Transcript tax rate

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1. Define economics- The study of how people
seek to satisfy their needs and wants by making
choices
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2. Explain how scarcity relates to economicsscarcity is that there are limited quantities of
resources to meet unlimited wants
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3. Differentiate between
opportunity costs – is the most desirable
alternative given up as the result of a decision
trade offs- is an alternative that is sacrificed when
a decision is made
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4. Define factors of production- resources that
are used to make all goods and services
5. List and explain the three factors of
production.
1. land- is the natural resources that are put into
production or used to make goods and services
2. labor- is the human effort of man power used in the
production process
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3. capital- is any man made resource, such as
equipment or tools, that is used to create other goods and
services
6. Use a PPC to demonstrate the concepts of: p. 12-14
 Marginal Opportunity Cost The production
possibilities curve also reflects opportunity costs, since
to get more of one good we have to sacrifice some of
the other. The marginal opportunity cost measures the
amount of a good that has to be sacrificed for each
additional unit of the other good.
 When everyone is working on houses we can produce
20 houses annually. If we wanted 2 computer
programs we would have to sacrifice two houses. Thus
the marginal opportunity cost would be 1 house for
each additional computer program. Who would be the
individuals we would want to move from construction
to programming? Likely those individuals who are
good at programming and not very good at building
houses.
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Economic Growth
Recall the PPC is based on a fixed set of resources and technology. As new
resources are discovered, such as new oil deposits in Wyoming, we are able to produce more as a
society. If the quality of the resources improves, we are able to shift the PPC outward. A workforce
with a bachelors degree would be more productive than one with only an elementary education. As
a society grows, including immigration, there are more workers that are able to produce more
goods and services.
Technology also plays a key role in the growth of an economy. As new technologies are
developed, resources are freed up to produce other goods and services. A society that produces
capital goods (e.g., machinery) today foregoes the benefit of the consumer goods that could have
been produced, but is then able to increase the production of goods and services in the future due
to the machinery and other improvements that have been made. In 1950, one farmer in the U.S. fed
15 other people. By 1995, that number had increased to 128 and continues to rise. As technology
advances and farmers use more and more capital, not as many people are required to be in
agriculture and are able to go produce cars, TVs, and other goods and services that we enjoy.
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7. Draw and label a circular flow diagram.
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b. How does the above represent consumers and
businesses in the market?
In the circular flow model, the inter-dependent entities of
producer and consumer are referred to as "firms" and
"households" respectively and provide each other with
factors in order to facilitate the flow of income. Firms provide
consumers with goods and services in exchange for consumer
expenditure and "factors of production" from households.
Government taxes businesses and households to pay for the
productive resources it uses to provide certain kinds of goods
and services to households and businesses.
8. Define consumer sovereignty- is the power of consumers
to decide what gets produced
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9. List and describe five features of a market economy.
(capitalism)
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1. Self interest- means that buyers and sellers are focused on
personal gain
2. competition- is the struggle among producers for the
dollars
of consumers
3. incentive- for consumers is the hope of reward or the fear of
punishment that encourages people to behave in a
certain
way; Incentives for business is selling more goods for
more profit
4. laissez faire- is the doctrine that states that government
generally should not intervene in the marketplace
5. consumer sovereignty- is that consumers decide what
gets
produced because businesses want to meet the
consumers
desires.
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10. Compare and contrast the major types of economics. List 3 benefits
and 3 costs of a market economy
1. market economy- decisions on production and consumption of goods and
services are based on voluntary
exchange
2. mixed economy- combines the free market with limited government
involvement
3. command economy- the central government makes all decisions on the
production and consumption of goods and services
Benefits
Costs
incentives to produce, more
production,
variety of products,
more varied income, more income
inequality
greater efficiency, personal
satisfaction, economic freedom
unemployment/shifts in factors,
negative externalities
private ownership, higher standard of
living, encourages innovation and
technology
poverty/homelessness, wealth gap,
less economic security
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11. Describe the works/theories of:
1. Adam Smith- (Father of modern economics)
believed that in each transaction, the buyer and seller
consider their self interest or personal gain
2. Karl Marx- believed that human labor was the
source of all added value but keeps it as profit or
exploiting the
workers
3. John Maynard Keynes- believed that
government intervention may be needed in crisis
situations to pull the economy out of depression
(pump money into the economy)
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12. List and describe the three basic types of business organizations.
