Name Date/Period Economics Final Exam review - Key 1. Explain the difference between shortage and scarcity. Give an example of each. Shortage is temporary, scarcity is permanent Introduction of new gaming system shortage Water and natural resources - scarcity 2. What are capital goods? Give an example: Anything used to manufacture another thing. Example: Robot in auto plant 3. What are the factors of production? Land, labor, capital 4. Explain economic efficiency. Happens when a society uses all of its resources to its fullest benefit. 5. Why are all goods and services scarce? Because there are never enough to go around. 6. Explain the difference between trade-offs and opportunity cost. Give an example of each. A tradeoff is a choice that does not involve money. Opportunity cost happens when you have to give up something because you done have enough money for both items. Tradeoff go to school or sleep in. Opportunity cost Spend money on a new pair of shoes or a pair of pants. 7. What does guns or butter refer to? The decision a society has to make when it spends money on defense or security or other things like roads or schools. 8. What makes someone an entrepreneur? A person who combines the factors of production to create a new business. 9. Explain the difference between a market, centrally planned and traditional economy. Market economy is based on the free enterprise system. Centrally planned the government makes all the economic decisions. Traditional is based in rural areas and based on how things have traditionally been done. 10. What types of economies would China and France have? China Centrally planned France - market 11. What is the struggle among producers called? Competition 12. What are the 3 key economic questions that all countries must ask? What goods and services should be produced? How should the goods and services be produced? Who gets the goods and services? 13. Why do producers produce? To make a profit 14. Karl Marx and Adam Smith had different views about the role of government in our economy. Explain each view. Marx saw economics as a struggle between the workers and the entrepreneurs (capitalists) while Smith believed in the free market and capitalism.
15. What is the purpose of an economic system? To answer the three key economic questions. 16. What is the most effective way for consumers to make their desires known to businesses? By choosing where they will shop. 17. What are disclosure laws and why are they important? Disclosure laws give consumers information that they need to know about the products they buy so they can make informed choices. 18. Explain the difference between a positive and negative externality. Give an example of each. Externalities are the consequences of decisions that are made and can either be positive or negative. Positive externality Gessner is widened and more companies locate on the street which provides more jobs to the students at Spring Woods and Northbrook. Negative Externality as a result of Gessner being widened there is more traffic which results in more traffic and pollution 19. What are public goods? Give an example. A shared good or service that is provided by the government schools, roads, ports 20. Explain Social Security, Medicare, and FICA. Government programs that the government takes taxes out of a person s check to pay for 21. What is the law of supply and demand? Law of Supply tendency of producers to offer more of a good at a higher price Law of Demand consumers will buy more of a good at a cheaper price and less at a higher price 22. What is the most important determinant of supply and demand? The consumer and the choices they make 23. What are other determinants of supply? Consumer demand, availability of raw materials 24. What are other determinants of demand? Substitutes available 25. Who are free riders? People who benefit from a service without paying for it 26. What determines the price of most goods? The interaction of supply and demand 27. Explain the difference between elastic and inelastic demand. Give an example of each. Products that are elastic have substitutes such as soft drinks which limits the ability to raise prices. Products that are inelastic have few substitutes, such as insulin, and the consumes will pay what they have to for the item. 28. What occurs when buyers buy exactly the amount produced? Equilibrium between supply and demand 29. What is a natural monopoly? Give an example. A market that runs most efficiently when only one firm supplies all the output. Ex: utilities 30. What types of monopolies does the government generally permit? Natural 31. Explain non-price competition. Give an example. Competition based on anything other than price. Location, style, celebrity endorsements
