Microeconomics Mid-term

What is "Fair Share" as it relates to the payment of Federal income taxes?

"Fair Share" in the context of federal income taxes refers to the idea that individuals and corporations should contribute to government revenues in a way that is equitable and proportionate to their ability to pay. This concept is often associated with progressive tax systems, where higher-income earners pay a larger percentage of their income in taxes compared to lower-income earners. In summary, "Fair Share" implies that tax burdens should be distributed fairly among taxpayers, taking into account their financial capacities and ensuring a more equitable contribution to government revenues.

Define &/or describe a Demand Curve.

A demand curve is a graphical representation of the relationship between the price of a good or service and the quantity demanded by consumers, keeping all other factors constant. It typically slopes downward, illustrating the inverse relationship between price and quantity demanded, as described by the Law of Demand. In summary, a demand curve visually represents how demand for a product changes in response to changes in its price.

Define &/or describe a perfectly competitive market?

A perfectly competitive market is an idealized economic model characterized by a large number of buyers and sellers, homogeneous products, perfect information, easy entry and exit, and no individual participant having the ability to influence market prices. In summary, it represents a theoretical market structure where competition is at its highest level, leading to optimal resource allocation and maximum efficiency.

Define &/or describe a progressive, marginal tax.

A progressive, marginal tax is a taxation system where tax rates increase as income levels rise. In this system, income is divided into brackets with specific tax rates, and higher income earners pay a larger share of their earnings in taxes. The tax rates are marginal because they apply only to the income within each bracket, ensuring a more equitable distribution of the tax burden.

Define &/or describe a Supply Curve.

A supply curve is a graphical representation of the relationship between the price of a good or service and the quantity supplied by producers, keeping all other factors constant. It typically slopes upward, illustrating the direct relationship between price and quantity supplied, as described by the Law of Supply. In summary, a supply curve visually represents how the supply of a product changes in response to changes in its price.

Exports

Goods and Services sold to other countries

Is the Social Security program in a crisis? Why or why not?

Demographic changes: The aging population, driven by declining birth rates and increased life expectancy, means that fewer workers are contributing to the program, while more retirees are claiming benefits. This demographic shift puts a strain on the Social Security trust funds. Financial projections: According to the Social Security Trustees Report, the program's trust funds are projected to be depleted by the early 2030s. Once the trust funds are exhausted, the program will only be able to pay about 75-80% of promised benefits, relying solely on incoming payroll taxes. Economic factors: Economic growth, wage growth, and employment levels all influence the amount of revenue Social Security receives from payroll taxes. Economic downturns or slower growth can negatively impact the program's financial stability. In summary, while the Social Security program is not in an immediate crisis, it faces long-term financial challenges due to demographic shifts and projected trust fund depletion. To address these challenges, potential solutions include increasing payroll taxes, raising the retirement age, modifying benefits, or some combination of these measures. Policymakers must carefully consider these options to ensure the program's sustainability and protect the retirement security of current and future generations.

elasticity in economics

Elasticity is an economic concept used to measure the change in the aggregate quantity demanded of a good or service in relation to price movements of that good or service. A product is considered to be elastic if the quantity demand of the product changes more than proportionally when its price increases or decreases.

monetary policy

Federal Reserve decisions that shape the economy by influencing interest rates and the supply of money

How can Fiscal Policy increase inflation?

Fiscal policy can increase inflation when the government stimulates economic activity through increased spending or reduced taxation. This can boost demand for goods and services, leading to higher prices if the supply cannot keep up with the increased demand, thereby causing inflation. In summary, expansionary fiscal policy can contribute to inflation by increasing demand and putting upward pressure on prices.

GDP

GDP Formula: C+G+I+(NX) C - Consumption G - Government Spending I - Investments - Business to Business - New Homes N- Net Exports: Exports - Imports - Trade Deficit is when our imports are greater than our exports

Define & briefly explain Gross Domestic Product.

Gross Domestic Product (GDP) is a measure of a country's total economic output, representing the market value of all goods and services produced within its borders during a specific period (usually a year). It serves as a key indicator of a nation's economic health, reflecting its overall economic performance, growth, and standard of living.

What is productivity in economics?

In microeconomics, productivity refers to the efficiency with which inputs (such as labor, capital, and raw materials) are converted into outputs (goods and services) in the production process. It is typically measured as the ratio of output to input and is a key determinant of a firm's cost structure, competitiveness, and profitability. Improving productivity can lead to lower costs, higher output, and increased economic growth.

Productivity in relationship to human capital?

In relation to human capital, productivity refers to the efficiency and effectiveness with which individuals, teams, or workforces use their skills, knowledge, and abilities to produce goods and services. Higher human capital productivity can result from better education, training, health, and work experience, leading to increased economic growth, improved organizational performance, and higher standards of living.

