FINAL EXAM STUDY GUIDE
Describe what a point outside of the production possibilities curve represents
unattainable. there are not enough resources available to produce the goods at that level.
Identify examples of corporations in terms of business structure
-most common legal structure for businesses in the U.S. -separate entities from the owners of the corporations. (provides protection to the individuals who own shares of the company) -issue stocks, or shares of ownership, to the owners -owners have limited liability for the company's activities. The owners are not personally liable if the company is sued. -Incorporation provides companies flexibility in how they manage their ownership structure. -may be some tax advantages to corporations -three types- standard for-profit corporation, the limited liability corporation (LLC), and the non-profit corporation. -Corporations pay taxes and the owners pay income tax only on the money they draw from the corporation.
Identify examples of partnerships in terms of business structure
-two or more people are co-owners of a business that share the risks, responsibilities and rewards of the business -two types of partnerships: general and limited. General partnerships(most common), all partners have a role in managing the business. Limited partnerships occur when one of the partners (the general partner) is responsible for running the business and the limited partners are simply passive investors. -Partners have both joint authority and joint liability -a partnership has to file an annual information return to the IRS. The annual information return includes information on the income, deductions, gains, and losses of the operation -The partnership does not pay income tax
Identify the conditions necessary for price discrimination
1. The seller must have some control over the supply of his product. Such monopoly power is necessary to discriminate the price. 2. The seller should be able to divide the market into at least two sub-markets (or more). 3. The price-elasticity of the product must be different in different markets. Therefore, the monopolist can set a high price for those buyers whose price-elasticity of demand for the product is less than 1. In simple words, even if the seller increases the price, such buyers do not reduce the purchase volume. 4. Buyers from the low-priced market should not be able to sell the product to buyers from the high-priced market.
Identify which assumptions a production possibilities curve is based on
1. Utilization of a fixed amount of productive resources. 2. Resources are used fully and efficiently. 3. A specific state of technical expertise.
Describe a market with perfect competition
1.There are many small suppliers that are each small enough that they are unable to influence the price for the overall market by changing the supply 2. The output of each firm must be identical 3. The market is always in equilibrium 4. Competition is based only on price
Differentiate between demands and wants
A want is a product desired by a customer that is not required for us to survive. Wants turn to be Demands when a customer is willing and having the ability to buy that needs or wants. The basic difference between wants and demands is desire
Recall what consists of revenue minus explicit costs
Accounting profit. the difference between dollars brought in and dollars paid out
Describe adverse selection
Adverse selection occurs when one party in a transaction possesses more accurate information compared to the other party. The other party, with less accurate information, is usually at a disadvantage since the party with more information stands to gain more from that transaction -The information imbalance causes inefficiency in the price charged on specific goods or services
Explain why entrepreneurs are considered a factor of production
An entrepreneur is a person who combines the other factors of production - land, labor, and capital - to earn a profit. The most successful entrepreneurs are innovators who find new ways produce goods and services or who develop new goods and services to bring to market. Without the entrepreneur combining land, labor, and capital in new ways, many of the innovations we see around us would not exist.
Recall the type of government that determines what is produced, how much is produced, and often who will receive the goods
Command economy(communism/socialism)
Describe the prices of, and revenue from, agricultural products if the demand for the products is inelastic
Even if price drops they will not buy much more. When demand is inelastic a drop in price that spurs more quantity being sold results in lower revenue and profit for the producer.
Describe the elasticity of a good that has close substitutes available in market
If consumers can substitute the good for other readily available goods that consumers regard as similar, then the price elasticity of demand would be considered to be elastic.
Describe the demand curve in an oligopoly market
In an oligopolistic market, the kinked demand curve hypothesis states that the firm faces a demand curve with a kink at the prevailing price level. The curve is more elastic above the kink and less elastic below it. This means that the response to a price increase is less than the response to a price decrease.
Recall who wrote The Communist Manifesto
Karl Marx
Recall what is indicated if the short-run average variable costs of production for a firm are rising
Marginal costs are above average variable costs
Identify the advantage of a free market economy over traditional and command economies
Market economies are more efficient than traditional or command economies because in a market economy, consumers and businesses jointly decide what to produce, how to produce, and for whom to produce through the interaction of supply and demand
Recall the type of government where private property is permitted for consumer goods, but the state owns all capital and land
Marxian Socialism
Identify a real-world application of economics
Opportunity Costs, The Trade War, Supply and Demand
Identify the type of good that is non-rivalrous and non-excludable
Public Goods. services and products that are given to consumers by the government
Recall what forces us to make choices
Scarcity. The principle of scarcity states that there are limited goods and services for unlimited wants
Describe the difference between short-run production and long-run production
Short-term production and long-run production both involve the use of input factors. In short-term production, at least one of the factors is fixed. In long-term production none of the factors are factors.
