Name: Exam Date:
Review Sheet – Semester Exam
Instructions – the following concepts and terms will be on your final exam. Use your classroom notes and textbook (if you have one) to make any type of notations that you think help you achieve as high of a score as possible on the final exam.
Final Exam Review Sheet 1
Name: Exam Date:
o What is the difference between a scarcity and a shortage?(Ch 1)
Scarcity – Limited Quantities & Shortage – Temporally Unavailable
o Physical capital vs. Human capital (Ch 1)
Physical – Object (ex: Dishwasher) & Human – Knowledge/Skills (ex: Chef)
o “Guns vs. Butter” (Ch 1)
Guns are Military/Government Goods & Butter are Consumer Goods
o Opportunity Cost (Ch 1)
The most valuable alternative when making a decision or what you could of had
o Production Possibilities Curve (Ch 1)
A graph of all the possibilities that a nation can produce (be able to read for the exam)
o Three Economic Questions (Ch 2)
What to make, How to make it, & Who will use it? Also they are answered based on the importance of society’s values
o 4 Economic Systems (Ch 2)
Traditional – Customs; Command/Centrally Planed – Government; Free Market – People; Mixed - Mixed
o The Factor & Product Market involve which type of exchanges? (Ch 2)
Factor Market – Firms buy Factors of Production from Households; Product Market – Households buy products form Firms
o Know how to draw, label & explain the Circular Flow Chart of the Factor & Product Market. (Ch 2)
o Regulating force of the free market economy (Ch 2)
Competition
o Adam Smith’s time (Ch 2)
Smith was a big fan of Laissez Faire, did not like the Government in the market place; Believed in Self-regulation of the Market Place
o The purpose of the free enterprise system (Ch 3)
It gives consumers the freedom to make choices
o What are some of the basic principles of free enterprise? (Ch 3)
Profit Motive, Legal Equality, Property Rights, Competition
o Public Disclosure Law (Ch 3)
Requires companies to provide information about their products to customers
o Improvements in technology allow an economy to produce more output from the same or a smaller quantity of inputs. (Ch 3)
Technology will also help improve the standard of living by providing more products to buy
o Public Goods (Ch 3)
It is a good that everyone can use; it is impractical to make people pay for; & it is too expensive for a private provider to maintain
o Law of Demand & Supply (Ch 4/5)
Demand – When Price increases Demand falls
Supply – When Price increases Supply rises
o Know how to draw & shift Demand & Supply Curves. (Ch 4/5)
o Inferior goods vs. Normal goods (Ch 4)
Inferior – Generic products (what we settle for)
Normal – Brand names (what we want)
o Factors Affecting Elasticity (Ch 4/5)
Availability of Substitutes; Products Importance; Is the product a Need or Luxury
o How does a Fad affect the demand curve? (Ch 4)
A Fad will shift the demand curve rapidly to the right (Inc)
o Marginal Product of Labor (Ch 5)
A gain or loss in production as an additional unit of Labor is added
o Negative Marginal Return (Ch 5)
A loss in production as an additional unit of labor is added
o Government’s influence on Supply (Ch 5)
Subsidies, Excise Taxes, & Regulations
o Equilibrium (Ch 6)
Where Quantity Demanded equals Quantity Supplied
o Price ceilings vs. Price floors (Ch 6)
Price Ceilings – Maximum Price (Rent Control)
Price Floors – Minimum Price (Minimum Wage)
o Rationing (Ch 6)
Eased shortages during WWII; helped maintain the standard of living
o Barriers to Entry (Ch 7)
Factors that make it harder for new companies to enter a market
o Why can an industry that enjoys economies of scale easily become a natural monopoly? (Ch 7)
As they produce more they cost of production decreases allowing business to drop prices & push out competition
o Price Discrimination (Ch 7)
Charging different prices for the same product to different groups of customers
o What is an oligopoly? (Ch 7)
A market in which a few large firms dominate the market
o Monopolistic Competition (Ch 7)
Business will compete for the dollars of customers in order to increase their profits
o Sole Proprietorship (Ch8)
1 owner business; Unlimited personal liability; Must follow zoning laws
o What is the difference between a general partnership and a limited liability partnership (LLP)? (Ch 8)
General – All partners share liability
LLP – All partners are limited from liability
o Corporation (Ch 8)
Owned by stockholders (who are not liable)
o Vertical vs. Horizontal Mergers (Ch 8)
Vertical – Companies in different stages of production
Horizontal – Companies in the same field (BMW & GM)
o Franchising (Ch 8)
Must pay royalties; receive training & support; keep some control; financial assistance
o Learning Effect (Ch 9)
More education leads to higher wages
o How can competition in a scarce labor market affect wages? (Ch 9)
A lack of workers will cause firms to raise wages
o Why have minorities historically tended to earn lower salaries and wages than their white counterparts, despite nondiscrimination laws? (Ch 9)
Historically less access to education opportunities
o What event and industry initiated the labor union movement in the United States? (Ch 9)
Industrial Revolution & a Manufacturing economy
o Taft-Hartley Act of 1947 (Ch 9)
Right-to-Work Act; Curbs union power & mandatory union membership
o Collective Bargaining, Mediation, and Arbitration(Ch9)
All forms of Negotiations between Unions & Companies
o Money as a Unit of Account (Ch 10)
Money can be used to compare the value of products
o Six Characteristics of Money (Ch 10)
Divisibility, Portability, Uniformity, Acceptability, Durability, Limited Supply
o What is the difference between commodity money and representative money? (Ch 10)
Commodity – Objects that are valuable
Representative – Objects that can be exchanged for something of value
o National Banking Acts of 1863 and 1864 (Ch 10)
Gave the federal government the power to charter banks