Compare and contrast Effective & Marginal tax rates

In summary, the effective tax rate measures the overall tax burden as a percentage of income, while the marginal tax rate refers to the tax applied to the last dollar of income earned, representing the highest tax bracket an individual or corporation falls into.

Does this social security crisis concern you?

In summary, whether the Social Security program's financial challenges should concern you depends on factors like your age, reliance on the program, potential policy changes, and personal financial planning. It is essential to stay informed about the program's status and potential reforms and consider discussing your retirement plans with a financial advisor to ensure you are prepared for various scenarios.

How does it affect your future?

In summary, while the US is not currently experiencing a debt crisis, its high debt levels could have various implications for individuals' futures, including changes in taxes, public spending, interest rates, inflation risk, and economic growth. It is essential for policymakers to address these concerns and implement responsible fiscal policies to ensure long-term economic stability and prosperity.

Compare & contrast a Market oriented (laissez-faire) and a Command oriented (centrally planned) economy.

Market-oriented (laissez-faire) economies rely on supply and demand to allocate resources, with minimal government intervention. They promote individual freedom, competition, and innovation. In contrast, command-oriented (centrally planned) economies have a central authority directing resource allocation and production, with extensive government control. This can lead to inefficiencies and limited innovation but may prioritize social welfare and stability.

Define/ Explain National Debt.

National debt refers to the total amount of money a government has borrowed to finance its expenditures and obligations. It accumulates when a government consistently runs budget deficits. The debt consists of short-term and long-term obligations, such as treasury bills, notes, and bonds. The level of national debt is an important indicator of a country's fiscal health and economic stability, making it crucial for governments to maintain a balance between spending, revenues, and debt.

Productivity in relation to standard of living or living standards?

Productivity is closely linked to living standards, as higher productivity allows for more goods and services to be produced with the same amount of resources. This increased output per capita can lead to higher incomes, better quality goods and services, more leisure time, and overall improvements in the standard of living for individuals and society as a whole.

The human-capital theory of education could be called a productivity-enhancing theory - Why?

The human-capital theory of education can be called a productivity-enhancing theory because it posits that investments in education lead to increased knowledge, skills, and abilities in individuals, which in turn improve their productivity in the workforce. Higher productivity results in better job opportunities, higher wages, and greater economic growth, demonstrating the positive impact of education on both individual and societal levels.

List the Phases of the Business Cycle.

The business cycle consists of four phases that reflect fluctuations in economic activity: Expansion: A period of economic growth, characterized by rising output, employment, and income levels. Peak: The highest point of economic activity, marking the end of expansion and the start of contraction. Contraction: A period of declining economic activity, with reduced output, employment, and income levels. Trough: The lowest point of economic activity, marking the end of contraction and the start of a new expansion. These phases repeat over time, reflecting the cyclical nature of economies.

Define and describe Comparative Advantage in the context of trade theory.

The concept of comparative advantage suggests that trade can benefit all parties involved, as long as they specialize in the production of the goods at which they have a comparative advantage and trade with each other. This allows countries and firms to take advantage of their respective strengths and to produce and consume a larger variety of goods and services. As a result, comparative advantage is an important concept in international trade and has played a significant role in shaping global trade patterns.

What is the crowding out effect in fiscal policy?

The crowding out effect in fiscal policy refers to a situation where increased government spending, typically financed by borrowing, leads to a reduction in private investment or consumption. This occurs because government borrowing raises interest rates, making it more expensive for private entities to borrow and invest. Consequently, the increase in public spending may offset or even negate the intended positive impact on economic growth and employment, as private sector activity is reduced. In summary, the crowding out effect highlights the potential unintended consequences of expansionary fiscal policy on private sector investment and consumption.

Define/ Explain the Federal Budget Deficit.

The federal budget deficit refers to the situation when the U.S. government's total expenditures exceed its total revenues during a specific fiscal year. In other words, the government is spending more money than it is collecting through taxes and other sources of income. This shortfall is typically financed by borrowing, which contributes to the national debt. The federal budget deficit is an important indicator of a country's fiscal health and can influence economic growth, interest rates, and monetary policy.

Imports

goods produced abroad and sold domestically

What's inflation?

sustained increase in the general level of prices

What is fiscal policy?

the means by which the government adjusts its spending levels and tax rates to monitor and influence a nation's economy

Demand Curve shifters: All signs of non-price determinates

1. # of buyers 2. Income 3. Prices of related goods 4. Taste 5. Expectations -Consumer confidence

Tax Collected (revenue)

1. Income 2. Payroll - Social Security 6.2% - Medicare 1.45% 3. Corporate 4. Tariff

List two of the largest sources of US Federal Tax Revenues collected by the US Government

1. Individual Income Taxes: These are taxes paid by individuals on their earnings from various sources, such as wages, salaries, and investments. Individual income taxes are the largest source of 2. federal tax revenue. Payroll Taxes: These are taxes collected from both employers and employees to fund Social Security and Medicare programs. Payroll taxes represent the second-largest source of federal tax revenue.

