EOCT REVIEW PAGE 2

Chapter 7

1. Perfect competition: A market structure in which a large number of relatively small firms produce and sell identical products and in which there are no significant barriers to entry into or exit from the industry. Firms in perfect competition are price takers and in the long run will earn only normal profits.

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2. Monopolistic competition: A market structure in which slightly differentiated products is sold by a large number of relatively small producers, and in which the barriers to new firms entering the market are low.

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3. A market structure in which a few, relatively large firms account for all or most of the production or sales of a good or service in a particular market, and where barriers to new firms entering the market are very high. Some oligopolies produce homogeneous products; others produce heterogeneous products.

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4. Monopoly: A market structure in which there is a single supplier of a good or service. Also, a firm that is the single supplier of a good or service for which there are no close substitutes; also known as a monopolist.

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5. Rank them in order of # of firms.Perfect competitionMonopolistic competitionOligopolyMonopoly

6. Rank them in order of level of competition.

Perfect competitionMonopolistic competitionOligopolyMonopoly

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7. Rank them in order of barriers to entry:Perfect competitionMonopolistic competitionOligopolyMonopoly

8. Rank them in order of product differentiationMonopolistic CompetitionOligopolyMonopolyPerfect Competition

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9. Rank them in order of influence over price.

MonopolyOligopolyMonopolistic competitionPerfect competition

10. Monopolistic competition and Oligopoly

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11. Product differentiation: a business strategy where firms try to gain competitive advantage by increasing the perceived value of their products. This is when a firm attempts to generate economic value by offering a good or service that is preferred to those offered by its rivals. (Perceived) Ex. Gas companies.

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12. Antitrust Acts: Prevent monopolies and foster competition. Ex. Sherman Antitrust Act and Clayton Antitrust Act, and Federal Trade Commission Act (FTC).- Regulates unfair methods of competition in interstate commerce.

13. Public good: economic product that is consumed collectively; highways, national defense, police, and firefighters.

Chapter 9

1. Progressive: A tax that take a larger percentage of income from people in higher-income groups than from people in lower-income ones; the U.S. federal income tax is an example.

Regressive: A tax that takes a larger percentage of income from people in lower-income groups than from higher-income ones. Sales taxes and excise taxes are examples

Proportional: A tax that takes the same percentage of income from people in all income groups. For many people, the Social Security tax is proportional as it takes 6.2% of gross income up to $106,800 as of 2009.

PERCENTAGES IS THE KEY WORD

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2. Regressive (think percentage of income)3. Progressive4. Progressive5. Federal Income Tax6. Sales Tax7. Property Tax8. Regressive9. Proportional10. Progressive

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11. FICA: Federal Insurance Contributions Act. (Tax that goes towards Social Security and Medicare)

12. Social Security: any program, provided by the government, to provide assistance or economic stability for citizens.

13. Medicare: federal controlled and provided insurance for people over the age of 65.

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14. Withholding Tax: the amount of an employee's pay withheld by the employer and sent directly to the government as partial payment of income tax.

15. IRS: Internal Revenue Service, responsible for collecting taxes from citizens.

Chapter 10

1. National Debt is the total amount of money owed.

National deficit is the amount we over spend each year.

The deficit is added to the debt each year.

Ex. If you over the years of incurred $100,000 in debt and this year have to borrow an additional $10,000 to pay your bills. Your deficit is $10,000 (you were short this amount of money) and it is added to the $100,000 you already owed. New debt is $110,000

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2. Transfer payment: payment for which the government receives neither goods nor services in return.

Examples: Social Security, Welfare, Unemployment.

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1. It’s a medium of exchange (it’s accepted as a form of payment)

It’s a store of value- retains it’s value over time (though it is subject to inflation and change).

A unit of account- value is measured in units of dollars

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2. Durability: It will last.Portability: Easily taken with you.Divisibility: Can be broken down. ($100,

$50, $20, $10, $5, $1, 25 cents, 10 cents, 5 cents, 1 cent.)

Acceptable: Taken everywhere.3. Money Supply is the amount of money in

the market. Banks increase money supply by lending out more money. (making loans)

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4. Monetary policy: Policy regarding changes in money supply (make more or make less)

5. Open Market Operations: Buying & selling of bonds to lower banks to control money flow and supply at those banks and thus to people.

To increase money- Fed buys government bonds

To tighten availability of money, the Fed sells bonds

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5. Discount (Interest) Rate: This is the interest rate that the Fed charges commercial (lower) banks to borrow money from Fed.What happens if the rate offered to commercial banks is high?What if it’s lower than normal?How does this impact the activity of those banks?

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5. Federal Funds Rate: The interest rate that the borrowing bank pays to the lending bank.  Banks and other depository institutions maintain accounts at the Federal Reserve to make payments for themselves or on behalf of their customers. The end-of-the-day balances in these accounts are used to meet the reserve requirements mandated by the Federal Reserve. If a depository institution expects to have a larger end-of-day balance than it needs, it will lend the excess amount to an institution that expects to have a shortfall in its own balance. The federal funds rate thus represents the interest rate charged by the lending institution.

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6. Recession or trough. People are out of work and start saving money. If they are not spending stores start going out of business and more people lose their jobs.

7. Peak or recovery. People are getting back to work and began to spend more money. IF the money supply is not controlled (start pulling some out that was put in during recession) inflation will occur.

8. Open market operations.