Economics Concepts: Goods and Services

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Questions and Answers

What are two examples of goods and two examples of services?

Goods are pens, hats, shoes, etc. Services are housekeeper, nurses, and teachers.

What is an example of the kinds of choices that a business would have to make because of scarcity?

A business will have to decide how much of an item to produce depending on demand.

Use your own words to describe the trade-off known as 'guns or butter'.

Guns or butter is the economic choice of choosing to produce domestic products or products for the military.

Why does every decision involve a trade-off?

Because you must give up one thing to get something else. Signup and view all the answers

Give an example of physical capital.

Things like buildings, equipment, or computers. Signup and view all the answers

In your own words, describe what a free market economy is.

Prices for goods are determined by consumers and by the open market without intervention of the government. Signup and view all the answers

Why do consumers hold such power in a free market system? Give a specific example to support your answer.

Businesses sell products at the highest price that consumers are willing to pay. Signup and view all the answers

How does the tradition of free enterprise impact the availability of consumer products?

It makes them more available as free enterprise means more businesses and more competition, thus more products available. Signup and view all the answers

What kind of person makes a good entrepreneur? List at least two personality traits of a successful entrepreneur.

Someone with a strong work ethic and the ability to make decisions and act. Signup and view all the answers

According to substitution effect, what are consumers likely to do if the price of the leading brand of orange juice increases?

They will decide to either buy a different drink like apple juice or a different brand. Signup and view all the answers

Explain how changes in income may affect the demand for goods.

If people's income decreases, then the demand for goods will become lower. And vice versa. Signup and view all the answers

Equilibrium means 'balance'. What is out of balance when a market is in a state of disequilibrium?

Supply, demand, or prices could increase or decrease drastically causing things to not be balanced. Signup and view all the answers

What are two factors that can push a market into disequilibrium?

A shift in the demand or supply curve. Signup and view all the answers

What are the chief characteristics of a general partnership?

An incorporated association of two or more individuals to carry on a business for profit. Signup and view all the answers

Why can corporations exist longer than simple proprietorships or partnerships?

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What is the relationship between the Fed and the treasury?

They work together to borrow money when the government needs to raise cash. Signup and view all the answers

What is the function of a municipal bond?

Debt obligations which use the money to build schools, highways, hospitals, etc. Signup and view all the answers

What is the difference between nominal GDP and real GDP?

Real is the nominal adjusted for inflation. Signup and view all the answers

How does the CPI affect the rate of inflation?

CPI represents prices paid by consumers. Signup and view all the answers

How are progressive, proportional, and regressive taxes similar?

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Study Notes

Goods and Services

Examples of goods include pens, hats, and shoes.
Examples of services are housekeepers, nurses, and teachers.

Business Choices and Scarcity

Businesses must choose how much of a product to produce based on consumer demand due to scarcity.

Economic Trade-off: Guns or Butter

"Guns or butter" refers to the choice between investing in military goods versus consumer products.

Trade-offs in Decision Making

Every decision involves a trade-off, requiring the sacrifice of one option for another.

Physical Capital

Physical capital encompasses tangible assets like buildings, equipment, and computers.

Free Market Economy

In a free market economy, prices are set by consumer demand and market forces without government intervention.

Consumer Power in Free Markets

Consumers dictate prices as businesses aim to sell products at the highest prices consumers are willing to pay.

Free Enterprise and Product Availability

Free enterprise fosters competition, resulting in a greater variety of consumer products and options available.

Characteristics of Successful Entrepreneurs

Good entrepreneurs typically possess a strong work ethic and decision-making abilities.

Impact of Price Changes on Consumer Behavior

When the price of a leading brand increases, consumers are likely to switch to alternative drinks or brands.

Income Changes and Demand

A decrease in income typically leads to lower demand for goods, and an increase in income results in higher demand.

Market Disequilibrium

Disequilibrium occurs when supply, demand, or prices fluctuate significantly, disrupting balance.

Factors Inducing Disequilibrium

A shift in either the demand or supply curve can lead to market disequilibrium.

General Partnership Characteristics

A general partnership consists of two or more individuals engaged in business for profit.

Longevity of Corporations

Corporations can outlast sole proprietorships and partnerships due to their separate legal status and durability.

Relationship Between the Federal Reserve and Treasury

The Federal Reserve and the Treasury collaborate to manage government borrowing when cash is needed.

Role of Municipal Bonds

Municipal bonds are debt obligations that fund infrastructure projects such as schools and highways.

Nominal vs. Real GDP

Real GDP is adjusted for inflation, while nominal GDP reflects current prices without inflation adjustments.

CPI and Inflation Rate

The Consumer Price Index (CPI) gauges the average change in prices paid by consumers, affecting inflation rate calculations.

Tax Types Overview

Progressive, proportional, and regressive taxes differ in structure but share a common purpose of generating tax revenue.

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Description

Explore key concepts in economics including the difference between goods and services, the implications of scarcity on business choices, and the trade-offs involved in decision making. This quiz covers fundamental principles like physical capital and the dynamics of a free market economy.