Economics Unit 8 Flashcards

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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?

The country will focus solely on military expenses.

The country will have less money to devote to consumer goods. (correct)

There will be no change in spending.

The country will have more money for consumer goods.

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?

Competition Signup and view all the answers

Which of the following is NOT a reason for the government to provide a good or service as a public good?

They lead to competition. Signup and view all the answers

What happens when the price of goods goes up in relation to the income effect?

Consumption goes down. Signup and view all the answers

What happens to the quantity demanded when Franco's Pizzeria raises the price of a slice of pizza from $2.00 to $2.50?

The quantity demanded falls from 150 a day to 100 a day. Signup and view all the answers

Which of the following is NOT a factor affecting elasticity?

The good's price range Signup and view all the answers

Why can an industry that enjoys economies of scale easily become a natural monopoly?

Because average costs drop as production rises. Signup and view all the answers

Although a sole proprietorship is the least-regulated form of business organization, which type of regulation do these business owners face?

Zoning laws Signup and view all the answers

What condition affects sole proprietors but not other business organizations?

Unlimited personal liability Signup and view all the answers

In which kind of business organization should you participate if you can afford to lose only the amount of your initial investment?

Limited partnership. Signup and view all the answers

What type of merger occurs when two giant automakers merge, like Chrysler Corporation and Daimler-Benz?

Horizontal merger. Signup and view all the answers

How can competition in a scarce labor market affect wages?

Wages will go up to attract workers to a firm and to keep existing workers. Signup and view all the answers

To which of the following categories do collective bargaining, mediation, and arbitration belong?

Union negotiations Signup and view all the answers

What is an important power given to the federal government by the National Banking Acts of 1863 and 1864?

The power to charter banks. Signup and view all the answers

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?

Your card sends a message to your bank to transfer money from your checking account directly into the store's bank account. Signup and view all the answers

What is the Securities and Exchange Commission?

A government agency that regulates financial markets and investment companies. Signup and view all the answers

Which of the following is NOT one of the four factors that perpetuate the business cycle?

Stagflation Signup and view all the answers

How would the economy be affected if a majority of people decided to put 25 percent of their income in savings and investments?

The economy would prosper because more investment funds would be available for businesses. Signup and view all the answers

Which one of these people lost his or her job because of structural unemployment?

Sonya, who dropped out of school. Signup and view all the answers

If you lived on a fixed income, how would you be affected by inflation?

You would be financially stressed because your income does not increase when prices go up. Signup and view all the answers

What is the Consumer Price Index?

An index determined by measuring the price of standard goods bought by urban consumers. Signup and view all the answers

What two limits does the Constitution place on the government's power to tax?

Federal taxes must be for common defense and general welfare, and they must be the same in every state. Signup and view all the answers

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?

Tax bases. Signup and view all the answers

What type of federal spending category do entitlement programs such as Social Security fall into?

Mandatory spending programs. Signup and view all the answers

Which two types of taxes provide the largest amount of revenue to states?

Sales taxes and individual income taxes Signup and view all the answers

How did the Federal Reserve System hold up during the Great Depression?

The Federal Reserve System did not work well because the twelve regional banks each acted independently. Signup and view all the answers

How do changes in interest rates affect the money supply?

As interest rates rise, people generally keep their wealth in assets that pay returns, restricting the money supply. Signup and view all the answers

How is a comparative advantage obtained?

By producing a product with a lower opportunity cost. Signup and view all the answers

Why would a country impose a voluntary export restraint on products?

To reduce the chances that the importing country will set up trade barriers. Signup and view all the answers

When a nation's currency appreciates, how is trade with other countries affected?

The nation's products become more expensive in other countries. Signup and view all the answers

What does 'development' refer to in the context of developed nations and less-developed nations?

A nation's ability to feed, clothe, and shelter its people. Signup and view all the answers

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.