people must accept money as payment for goods and services 2.) measure of value- shows what a good or service is worth so people will understand it 3.) store value- saved and stored until it is spent

Characteristics of money

1.) money must be easy to carry and exchange 2.) money must last over time while being stored 3.) money must be easy to dived into smaller units 4.) must be a limited supply of money

Unemployment rate

5.1%

Outsourcing

A practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally.

Unlimited life

Business can go on even after owner and employees leave/die -advantage of corporation

Frederic basitat

Introduced the broken window fallacy

Fiat money

Items (small coins) that have some value

Vertical merger

Merging businesses with DIFFERENT manufacturing process/products

Nonprofit organization

Operates in a businesslike way to promote the collective interests of its members rather than seek financial gain for its owners

Commodity money

Other items that can be used as money

Communism

Ownership of resources -a selfless society in which the needs of the individual are subservient to the needs of the society Allocation of resources -state allocates all resources Advantages -provides public services regardless of contribution to society Disadvantages -individual freedom is lost -no incentive to work -fails to meet the wants and needs of consumers -centralized -planning is inefficient -lacks flexibility to deal with day to day changes

The what?

Society is filled with unlimited wants yet resources are limited. And it's up to the producers to decide what's most important for the needs of society

The how?

Society must exude which limited resources to use for which goods

Utility

The capacity of a good or service to be useful and provide satisfaction

Basic economic questions

The what, the how, for whom

For whom?

Who receives the goods and services produced with the societies resources. Since there are limited resources society has to choose who gets what.

Tragedy of the commons

denote a situation where individuals acting independently and rationally according to each's self-interest behave contrary to the best interests of the whole group by depleting some common resources

Limited partnership

one partner is not active in the business

Progressive

the system that we have now, where the tax rate rises as a person's taxable income rises.

Corporate income tax

typically around 10% of the overall tax receipts in the US

Microeconomics

-Area of economics that deals with behavior and decisions by small units such as individuals and firms -ex: my decision to buy stock

Advantages of partnership

-Easy to start -Easy to manage -No business tax -Better able to attract financial capital -Efficient -Attract quality employees

Advantages of sole proprietorship

-Easy to start -Easy to manage -No sharing of profits -No business tax -Satisfaction -Easy to close

Karl Marx

-Jointed socialist and radical groups -the communist manifesto -labor is exploited in a communist society -"surplus value": the difference between the wage paid to the workers and the market value of the workers output (exploitation of the worker)

Disadvantages of partnership

-Partners are responsible for each other -Limited life -Conflict

Economic interdependence

-Reliance on one another to provide the goods and services that people consume -ex: mrs. Cantwell depends on us to go to school so she can get paid and then she will spend her money on some shoes...cycle keeps going

Paradox of value

-Situation in which some NON-necessities have a much higher value than some necessities. -item must be scarce and must have value -ex: diamond

Benjamin Franklin

-Time is money -A tradesman earns 10 shillings a day. If he is idle 1/2 a day, he has spent or has thrown away 5 shillings.

GDP

-United States GDP is $17.914 trillion as of 2014 -U.S. Is largest economy -22% of national GDP

Disadvantages of sole proprietorship

-Unlimited liability -Difficult to raise financial capital -Limited efficiency -Limited business sense -Hard to attract qualified employees -Limited life

Want

-a way of expressing a need -deciding how to obtain a need

Proportional (flat) tax

-applies the same tax rate to all income levels -ex: So for example, a person making $10,000 would pay $1000 under a 10% flat tax, whereas a person making $100,000 would pay $10,000 in taxes.

