Transcript LOQ Review: Globalization

Learning Outcomes
• This assignment is worth 30 test points and will be turned
in the day of the EOC.
• The purpose of this activity is to review concepts and focus
on the aspects of each concept that will be emphasized on
the EOC.
• On your own paper, you will write down the correct
term/terms to complete each sentence
• If you answer a question incorrectly, you must circle the
number of the question on your study guide and write the
correct answers in the margin of your paper.
choices
1. Economics is the study of how individuals make _______________
to
scarcity
satisfy their wants in a world of _________________.
land
labor
2. The four factors of production are ________________,
________________,
capital
________________,
and entrepreneurship.
entrepreneur is a person who combines the other factors of
3. An _________________
production to make a profit.
Production _______________
Possibilities
Curve
4. The _______________
_______________
shows all possible
combinations of goods an economy can produce in a given amount
of time (when producing at full capacity).
what
how
5. The three economic questions are __________
to produce, ___________
for _______________
whom
to produce, and _______
goods should be produced.
6. In a __command__ economy, the government decides what
to produce, how to produce, and for whom to produce.
7. In a _free market/capitalist__ economy, individuals and
firms decide what to produce, how to produce, and for whom
to produce.
8. Scarcity is the basic economic problem of unlimited human
_wants_ and limited _resources__.
9. __Scarcity__ forces people to make choices.
10. Opportunity cost is the most valued __alternative__ you give up
to do something else (next best option). For example, if Cynthia
stays home from the football game to finish her collage for English,
her opportunity cost is __the football game__.
11. When you can get more of one good, but only by getting less of
another good, it is called a __trade-off__. For example, a city
government might cut spending on public parks in order to hire
more police officers while maintaining the budget.
12. _Adam Smith__ is known as the father of Capitalism (free
enterprise).
13. _Karl Marx__ is known as the father of Communism (and
Socialism).
14. The law of __demand__ states that as the price of a good
increases, the quantity demanded of the good decreases (and
vice versa).
15. The law of _diminishing marginal UTILITY_ states that
the more additional units of a good a person consumes, the
less satisfaction he/she gains from each additional unit.
16. Factors that cause a shift in the demand curve include:
changes in _income__, preferences, prices of _complements_
and _substitutes_, number of _buyers_ in the market, and
anticipated future prices.
17. Market _equilibrium_ occurs when quantity supplied
equals quantity demanded.
18. The law of _supply_ states that as the price of a good
increases, the quantity supplied of the good also increases
(producers are willing to make more when goods cost more!).
As the price of a good decreases, the quantity supplied of a
good _decreases_.
19. When _resource_ prices go up, the supply curve shifts to
the left (quantity supplied decreases); when _resource_
prices go down, the supply curve shifts to the right (quantity
supplied increases).
20. Anything that causes the cost of production to increase will
cause the quantity supplied to _decrease_. Anything that causes the
cost of production to _decrease_ will cause the quantity supplied to
increase.
21. A _surplus_ occurs when quantity supplied > quantity
demanded.
22. A _shortage__ occurs when quantity supplied < quantity
demanded.
23. Minimum wage is an example of a _price floor_ —a price set by
the government below which buyers and sellers cannot legally buy
or sell a good or service. In this case, the result is a _surplus_ of
workers, since the price is set above equilibrium.
24. An advantage of a _sole proprietorship_ is that one has
total control of the decision-making process.
25. A disadvantage of a sole proprietorship is that one has
unlimited _liability_.
26. A _partnership_ is a business owned by two or more
people who share profits and liability.
27. Shirking is bad. Don’t shirk.
28. The major advantages of corporations are that they can
raise large amounts of _revenue_, have limited _liability_, and
continue to exist no matter what happens to the owners.
29. _Externalities_ are positive or negative side effects of
business activities.
30. If a monopoly were broken up into several smaller
businesses, the result would likely be _increased_ output
and _decreased_ prices.
31. Wages are determined, in large part, by the _supply_ of
workers and the _demand_ for their work. For example,
professional athletes are paid high wages because their
talents and abilities are _scarce_, and therefore in high
demand.
32. Unions use _collective bargaining_ to negotiate wages,
hours, rules and working conditions.
33. A free rider is a person who benefits from a good he/she
did not pay for. For example, a visitor from California enjoys a
leisurely bike ride on the greenbelt.
34. Public goods are goods of which one person’s
consumption does not take away from another person’s
consumption.
35. The law of diminishing marginal RETURNS states that as a
business hires additional workers, there will be a point at which
the new worker’s marginal output (additional units produced) will
be less than the previous worker. For example, in the chart below,
the LDMR kicks in upon hiring the 4th worker, because the marginal
output of worker 4 was less than the marginal output of worker 3.
Number of
Workers
Output
Marginal
Output
0
1
2
3
4
0 units
5
11
18
23
0 units
5
6
7
5
36. The Better Business Bureau is an organization that gathers and
publishes information on the trustworthiness/credibility of
businesses and charities.
37. Credit unions differ from banks in that they are member-owned
and non-profit.
38. Banks can use checking account deposits to create loans for
other customers.
