Econ 7 - Notes and Study Guide

one country's ability to produce a given product relatively more efficiently than another country Comparative advantage the difference between money paid to and money received from other nations when engaged in trade balance of payments a system under which the values of currencies are fixed in relation to one another fixed exchange rates a system that relies on supply and demand to determine the value of one currency in terms of another floating exchange rates one country's ability to produce more of a given product than another country absolute advantage diagram representing maximum combinations of goods and/or services an economy can produce when all productive resources are fully employed production possibilities curve a tax placed on imported goods to raise revenue revenue tariff a tax on an imported product designed to protect less efficient domestic producers protective tariff the next best alternative use of money, time, or resources when one choice is made rather than another opportunity cost foreign currencies used by countries to conduct international trade foreign exchange splitting work into a number of separate tasks to be performed by different workers division of labor act of not repaying borrowed money default a group of sellers or producers acting together to raise prices by restricting availability of a product cartel pollution in the form of rainwater mixed with sulfur dioxide to form a mild form of sulfuric acid acid rain government confiscation of private- or foreign-owned goods without compensation expropriation substantial oversupply of a product glut mixture of 90 percent unleaded gasoline and 10 percent grain alcohol gasohol loans that may never be paid back; usually involves loans to developing countries soft loans hiring outside firms to perform non-core operations to lower operating costs outsourcing condition in which the average number of births and deaths balance so that population size is unchanged zero population growth independently owned group of Japanese business firms united to regulate competition keiretsu fundamental restructuring of the Soviet economy, introduced by President Mikhail Gorbachev perestroika independent Polish labor union founded in 1980 by Lech Walesa solidarity gross domestic product on a per person basis GDP per capita central planning authority in the former Soviet Union Gosplan In the context of foreign exchange, which two words are synonyms? flexible and floating What is the world's largest free trade area? NAFTA What would a free-trader most likely support? NAFTA Who is most likely to place an embargo? Select one: a. a national government b. a multinational corporation c. an importer of luxury goods d. an infant industry a. a national government _____ are taxes on _____. Tariffs, imports A growing trend of globalization is _____. Select one: a. more political independence and fewer nations defaulting on loans. b. specialization and high wages in production. c. less economic dependence among nations. d. specialization and division of labor in production. d. specialization and division of labor in production. According to economists, international trade among countries _____. Select one: a. increases the chance of conflict because of competition b. increases the chance of conflict because of economic rivalry c. decreases the chance of conflict because of economic advantages d. decreases the chance of conflict because of floating exchange c. decreases the chance of conflict because of economic advantages COMESA is a _____ a. 10-country common market for eastern and southern Africa. b. 19-country common market for eastern and southern Africa. c. 19-country common market for Asian countries. d. 12-country common market for European countries. b. 19-country common market for eastern and southern Africa. Country A can produce more coal than Country B. An economist would say that Country A has _____ over country B. an absolute advantage Globalization means having _____. Select one: a. multinationals opening manufacturing facilities only in industrial nations. b. standardized production of products that are sold only in industrial nations. c. standardized production of products that are sold throughout the world. d. multinationals opening manufacturing facilities only in free trade zones. c. standardized production of products that are sold throughout the world. High oil prices in the United States resulted in which of the following consequences? Select one: a. The search for alternative energy sources decreased. b. The search for alternative energy sources intensified. c. Consumers bought big houses, but small cars. d. Consumers pushed for fewer explorations for oil reserves. b. The search for alternative energy sources intensified. In international trade, comparative advantage is measured in _____. Select one: a. foreign exchange b. efficiency c. trade-weighted value d. difference between money paid and money received in trade b. efficiency The last stage of economic growth is _____. Select one: a. the takeoff stage. b. the transition stage. c. the high development stage. d. the semidevelopment stage c. the high development stage. The number of live births per 1,000 people in a country is called _____. Select one: a. life expectancy. b. zero population growth. c. population growth. d. crude birthrate d. crude birthrate A major step for the European Union was the introduction of _____. Select one: a. pollution permits. b. the euro. c. a free-trade policy with the world. d. a free-trade policy with Mexico, Canada, and the United States. the euro. The opposite of the Malthus theory of the economic future of the world is _____. Select one: a. subsistence living on an overly populated planet. b. economic growth as people develop new production methods and limit population growth. c. subsistence living despite the development of new production. d. economic growth that spurs a rapid population growth. b. economic growth as people develop new production methods and limit population growth. To control pollution, the U.S. Congress has established that all cars sold in the United States cannot _____. Select one: a. exceed certain maximum emission standards. b. exceed 55 mph on the highway. c. require high-test gasoline. d. require gasohol. a. exceed certain maximum emission standards. Trade deficits tend to correct themselves automatically due to _____. Select one: a. business b. money c. the trade-weighted value of the dollar d. floating exchange rates d. floating exchange rates Two reasonable ways in which countries can fund economic development are _____. (Choose only one answer.) Select one: a. microfinance and IMF financial aid. b. microfinance and increasing loan defaults. c. increasing external debt and soft loans. d. increasing loan defaults and soft loans. a. microfinance and IMF financial aid. What conclusion can be drawn about capitalism from South Korea's economic growth in the late 20th century? Select one: a. Capitalism can restore a damaged economy. b. There is no real difference between socialism and capitalism. c. Socialism can revive an economy over a prolonged period of time. d. A transition from capitalism to a command economy can involve struggle. a. Capitalism can restore a damaged economy. What is the main difference between Japanese capitalism and capitalism in the United States? Select one: a. Japan's government regulates private firms to keep competition at a minimum. b. Japan does not permit the sale of corporate stock. c. Japan has