Conglomerate

-at least 4 different businesses -diversification

Market economic system

-decentralized decision making -individuals and firms operate on self interest Advantages -individual freedom -little government interference -decentralized decision making -variety of goods and services -high consumer satisfaction Disadvantages -rewards only productive resources -not provided for sick or elderly -uncertain - does not produce many public goods -market failures Ex: U.S. And Hong Kong

Traditional economic system

-economic decisions made by custom and habit Advantages -stable economic roles for community Ex: women have children and do house work Disadvantages -lower standard of living -discourages innovation -little to no progress Ex: Russia in 1900's Ex: fiddler on the roof

Positive analysis

-fact based -no opinion -can be proved or disproved

Equity

-fairness -equality of opportunity

Role of entrepreneur

-generate tax revenue -create jobs -develop products

Adam smith

-laissez faire -Invisible hand -competition -specialization -division of labor -self interest

Multinational corporation

-move resources across national boarders -brings new jobs and technology where needed -may exploit resources/workers -may demand concessions -bring competition

Normative analysis

-opinion based -personal judgement -cannot be tested or proven

Taxes and budget

-personal income tax -corporate income taxes -social security tax -progressive -flat -regressive

Private property rights

-privilege that entitles people to own and control their property as they wish -the ability to accumulate and use the property that they purchased as they wish -the individual states enforce their own property owning rules

Need

A basic requirement for survival that includes food, clothing, and shelter

Partnership

A business jointly owned by two or more people Least numerous

Sole proprietorship

A business owned and run by one person Most profitable and numerous of all business organizations

Preferred stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.

Specialization

A factor of production, performs task that it can do relatively more efficiently than others

GDP per capita

A measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country.

Common stock

A security that represents ownership in a corporation. Holders of this stock exercise control by electing a board of directors and voting on corporate policy. These stockholders are on the bottom of the priority ladder for ownership structure.

Cost benefit analysis

A way of thinking about a problem that compares the cost of the action to the benefits received

Value

A worth that can be expressed in dollars and cents

General partnership

All partners responsible

Trade off

Alternative choices

Macroeconomics

Area of economics that deals with the economy as a whole -ex: poverty, unemployment, stock market dip

Efficiency

Careful use of resources to decrease the amount of resources that are wasted

Horizontal merger

Combining businesses with SIMILAR products

DJIA

Dow jones industrial average

David Ricardo

Formulated the idea of comparative costs (comparative advantage)

Freedom

Freedom of people to make their own economic decisions

Full employment

If people want to work, they should be able to find jobs

Double taxation

Income taxes that are paid twice on the same source of earned income. Occurs because corporations are considered separate legal entities from their shareholders.

Socialism

Ownership of resources -government owns and runs basic reproductive resources in order to distribute output to meet social goals Allocation of resources -state resources Advantages -distribution of benefits throughout a society -people use their electoral power to influence economic decisions Disadvantages -lowered efficiency -higher taxes -government substituting its judgement of the market -special interest become entrenched

Capitalism

Ownership of resources -means of production are privately owned Allocation of resources -supply and demand determine prices Role of government -businesses are free to direct resources into profitable activities Advantages -efficiency -freedom -decentralized -smaller role for government -high degree of consumer satisfaction Disadvantages -does not provide for the production of many public goods -produces only for those who have resources to pay -often uncertain and unstable Ex: United States

Social security taxes

Payroll tax

Economic growth

People can have more goods and services

Price stability

Prices should not increase too much so that people can afford goods and services

Security

Protection from such things as layoffs and injuries that make people lose their jobs

Role of government

Protector -enforces laws Provider and consumer -defense and schools Regulator -preserve competition Promotion of national goals

Diversification

Reducing non systemic risk by investing in a variety of assets

Factors of production

Resources, land, capital, and service

Role of consumer

Ruler of the Market

Personal income tax

accounts for the single largest share of the federal government's revenue

Broken window fallacy

first expressed by the great French economist, Frederic Bastiat. Bastiat used the parable of a broken window to point out why destruction doesn't benefit the economy. In Bastiat's tale, a man's son breaks a pane of glass, meaning the man will have to pay to replace it.

Regressive tax

where the tax rate decreases the more money you make.