Unit 1: Fundamental Concepts
In economics, does everything (including air and water) have a cost?
Yes!
What two factors typically set prices?
a) law and order
b) greed and corruption
c) supply and demand
d) forgiveness and friendship
c) supply and demand
In general, has the United States government increased or decreased its influence on the American economy?
Increased
Has wealth inequality grown or shrunk in recent years?
Wealth inequality has grown
What does the term GDP stand for?
AND
What does GDP measure?
Gross domestic product
GDP measures total spending in an economy
What is the economics definition of scarcity?
a) Monetary Rewards
b) Free market economies
c) Something needed for survival
d) Unlimited wants and needs met by limited resources
What the term to describe the situation where quantity supplied equals quantity demanded?
a) The law of demand
b) Market equilibrium
c) Demand
d) The law of supply
b) Market equilibrium
In general, what is the purpose of US government involvement in the economy? In other words, why does the government influence the economy at all.
The purpose of the US government involvement in the economy is to protect vulnerable populations against market failures.
What are negative effects of high unemployment?
High unemployment rates lead to increased crime and increased mental health challenges including stress, depression, and substance abuse
What are the three goals of most economies?
Economic growth
Low unemployment
Stable prices
I am studying for my economics course. I could be watching TV, sleeping, eating, or socializing with friends. These are my____________.
a) tradeoffs
b) opportunity costs
c) common goods
d) marginal costs
a) tradeoffs
In the market for strawberries, doctors announce that eating more strawberries makes you healthier. What happens to the demand for and price of strawberries?
Demand for strawberries will increase causing the price of strawberries to increase, as well
Negative externalities have a few key components:
1. They are created
2. No one initially pays for them
3) They cause significant harm and 'costs' to the public
What is one example of a negative externality
Pollution
What is the purpose of unions?
Unions encourage collective action to allow workers to negotiate for higher wages, stronger benefits, and a better workplace enviornment
What is the difference between nominal GDP and real GDP?
AND
Which should be used to assess economic growth?
Real GDP adjusts for inflation
How would you explain the difference between the term 'tradeoff' and the term 'opportunity cost'?
Tradeoffs are any alternative of value that you are giving up to do what you are doing.
The opportunity cost is the best alternative to what you are doing.
In the market for pencils, the price of wood increases. Wood is a resource for pencils. What happens to the supply of pencils, and which way does the supply curve shift?
The supply of pencils drops. The supply curve shifts to the left.
The largest part of the US budget is mandatory spending. What are the three programs that take up the vast majority of the US mandatory spending?
Medicare
Medicaid
Social Security
What are some ways that the government can help reduce wealth inequality?
Taxing the wealthy to fund social programs
Investing in public education and healthcare
What is the period of growth in the business cycle referred to as? What is the period of shrinking in the business cycle called?
Expansionary phase and contractionary phase
Explain the difference between command economies, market economies, and mixed economies
Command economies are centrally planned by the government
Market economies are left to the private sector (with no government influence)
Mixed economies are a combination of private sector and government sector influence
Adam Smith is considered to be the father of modern capitalism. What are two things that Adam Smith advocated for?
Adam Smith advocated for the government to step away from the market economy. He believed in an 'invisible hand' that would guide the market in the best interest of the people.
Smith also believed in the division of labor to make production more efficient.
Explain three ways the United States government has become more involved in the US economy AND why these involvements serve its population.
(Hint: Medicare, medicaid, and social security can count as one of the three ways the US government has influenced the economy)
The US government has created social programs like medicare, medicaid, and social security to provide financial and health benefits to the most vulnerable.
The US government has established labor laws to protect workers.
The US government has created regulatory agencies like the EPA and FDA to protect its people from market failures
What is an argument in favor of tariffs?
AND
What is an argument in opposition of tariffs?
Argument in favor of tariffs -- Tariffs will raise the the cost of foreign goods which will incentivize consumers to purchase domestically produced goods, encouraging corporations to keep their business in the country
Argument against tariffs -- Tariffs will raise the price of everyday goods for consumers and won't convince companies to return their jobs back to the home country quickly enough
What can the US Congress and/or the Federal Reserve do to try to minimize extreme fluctuations in an economy?
When inflation is rising, the Federal Reserve can raise interest rates to slow borrowing and spending...
When in a recession, the Federal Reserve can lower interest rates to increase borrowing and spending...
When the economy is overheating, the US Congress can reduce government spending to slow inflation...
When the economy is struggling, the US Congress can increase government spending to stimulate the slowing economy