2009

Honors Economics

Mr. Crawford

Final Exam Review Guide

Structure:

100 Multiple Choice questions (0.5 point each)

10 out of 15 Definition and Short Answer questions (2 points each)

1 out of 3 Essay (Viewpoint and Brief)  (30 points)

Time:  150 minutes
UNIT ONE
FUNDAMENTALS OF ECONOMICS
  • SCARCITY
    • LIMITED AND DESIRABLE
  • CHOICE
    • OPPORTUNITY COST
    • TINSTAAFL
  • PROFIT MOTIVE
    • COST-BENEFIT ANALYSIS
    • EUSR = MSUW
  • RATIONAL THINKING
    • FUTURE INVESTMENT
    • IMPERFECT INFORMATION
  • MARGINAL BEHAVIOR
    • INCENTIVES MATTER
  • TRADE CREATES WEALTH

  • ECONOMIC THEORY
  • POSITIVE/OBJECTIVE
    • FACTS
    • THEORY
      • INDUCTION
      • DEDUCTION
  • NORMATIVE/SUBJECTIVE
    • POLICY
  • FALLACIES
    • POST HOC
    • COMPOSITION
    • DEFINITION
    • BIAS
VOCABULARY

 SCARCITY
CHOICE
RESOURCES
CAPITAL
LAND
LABOR
POSITIVE/OBJECTIVE
NORMATIVE/SUBJECTIVE
RATIONING
TRADE-OFFS
OPPORTUNITY COST

 PROFIT
UTILITY
INVESTMENT
 MARGINAL
CETERIS PARIBUS
BIAS
POST HOC FALLACY
FALLACY OF COMPOSITION
MICROECONOMICS
MACROECONOMICS
PRODUCTION POSSIBILITIES		 FULL EMPLOYMENT
FULL PRODUCTION
TECHNOLOGY
TRADE
INVENTION
INNOVATION
MASS PRODUCTION
DIVISION OF LABOR
SPECIALIZATION
CAPITALISM
SOCIALISM
UNIT TWO
THE MARKET SYSTEM
  • THE FOUR FUNDAMENTAL QUESTIONS
  • TRADITIONAL SYSTEMS
    • BARTER

ADAM SMITH

  • GREED
    • PROFIT MOTIVE
  • PRIVATE PROPERTY
  • FREEDOM OF CHOICE
  • MARKETS
  • COMPETITION
  • NO GOVT
    • "LAISSEZ FAIRE"
    • "INVISIBLE HAND"
  • CAPITALISM
    • SPECIALIZATION
    • CAPITAL
    • MONEY
  • CONSUMER SOVEREIGNTY
    • DERIVED DEMAND
  • BUSINESS ORGANIZATIONS
    • SOLE PROPRIETORSHIP
    • PARTNERSHIP
    • CORPORATION
  • CORPORATE FINANCING
    • REINVESTMENT
    • COMMERCIAL PAPER
    • BONDS
    • PUBLIC OFFERING
      • COMMON STOCK
      • PREFERRED STOCK
    • STOCK ANALYSIS
      • FUNDAMENTAL ANALYSIS
        • QUALITATIVE
        • INVESTORS
        • LONG TERM
        • CAPITAL GAINS
        • DIVIDENDS
      • TECHNICAL ANALYSIS
        • SPECULATORS
        • SHORT TERM
        • CAPITAL GAIN
        • QUANTITATIVE
VOCABULARY
TRADITIONAL
BARTER
TRANSACTION COSTS
COINCIDENCE OF WANTS
CAPITALISM
PRIVATE PROPERTY
LAISSEZ FAIRE
ENTREPRENEUR
INVENTION
INNOVATION
MASS PRODUCTION
DIVISION OF LABOR
SPECIALIZATION
CIRCULAR FLOW		 FINANCIAL CAPITAL
CONSUMER SOVEREIGNTY
HOUSEHOLD
RESOURCE MARKET
PRODUCT MARKET
REVENUE
INCOME
WAGES, RENT, INTEREST
BUSINESS FIRM
LIABILITY
SOLE PROPRIETORSHIP
PARTNERSHIP
CORPORATION
BOARD OF DIRECTORS		 CEO, CIO, COO, and CFO
REINVESTMENT
COMMERCIAL PAPER
BOND
PUBLIC OFFERING
UNDERWRITER
STOCK
CAPITAL GAIN
DIVIDEND
FUNDAMENTAL ANALYSIS
TECHNICAL ANALYSIS
INVESTOR
SPECULATOR
SHORT SELL
UNIT THREE
SUPPLY AND DEMAND
DEMAND

Law of Demand

CHANGE IN P= CHANGE IN Qd

INVERSE

  • DMU
  • YFX
  • SFX

CHANGE IN NPD= CHANGE IN D

  • TASTES
  • INCOME
  • MORE OR FEWER BUYERS
  • EXPECTATIONS
  • RELATED GOODS' PRICES
    • SUB=SAME
    • COMP=OPPOSITE