Supply Curves Shifters:

1. Input Prices 2. Technology 3. # of Sellers 4. Expectations - Business Confidence

Three types of treasury securities: Maturity

1. T-Bills (less than 1 year) 2. T-Notes (2,5,10 year) 3. T-Bonds (20, 30 years)

economic depression

An economic depression is a severe and prolonged downturn in economic activity, characterized by high unemployment, sharp declines in output and investment, widespread business failures, and a significant reduction in overall living standards. It is more extreme and long-lasting than a typical recession.

Is the USA in a debt crisis? Why or why not?

As of my knowledge cutoff in September 2021, the USA is not in a debt crisis. A debt crisis occurs when a country is unable to pay its debt obligations, leading to defaults, increased borrowing costs, and negative economic consequences. Although the US has a high level of national debt, it is not currently facing a debt crisis for several reasons: Demand for US Treasury bonds: There is a strong global demand for US Treasury bonds, which are considered safe investments. This demand allows the US government to borrow at low interest rates, making the debt burden more manageable. Reserve currency status: The US dollar is the world's primary reserve currency, meaning that other countries hold a significant portion of their foreign exchange reserves in dollars. This status increases the demand for US government debt and helps to keep interest rates low. Debt-to-GDP ratio: While the US has a high debt-to-GDP ratio, it is not at a level that would typically trigger a debt crisis. The US economy remains strong and resilient, allowing the government to continue servicing its debt. Ability to print money: The US has control over its currency and can print more money if needed to pay off its debt obligations. While this is not a long-term solution and can lead to inflation, it does provide the US with more flexibility in managing its debt. In summary, while the US has a high level of debt, it is not currently facing a debt crisis due to strong demand for its bonds, the US dollar's reserve currency status, a manageable debt-to-GDP ratio, and the ability to print its currency. However, it is essential for policymakers to address fiscal imbalances and implement sustainable fiscal policies in the long run to maintain economic stability.

Compare & contrast Capitalism and Socialism.

Capitalism is an economic system based on private ownership, free markets, and competition, promoting individual freedom and wealth creation. Socialism emphasizes collective ownership, wealth redistribution, and social welfare, with more government intervention to reduce inequalities and prioritize public services.

Who conducts fiscal policy?

Congress and the President

10 Principles of Economics

How People Make Decisions 1. People Face Tradeoffs. To get one thing, you have to give up something else. Making decisions requires trading off one goal against another. 2. The Cost of Something is What You Give Up to Get It. Decision-makers have to consider both the obvious and implicit costs of their actions. 3. Rational People Think at the Margin. A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost. 4. People Respond to Incentives. Behavior changes when costs or benefits change. How the Economy Works as A Whole 5. Trade Can Make Everyone Better Off. Trade allows each person to specialize in the activities he or she does best. By trading with others, people can buy a greater variety of goods or services. 6. Markets Are Usually a Good Way to Organize Economic Activity. Households and firms that interact in market economies act as if they are guided by an "invisible hand" that leads the market to allocate resources efficiently. The opposite of this is economic activity that is organized by a central planner within the government. 7. Governments Can Sometimes Improve Market Outcomes. When a market fails to allocate resources efficiently, the government can change the outcome through public policy. Examples are regulations against monopolies and pollution. The forces and trends that affect how the economy as a whole works. 8. A Country's Standard of Living Depends on Its Ability to Produce Goods and Services. Countries whose workers produce a large quantity of goods and services per unit of time enjoy a high standard of living. Similarly, as a nation's productivity grows, so does its average income. 9. Prices Rise When the Government Prints Too Much Money. When a government creates large quantities of the nation's money, the value of the money falls. As a result, prices increase, requiring more of the same money to buy goods and services. 10. Society Faces a Short-Run Tradeoff Between Inflation and Unemployment. Reducing inflation often causes a temporary rise in unemployment. This tradeoff is crucial for understanding the short-run effects of changes in taxes, government spending and monetary policy.

Which economy do you prefer - a Market oriented (laissez-faire) or a Command oriented?

I prefer a Market oriented economy over a command economy due to its ability to allocate resources more efficiently, promote competition and innovation, and adapt to changing consumer needs and preferences, which can lead to higher overall economic growth and individual prosperity.

Which economy do you prefer - Capitalism or Socialism? Why?

