1. Define economics- The study of how people seek to satisfy their needs and wants by making choices

2. Explain how scarcity relates to economics- scarcity is that there are limited quantities of resources to meet unlimited wants

3. Differentiate between opportunity costs – is the most

desirable alternative given up as the result of a decision

trade offs- is an alternative that is sacrificed when a decision is made

4. Define factors of production- resources that are used to make all goods and services

5. List and explain the three factors of production.

1. land- is the natural resources that are put into production or used to make goods and services

2. labor- is the human effort of man power used in the production process

3. capital- is any man made resource, such as equipment or tools, that is used to create other goods and services

6. Use a PPC to demonstrate the concepts of: p. 12-14

Marginal Opportunity Cost The production possibilities curve also reflects opportunity costs, since to get more of one good we have to sacrifice some of the other. The marginal opportunity cost measures the amount of a good that has to be sacrificed for each additional unit of the other good.

When everyone is working on houses we can produce 20 houses annually. If we wanted 2 computer programs we would have to sacrifice two houses. Thus the marginal opportunity cost would be 1 house for each additional computer program.  Who would be the individuals we would want to move from construction to programming?  Likely those individuals who are good at programming and not very good at building houses.

Economic Growth Recall the PPC is based on a fixed set of resources and technology. As new resources are discovered, such as new oil deposits in Wyoming, we are able to produce more as a society.  If the quality of the resources improves, we are able to shift the PPC outward. A workforce with a bachelors degree would be more productive than one with only an elementary education. As a society grows, including immigration, there are more workers that are able to produce more goods and services.

Technology also plays a key role in the growth of an economy.  As new technologies are developed, resources are freed up to produce other goods and services.  A society that produces capital goods (e.g., machinery) today foregoes the benefit of the consumer goods that could have been produced, but is then able to increase the production of goods and services in the future due to the machinery and other improvements that have been made. In 1950, one farmer in the U.S. fed 15 other people. By 1995, that number had increased to 128 and continues to rise.  As technology advances and farmers use more and more capital, not as many people are required to be in agriculture and are able to go produce cars, TVs, and other goods and services that we enjoy.

7. Draw and label a circular flow diagram.

b. How does the above represent consumers and businesses in the market?

In the circular flow model, the inter-dependent entities of producer and consumer are referred to as "firms" and "households" respectively and provide each other with factors in order to facilitate the flow of income. Firms provide consumers with goods and services in exchange for consumer expenditure and "factors of production" from households.

Government taxes businesses and households to pay for the productive resources it uses to provide certain kinds of goods and services to households and businesses.

8. Define consumer sovereignty- is the power of consumers to decide what gets produced

9. List and describe five features of a market economy. (capitalism)

1. Self interest- means that buyers and sellers are focused on personal gain

2. competition- is the struggle among producers for the dollars of consumers

3. incentive- for consumers is the hope of reward or the fear of punishment that encourages people to behave in a certain way; Incentives for business is selling more goods for more profit

4. laissez faire- is the doctrine that states that government generally should not intervene in the marketplace

5. consumer sovereignty- is that consumers decide what gets produced because businesses want to meet the consumers desires.

10. Compare and contrast the major types of economics. List 3 benefits and 3 costs of a market economy

1. market economy- decisions on production and consumption of goods and services are based on voluntary

exchange 2. mixed economy- combines the free market with limited

government involvement 3. command economy- the central government makes all

decisions on the production and consumption of goods and services

Benefits Costs

incentives to produce, more production, variety of products,

more varied income, more income inequality

greater efficiency, personal satisfaction, economic freedom

unemployment/shifts in factors, negative externalities

private ownership, higher standard of living, encourages innovation and technology

poverty/homelessness, wealth gap, less economic security

11. Describe the works/theories of: 1. Adam Smith- (Father of modern

economics) believed that in each transaction, the buyer and seller consider their self interest or personal gain

2. Karl Marx- believed that human labor was the source of all added value but keeps it as profit or exploiting the

workers 3. John Maynard Keynes- believed that

government intervention may be needed in crisis situations to pull the economy out of depression (pump money into the economy)

12. List and describe the three basic types of business organizations. Discuss the advantages and disadvantages of each business type

1. sole proprietorship- a business owned and managed by a single individual 2 advantages- easy to form; flexibility in decision making, no

corporation taxes; personal satisfaction; no sharing of profits; fewer government regulations

2 disadvantages- limited life; limited capital$; unlimited liability; limited size; less specialization

2. partnership- owned by two or more persons who agree on specific responsibilities 2 advantages- easy to for; flexibility in decision making; no

corporation taxes; personal satisfaction; fewer government regulations; more capital$

2 disadvantages- management disagreements; limited life; unlimited liability

3. corporation- owned by individual stockholders and run by a board of directors 2 advantages- more capital$; specialization;, unlimited life; greater

efficiency; limited liability 2 disadvantages- double taxes; government regulations; and

organizing capital, expenses and charter; less flexibility in decision making

13. a. What is the role of stockholders in

financing corporations? stockholders must invest money to buy shares to finance and to part of the corporation * (they are considered the owners)

b. What is the role of government in regulating corporations? to make sure the corporations follow the regulations they set such as filing quarterly and annual reports to the SEC and taxation

14. a. Define the law of demand.

consumers buy more of a good when its price decreases and less when increases

b. Define the law of supply. is the tendency of suppliers to offer more of a good at a higher price

