Econ Final Exam

comparing the cost of an action to its benefit

the most valued alternative you give up when you make a choice

money left over after costs of production (total revenue - total costs)

attempt to change peoples behavior by offering a tangible reward

shows how money moves through the economy in a constant loop from producers to consumers

working relationship between businesses, households, and the government

supply, demand, and the price system help allocate resources and answer 3 basic questions (also called capitalism)

a central authority (govt) makes most of the major economic decisions (socialism, communism)

has some combination of command and/or market economies

• Shows possible alternatives of production

• Illustrates trades offs and opportunity costs

• What do you lose when you make a change.

when a country send goods/services to another country

when a country takes in gods and services sent in from another country

focusing on a specific skill, activity, or production process,

when a country can produce a good at a lower opportunity cost

when a country can produce more of a good using the same quantity of resources.  

Trade between countries consists of exporting and importing goods.

positive balance of trade = trade surplus (exports greater than imports)

negative balance of trade = trade deficit (exports less than imports)

pros: allows easier access to goods/services, spreads economic activity, countries can get foreign currency

cons: can destroy job sectors in other countries, make smaller nations economically dependent on larger ones

Tariff - a tax placed on imports so they become more expensive

Quota - is a legal limit on the amount of a good that may be imported from other countries

Embargo - is a government order prohibiting the selling of goods to another country, usually because that country has bad/tyrannical/cruel leaders

weak dollar - will lead to a trade surplus, make U.S. goods cheaper so exports will increase

strong dollar - U.S. good become more expensive, leading to fewer exports causing a trade deficit

If price stays the same…but for some reason more (or fewer) are being sold…then there has been a “shift in demand”, or a “change in demand”.

N.I.C.E.S.T

When more people immigrate to an area…or emigrate from an area. 

When people earn more or less money…they may buy more or less of a product (even though the price hasn’t changed)

Commonly purchased items together. 

ex :Because printers are cheaper the quantity demanded will go up (price change).

If people think the price of a good will change, they may either stop buying and wait for price to fall...or rush to buy before the price goes up. 

•  Substitutes are used in place of another product.  Usually with competitors

• Price of one good can have an affect on another good. 

refers to the popularity of a good.  Fads or trends.

• The willingness and ability to purchase an item.

• Need both to have demand

• As the price goes up quantity demanded goes down

a table that shows the quantity demanded of a good or service at different price levels

a graph that shows the relationship between the price of a good/service and the quantity demanded within a specified time frame (Any time the price changes…the quantity demanded will change)

(supply to the sky, demand to the sand)

• Supply = How much of a product or a service will be produced and sold.  

• Businesses supply goods/services to buyers.  

• People supply their land, labor, capital, and entrepreneurial abilities. 

Sometimes price doesn’t change, yet supply does. 

T.W.I.N.G.E

• Technology allows companies to make things cheaper, and therefore increases supply

• Technology lowers the per unit cost of producing the item.  The cheaper it is to produce...the more they can produce

Per Unit Cost is the cost of making ONE item. 

• Good weather usually increases supply (or at least keeps it the same)

• Bad weather can decrease supply.

total cost of the resources needed to make the product. The price and cost of the resources and materials needed to make the product can have an impact on how much a business can supply.  

• Land, labor, capital.  

• If resource prices go up…supply will fall because it costs MORE to make the product

• How many companies sell the product.

• More companies selling means higher supply

• Fewer companies means less supply.  

The government can put rules, laws, and regulations on businesses that can increase or decrease supply.

ex:Subsidies are the opposite of taxes…the government PAYS companies to produce something

Tariffs, quotas, embargo

If people think the price of a good will change, they may either stop buying and wait for price to fall...or rush to buy before the price goes up. 

• Law of supply…as price goes up, quantity supplied goes up.

a table that shows the quantity supplied at each price

a graph that shows how a change in the price of a good or service affects the quantity a seller supplies. (supply to the sky, demand to the sand)

supply is greater than demand - causes businesses to lower their prices

demand is greater than supply - causes businesses to increase their prices

the price on which the consumers and producers agree on

One individual, who makes all the decisions, takes all the losses...but makes all the profits

A business that is owned by two or more co-owners who share profits/debts of the business (firm).

• A legal entity that can conduct business in its own name (as if it’s an individual) 

• Owned by stockholders

owners of the corporations. 

A company that allows people to buy and run a firm.

certificate of ownership of a small piece of a corporation that can go up or down in value

 If your business fails, or if your business is losing money...courts cannot force you to pay debts with your personal assets.  

