Civics and Economics Scioli
Test Review Sheet
Unit 8: Fundamentals of Economics
Civics and Economics – Scioli
Economic Systems
Needs v. Wants
Limited resources = Scarcity
Economic models: Microeconomics v. Macroeconomics
Economic Systems decide: What to produce, how to produce, how goods will be distributed
Economic Choices
Trade-offs and Opportunity Cost
Costs
Fixed costs v. variable costs
Total cost
Marginal Cost
Revenue:
Total revenue
Marginal revenue
Marginal Benefit – often diminishing
Cost benefit analysis – production possibilities curve / frontier
Factors of Production
Natural Resources
Labor
Capital – manufactured goods used to make other goods
Entrepreneurs
Economic Sectors and Circular Flow of Economic Activity
Factor markets v. Product markets
Consumer sector, Business sector, Government sector, Foreign sector
Graphic on page 522
Types of Economies
Market Economies: individual freedom, competition, “pump priming” and problem solving (dealing with externalities), high standard of living
Command Economies: controlled by government, lower per capita
Socialism v. communism
Mixed economies: government provides regulation, infrastructure, & goods and services
Capitalism: free enterprise, markets, accumulation of wealth, economic freedom, private property, competition, profit motive, voluntary exchange
Demand
Definition: the desire, willingness and ability to buy a good or service
Demand schedules
Demand curves
Market demand (Macro) v. Individual demand (Micro)
Marginal utility – typically diminishing
Changes in demand:
As seen on a demand curve
Possible causes: population, income, tastes / trends, expectations, change in product market, changes in price, changes in substitutes / complements
Demand elasticity
Elastic v. inelastic and influencing factors: cost, substitutes, degree can be postponed, degree of necessity
Supply
Definition: quantities of a good or service that producers are willing to sell at all possible market prices.
Supply schedules
Supply curves
Profit motive
Market supply
Changes in supply:
As seen on a supply curve
Possible causes: cost of resources, productivity, technology, government policy, taxes, subsidies, expectations, number of suppliers
Supply elasticity
Supply can change quickly = elastic, depends on manufacturing details
Supply and Demand
Equilibrium price
Neutral
Flexible
Occur in a range for freedom and choice
Are familiar / known
Surplus v. shortage
Price controls:
Price ceilings v. price floors
Types of Businesses
Characteristics, advantages / disadvantages of:
Sole proprietorships
Partnerships
Corporations – charter, stock, stockholders, Board of Directors
A new structure created around 1990: LLC – limited liability corporations
cooperatives
Labor Unions
Collective bargaining
Right to work laws
Mediation
Arbitration
Union tools: strike, boycott
Management tools: lockouts, injunctions
Government tools: seizure
Role of Government
Private v. public goods
Positive and negative externalities
Regulation:
Monopolies: mergers, natural monopolies (beneficial) v. artificial (not in the public interest)
Antitrust laws
Sherman Antitrust, Clayton Antitrust
Truth in ads and labels
Federal Trade Commission
Safety
Consumer Product Safety Commission – recalls
Business Cycles
Measurement:
Gross Domestic Product (GDP) v. Real GDP
Expansions
Recessions – drop in GDP for 6 months
Unemployment rate
Inflation – Consumer Price Index
Stock Market
Stock Market Indexes: DOW, S&P,
Stock exchanges: NASDAQ, NYSE
Bull v. Bear Markets
Fiscal Policy: taxing and spending to offset boom and bust
Keynesian Theory
Recession: lower taxes, increase gov’t. spending
Expansion: raise taxes, lower gov’t spending
Theory v. Reality of fiscal policy
Monetary Policy: Federal Reserve manipulates interest rates to offset boom and bust
Page 662: the FED, organization and districts
Three “tools”:
Adjusting the discount rate – lower rates = more money, higher = less money supply
Adjusting reserve requirements for banks – can raise (lowers money supply) or lower (increases)
Open Market operations – the Fed buys bonds or Treasury Bills