Economics Fall Final Review

Laissez Faire

"to let alone" - leave people alone and let them seek their own profit

Corporation

A business that is owned by many investors - Limited Liability Corporation

Scientific method

A series of steps followed to solve problems including collecting data, formulating a hypothesis, testing the hypothesis, and stating conclusions.

List three reasons for budgeting

Allows you to identify current spending pattern and helps to establish spending priorities, prevents potential conflicts with loved ones, big first step toward a successful comprehensive financial plan

Is America a free market economy?

America is a free market economy

On the production possibilities curve, explain what the points on the inside and outside of the curve represent

Any point outside the curve on a PPC graph indicates that the business has overreached their resources. Any point inside the curve on a PPC graph indicates inefficient production of resources.

What character quality is essential for the Christian to have victory over insatiability?

Contentment

What are economist's two roles?

Economist's two roles are scientists (trying to explain the world) and policy advisors (trying to improve the world)

Economists use models for two purposes, what are they?

Economists use models for the 2 purposes of instruction (abstract concepts in an understandable way) and assist in predicting future events

What is society's economic problem?

How to best accomplish society's economic goals

Private and public sectors

In a nation's economy, households, business firms, and financial institutions are referred to as the private sector, and government is referred to as the public sector

Caveat Emptor

Latin expression meaning "Let the buyer beware!"

Explain the differences between micro and macroeconomics

Microeconomics deals with choices made by individual units while macroeconomics examines large-scale economic choices and issues

Socialism

a central authority controls resources and makes economic decisions

Foreign incorporation

a corporation doing business in a state other than where it was incorporated

Alien incorporation

a corporation organized in one country, but operates in another country

Domestic incorporation

a corporation that does business in the state in which it was incorporated

Open corporation

a corporation whose ownership shares are available for exchange on a public market

Secured loan

a loan with collateral

Budget deficit and surplus

a situation in which a government, business firm, or individual receives less income than is paid out in expenses

FTC and FDA

a. FTC: maintains the second of President Kennedy's consumer rights, the right to be informed b. FDA: created in 1906 to test all new drugs before they could be admitted to the marketplace

Land, Labor, and Capital

a. Land: all natural resources that goes into productions of goods b. Labor: all human effort that goes into creating goods and services c. Capital: goods used to produce other goods

The 3 economic questions

a. The output question: What will the nation produce? b. The input question: How will the nation produce its goods? c. The distribution question: Who will receive what the nation produces?

Cosigning

agrees to payback a loan if the original owner cannot

Government

all levels of civil government (federal, state, and local authorities)

Interest

an additional charge that a creditor demands from a borrower to cover the expense of the loan and to provide a profit; the factor cost involving the payments made on borrowed money

Mercantilism

an economic philosophy commonly held in Europe from the 16th to the 18th century that advocated accumulation of gold and silver as national wealth

Egalitarian fairness

an equal distribution of the nation's income regardless of a person's ability to contribute to the nation's pool of wealth

Util

an imaginary unit of satisfaction

Service

an intangible function produced by useful labor

Contingencies

an uncertain or unexpected event that may result in unplanned expense

Good

any tangible thing that has a measurable life span

Surety

assuming one's debt

Tithing

at least 10% OT principle

Classic Capitalism

based on Adam Smith's writings a. The government has 3 major duties: · Legislature to enact just laws · Police force to retain lawbreakers · Courts of law to judge and punish them b. Provides public goods

Line graph

can provide more data

Closed corporation

corporation is exempt from several formal rules; no more than 10 members

Dartmouth College v. Woodward

defined corporation under the Martial Corp

Capitalism

economic system characterized by private ownership and decision making

Impulse buying

emotional purchase

Tabular model

examines relationships between pairs and variables

Budget defined and benefits

financial plan

Fixed and variable expenses

fixed = same each month

Free goods or services

goods and services provided freely by God in nature

Nuisance good

goods and services that bear a negative economic cost

Model

highly simplified representation of more complex reality

List three reasons that economics is considered a science

i. Science always begins with observations - the economist observes how and why choices are made ii. Scientists use their observations as a basis to predict future cause-and-effect relationships - economists observe trends of the economy and use those observations to predict the future choices of households, business firms, and governments iii. Scientists go one step further by attempting to control future events through altering important variables - some economists attempt to control the economy by manipulating key variables involved in economic choices

What are the 3 economic questions?

i. What will the nation produce? ii. How will the nation produce its goods? iii. Who will receive what the nation produces?