You are on the hook to pay any debts you owe...and you may be forced to use your own personal assets (like savings, or other holdings)

• Type of Product = Identical

• Barriers to Entry = No barriers

• Control Over Prices = No control (price taker)

• Advertising/product differentiation = no advertising and no product differentiation

Price takers: can sell all their output at the equilibrium price but can sell none of their output at any other price

ex: Farm Produce,Commodities (oil, gold), Stocks

• Many buyers and sellers

• Products are slightly/moderately different

• Product Differentiation:  Heavy use of advertising and nonprice differentiation

• Easy to get in or out of market (low barriers to entry)

• Price searchers...can change prices some…but can’t really go far beyond competitors price range

• ex: Fast food, gas stations, car insurance, realtors, construction/carpenters, lawn care

• A few large companies

• Similar/slightly different products

• Product Differentiation: Fair amount of nonprice competition

• Significant barriers to entry usually due to cost of entry and regulations

• Price searchers:  Have some control over prices, but can’t stray too far from competitors.  

• Potential for collusion/price-fixing

Examples: Auto companies, airline companies, Streaming services, health insurance, Cell phone carriers

• Number of Sellers = One

• Type of Product = Unique

• Barriers to Entry = Extremely High

• Control over Prices = Total Control...but can’t go too high or nobody will purchase.  

• Advertising: None

• Product Differentiation: None

• Technically in the US they are illegal...unless the government allows them and control them.  

• Price Searchers: Chooses the price to make the most profit

• Examples = Water, Electricity, First Class Mail

 can sell some of its products at various prices.  The “range” of slightly higher or lower prices. 

can sell all their output at the equilibrium price but can sell none of their output at any other price. Must sell at equalibrium

• Goal: Promote and preserve competition in the marketplace by regulating businesses and their practices.

Result:  No monopolies unless the government allows.  No price collusion.

 the wage level (dollar amount) that is paid to a worker for their service.

Organization seeking to increase the wages & improve the working conditions of its members…

• When businesses charge different prices for different people

  • Age

  • Gender

  • Race

  • Generally illegal, except in some cases (allowed to give breaks to the elderly, the young…)

NOT allowed to discriminate based on race, religion, or gender in most cases.  

Unintended side effects that can be positive or negative. 

Positive side effect ex:public education (benefits all of society

Negative side effect ex: businesses polluting (hurts all of us)

 How much money is in circulation.  High interest rates lead to a lower supply.  Low interest rates lead to a higher money supply. 

how much banks charge on loans to people or businesses.  People like low interest rates so they can borrow and spend more money.

When banks hold on to a “fraction” of people’s deposits and lend out the rest.  Helps to increase the money supply. 

 Nation’s central bank.  It controls the money supply and interest rates (which has an impact on the economy as a whole). 

the amount of money that a bank holds to ensure that it is able to meet liabilities in case of sudden withdrawals.

Caused by an increase in Aggregate Demand or a decrease in Aggregate Supply

caused by increase in wages, increase in the price of raw materials, increase in taxes, decline in productivity, increase in money supply

Caused by a decrease in Aggregate Demand.  (An increase in supply COULD cause this but it’s rare)

caused by recession

a measurement of the total amount of demand for all finished goods and services produced in an economy

total number of goods and services that producers make and are willing to sell at a certain price within a certain time.

ups and downs of economy and GDP

high point of economy and GDP. (between the end of an economic expansion and the start of a recession in a business cycle.

economic indicators start to fall (GDP, housing, business earning, and unemployment rises)

economy bottoms out and starts to improve (before a rise/recovery)

economy starts to improve (GDP rises, unemployment falls)

an increase in the production of goods and services in an economy - GDP passes old peak and economy is growing bigger than previous

funds held at the bank that exceed the Federal Reserve's minimum requirement.

measure of U.S. economic activity

a set of actions to control a nation's overall money supply and achieve economic growth

Goverment cuts taxes on people/businesses to allow them to have more money to spend

government raises taxes and causes people to have less money to spend (decreases agg.demand)

expanding the money supply faster than usual or lowering short-term interest rates.

a type of monetary policy that is intended to reduce the rate of monetary expansion to fight inflation

the total amount of money that a country's government has borrowed

 If the government spends more than it takes in with taxes for the year

if the government spends less than what it takes in

Higher credit scores allow you to get loans at cheaper interest rates

If you have a bad credit score you may not get a loan, or it will be at a higher interest rate

a tax placed on imports so they become more expensive

is a legal limit on the amount of a good that may be imported from other countries

is a government order prohibiting the selling of goods to another country, usually because that country has bad/tyrannical/cruel leaders