CHANGE IN D= PQ

CHANGE IN D= PQ
SHORT RUN = CHANGE IN D
LONG RUN = CHANGE IN S		 SUPPLY

Law of Supply

 CHANGE IN P =  CHANGE IN Qs

DIRECT

  • DMR/IC
  • P X Q = TR

CHANGE IN NPD= CHANGE IN S

  • GOVERNMENT
    • TAXES/SUBSIDIES
    • PRICE CONTROLS
  • OTHER PROFIT OPPORTUNITIES
  • NUMBER
  • INVESTMENT IN TECHNOLOGY
  • COST OF RESOURCE
  • EXPECTATIONS

CHANGE IN S= PQ

CHANGE IN S= PQ

 
VOCABULARY
DEMAND
LAW OF DEMAND
QUANTITY DEMANDED
DEMAND CURVE
DEMAND SCHEDULE
SUBSTITUTION EFFECT
INCOME EFFECT
SHORT RUN/LONG RUN		 DIMINISHING MARGINAL UTILITY
SUPPLY
LAW OF SUPPLY
QUANTITY SUPPLIED
SUPPLY CURVE
SUPPLY SCHEDULE
INCREASING COSTS		 EQUILIBRIUM
SURPLUS
SHORTAGE
INVISIBLE HAND
NON-PRICE DETERMINANTS
T.I.M.E.R.
G.O.N.I.C.E.
UNIT FOUR
MARKET FAILURE
Milton Friedman
KARL MARX JOHN KENNETH GALBRAITH MILTON FRIEDMAN ADAM SMITH
DAS KAPITAL, 1867 THE AFFLUENT SOCIETY, 1958 FREE TO CHOOSE, 1980 THE WEALTH OF NATIONS, 1776
SOCIALISTS LIBERALS CONSERVATIVES CAPITALISTS
WEALTH = UTILITY
LABOR CREATES VALUE
PROFIT IS SURPLUS LABOR		 WEALTH = GOODS
INVESTMENT CREATES VALUE
PROFIT IS RETURN FOR RISK
FLAWS OF CAPITALISM:

EXTERNALITIES
MONOPOLIES
INEQUITY
PUBLIC GOODS
BUSINESS CYCLES
ASYMMETRIC INFORMATION		 MOST MODERN ECONOMISTS AGREE THE GOVERNMENT SHOULD BE RESPONSIBLE FOR:

PROVIDING A LEGAL FRAMEWORK
MAINTAINING COMPETITION
REDISTRIBUTING INCOME
PROVIDING PUBLIC GOODS
CORRECTING FOR EXTERNALITIES
circularflowwithG.jpg		 CAPITALISM 

SELF-INTEREST
PRIVATE PROPERTY
FREEDOM OF CHOICE
COMPETITION
MARKETS
NO GOVERNMENT INTERVENTION
SOLUTION:

COMPLETE PUBLIC OWNERSHIP OF THE MEANS OF PRODUCTION



SOCIALISM

(which eventually leads to COMMUNISM)		 SOLUTION:

DIRECT GOVERNMENT INTERVENTION

GOVERNMENT AS REFEREE		 FLAWS OF SOCIALISM:

RATIONAL IGNORANCE
SPECIAL INTERESTS
SHORT-TERM THINKING
DEADWEIGHT LOSS
CROWDING OUT
BUREAUCRATIC CAPTURE		 NO PROBLEM:

FREE MARKETS ARE COMPLETELY SELF-CORRECTING
SOLUTION:

INDIRECT GOVERNMENT INTERVENTION

GOVERNMENT AS REPAIRMAN 
EXAMPLE:
CIGARETTES

EXTERNAL COST
Lung Cancer, Second-hand Smoke

PUBLIC GOOD:
Better Health for Everyone

ASYMMETRIC INFORMATION:
Ammonia Added to Nicotine to Create Greater Addictive Properties

MONOPOLY POWER:
Two Tobacco Companies Control 80% of the Market
SOLUTION
GOVERNMENT SHUTS DOWN TOBACCO FARMS AND CIGARETTE FACTORIES GOVERNMENT TAXES CIGARETTES, AND BANS SMOKING FOR EVERYONE UNDER 18 GOVERNMENT PUTS WARNING LABELS ON CIGARETTES; LAWYERS CAN SUE TOBACCO COMPANIES LET EVERY INDIVIDUAL DECIDE FOR HIMSELF
VOCABULARY

Karl marx
Labor theory of value
subsistence
alienation
exploitation
surplus value
 market failure
 inequity
monopoly
BUSINESS CYCLES
externalities
public good

 free rider
asymetric information
socially optimal equilibrium
 John kenneth galbraith
liberal
protective function
distributive function
corrective function
productive function
 PROGRESSIVE TAX
PROPORTIONAL TAX
FLAT TAX		 MILTON FRIEDMAN
PUBLIC CHOICE theory
CONSERVATIVE
RATIONAL IGNORANCE
SHORTSIGHTEDNESS
DEADWEIGHT LOSS
SPECIAL INTEREST EFFECT
 LOBBYING
 RENT-SEEKING
LOG ROLLING
PORK BARREL
CROWDING OUT
BUREAUCRATIC CAPTURE