a more dedicated and loyal workforce. d. Japan's government is highly involved in day-to-day business management. d. Japan's government is highly involved in day-to-day business management. When did the dollar start to "float"? Select one: a. 1776 b. 1865 c. 1912 d. 1971 d. 1971 Which country is an example of a capitalist country? Select one: a. Cuba b. Singapore c. Venezuela d. North Korea b. Singapore Which of these statements apply to present-day Sweden? Select one: a. Its taxation and unemployment rates are relatively low. b. Its unemployment rate and GDP per capita are relatively low. c. Its unemployment rate and GDP per capita are relatively high. d. Its GDP per capita and welfare payout rates are both relatively low. c. Its unemployment rate and GDP per capita are relatively high. Which statement describes why the people in a nation with a command economy might resist a shift to a free market economy? Select one: a. People who hold political power are threatened by fundamental changes. b. Workers are reluctant to give up their participation in a classless society. c. Workers are reluctant to accept complete government control of their economy. d. Factory and business owners are reluctant to place their capital under worker authority. a. People who hold political power are threatened by fundamental changes. Economics the study of how people choose to meet their needs and fulfill their wants with limited resources Microeconomics the study of the economic behavior and decision making of individuals and buisnesses Macroeconomics the study of how societies and governments make choices about how to use their limited resources Need a good or service required for living Want a good or service that is desired, but not required Scarcity means that people do not and cannot have enough income and time to satisfy their every want and need Factors of production resources needed to produce goods and services Land natural resources not created by humans Labor all humans skill and energy, produce goods and services Goods tangible items that can satisfy wants and needs Services actions that can satisfy wants and needs Capital the manufactured goods used to make other goods and produce other services Productivity the ability to produce greater quantities of goods and services in better and faster ways Entrepreneurship the ability to start new businesses, develop new products and ideas, and improve management techniques Technology advancement in knowledge of ways to use land, labor, and capital that lead to new and improved goods and services, and better ways of producing and distributing them Financial Capital money used to purchase the means of production Trade-off Sacrificing one good or service to purchase or produce another Opportunity cost the value of the next best alternative given up for the alternative that was chosen Wealth the abundance of valuable resources or material possesions Production Possibilities Curve shows the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time Production the process of creating goods and service with the factors of production Human Capital the sums of skills, abilities, health, and motivation of human workers Specialization assigning productive resources to the task they do best Value what an item is worth, determined by the price someone is willing to pay Utility the capacity of a product to be useful to someone Paradox of Value often an essential item that will have little monetary value, while a non-essential item will have great value Consumer goods designed for use by individuals Shortage a temporary situation in which more resources are demanded that can be supplied Capital goods all manufactured goods to make other goods and services Durable good lasts more than three years with consistent use Non durable good lasts less than three years Economic good a product or service that can command a price when sold Economic System the way a nation uses it resources to satisfy people's needs and wants Traditional Economy economic decisions are based on customs and beliefs handed down from previous generations Command Economy government leaders control the factors of production and make all of the economic decisions Market Economy individuals control the factors of production and freely make economic decisions based on what is best for them and their families Mixed Economy combines the characteristics of more than one type of economic system Market the process of freely exchanging goods and services Circular flow of economic activity businesses sell goods and services to individuals who pay, individuals sell their resources to businesses and are paid, businesses and individuals pay taxes to the governments, which provides benefits Economic Interdependance the participants in an economic system are dependent on others for the products they cannot produce themselves Factor Markets markets where services of the factors of production are bought and sold Product Markets goods and services produced by businesses are sold to households Capitalism economic system in which private individuals own the factors of production Laissez faire pure capitalism with no government intervention, individuals and businesses make economic choices Free enterprise pertains to sellers, individuals may own the factors of production, individuals decide how to use the factors within legal limits Profit what remains after businesses subtract all of its costs from its total sales revenue Profit Incentive the desire to earn income that motivates people to produce and sell goods and services Competition the rivalry among producers or sellers of similar products to win more business Private Property property owned by individuals, not the government, is one of the most important characteristics of capitalism Economic Policy actions that the government takes to help the nation reach its economic goals Economic Freedom allows each individual to make choices Economic equity the attempt to balance an economic policy so that everyone benefits fairly, encouraging lawmakers to pass laws to keep our system fair Economic efficiency wise use of available resources so as to obtain the greatest possible benefit, being productive and seeking the lowest cost means to produce goods and services Economic security protection against economic risks that are beyond our control Economic stability seeks to reduce the risks of extreme changes in the standard of living Economic Growth expansion of the economy to produce more goods, jobs and wealth over the long term to satisfy additional needs and wants Standard of living material well being of an individual, group or nation Price stability the situation whereby the goods and services offered in the marketplace either change very slowly or do not change at all Inflation the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling Socialism an economic system in which the government owns the major factors of production and attempts to manage production and the distribution of goods, government makes all major economic decisions Proletariat those who worked to produce goods Bourgeoisie the land and factory owners who own the means of production Communism an idealized society where no government is necessary Democratic Socialism a system that works in the constitutional framework for a community where all laborers share equally in profits, people have basic human rights and some control over the government through free elections and a multiparty system Authoritarian Socialism the entire economy is controlled centrally