Final Exam Review Answers

1. Final Exam Review Answers

2. unlimited limited scarcity • _______-Characteristics of Wants • ______-Characteristics of Resources • _______- the basic economic problem Four Factors of Production • _______- natural resources/ raw materials • _______- machinery/ equipment/ the factory • _______-Human resource: mental and physical efforts • _______- human resources: initiative; risk taking; more important in capitalism than in any other type of economic system land capital labor Entrepreneurship

3. market Three basic economic systems • _______- decisions are made through interactions of buyers and sellers • _______- decisions are made by government • _______- economic decisions are determined on the basis of custom • _______- type of economy that mixes command and market Basic economic questions • What is to be produced • How are goods going to be produced • For Whom are goods going to be produced command traditional mixed

4. Opportunity cost Terms • _______- What is given up when making a choice; forgone opportunities • _______- a good used to produce another good • _______-Total revenue- total costs=? • _______-lower prices, greater variety, better quality are benefits of? • _______-# of unemployed+ # of employed=? • _______-a minimum price imposed by government above which the price cannot fall; located above Pe capital profits competition Labor force Price floor

5. Price ceiling Terms • _______-a maximum price imposed by government above which the price cannot rise; located below Pe • _______-occurs when the price rises above Pe and QS>QD • _______-occurs when price falls below Pe and QD>QS • _______-relationship between price and QD • _______-relationship between price and QS surplus shortage inverse direct

6. Pure Competition Market Structures • _______-many firms, homogeneous product, low concentration of economic power, high degree of competition • _______-Many firms, heterogeneous product; low concentration of economic power • _______-few firms; high concentration of economic power • _______-one firm; unique product Monopolist Competition oligopoly monopoly

7. Sole proprietorship partnership Business Organizations • _______-one owner; disadvantages: unlimited liability, limited life…. • _______-two or more owners; disadvantages: unlimited liability, limited life…. • _______-many owners (stockholders); disadvantages: double taxation…. terms • _______-means government should “let do” - stay out of the economy • _______-modern economic theory based on market economic system; also called free enterprise corporation Laissez-faire capitalism

8. Circular Flow Model Terms- Circular flow model • _______-economic model that illustrates the exchanges taking place between consumer households and business firms • _______-market in CFM in which resources are provided by consumers and purchased by business owners • _______-market in CFM in which goods and services are sold by businesses and purchased by consumers • _______- income earned for labor • _______-income earned for capital resources product wages interest

9. rent profit Terms- Circular flow model • _______-income earned for land • _______-income earned for entrepreneurship • _______- Part of economics that studies the economy as a whole • _______-part of economics that studies individual parts of the economy • _______- The sum of the # of employed+ # of unemployed • _______- = (the# of the employed/labor force)x100 • _______- =direct cost (tuition, etc) of going to college+ the work given up macro micro Labor force Unemployment rate Opportunity cost

10. horizontal vertical Types of Mergers • _______-same product; same stage in the production process • _______-same product line; different stage in the production process • _______-unrelated products PPC • _______-a point on the curve represents use of resources • _______-a point under the curve represents use of resources • _______-a point above the curve is possible given resources • _______-movement along the PPC results in conglomerate full Less than full impossible Trade-off

11. Trade-off peak 54. ______-To get something, one must give something up 4 phases of the business cycle • _______-high point in economic activity • _______-increasing AD, decreasing unemployment • _______-rising unemployment, decreasing production • _______-lowest level of economic activity • _______-problem associated with peak phase of business cycle expansionary contractionary trough inflation

12. Unlimited Liability Terms • _______-total responsibility for business debts; disadvantage of sole proprietorship and partnership • _______- type of production cost that must be paid by society • _______-a gap between output and actual output; develops during recession phase of the business cycle OMIT GDP Gap

13. Frictional Types of unemployment • _______-in between jobs; first time job seekers; quit job to find better one • _______-caused by a change in demand for products/ skills of workers; foreign competition; or automation • _______- caused by too little AD in the economy; recession; GDP gap Structional Cyclical

14. Economic Freedom Characteristics of Capitalism • _______-freedom of economic choice • _______- individual ownership of property resources • _______-self interest guides economic decision making • _______-economic rivalry • _______-role of government in capitalism (stay out) Private Ownership Economic incentives Competition Limited Government

15. Freedom Efficiency Economic goals • _______-freedom of economic choice • _______-getting the most of scarce resources through competitive markets • _______-fairness in economic decision making • _______-94-95% of labor force employed • _______-increase in GDP; increase in productive potential • _______-cushion against economic risk • _______-absence of inflation and deflation Equity Full employment Growth Security Price stability

16. Inflation recession Government policies buy sell

21. Unemployment

22. Increase in resources

23. Decrease in resources

24. To get more of good B, you have to give up good A • Trade-off A B