Questions and Answers
What is the difference between a scarcity and a shortage?
A scarcity occurs when there are limited quantities to meet unlimited wants, and a shortage occurs when a good or service is unavailable.
According to the 'guns and butter' example, if a country decides to spend more on military goods, which of the following will happen?
Why did the committee choose to fund the clean-air program with $2 million instead of $3 million?
At $3 million, the costs are no longer worth the benefits.
Self-interest is the motivating force driving the free market. Which of the following is the regulating force?
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Which of the following is NOT a reason for the government to provide a good or service as a public good?
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What happens when the price of goods goes up in relation to the income effect?
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What happens to the quantity demanded when Franco's Pizzeria raises the price of a slice of pizza from $2.00 to $2.50?
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Which of the following is NOT a factor affecting elasticity?
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Why can an industry that enjoys economies of scale easily become a natural monopoly?
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Although a sole proprietorship is the least-regulated form of business organization, which type of regulation do these business owners face?
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What condition affects sole proprietors but not other business organizations?
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In which kind of business organization should you participate if you can afford to lose only the amount of your initial investment?
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What type of merger occurs when two giant automakers merge, like Chrysler Corporation and Daimler-Benz?
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How can competition in a scarce labor market affect wages?
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To which of the following categories do collective bargaining, mediation, and arbitration belong?
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What is an important power given to the federal government by the National Banking Acts of 1863 and 1864?
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According to the table, how many years does it take for the depositor to gain approximately one fourth of the original deposit in interest?
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What happens when you use your debit card at a machine designed to read it?
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What is the Securities and Exchange Commission?
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Which of the following is NOT one of the four factors that perpetuate the business cycle?
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How would the economy be affected if a majority of people decided to put 25 percent of their income in savings and investments?
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Which one of these people lost his or her job because of structural unemployment?
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If you lived on a fixed income, how would you be affected by inflation?
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What is the Consumer Price Index?
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What two limits does the Constitution place on the government's power to tax?
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To what category do a person's earnings, the dollar value of a good or service, the value of a property, and the value of a company's profits belong?
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What type of federal spending category do entitlement programs such as Social Security fall into?
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Which two types of taxes provide the largest amount of revenue to states?
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How did the Federal Reserve System hold up during the Great Depression?
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How do changes in interest rates affect the money supply?
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How is a comparative advantage obtained?
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Why would a country impose a voluntary export restraint on products?
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When a nation's currency appreciates, how is trade with other countries affected?
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What does 'development' refer to in the context of developed nations and less-developed nations?
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Study Notes
Scarcity vs. Shortage
- Scarcity is limited resources facing unlimited wants; shortage refers to the unavailability of a good or service.
Guns and Butter Concept
- Increased military spending leads to reduced funds for consumer goods, affecting overall military-civilian balance.
Opportunity Costs in Clean-Air Program
- Spending $3 million for a 35% improvement is not chosen because the additional benefit does not justify the higher cost compared to $2 million for a 30% improvement.
Market Forces
- Self-interest drives the free market; competition acts as the regulatory force ensuring fairness.
Government Provision of Public Goods
- Not increasing the number of consumers due to costs is a key reason for government provision of public goods.
Income Effect and Consumption
- Rising prices mean consumers can afford less, resulting in decreased consumption.
Price Changes Impact on Demand
- An increase in pizza price from $2.00 to $2.50 results in demand dropping from 150 to 100 slices per day.
Elasticity Factors
- The price range of a good does not affect its elasticity significantly.
Economies of Scale and Natural Monopolies
- Industries benefiting from economies of scale can become natural monopolies due to decreasing average costs with increased production.
Business Regulations
- Sole proprietors face zoning laws that may restrict home-based operations, despite lower overall regulation.
Personal Liability for Sole Proprietors
- Unlimited personal liability means sole proprietors risk personal assets if businesses incur debts.
Limited Partnership Advantages
- Participation in a limited partnership limits financial risk to the initial investment amount.
Horizontal Mergers
- The merger of Chrysler Corporation and Daimler-Benz is classified as a horizontal merger, combining similar businesses.
Wages in Scarce Labor Markets
- Increased competition for workers in a labor market elevates wages to attract and retain employees.
Negotiation Processes
- Collective bargaining, mediation, and arbitration are all processes used in labor negotiations between unions and employers.
National Banking Acts
- These acts empower the federal government to charter banks and regulate the banking system.
Interest Accumulation
- It takes approximately 4 years for a depositor to earn one fourth of their original deposit in interest.
Debit Card Transactions
- Using a debit card transfers funds directly from the user's checking account to the merchant’s bank account.
Role of the Securities and Exchange Commission
- This agency oversees and regulates financial markets and investment firms to ensure fair practices.
Business Cycle Factors
- Stagflation is not considered one of the primary factors that perpetuate the business cycle.
Impact of Increased Savings
- If a majority increases savings, the economy benefits from more available investment funds for businesses.
Structural Unemployment
- Sonya dropped out of school and no longer meets job requirements, leading to structural unemployment.
Inflation Effects on Fixed Incomes
- Individuals on fixed incomes experience financial stress during inflation as their earnings do not increase with rising prices.
Consumer Price Index
- An index measuring the cost of a standard set of goods purchased by urban consumers.
Taxation Limits in the Constitution
- Federal taxes must serve the common defense and general welfare and be uniformly applied across states.
Tax Bases
- Earnings, property values, and profits all constitute a tax base for calculating obligations.
Mandatory Federal Spending
- Social Security is classified under mandatory federal spending programs, requiring funding by law.
Revenue Sources for States
- Sales taxes and individual income taxes are the primary revenue sources for state governments.
Federal Reserve During the Great Depression
- The Federal Reserve struggled during the Great Depression, with regional banks operating independently of each other.
Interest Rates and Money Supply
- Rising interest rates lead people to favor asset savings over liquidity, which limits the money supply.
Comparative Advantage
- A nation gains comparative advantage by producing goods at a lower opportunity cost than competitors.
Voluntary Export Restraints
- Countries may impose voluntary export restraints to prevent importing nations from implementing trade barriers.
Currency Appreciation and Trade
- When a nation’s currency appreciates, its products become pricier for foreign consumers, potentially reducing exports.
Definition of Development
- Development is defined by a nation's capacity to adequately provide for the basic needs of its population, like food, clothing, and shelter.
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Test your knowledge with these flashcards covering key concepts from Economics Unit 8. Topics include the differences between scarcity and shortages, and the implications of the 'guns and butter' trade-off. Perfect for students wanting to reinforce their understanding of economic principles.