Study Guide

  1. What is Microeconomics
    the study of individual choice, and how that choice is influenced by economic forces
  2. What is Macroeconomics
    the study of the economy as a whole
  3. What is the problems with equal income distribution
    • it steal from people against their will (taxes) for no intrinsic benefit
    • provides no incentives for people to work hard and improve their skills
    • leads to inefficient government policies
  4. What the invisible hand is
    The invisible hand is the price mechanism, the rise and fall of prices that guides our actions in a market.
  5. Define market force
    A market force is an economic force that is given relatively free rein by society to work through the market.
  6. What are market forces
    Market forces ration by changing prices. When there’s a shortage, the price goes up. When there’s a surplus, the price goes down.
  7. What decide market forces
    Social, cultural, and political forces play a major role in deciding whether to let market forces operate
  8. What is socialism
    an economic system based on individuals’ goodwill toward others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce.
  9. What is Capitalism
    An economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists.
  10. What is Feudalism
    An economic system in which traditions rule.
  11. What is Economic Policy
    An action (or inaction) taken by government to influence economic actions.
  12. Name two economic policies

    behavioral economic policy
  13. What is Laissez-faire
    is an economic policy of leaving coordination of individuals’ actions to the market
  14. What is behavioral economic policy
    economic policy based upon models using behavioral economic building blocks that take into account people’s predictable irrational behavior
  15. Who determine economic policies?
  16. What three things comprise our market economy
    Businesses, households, and government
  17. What are the three taxes
    • personal income tax,
    • the corporate income tax,
    • the Social Security tax.
  18. Three causes of market failures
    • externalities,
    • public goods,
    • imperfect information.
  19. what is an entrepreneur
    An entrepreneur is an individual who sees an opportunity to sell an item at a price higher than the average cost of producing it.
  20. What is profit
    What’s left over from total revenues after all the appropriate costs have been subtracted. That is, Total revenue 2 Total cost. Also, a return on entrepreneurial activity and risk taking.
  21. what are monitoring costs
    Monitoring costs are the costs incurred by the organizer of production in seeing to it that the employees do what they’re supposed to do.
  22. What are the different tax structures
    Income taxes

    Sales taxes,

    Property taxes,
  23. what is social security
    a social insurance program that provides financial benefits to the elderly and disabled and to their eligible dependents and/or survivors.
  24. What is a Surplus
    An excess of revenues over payments
  25. Substitute
    A good that can be used in place of another good.
  26. What is a Market structure
    • refers to the physical characteristics of the market within which
    • firms interact.
  27. what is a monopolistic competition
    a market structure in which there are many firms selling differentiated products and few barriers to entry
  28. oligopoly
    a market structure in which there are only a few firms and firms explicitly take other firms’ likely response into account
  29. Perfectly competitive market
    a market in which economic forces operate unimpeded.
  30. Monopoly
    A market structure in which one firm makes up the entire market.
  31. A labor market
    a factor market in which individuals supply labor services for wages to other individuals and to firms that need (demand) labor services
  32. Horizontal Merger
    The combining of two companies in the same industry
  33. Vertical Merger
    A combination of two companies that are involved in different phases of producing a product
  34. Acquisition
    A transaction in which a company buys another company and the purchaser has the right of direct control over the resulting operation
  35. Joint venture
    A contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking
  36. what is production
    The transformation of factors into goods and services.
  37. Fixed Costs
    Costs that are spent and cannot be changed in the period of time under consideration.
  38. Variable Costs
    Costs that change as output changes
  39. Economies of scale
    economies that occur because of increases in the amount of one good a firm is producing.
  40. Economies of scope
    occur when producing different types of goods lowers the cost of each of those goods.
  41. A price taker
    is a firm or individual who takes the price determined by market supply and demand as given
  42. Who are price takers.
    Both buyers and seller
  43. Price makers
    set the price
  44. Who are price makers
  45. These are Barriers to entry
    social, political, or economic impediments that prevent firms from entering a market.
  46. what is a duopoly
    an oligopoly with only two firms.
  47. Implicit Collusion
    A type of collusion in which multiple firms make the same pricing decisions even though they have not explicitly consulted with one another.
  48. To prove a collusion is Difficult
    Difficult to prove
  49. Monopolistic competition makes collusion
    difficult to prove
  50. Oligopoly makes collusion
    easier to prove
  51. characteristic of informal collusive behavior is
    that prices tend to be sticky—they don’t change frequently.
  52. what is a patent
    Legal protection of a technological innovation that gives the owner of the patent sole rights to its use and distribution for a limited time.
  53. Tariffs
    taxes governments place on internationally traded goods —generally imports.
  54. An embargo
    is a total restriction on the import or export of a good.
  55. The Clayton Antitrust Act is
    a law that made four specific monopolistic practices illegal when their effect was to lessen competition
  56. The Federal Trade Commission Act is
    a law that made it illegal for firms to use “unfair methods of competition” and to engage in “unfair or deceptive acts or practices,”
  57. A public good
    is a good that is nonexclusive and nonrival. (education, defense, roads, and legal systems) government provided
  58. Private good
    only benefit to the person buying the good
  59. private goods you sum demand curves
    demand curves are sum horizontally;
  60. public goods you sum
    sum demand curves vertically.
  61. Antitrust policy
    is the government’s policy toward the competitive process.
  62. Sherman Antitrust Act
    is a U.S law designed to regulate the competitive process.
  63. Price discrimination
    is selling identical goods to different customers at different prices.
  64. Example of Price Discrimination
    • Ex. Movie theaters give discounts to senior citizens and children
    • Ex. Airline Super Saver fares include Saturday-night stay overs.
    • Ex. Automobiles are seldom sold at list price.
  65. Law of supply
    states that quantity supplied is positively related to price, the slope of an equation specifying a supply curve is positive
  66. The law of demand
    states that as price rises, quantity demanded declines
  67. Price and quantity are negatively related,
    so a demand curve has a negative slope.
  68. The laws of supply and demand affect
    • relative prices, not nominal prices. are affected
  69. Shift factors
    income or price of another good, shift the entire demand curve.
  70. Five important shift factors of aggregate demand
    • foreign income
    • exchange rate fluctuations
    • the distribution of income,
    • expectations,
    • government policies.
  71. Anything that changes factor costs will be a shift factor of supply.
  72. What changes shift factors?
    • Changes in input prices.
    • Productivity.
    • Import prices.
    • Excise and sales taxes.
  73. What is a price ceiling
    is a government-set price below the market equilibrium price.
  74. Surplus An excess of revenues over payments.
    An excess of revenues over payments.
  75. Supply Curve
    A graphical representation of the relationshipbetween price and quantity supplied.
  76. Equilibrium
    A concept in which opposing dynamic forcescancel each other out.
  77. Equilibrium Price The price toward which the invisiblehand drives the market.
    The price toward which the invisiblehand drives the market.
  78. Partnership
    A business with two or more owners.
  79. Sole Proprietorship A business that has only one owner
    A business that has only one owner
  80. Business A private producing unit in our society.
    A private producing unit in our society.
  81. Example of opprtunity cost
    • Consumer choice
    • Cost of capitol
    • Production possibilities
  82. Define the concept of opportunity costs
    this concept applies to all aspects of life and is fundamental to understanding how society reacts to scarcity.
  83. Is expressed in relative price, the price of one choice is relative to another
    opportunity costs
  84. The law of diminishing control
    is the observation thatafter a regulation is implemented, as time progresses, itbecomes less and less effective because firms find waysaround the regulations.
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