ECON 104 Exam Study Guide Questions and
Answers
economic growth the ability of the economy to increase the production of goods and
services
economic system The set of mechanisms and institutions that resolve the what, how, and
for whom questions
Pure Capitalism an economic system characterized by the private ownership of resources
and the use of prices to coordinate economic activity in unregulated markets
private property rights An owner's right to use, rent, or sell resources or property
Pure Command System an economic system characterized by the public ownership of
resources and centralized planning
mixed system An economic system characterized by the private ownership of some
resources and the public ownership of other resources; some markets are regulated by
government
Utility the satisfaction from receiving consumption
,transfer payments cash or in-kind benefits given to individuals as outright grants from the
government
partnership A business in which two or more persons combine their assets and skills
corporation a legal entity, or being, owned by individual stockholders, each of whom has
limited liability for the firm's debts
cooperative an organization consisting of people who pool their resources to buy and sell
more efficiently than they could independently
market failure a condition that arises when the unregulated operation of markets yields
socially undesirable results
anti-trust laws prohibitions against price fixing and other anticompetitive practices
natural monopoly one firm can supply the entire market at a lower per-unit cost than could
2 or more firms
private good a good that is both excludable and rival in consumption
public goods a commodity or service that is provided without profit to all members of a
society, either by the government or a private individual or organization.
, Externality A cost or a benefit that affects neither the buyer nor seller, but instead affects
people not involved in the market transaction
fiscal policy the use of government spending and revenue collection to influence the
economy
monetary policy regulation of the money supply to influence economy-wide variables
such as inflation, employment, and economic growth
ability to pay principle those with greater ability to pay a tax should pay more tax
benefits-received principle people who benefit directly from public goods should pay for
them in proportion to the amount of benefits received
tax incidence the distribution of tax burden among taxpayers; who ultimately pays the tax
Proportional taxation The tax as a percentage of income remains constant as income
increases; also called a flat tax
progressive taxation the tax as a percentage of income increases as income increases
marginal tax rate the extra taxes paid on an additional dollar of income
Answers
economic growth the ability of the economy to increase the production of goods and
services
economic system The set of mechanisms and institutions that resolve the what, how, and
for whom questions
Pure Capitalism an economic system characterized by the private ownership of resources
and the use of prices to coordinate economic activity in unregulated markets
private property rights An owner's right to use, rent, or sell resources or property
Pure Command System an economic system characterized by the public ownership of
resources and centralized planning
mixed system An economic system characterized by the private ownership of some
resources and the public ownership of other resources; some markets are regulated by
government
Utility the satisfaction from receiving consumption
,transfer payments cash or in-kind benefits given to individuals as outright grants from the
government
partnership A business in which two or more persons combine their assets and skills
corporation a legal entity, or being, owned by individual stockholders, each of whom has
limited liability for the firm's debts
cooperative an organization consisting of people who pool their resources to buy and sell
more efficiently than they could independently
market failure a condition that arises when the unregulated operation of markets yields
socially undesirable results
anti-trust laws prohibitions against price fixing and other anticompetitive practices
natural monopoly one firm can supply the entire market at a lower per-unit cost than could
2 or more firms
private good a good that is both excludable and rival in consumption
public goods a commodity or service that is provided without profit to all members of a
society, either by the government or a private individual or organization.
, Externality A cost or a benefit that affects neither the buyer nor seller, but instead affects
people not involved in the market transaction
fiscal policy the use of government spending and revenue collection to influence the
economy
monetary policy regulation of the money supply to influence economy-wide variables
such as inflation, employment, and economic growth
ability to pay principle those with greater ability to pay a tax should pay more tax
benefits-received principle people who benefit directly from public goods should pay for
them in proportion to the amount of benefits received
tax incidence the distribution of tax burden among taxpayers; who ultimately pays the tax
Proportional taxation The tax as a percentage of income remains constant as income
increases; also called a flat tax
progressive taxation the tax as a percentage of income increases as income increases
marginal tax rate the extra taxes paid on an additional dollar of income
