Text of the Economics Unit I Review

What is the name for the type of economics that focuses on decisions made by individual economic actors?
What is the name for the study of entire economies?
What are the two main types of things that consumers purchase?
goods and services
What are the four main types of resources? (or factors of production)
human resources, natural resources, capital resources, and entrepreneurship
What are capital resources or goods?
buildings & machinery used to create products, and the money that’s invested in them
What two things must an entrepreneur have to start a business?
an idea and some capital
What is the most basic problem in economics?  How does it drive decision making?
scarcity, resources are limited so economic actors must make choices
What are the 3 basic economic questions?
what to produce, how to produce, for whom to produce
What is the name for the value of the next best alternative given up to obtain a certain item?
opportunity cost
What is the best visual method for quantifying trade offs and opportunity costs?
production possibilities curve
How would new technologies or resources impact the production possibilities curve?
shift it to the right (expand production)
What do utility and scarcity help define about a particular product?
its value
What is the name for the cost of producing one more unit?  The name for the added benefit of consuming one more unit?
Marginal cost; Marginal return
Who makes all the important decisions in a command economy?
the government
Who makes all the decisions in a free market economy?  Who is the father of this type of economics?
individuals, Adam Smith
What is the driving motivating factor in a market economy?
self interest, actors respond to incentives
capitalism and authoritarian socialism are examples of what type of economy?
Give three examples of nations with capitalist economies.
United States, Canada, Great Britain, Japan, Mexico
Give two examples of countries with Democratic Socialist economies.
Sweden, France, Poland
Identify three of the key rights that individuals have in the United States economy.
private property, enter contracts, economic competition, act on self interest, limited government involvement
What are the 4 of the main economic goals of the United States?
freedom, efficiency, equity, security, stability, and growth
What are the two main measures of economic stability?
price stability & full employment
What is the primary measure of economic growth?
standard of living
What is used to measure the total productivity of an economy?
Gross Domestic Product (GDP)
What is Real GDP?  What is GDP per capita?
GDP adjusted for inflation; GDP divided by the total population of a country (most useful way to compare two economies)
Does GDP measure all economic activity?  Why/Why not?
no, lots of other stuff happening (black market, non-market, etc.)
What are the four components of the business cycle?
expansion, peak, contraction, trough
What traditionally happens to unemployment and poverty rates during a contraction or recession?
They rise
What are three key influences on the business cycle?
Business investment, money & credit, consumer expectations, & external shocks (big shifts in global politics/economics)
What does a leading indicator tell economists.
The direction the economy is headed in the future
What are two key leading indicators?
housing starts, orders for durable goods, investment in capital
What are the key factors involved in boosting productivity?
advancing technology, capital deepening (increasing the amount of resources per worker), increasing education/skill of labor force
What is the basic definition of an unemployed person?
someone who wishes to work but cannot find a job
Identify three types of unemployment.
frictional (moving from job to job), structural (change in technology), seasonal, cyclical (tied to business cycle)
What does it mean to be underemployed?  Does underemployment increase efficiency?
in a job that does not use all of your skills, or gives you part-time when you want full time
What are the 3 key types of inflation?
demand-pull (aggregate demand pulling prices up), cost-push and quantity theory
What kind of inflation is created by increased production costs?
What kind of inflation is created by greater aggregate demand?
What is the most commonly used measure of inflation?
Consumer Price Index (CPI)
What are three of the main effects of inflation?
decreased purchasing power, decreased value of wages, increased interest rates, decreased saving, increased production costs
What is the poverty line? What does the poverty rate measure?
The minimum income needed to satisfy basic economic needs; the percentage of people in a nation living under the poverty line
What does a Lorenz curve demonstrate?
The income gap, or disparity in wealth holdings by percentages of the population
What type of household is most likely to live in poverty?
Households headed by a female single parent
What are 4 of the main economic goals of the United States?  Which of these is most difficult to achieve?
freedom, efficiency, equity, security, stability, and growth; equity is most difficult to achieve