Identify the U.S. department that publishes data on the labor force
The Bureau of Labor Statistics of the U.S. Government
Explain why the interest cycle is intimately linked to the business cycle
The business cycle includes recovery (low interest rates), expansion (rising rates that peak at the height of the expansion), and then contraction (falling interest rates). When money is cheap, people and businesses are more likely to borrow and when it is expensive, they are less likely to borrow.
Explain why the concept of elasticity of demand for goods and services is an extremely useful tool for the government
The concept of price elasticity of demand is important for formulating government policies, especially the taxation policy. Government can impose higher taxes on goods with inelastic demand, whereas, low rates of taxes are imposed on commodities with elastic demand
Describe what the consumer price index measures and explain why it is biased
The consumer price index (CPI) is a measure of the overall cost of the goods and services bought by a typical consumer. CPI is used to find the inflation rate. Substitution bias- Introduction of new goods. Unmeasured quality changes-These cause the CPI to overstate the true cost of living-The issue is important because many government programs use the CPI to adjust for changes in the overall level of prices
Identify the key interest rates in the U.S. economy
The two key interest rates in the U.S. are the discount rate and the federal funds rate. These are rates that are set, either directly or indirectly, by the Federal Reserve, in order to influence lending and the supply of money and credit in the economy.
Describe the demand curve under pure competition
Under pure competition, firms face a perfectly elastic demand curve. This means that the firms must accept the price the consumer is willing to pay
Recall the three basic questions facing an economy
What will be produced? How much will be produced? For whom will it be produced?
Describe sin taxes
a tax levied on a specific activity or good that is deemed harmful to individuals or society such as tobacco, alcohol, drugs and candies, among other things.
Describe the law of demand
as the price for a good or service increases, demand will decrease. It also states that as the price for a good or service decreases, demand will increase
Identify examples of a fixed expense
car payments, mortgage or rent payments, insurance premiums and real estate taxes
Describe what the state is supposed to promote in Marxian Socialism
control of all property and resources
Identify a disadvantage of credit card debt
high interest rates make it harder to pay off, negatively impacts credit score
Identify an example of a government-created barrier to market entry
legal barriers(patents), economies of scale, and control over an essential resource.
Identify the policies used to stimulate the economy from a recessionary trend
lowering interest rates, increasing government spending
Identify examples of economic regulations
market entry controls- ex. requiring licenses for hair dressers, taxi drivers price controls- ex. setting a minimum wage, capping prices for services such as airlines etc.
Recall the poverty rate during Lyndon Johnson's presidency
nearly 20%
Recall when price gouging occurs
occurs when companies increase their monopoly power and customers lose access to substitutes for the goods and services they need.
Describe the Clayton Act
passed in 1914 to define and prohibit business practices that lessen competition.
Recall the factors that determine supply
price, the number of suppliers, the state of technology, government subsidies, weather conditions and the availability of workers to produce the good.
Recall the likely reaction of the producer if the future price of the good is declining
produce more now as demand will increase when the price decreases
Identify the term for the type of income tax where the ratio of taxes paid to income is constant regardless of income level
proportional tax
Identify which factor of production a company is investing in when it purchases new computers
real capital
Describe the circular flow diagram
represents the organization of an economy in a simple economic model. This diagram contains, households, firms, markets for factors of production, and markets for goods and services.
Identify a result of workplace safety laws
safer products, a cleaner environment, more socially responsible behavior on the part of both consumers and companies, and transparency of the activities of financial institutions
Describe what the National Institute of Occupational Safety and Health (NIOSH) studies
stress levels in the workplace.
Identify the term for the mechanism by which market equilibrium is restored
supply and demand
Recall what two main factors determine the price of a product in a free market
supply and demand
Describe the production possibilities frontier
the curve represents maximum efficiency in the use of resources to produce the products. The production possibilities curve will give an indication of where pricing will increase or decrease. Remember that the larger the supply of a good or service relative to demand for that good or service, the lower the price will be. Conversely, the smaller the supply of a good or service, the higher the price will be.
Describe what a country should focus on according to the theory of comparative advantage
the measure that should be used to determine whether a good should be exported. countries will engage in trade with one another, exporting the goods that they have a relative advantage in
.Identify what is meant by supply of goods
the transfer of ownership of goods by agreement.
Describe when a natural monopoly occurs
when a supplier can meet demand at a lower cost than a group of competitors could. (ex. De Beers diamond company, power generation)
Describe when a perfectly competitive firm should reduce output or shut down in the short run
when production costs start to exceed profit
Recall who is hurt the most by unanticipated deflation
when the inflation rate is lower than it was expected to be (or even negative), has the opposite effect as unanticipated inflation: lenders are helped and borrowers are hurt.
Identify a major opportunity cost of going to college
• Monetary cost: tuition, books.• Non‐monetary cost: forgone earnings.