Discuss the advantages and disadvantages of each business type
1. sole proprietorship- a business owned and managed by a single individual
2 advantages- easy to form; flexibility in decision making, no corporation taxes;
personal satisfaction; no sharing of profits; fewer government regulations
 2 disadvantages- limited life; limited capital$; unlimited liability; limited size; less
specialization
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2. partnership- owned by two or more persons who agree on specific
responsibilities
2 advantages- easy to for; flexibility in decision making; no corporation taxes;
personal satisfaction; fewer government regulations; more capital$
 2 disadvantages- management disagreements; limited life; unlimited liability
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3. corporation- owned by individual stockholders and run by a board of
directors
2 advantages- more capital$; specialization;, unlimited life; greater efficiency; limited
liability
 2 disadvantages- double taxes; government regulations; and organizing capital,
expenses and charter; less flexibility in decision making
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13.
a. What is the role of stockholders in financing
corporations? stockholders must invest money to buy
shares to finance and to part of the corporation * (they are
considered the owners)
b. What is the role of government in regulating
corporations? to make sure the corporations follow the
regulations they set such as filing quarterly and annual
reports to the SEC and taxation
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14.
a. Define the law of demand. consumers buy
more of a good when its price decreases and less
when increases
b. Define the law of supply.
is the tendency of suppliers to offer more of a good
at a higher price
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15. Draw and label a supply and demand graph. Illustrate changes in
demand and supply. p. 126
Price
Supply and Demand Curve
Demand
Supply
Equilibrium
Equilibrium
Quantity
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16. List and describe the four market
structures.
1. perfect competition- is when a large number of
firms all produce the same product
2. monopoly- a system that is dominated by a
single seller
3. monopolistic competition- when many
companies sell products that are similar but not
identical
4. oligopoly- is when a few large firms dominate
a market
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17. Define elasticity of demand. is a measure of
how consumers react to a change in price
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18. Define and give an example of each.
1. elastic demand- is a very sensitive change in
price
example: the demand for a particular brand
2. inelastic demand- is not sensitive to a change
in price
example: goods with no substitutes
water, gas,
utilities
3. unitary (unit elastic) demand- is a demand
whose elasticity is equal to 1
example: equilibrium
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19. Define a price floor and a price ceiling and provide a graph that
shows what a price floor and ceiling cause. p. 129
1. price floor- a government- or group-imposed limit on how low a price
can be charged for a product. For a price floor to be effective, it must be
greater than the equilibrium price. Causes a surplus
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2.price ceiling- A price ceiling is a government-imposed limit on the price charged for a
product.
A price ceiling set below the free-market price has several effects. Suppliers find they can't
charge what they had been. As a result, some suppliers drop out of the market. This reduces
supply and creates a shortage.
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Summary of Microeconomics
Create questions and answers for the following
vocabulary, topics, or ideas
marginal cost
partnership
corporation
elasticity of demand
law of demand
inelastic demand
to create a surplus or shortage
variable costs
demand curve shift
major types of market structures
monoploly
stockholder
SEC
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Define and provide examples of the following costs to a firm.
1. total cost- fixed costs plus variable costs
Example: materials and labor
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2. fixed cost- is a cost that does not change
Example: rent mortgage
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3. variable cost- may rise of fall depending on the quantity produced
Example: raw materials
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4. marginal cost- is the cost of producing one more unit of a good
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Example: hiring a new worker
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What is the golden rule of profit maximization? occurs at a point
where marginal cost equals marginal revenue. Thus, the optimal level of
production occurs where marginal revenue equals marginal cost, the
point of maximum profit as dictated by the golden rule.
IV. Measurement and Fiscal Policy
Draw and label a business cycle.
a. What is fiscal policy? the use of government
spending and revenue collection (taxes) to influence the
economy (expand or contract)
b. Describe the government’s two fiscal policy
tools.
1. taxes
2. spending
How would the fiscal policy tools be used to expand
or contract the present economy recession? The
government would increase spending and cut taxes
What are the three major types of taxes? Give one example of
each.
1. proportional or flat tax a tax imposed so that the tax rate is
fixed. The amount of the tax is in proportion to the amount
subject to taxation. "Proportional" describes a distribution effect
on income or expenditure, referring to the way the rate remains
consistent (does not progress from "low to high" or "high to
low" as income or consumption changes), where the marginal
tax rate is equal to the average tax rate.
