Final Study Guide - Economics (Bunger)

12) Describe market equilibrium. (143)

A situation in which prices are relatively stable, and the quantity of goods or services supplied is equal to the quantity demanded.

36) How does the government play a direct role in the economy? (79)

It makes sure the economy operates smoothly and efficiently. It also regulates public utilities, companies that offer products like water or electric service.

30) What are the characteristics of a command economy? (35-36)

- The central authority makes the majority of the WHAT, HOW, and FOR WHOM decisions. - Economic decisions are made by the government. - The people have little to no influence over the economy.

35) What are the advantages of a corporation? (64)

- The ease of raising financial capital (money). - The directors can hire professional managers to run the firm. - Provides liability for its owners (corporation is responsible for debts, not its owners).

37) What are the least and most common types of business organizations? (60)

- The most common is called a general partnership. - The least common is called limited partnership.

31) What are the characteristics of a market economy? (36-38)

- The people and firms act in their own self interests to make the majority of the WHAT, HOW, and FOR WHOM decisions. - Economic decisions are mostly made by the people. - The people's influence is how the economy runs.

11) What is the production function? (123)

A concept that describes the relationship between changes in output to different amounts of a single input while other inputs are held constant.

8) What is necessary for demand to exist? (89)

An ability and willingness to pay for a good or service.

22) What are the arguments of protectionists? (474)

Argued about these 5 things: national defense, infant industries argument, protecting domestic jobs, keeping money in the US, and the balance of payments.

16) Who was responsible for the monetary system that we use today? (289)

Benjamin Franklin and Secretary of the Treasury Alexander Hamilton.

1) What are capital goods used for? (12)

Capital goods are used to produce other goods and services. Examples: a robot welder in a factory, an oven in a bakery, or a computer in a high school.

6) Know what the difference is between common and preferred stock. (63)

Common stock - represents basic ownership of a corporation. The owner of a common stock usually receives one vote for each share of stock. This vote is used to elect a board of directors whose duty is to direct the corporation's business by setting broad policies and goals. The board also hires a professional management team to run the business on a daily basis. Preferred stock - represents nonvoting ownership shares of the corporation. These stockholders receive dividends before common stockholders receive theirs. If the corporation goes out of business, and if some property and funds remain after other debts have been paid, preferred stockholders get their investment back before common stockholders. Because the stock is nonvoting, preferred stockholders do not have the right to elect members to the board of directors.

24) What are the characteristics of division of labor? (16)

Division of labor takes place when work is arranged so that individual workers do fewer tasks than before.

39) Know when a product has elastic and inelastic demand. (102)

Elastic demand is when a change in price causes a relatively larger change in quantity demanded. Inelastic demand is when a change in price causes a relatively smaller change in quantity demanded.

34) Know the difference between a horizontal and vertical merger. (71)

Horizontal mergers occur when two or more firms that produce the same kind of product join forces. Vertical mergers occur when firms involved in different steps of the manufacturing or marketing join together.

4) Who owns the factors of production in a capitalistic economic system (market economy)? (46)

In a market economy (capitalism), private citizens own the factors of production.

33) Who is responsible for the regulation of corporate stocks? (65)

Investors (stockholders or shareholders).

17) Does fiat money have any inherent value in and of itself? (287)

No, but it was still money by government decree.

27) How is opportunity cost involved with the production possibilities curve? (23)

Opportunity cost is involved with the production possibilities curve by how the factors of productions are being used; which ultimately is controlled by supply and demand.

15) Know how the four types of market structures are different. (167)

Perfect Competition - where supply and demand set the equilibrium price. Every seller selects a level of output that will maximize its profits at that price. Monopolistic Competition - all the same as perfect except they don't sell identical products. Oligopoly - where a few very large sellers dominate the industry. Monopoly - where only one very large seller dominates the industry.

14) How is perfect competition different from the three types of imperfect competition? (166)

Perfect Competition - where supply and demand set the equilibrium price. Then, each firm selects a level of output that will maximize its profits at that price. Imperfect Competition - where the market structure lacks one or more of the conditions of perfect competition. The three types of imperfect competition include monopolistic competition, oligopoly, and monopoly.

38) Know the difference between substitutes and compliments. (98)

Substitutes are products that can be used in place of other products. (Ex. Pepsi Cola and Coca Cola) Complements are related goods that go together. (ink printer and ink cartridge)

10) What will occur when additional suppliers enter an existing market? (118)

Supply will increase. The more suppliers, the greater the market supply.

20) What was the worst downturn in the United States business cycle? (375)

The Great Depression of the 1930s.

32) What is the concept of voluntary exchange? (47)

The act of buyers and sellers freely and willingly engaging in market transactions.

19) How do bond ratings determine the risk involved with bonds? (321)

The bond rating determines the risk an investor should take. These ratings are based on the quality of the stock. They go from AAA, which means the best, to D which means the lowest (default). Therefore, one would want to invest in an AAA bond, but not a D bond.

7) Who is responsible for the debt of a corporation? (64)

The corporation itself, not its owners, is fully responsible for its debts and obligations. This is called limited liability.

9) What does the demand curve represent? (91)

The demand curve is a graph that represents the quantity demanded at each and every price that might prevail in the market.

40) What does a demand schedule show? (90)

The demand schedule is a listing that shows various quantities demanded of a particular product at all prices that might prevail in the market at a given time.

25) What is Gross Domestic Product? (9)

The dollar value of all final goods and services, and structures produced within a country's borders in a 12-month period. (Total output).

5) What is the profit motive? (48)

The driving force that encourages people and organizations to improve their material well-being--is largely responsible for the growth of a free enterprise system based on capitalism.

29) Who ultimately determines what will be produced in a free enterprise economy? (46)

The private citizens of that nation.

21) How is the unemployment rate calculated? (383)

The unemployment rate is the number of unemployed individuals divided by the total number of persons in the civilian labor force.

23) When does a country have a comparative advantage over another country? (470)

This happens when a country has the ability to produce a product relatively more efficiently, or at a lower opportunity cost.

28) Know which countries have a market economy. (28)

USA, Canada, Japan, South Korea, Singapore, Germany, France, Great Britain, and other parts of Western Europe.

2) What would be considered economic growth in a nation? (15)

When a nation's total output of goods and services increases over time.

26) When is a country operating at full potential? (22)

When all four factors of production are being used as efficiently as possible (frontier).

3) When is a country operating at full potential? (22)

When all four factors of production are being used as efficiently as possible (frontier).

13) When will a shortage exist in a competitive market? (144)

When the quantity demanded is greater than the quantity supplied at a given price.

18) What kind of risk is involved with high returns on investment? (319)

You can lose too much money. The amount of risk must be worth your compensation. If the amount of money you could potentially lose is not worth the amount of money you could get, then it's a bad investment.