32. Name and explain the 4 types of market structures. Perfect competition a large number of firms all produce the same product Monopoly a market dominated by a single seller Monopolistic competition many companies compete to sell products that are similar but not identical Oligopoly market dominated by a few large profitable firms 33. Name and explain the 4 types of business organizations. Sole proprietorships Partnerships Corporations Francizes Non Profit Organizations 34. What is a merger? Name and explain the 2 types of mergers. Provide an example of each A merger happens when two or more companies join together. Horizontal when two companies selling the same good or service join together. Ex: Verizon buys Sprint. Vertical when two or more firms involved in different stages of the manufacturing process join together. Ex: McDonalds buys a potato farm and potato process plant to ensure they have enough French fries. 35. Why does the government sometimes give monopoly power to a company by issuing a patent? To encourage technological innovation so the developers of a new product have a chance to recoup money spent developing a product 36. What is a fringe benefit? Give an example. Payment other than wages or salaries paid vacation, sick days 37. Explain the difference between limited and unlimited liability. Unlimited liability means a person has full liability for debts incurred by a business. Limited liability means the corporation assumes liability for debts occurred by a business and not necessarily the owner. 38. Explain cooperatives and non-profit organizations. Non Profit Organizations are created to benefit a charity or organization such as the American Heart Association Cooperatives are owned and operated by a group of individuals to increase their buying power Farmers Coop. 39. What is GDP? What is counted and what is not counted? The Gross Domestic Product. See Ppt that covers the 8 thins not counted 40. Explain the difference between durable and nondurable goods. Give an example of each. Durable goods last for a long period of time and non-durable goods do not.\ Car durable Non durable is a - pencil 41 Explain the CPI. What is counted? This is used to calculate the growth of the economy (inflation). The government has a market basket of items they measure on a monthly basis 42 Name and explain the four types of unemployment. Frictional happens when people leave one job for another Structural happens when jobs go away because of a change in technology or relocation of the industry Cyclical happens when there is a downturn in the business cycle and people lose their jobs Seasonal happens due to seasonal demand for a job or skill 43. Explain the difference between cost push and demand pull inflation. Cost push happens then the cost or raw materials increases which increases the price of goods while demand pull is an increase in prices because of the demand for a product exceeds supply
44. Why does the federal government collect taxes as we earn? So they will have a steady stream of income to support the government 45. What is an entitlement? Give an example. A social welfare program that people are entitled to receive as long as they meet certain requirements. Ex: Social Security 46. What is a tax? Name the sources of revenue and expenditures for each level of government. A required payment to the local state or national government 47. What is the federal budget and how often is it put together? The budget for the United States government. It begins in the executive branch and is approved by the legislative branch 48. Explain the difference between expansionary and contractionary fiscal policy. Expansionary polices are designed to try to make the economy grow and contractionary to to slow the economy down if it is growing too fast 49. What is a U.S. Savings Bond? A low denomination (value) bond issued by the United states Government 50. Define interest rate. The amount of interest you pay to borrow money 51. How many Federal Reserve Districts are there? 12 52. How could the Fed encourage banks to lend out more money? Lowering the reserve requirement and reducing the interest rate 53. Explain the difference between a trade surplus and a trade deficit. In a trade surplus you are selling more thins to other countries than you are buying, in a deficit you are buying more than you are selling 54. Who is the largest U.S. trading partner? China 55. Explain NAFTA and the EU, and the World Trade Organization. 56. Which country is the largest exporter of services? United States 57. What is specialization? The concentration of productive efforts of individuals and firms on a limited number of activities 58. Draw and label a business cycle Expansion, peak, recession, trough 59. Do protectionist policies hurt or help countries? Explain. They hurt a country as other countries retaliate when protectionist policies are out in place 60. Explain the difference between a developed country and a developing country. Developed countries generally have higher GDP s and standards of living than developing countries 61. What is the purpose of a PPC? A curve or graph that shows alternate ways to use a countries resources 62. What are assets? Money or other valuables that belong to a business 63. What is disposable income? The amount of money a person has to spend after paying bills. 64. What is the natural rate of unemployment? 4 to 6 percent
65. What does it mean to be underemployed and what are discouraged workers? When a person is working at a job that he/she is overqualified for. Discouraged workers are people who have given up hope of finding a job and dropped out of the workforce 66. Explain the difference between easy and tight monetary policy. What are the tools for each? 67. What is the purpose of a credit score? The evaluation of a person s credit history. Determines how much they will pay for loans in interest rate 68. What is the difference between a deficit and a debt? Deficit is how much more money you are spending than you have, debt is the total amount of money you owe