39. The three types of tax withholdings (money that comes out of a
person’s gross income) are federal income tax, state income tax,
and FICA (Federal Insurance Contributions Act—this includes
Social Security and Medicare).
40. When a person invests in stocks he/she becomes part
owner of the company in which he/she invested.
41. There are two ways to profit from investing in stocks—
capital gains and dividends.
42. The FDIC (Federal Deposit Insurance Corporation) was
created to restore consumer confidence in the wake of the
Great Depression. The FDIC insures bank deposits up to
$250,000.
43. If a person has bad credit, he/she will have to pay higher
interest rates on loans than a person with good credit.
44. Principal is the actual amount of the loan, separate from the
interest.
45. Interest is the charge for the privilege of borrowing money.
It is the amount paid above the initial amount borrowed.
46. Rate of return is the gain or loss on an investment over a
specific period of time.
47. Stocks have higher rates of return than savings accounts, in
part because they are more risky investments. In general, the
riskier the investment, the higher the rate of return.
48. The highest source of revenue for the federal government
comes from individual income taxes.
49. A progressive tax system is one in which higher income
earners pay more than those who earn less.
50. Regressive taxes take a higher percentage of income from
low income people than high income people. A gas tax, for
example, it the same no matter a person’s income—however,
it takes up a higher percentage of income from the low
income earner because he/she has less total income.
51. A business cycle refers to the fluctuating levels of economic
activity that occur over a period of time (typically, 3-5 years).
52. Business cycles include 5 stages: expansion (growth), peak,
contraction (recession), trough (end of the decline), and
recovery.
53. The ability-to-pay principle holds that the amount of taxes
individuals pay should be based on the level of burden it will
place on individual wealth. In other words, if a person has more
income, he/she should be able to pay more than a person with a
low income (think: progressive tax system).
54. The benefits-received principle holds that people should
pay taxes based on the benefit they receive from the government.
55. Inflation is the rate at which prices of goods and services
rise. When inflation rises too quickly, consumers experience less
purchasing power (people can buy less with the money they
earn).
56. GDP (gross domestic product) is the sum of a nation’s
consumer spending, government spending, investments, and
net exports (exports minus imports). GDP is a useful indicator of
a country’s overall economic wellbeing and standard of living.
57. GDP per capita is the GDP per person in a nation.
58. Keynesian Economic Theory (John Maynard Keynes) in a
nutshell: The government may help stimulate the economy
in times of recession by spending more and decreasing
taxes.
59. Expansionary policies seek to grow the economy by
increasing government or consumer spending, tax rebates,
and/or tax cuts.
60. Contractionary policies seek to combat inflation by
decreasing spending and/or increasing taxes.
61. Fiscal policies are set by the federal government, while
monetary policies are set by the central bank (Federal
Reserve).
62. The national budget deficit is when government
expenditures exceed revenue.
63. The national debt is the accumulated total of all past
government deficits. Ours is currently more than
$18,000,000,000,000.
64. Absolute advantage is when a business or individual is
able to produce a good/service at a lower cost per unit than
any other business or individual.
65. Comparative advantage is when a business or individual is
able to produce a good/service at a lower opportunity cost
than other businesses or individuals.
66. Comparative advantage is extremely
valuable for a country in deciding which
goods to produce. For example, in the chart
below, Countries A and B are trading
partners. Country A has the clear absolute
advantage for producing both wheat and
TVs.
• However, neither country can produce
both their full capacity of wheat and their
full capacity of TVs—they must choose to
produce one or the other, or a
combination of both goods.
• In order to find out which country should
specialize in which good, we must find
their comparative advantage. Let’s
break it down:
Production Possibilities
Country A
Country B
Wheat
200
50
TVs
100
50
 When Country A produces 1 unit
of wheat, they give up producing
½ of a TV. In other words,
Country A’s opportunity cost for
producing wheat is ½ a TV.
 When Country A produces 1 TV,
the opportunity cost is 2 units of
wheat.
 Country B has the same
opportunity cost no matter
which good they decide to
produce—if they make one unit
of wheat, they give up one TV,
and vice versa.
• Based on the above information,
we can conclude that Country A
has the comparative advantage in
wheat, because it only costs them
half a TV to produce one unit of
wheat, while it costs Country B
one TV.
• Country B has the comparative
advantage in TVs, because it only
costs them one unit of wheat to
produce a TV, while Country A
gives up two units of wheat.
• Therefore, Country A should
specialize in wheat, while Country
B should specialize in TVs.
67. Protectionism includes government policies that attempt
to restrict international trade in order to protect domestic
businesses and jobs from foreign competition. Import taxes
and quotas are two examples of protectionism.
68. Tariffs are taxes imposed on imported goods or services.
69. Quotas are government-imposed trade restrictions that
limit the number of goods or services imported from another
country.
70. NAFTA (North American Free Trade Agreement) and EU
(European Union) are examples of trade organizations. The goal
of free trade organizations is to eliminate tariffs and encourage
economic activity between member nations.
71. Foreign currency exchange rates measure how many units of
one country’s currency can be exchanged for another.
72. Currency values impact trade according to the law of demand.
For example, if the US dollar decreases in value, American goods
will be cheaper (relative to other countries) and the demand for
American goods will increase.