Principle of Economics Final

Question 1

Factors of Production: Land/Labor/Capital

Answer 1

Land: Is where all of the natural resources used in making goods and services
Labor: Where a person does a task in making of the product
Capital: Any human made resource used to produce goods and services.

Question 2

Production Possibilities Curve (PPC)

Answer 2

A graph that shows alternative ways to use an economy’s resource.

Question 3

Production Possibilities Frontier

Answer 3

Is the line in the PPG that shows the maximum possible output.

Question 4

Law of Supply and Demand and the relationship to price and quantity

Answer 4

Is the backbone of a market economy. The quantity demanded is the amount of a product people are willing to buy at a certain price.

Question 5

Elasticity of Supply and Demand: Perfect

Answer 5

On the graph, a straight vertical line exist halfway along quality and there is no demand.

Question 6

Elasticity of Supply and Demand: Relative

Answer 6

On the both Inelastic and Elastic graph, Demand is decreasing. However Inelastic demand is decreasing sharply while Elastic is decreasing slowly.

Question 7

Elasticity of Supply and Demand: Unitary

Answer 7

Is where Price of the item goes up and quantity decreases.

Question 8

The relationship between future expectations and current supply/demand

Answer 8

People going to buy in their best interests. When the Price is down people tend to buy more. However when the price goes up, people buy it before the hike exists and demand decreases after the hike.

Question 9

The difference between demand and supply curves

Answer 9

The Demand Curve slopes downward while the Supply Curve is slopes upward.

Question 10

Difference between shift of the curve and movement along the curve.

Answer 10

Shift: Is where the curve makes a new line when demand and supply increases or decreases.
Movement is where a dot moves to a new position along the curve based on supply and demand.

Question 11

Equilibrium Price

Answer 11

Is the supply and demand equaled at equilibrium price.

Question 12

Equilibrium Wage

Answer 12

Is the wage rate that produces neither excess supply or demand of workers in the labor market.

Question 13

Shortage vs. Surplus

Answer 13

Surplus is more stuff being produced than at demand while Shortage is less stuff being produced than at demand.

Question 14

Impact of government policy on supply and demand on relationship between minimum wage laws and equilibrium wage/price

Answer 14

If the Government increase wages, business may reduce workers or increase prices to remain competitive.

Question 15

Impact of Government Policy on Supply and Demand on

rent control

Answer 15

Same idea as wages, it’s below equilibrium housing is going to be less available nor above equilibrium. It needs to at the equilibrium point to be right.

Question 16

Impact of Government Policy on Supply and Demand on price Floor vs. Price Ceiling

Answer 16

The Price floor is where the price of the item can’t go any lower than the floor itself otherwise it would loss its value.
Price ceiling is where the price of the item can’t go higher than the ceiling.

Question 17

Impact of Government Policy on Supply and Demand on Rationing

Answer 17

The Government says what your limited to on certain products like a shortage of oil occurs which causes a black market which they attempt to sell oil at higher price.

Question 18

Factors that influence Wage Levels

Answer 18

• Supply and Demand
• Costs
• Ability to Pay
• Market Rates
• Productivity
• Unions
• Government Regulations

Question 19

Relationship between minimum wage laws and equilibrium wage/price

Answer 19

If the government increase wages, business may reduce workers or increase prices to remain competitive. However, if the Government lowers or doesn’t change the minimum wage, then business don’t make heavy changes.

Question 20

Trends in wages/types of employment in the U.S.: white collar vs. blue collar jobs

Answer 20

Wages have steadily decreased in certain places
Blue Collar: Low wage jobs, typically manufacturing jobs.
White Collar: High wage jobs, typically office

Question 21

How to calculate the unemployment rate?

Answer 21

Number of unemployed people divided by the labor force

Question 22

Macroeconomic impact of high/low levels of unemployment?

Answer 22

Low unemployment: don’t want 0% out of work
High unemployment: we don’t want over 8%-10% out of work.
Just right at 4%

Question 23

Full Employment vs. Underemployment vs. Discouraged Workers

Answer 23

Full Employment: People that are working full time
Underemployment: People aren’t working full time
Discouraged Workers: Is someone that wants a job but has given up

Question 24

What is the Poverty Line?

Answer 24

Is the level of income you need to take care minimum economic needs

Question 25

Which Demographic groups more or less likely to live in poverty?

Answer 25

More: Black, Hispanics, Middle income and low income Less: Whites, Asians, Rich people

Question 26

What is the role of labor unions in wages historically and through collective bargaining/arbitration?

Answer 26

They led strikes demanding higher wages which they succeed, however they became corrupt which began their undoing which caused governments pass laws limiting unions. - Collective Bargaining is a process which unions and companies meet to negotiate a new contract. These unions help fight questionable firings through grievance hearings. - Arbitration is where a third party looks over the case and decides a decision for both sides.

Question 27

Screening vs. Learning Effect in employment

Answer 27

Learning Effect: More you learn, the higher amount you get pay Screening Effect: Is Number of jobs open but have a degree for that job.

Question 28

Gender disparities in wages/employment

Answer 28

Based on Ethical and Racial prejudice since that White men get more pay than women, both white and minority color

Question 29

What is Capital Deepening: the role of savings in increasing GDP

Answer 29

Is the process for increasing the amount of capital per worker which workers have more money to save.

Question 30

Classical vs. Keynesian Economic Theory

Answer 30

Classical: Free Markets, People act in self interest causing prices to rise or fall so supply and demand return in equilibrium. Advocated by Adam Smith, David Ricardo, and Thomas Malthus. Keynesian: He wanted governments to get out of the Great Depression and avoid all future economic crises. Short Term: recover fast and economy can reestablish itself. Long Term: Without significant investment we all dead.

Question 31

Durable vs. Nondurable goods

Answer 31

Durable would last for a long time while Nondurable goods don't last for a long time.

Question 32

Nominal vs. Real GDP

Answer 32

Nominal: Is current prices Real: Constant changing prices

Question 33

Stages of the Business Cycle

Answer 33

1. Expansion is a rise in the real GDP. 2. Peak is where the real GDP stops growing. 3. Contraction is economic decline in real GDP. 4. Trough is low point of the economy.

Question 34

Difference between Recession and Depression

Answer 34

Recession is a prolong economic downturn for 6 straight months and unemployment rises 6-10%. Depression is the longer version of a Recession.

Question 35

Intermediate vs. Final Goods and Services

Answer 35

Intermediate Goods are used for the production of the Final goods and services.

Question 36

Aggregate Supply and Demand

Answer 36

Aggregate Supply is the total amount of goods and services in the economy available at all possible price levels. Aggregate Demand is the amount of goods and services in the economy that will be purchased at all possible price levels.

Question 37

Role of future expectations in current GDP

Answer 37

If GDP rising, more people are investing | If GDP decrease, more people aren't investing

Question 38

What is Stagflation?

Answer 38

Is a decline in the Real GDP and inflation is increasing.

Question 39

Federal Budget Process: Step 1

Answer 39

Federal Agencies send requests for money to the Office of Management and Budget (OMB)

Question 40

Federal Budget Process: Step 2

Answer 40

The Office of Management and Budget works with the president to create a budget. In January or February, the President sends his proposed budget to Congress.

Question 41

Federal Budget Process: Step 3

Answer 41

Congress makes changes to the budget and sends the revised version to the president.

Question 42

Federal Budget Process: Step 4

Answer 42

This step goes to two ways. First way is the President signs the budget into law. The Second Way is the President can veto it but can be overridden by congress through 2/3 of vote, if not then Congress and the president must work together to create a new budget.