Example: same percent taken from everyone regardless of income
With a proportional or flat tax, each individual or household
pays a fixed rate. For example, low-income taxpayers would
pay 10 percent, middle-income taxpayers would pay 10
percent, and high-income taxpayers would pay 10 percent. The
sales tax is an example of a proportional tax because all
consumers, regardless of income, pay the same fixed rate.
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2. progressive tax is a tax by which the tax rate
increases as the taxable base amount increases.
"Progressive" describes a distribution effect on
income or expenditure, referring to the way the
rate progresses from low to high, where the
average tax rate is less than the marginal tax
rate.
Example: the more a person makes the higher the
percentage that is taken out takes more from the
wealthier people
3. regressive
tax is a tax imposed in such a manner that
the tax rate decreases as the amount subject to taxation
increases. "Regressive" describes a distribution effect on
income or expenditure, referring to the way the rate
progresses from high to low, where the average tax rate
exceeds the marginal tax rate. In terms of individual
income and wealth, a regressive tax imposes a greater
burden (relative to resources) on the poor than on the rich
— there is an inverse relationship between the tax rate
and the taxpayer's ability to pay as measured by assets,
consumption, or income
Example: sales tax -takes a larger amount from low
income people
26. Discuss major macroeconomic measurements:
1. GDP- total value of all goods and services produced in a year
2. unemployment- people not in the labor force 16 and over, not retired, and are
looking for a job
3. CPI- (Consumer Price Index) a price index determined by “market basket”
measuring
4. inflation- a general increase in prices
5. national debt- all the money the federal government owes to bond holders
6. budget deficit- is when a government spends more money than it takes in
7. budget surplus- is when the government takes in more than it spends
V. Money, Banking and
Monetary Policy
Questions
1. What are the 3 functions of
money?
2. What is the most important
characteristic of money?
3. Why is money scarce?
27. What are the three functions (uses) of
money?
1. medium of exchange
2. unit of account
3. store of value
28. List four characteristics of money.
1. durability
2. portability
3. divisibility
4. uniformity
5. scarcity
6. acceptability
4. ____________
money has value
because the
government says it is
an acceptable way to
pay debts
29. Differentiate fiat vs. representative
money.
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fiat money has value because the
government says it is an acceptable way to
pay debts
 representative money are objects that
have value because can exchange them for
something else of value
5. The purpose of the
_______ is to stabilize the
banking system
30. Provide a short response about the
FED.
a. history: after several banking crisis’s,
Congress passed the Federal Reserve Act
b. purpose: to have a more centralized power to
deal with a crisis
c. structure: there are 12 Federal Reserve
districts
31.( see pages 420-429) What are the three
tools of the Federal Reserve? How does
each tool work to expand or contract the
economy?
6. The 3 tools that
FED uses to regulate
the money supply
1. Open-Market Operations –
are?
The Fed constantly buys and sells U.S. government
securities in the financial markets, which in turn influences
the level of reserves in the banking system. These decisions
also affect the volume and the price of credit (interest
rates). The term open market means that the Fed doesn't
independently decide which securities dealers it will do
business with on a particular day. Rather, the choice
emerges from an open market where the various primary
securities dealers compete. Open market operations are the
most frequently employed tool of monetary policy.
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Expand: the Federal Reserve Bank buys government
securities on the open market
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Contract: the Federal Reserve Bank sells bonds to bond
dealers which takes the money out of circulation
2. Setting the Discount Rate –
This is the interest rate that banks pay on short-term
loans from a Federal Reserve Bank. The discount
rate is usually lower than the federal funds rate,
although they are closely related. The discount rate
is important because it is a visible announcement of
change in the Fed's monetary policy and it gives the
rest of the market insight into the Fed's plans.
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Expand: decrease the *discount rate
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Contract: increase the *discount rate
3. Setting Reserve Requirements –
This is the amount of physical funds that
depository institutions are required to hold in
reserve against deposits in bank accounts.
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Expand: reducing would allow banks to
make more loans which would increase the
money supply
Contract: increasing even a small amount
would force banks to hold more money in
reserves which would cause the money
supply to shrink or contract.
7. The rate the
Federal Reserve
charges for loans to
commercial banks is
called the ________
_______.
8. Two functions of
banks are ?
8. 3 types of financial
institutions are ?
9. Who are the board
of governors?
10. When the FED
uses expansionary
measures, what is it
expanding or
increasing?
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* discount rate- is the rate the Federal Reserve
charges for loans to commercial banks