Supply and Demand Curve

Supply

Equilibrium

Price

Quantity

15. Draw and label a supply and demand graph.

Illustrate changes in demand and supply. p. 126

Demand

Equilibrium

16. List and describe the four market structures.

1. perfect competition- is when a large number of firms all produce the same product

2. monopoly- a system that is dominated by a single seller

3. monopolistic competition- when many companies sell products that are similar but not identical

4. oligopoly- is when a few large firms dominate a market

17. Define elasticity of demand. is a measure of how consumers react to a change in price

18. Define and give an example of each. 1. elastic demand- is a very sensitive

change in price example: the demand for a particular brand 2. inelastic demand- is not sensitive to a

change in price example: goods with no substitutes

water, gas, utilities 3. unitary (unit elastic) demand- is a

demand whose elasticity is equal to 1example: equilibrium

19. Define a price floor and a price ceiling and provide a graph that shows what a price floor and ceiling cause. p. 129

1. price floor- a government- or group-imposed limit on how

low a price can be charged for a product. For a price floor to be effective, it must be greater than the equilibrium price. Causes a surplus

2.price ceiling- A price ceiling is a government-imposed limit on the price charged for a product.

A price ceiling set below the free-market price has several effects. Suppliers find they can't charge what they had been. As a result, some suppliers drop out of the market. This reduces supply and creates a shortage.

Summary of Microeconomics Create questions and answers for the following

vocabulary, topics, or ideas marginal cost partnership corporation elasticity of demand law of demand inelastic demand to create a surplus or shortage variable costs demand curve shift major types of market structures monoploly stockholder SEC

Define and provide examples of the following costs to a firm.

1. total cost- fixed costs plus variable costs Example: materials and labor   2. fixed cost- is a cost that does not change Example: rent mortgage   3. variable cost- may rise of fall depending on the

quantity produced Example: raw materials   4. marginal cost- is the cost of producing one more unit

of a good Example: hiring a new worker   What is the golden rule of profit maximization?

occurs at a point where marginal cost equals marginal revenue. Thus, the optimal level of production occurs where marginal revenue equals marginal cost, the point of maximum profit as dictated by the golden rule.

IV. Measurement and Fiscal Policy Draw and label a business cycle.

a. What is fiscal policy? the use of government spending and revenue collection (taxes) to influence the economy (expand or contract)

  b. Describe the government’s two

fiscal policy tools. 1. taxes

2. spending   How would the fiscal policy tools be

used to expand or contract the present economy recession? The government would increase spending and cut taxes

 

What are the three major types of taxes? Give one example of each.

  1. proportional or flat tax a tax imposed so that the

tax rate is fixed. The amount of the tax is in proportion to the amount subject to taxation. "Proportional" describes a distribution effect on income or expenditure, referring to the way the rate remains consistent (does not progress from "low to high" or "high to low" as income or consumption changes), where the marginal tax rate is equal to the average tax rate.

Example: same percent taken from everyone regardless of income

With a proportional or flat tax, each individual or household pays a fixed rate. For example, low-income taxpayers would pay 10 percent, middle-income taxpayers would pay 10 percent, and high-income taxpayers would pay 10 percent. The sales tax is an example of a proportional tax because all consumers, regardless of income, pay the same fixed rate.

 

2. progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate.

Example: the more a person makes the higher the percentage that is taken out takes more from the wealthier people

In the United States, there are five "tax brackets." ranging from 10% to 35%. used to calculate the percentage of taxable income (of individuals).

If taxable income falls within a particular tax bracket, the individual pays the listed percentage of income on each dollar that falls within that monetary range. For example, a person in the U.S. who earned $10,000 US of taxable income (income after adjustments, deductions, and exemptions) would be liable for 10% of each dollar earned from the 1st dollar to the 7,550th dollar, and then for 15% of each dollar earned from the 7,551st dollar to the 10,000th dollar, for a total of $1,122.50. This ensures that every rise in a person's salary results in an increase of after-tax salary.

 

3. regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the marginal tax rate. In terms of individual income and wealth, a regressive tax imposes a greater burden (relative to resources) on the poor than on the rich — there is an inverse relationship between the tax rate and the taxpayer's ability to pay as measured by assets, consumption, or income

Example: sales tax -takes a larger amount from low income people A poll tax (a discriminatory tax that was a pre-condition of the

exercise of the ability to vote) is a fixed tax for each person. Since each person pays the same amount of money, it is a lower proportion for people with higher incomes.

A tax with a cap, above which no taxes are paid. The United States payroll tax is an example of this.

The so called sin taxes are also criticized for being regressive, as it is assumed that they are often consumed more (or at least at a greater proportion) by the lower classes. For example, "people in the bottom income quintile spend a 78% larger share of their income on alcohol taxes than people in the top quintile." Tobacco in particular is highly regressive, with the bottom quintile of income paying an effective rate 583% higher than that of the top quintile.[

26. Discuss major macroeconomic measurements:   1. GDP- total value of all goods and services produced in

a year   2. unemployment- people not in the labor force 16 and

over, not retired, and are looking for a job   3. CPI- (Consumer Price Index) a price index determined

by “market basket” measuring   4. inflation- a general increase in prices   5. national debt- all the money the federal government

owes to bond holders   6. budget deficit- is when a government spends more

money than it takes in   7. budget surplus- is when the government takes in

more than it spends