o How did the Federal Reserve System improve the banking industry in the twentieth century? (Ch 10)
Created a central bank that can lend money in times of need to member banks
o What is the gold standard? (Ch 10)
Money system where currency is backed by gold
o Define Return (Ch 11)
Money earned above & beyond the initial investment
o How does investing contribute to a free enterprise system? (Ch 11)
Gives money to Business so they can expand & hire more people
o Financial Intermediary (Ch 11)
An entity that can loan, store, & save money; (bank, credit union…)
o Why should you consider liquidity, not just return, when making savings and investment decisions? (Ch 11)
You may need to have ready access to your funds
o Types of Bonds (Ch 11)
Saving; Treasury; Corporate; Junk;
o Money Market Mutual Funds (Ch 11)
Short-term investments that offer higher interest rates
o Primary market vs. Secondary market (Ch 11)
Primary – New investments
Secondary – Resale investments
o Bear vs. Bull market (Ch 11)
Bear – Falling market (Investors Sell)
Bull – Rising market (Investors Buy)
o Standard & Poor’s 500 (S & P 500) vs. Dow Jones Industrial Average (Ch 11)
S&P 500 – Market index that sample 500 companies
Dow Jones – Market index that sample 30 companies
o Securities and Exchange Commission (Ch 11)
A government agency that regulates financial markets
o Real GDP vs. Nominal GDP (Ch 12)
Real GDP – Uses a constant price
Nominal DGP – Uses a current price
o Limitations of Calculating the GDP (Ch 12)
Non-Market Activities; Underground Economy; Negative Externalities; Quality of Life
o In a real economy, which two factors can change the level of nominal GDP? (Ch 12)
Inflation & Deflation
o Four factors, both expected and unexpected, of the business cycle (Ch 12)
Interest Rate & Credit; External Shocks; Business investments; Consumer Expectations
o Stock Market Crash of 1929 (Ch 11/12)
Speculation buying; beginning of great depression
o Capital Deepening (Ch 12)
Increasing the Human Capital of workers which will lead to higher wages
o What source of economic growth is reflected in the economy by an increase in productivity without an increase in land, labor, or capital? (Ch 12)
Technological Progress
o 4 types of unemployment (Ch 13)
Structural; Frictional; Cyclical; Seasonal;
o What has inflation done to consumers’ purchasing power? (Ch 13)
Inflation has reduced purchasing power of customers
o How does inflation affect families with Fixed Incomes? (Ch 13)
Prices will increase but income will stay the same which can cause stress on the family
o Cost-push vs. Demand-pull Theories (Ch 13)
Cost-push – Increase in costs will increase prices
Demand-pull – Increase in demand will increase prices
o Poverty Threshold (Ch 13)
The income needed to support a household; based on family size
o Distribution of Income (Ch 13)
Has become more imbalanced of the past decades
o Consumer Price Index (Ch 13)
The cost of living for the average US household
o The Constitution places what two limits on the government’s power to tax? (Ch 14)
Federal Taxes must be the same in all states & the revenue must be used for general welfare & national defense
o Tax Bases (Ch 14)
The dollar value of goods & services, property & corporate profit
o Progressive vs. Regressive taxes (Ch 14)
Progressive - % paid in tax increase as income increases
Regressive - % paid in tax decreases as income increases
o Medicaid vs. Medicare (Ch 14)
Care for the old Aid the poor
o Entitlement programs (Ch 14)
Means tested programs that the government must spend money on; (Social security)
o State taxes vs. Local taxes (Ch 14)
State – Revenue from Sales & state income tax
Local – Revenue from Property tax
o What is the role of the Congressional Budget Office (CBO) in the federal budgetary process? (Ch 15)
The CBO provides congress with economic data during the budget process
o Expansionary vs. Contractionary fiscal policies (Ch 15)
Expansionary – Increase spending & Cut taxes
Contractionary – Decrease spending & Raise taxes
o Classical economics vs. Keynesian economics (Ch 15)
Classical – Market is self-regulating
Keynesian – Government interaction help in times of need
o How did economic events during World War II demonstrate the principles of Keynesian economics? (Ch 15)
Government spending increased and America came out of the great depression
o Crowding-out-effect (Ch 15)
Increased government borrowing leads to less money for firms & households to borrow
o Gramm-Rudman-Hollings Act (Ch 15)
Created automatic cuts in federal spending when deficits got to high
o The law of comparative advantage states that a nation is better off when it produces goods and services for which it has the comparative advantage. How is a comparative advantage obtained? (Ch 17)
By producing the products with the lowest opportunity cost
o The United States as an importer and exporter(Ch17)
The US is the largest importer and exporter of products
o Why would a country impose a voluntary export restraint on products? (Ch 17)
Helps reduce future trade barriers
o What are the advantages & disadvantages of Protectionism? (Ch 17)
Advantage – Helps protect American companies and workers
Disadvantages – can eliminate competition which can lead to higher prices for customers
o North American Free Trade Agreement (NAFTA) (Ch 17)
International trade agreement between Canada, US & Mexico; Also, came with the fear that American jobs would be lost; this did not happen
o How trade is affected as currency Appreciates or Depreciates. (Ch 17)
Appreciation – Trade will decrease because of higher prices
Depreciation – Trade will increase because of lower prices
o In contrast to a fixed-rate system, what does a flexible exchange-rate system allow? (Ch 17)
Fixed-rate – remains constant
Flexible-rate – changes based on supply & demand
o U.S. Balance of Trade (Ch 17)
US has increased its trade deficit over the past decades
Final Exam Review Sheet 1