I prefer capitalism over socialism due to its ability to efficiently allocate resources, encourage innovation and competition, and provide individuals with more economic freedom and opportunities for wealth creation, which can lead to higher overall economic growth and prosperity.

Is inflation a social issue/problem in the USA? Why?

Inflation can be a social issue in the USA because it erodes purchasing power, affects income distribution, creates economic uncertainty, and disproportionately impacts lower-income households. These effects can exacerbate social and economic inequalities, making inflation a potential concern for society.

Does inflation increase or decrease the value of the dollar? Why? How?

Inflation decreases the value of the dollar, as it erodes the purchasing power of money over time. When the general price level of goods and services in an economy rises, each dollar can buy fewer items than before. This reduction in purchasing power means that consumers need more dollars to acquire the same goods and services, resulting in a decreased value of the dollar relative to those goods and services.

What causes inflation?

Inflation is caused by an imbalance between the supply of and demand for money or goods and services in an economy. Key factors contributing to inflation include: Demand-pull inflation: Increased demand for goods and services outpaces supply, leading to higher prices. Cost-push inflation: Rising production costs (e.g., wages, raw materials) cause businesses to increase prices to maintain profit margins. Built-in inflation: Past inflation influences future expectations, resulting in a self-perpetuating cycle of rising prices and wages. Expansionary monetary policy: An increase in the money supply can reduce the value of money, causing prices to rise. These factors can occur independently or in combination, leading to varying degrees of inflation.

What are the microeconomic indicators?

Macroeconomic indicators are statistical measures that provide insights into a country's overall economic performance, stability, and growth. Key macroeconomic indicators include: 1. Gross Domestic Product (GDP) 2. Unemployment rate 3. Inflation rate 4. Interest rates 5. Balance of trade 6. Government debt 7. Consumer Price Index (CPI) 8. Producer Price Index (PPI) These indicators help policymakers, investors, and businesses to understand and analyze the health of an economy and inform their decision-making processes.

List two of the largest budget items - Government spending

Social Security: This social insurance program provides retirement, disability, and survivor benefits to eligible workers and their dependents. Social Security is one of the most significant components of the federal budget. Medicare: Medicare is a federal health insurance program primarily for individuals aged 65 and older, as well as certain younger individuals with disabilities or specific health conditions. Medicare covers a range of healthcare services, including hospital care, outpatient care, and prescription drugs.

Define and describe Specialization in the context of trade theory.

Specialization can lead to increased economic efficiency, higher levels of output and income, and greater consumer choice, as countries or firms are able to produce a wider range of goods and services at a lower cost. However, it can also lead to job losses and other economic disruptions as resources are shifted from one sector to another. Therefore, policies aimed at promoting trade and specialization often include measures to support workers and communities that are negatively affected by the process of specialization

Define the Law of Demand

The Law of Demand is an economic principle stating that, all else being equal, as the price of a good or service increases, the quantity demanded by consumers decreases, and vice versa. In summary, it establishes an inverse relationship between price and demand for a product, with consumers typically demanding more of a good or service when its price is lower.

Define the Law of Supply.

The Law of Supply is an economic principle stating that, all else being equal, as the price of a good or service increases, the quantity supplied by producers increases, and vice versa. In summary, it establishes a direct relationship between price and the quantity of a product supplied, with producers typically supplying more of a good or service when its price is higher.

Describe the tradeoff between inflation & the Unemployment?

The tradeoff between inflation and unemployment is often described by the Phillips Curve, which suggests that lower unemployment rates are associated with higher inflation and vice versa. This tradeoff occurs because, in the short run, expansionary economic policies can stimulate job growth and reduce unemployment but may also lead to increased demand for goods and services, driving up prices and causing inflation. Conversely, contractionary policies can reduce inflation but may increase unemployment. In summary, the tradeoff between inflation and unemployment reflects the short-term balancing act between managing price stability and maintaining low unemployment rates.

Efficiency

When society gets the most from its resources.

economic recession

a period of decline in economic activity, typically defined by two consecutive quarters of negative GDP growth

What determines productivity?

physical capital, human capital, natural resources, technological knowledge

Tradeoff

to achieve greater equality, could redistribute income from wealthy to poor. But this reduces incentive to work and produce, shrinks the size of the economic "pie"

Equality

when prosperity is distributed uniformly among society's members

• Does inflation affect your purchasing power? Why? How?

yes, inflation affects your purchasing power by eroding the value of money over time. As the general price level of goods and services in an economy increases, the purchasing power of money decreases, meaning each unit of currency buys fewer items than before. This forces consumers to spend more money to acquire the same goods and services, effectively reducing their ability to purchase items with the same amount of income or savings.