Factors of Production (LLC)

land, labor, capital, and entrepreneurship

Nationalization

large scale government ownership of a nation's companies

The 4 economic goals

low unemployment, economic growth, stable price level, and a fair distribution of income

the 4 economic goals of a nation

low unemployment, economic growth, stable price level, and a fair distribution of income

Engel's law

more income, less on food

General partnership

not limited

Stewardship

one is appreciating and thankful to God for all he has given them; in both their life and in personal finances

Sole proprietorship

one person running a business

Transfer payments

payments of money/goods to persons for which government expects no specific economic repayment

State Capitalism

private ownership of businesses but with frequent governmental intervention

Business firms

producers

3 main points of Adam Smith's Wealth of Nations

protect national borders, enforce civil law, and engage in public works

Households

provides factors of production, but with a cost

Circular Flow Model or Diagram

provides visual explanations of how a complete national economic system functions

Economic growth

refers to an increase in the quantity of goods and services a nation can produce

Four factor costs

rent, wages, interest, and profit

Privatization

selling nationalized businesses back to the private stockholders

Production Possibilities Curve (PPC)

shows maximum feasible amounts of 2 commodities that a business can produce when those 2 items are competing for that business' limited resources

Creditor

somebody that one owes money to

GDP or Gross Domestic Product

sum of all goods and services businesses produce and sell

The invisible hand

term economists use to describe the self-regulating nature of the marketplace

Karl Marx

the Father of Communism

Adam Smith

the Father of Laissez-Faire Economics - wrote the Wealth of Nations

Positive economics

the approach to economic study involving the observation of economic choices and the prediction of economic event

Normative economics

the approach to economic study involving value judgments about existing and proposed economic policies

Carl Menger's Principles of Economics

the book where Carl Menger put to rest the diamond-water paradox - published in 1871 - in the book, he argued that there is not just one economic value for every good

Scarcity

the condition of a good or service being finite or limited in quantity

Insatiability

the condition of having unlimited wants and thus never being satisfied

Communism

the government is no longer necessary since everyone is acting in the best interest of others

Microeconomics

the level of economic study that is concerned with choices made by individual units

Macroeconomics

the level of economic study that is concerned with large scale economic choices and issues

Radical Capitalism

the most extreme form of capitalism in which private property citizens own all the factors of production and they make all economic decisions

Centralized Socialism

the national government is the central owner and the decision maker - envisioned by Karl Marx

Principal

the original amount of a loan received by the borrower

Unit Pricing

the price per measure of the product

Diamond-water paradox

the riddle that asks which is more valuable, a handful of diamonds or a glass of water; solved by Carl Menger in 1871 when he proposed that value is not inherent in an object but rather is determined by the buyer

Opportunity benefit

the satisfaction a person receives from a choice

Opportunity cost

the satisfaction one gives up or the regret one experiences for not choosing a desirable alternative

Economics

the science of how and why people, businesses, and governments make the choices that they do

Economic cost

the value people place on a good or service

Subjective value

the worth of a good or service as determined by its usefulness to the buyer

Redress

to compensate or make amends for a wrong

Social Democracy

transitional economic system between free markets and governmental ownership

Recycling

turning nuisance goods into economic goods

Partnership

two or more people

Utility

usefulness

Efficiency

using resources in such a way as to maximize the production of goods and services

Collateral

valuable goods that may be taken by a lender and resold if the borrower does not repay his loan

Dissaving

when households withdraw money from an account or borrow it

Crowding out

when the government spends too much money and private businesses cannot obtain loans or financial aid

Home equity

when you buy property at the current value, then it gains in value, and then you take the amount minus the original price

Wealth of Nations

written by Adam Smith - used to counter mercantilism - stockpiles of gold and silver does not make you wealthy, the economic prosperity of people does