Fbla Economics Study Guide

FBLA
ECONOMICS
STUDY GUIDE
By: Paras Nahar

1.
DIAGNOSTIC TEST
The scores and results of Students A,
B, C, and D
2https://www.fbla-pbl.org/media/economics_online_ref_guide.pdf

Student A
› B, A, C, B, A, C, B, D, A, A
› 7/10
3

Student B
› B, A, C, C, A, D, C, D, B, A
› 6/10
4

Student C
› B, A, C, C, A, D, D, D, C, A
› 6/10
5

Student D
› B, D, A, A, A, C, A, B, C, A
› 5/10
6

2.
VOCABULARY 1
20 economic terms defined +
student scores
7https://www.economist.com/economics-a-to-z

VOCABULARY SET 1
1. Absolute
Advantage
The ability to
produce more of a
good than all other
producers
2. Aggregate
Expenditure (GDP)
All spending for final
goods and services
in an economy:
Consumption +
Investment +
Government + Net
Exports
3. Nominal GDP
The value of current
production (GDP) at
the current prices
8

VOCABULARY SET 1
4. Real GDP
The value of current
production (GDP) at
inflation-adjusted
prices
5. Aggregate
Demand
Shows the total
quantity of goods
and services
consumed at
different price and
output levels
6. Allocative
efficiency
Distribution of
resources among
firms and industries
to obtain production
quantities of the
products most
wanted by society;
where marginal cost
equals marginal
benefit
9

VOCABULARY SET 1
7. Appreciation
An increase in the
value of the dollar
relative to the
currency of another
nation, so that the
dollar buys more of
the foreign currency
and thus foreign
goods become
cheaper
8. Asset
Items of monetary
value owned by a
firm or individual;
opposite is liability
9. Balance of
Payments Account
Summary of a
nation’s current
account, financial
account, and capital
account
10

VOCABULARY SET 1
10. Barrier to Entry
Artificial prevention
of the entry of firms
into an industry
11. Bond
Financial instrument
through which a
borrower (corporate
or government) is
contracted to pay
the principal at a
specified interest
rate at a specific
date (maturity) in
the future.
12. Balance of Trade
The difference in
value between a
country’s imports
and exports.
11

VOCABULARY SET 1
13. Budget Deficit
The amount by
which spending of
the government
exceeds its tax
revenues in any year
14. Budget Surplus
The amount by
which the tax
revenues of the
government exceed
its spending in any
year.
15. Capital
Resources (building,
machinery, and
equipment) used to
produce goods and
services; also called
investment goods
12

VOCABULARY SET 1
16. Circular Flow
Model
Flow of resource input
from households to
businesses and of
goods and services
from businesses to
households. A flow in
the opposite direction
for money occurs
simultaneously
17. Comparative
Advantage
the ability of an
individual or group to
carry out a particular
economic activity
(such as making a
specific product) more
efficiently than
another activity (at a
lower opportunity
cost)
18. Complementary
goods
Goods that are used
together so the
demand for one
generates demand for
the other
13

VOCABULARY SET 1
19. Consumer Price
Index (CPI)
Index that measures
the prices of a set
“basket” of 300
goods and services
bought by a typical
consumer; used by
government as an
indicator of inflation
20. Change in
Demand
Change in a quantity
demanded of a good
or service at all
prices; shift of the
demand curve to the
left (decrease) or
right (increase)
14

VOCABULARY SET 1 SCORES
› Student A
› 10/10
› Student B
› 8/10
› Student C
› 9/10
› Student D
› 7/10
15https://play.kahoot.it/#/k/7bddbd43-73f7-4146-9b21-011fa264f908

3.
VOCABULARY 2
20 more economic terms defined [40
total] + student scores

VOCABULARY SET 2
21. Recession
a phase of the
business cycle in
which the economy
as a whole is in
decline; two
consecutive quarters
of falling real GDP
22. Marginal
Propensity to Save
the change in saving
caused by a change
in disposable
income, or the slope
of the saving
function.
23. Marginal Propensity
to Consume
the change in
consumption caused by
a change in disposable
income, or the slope of
the consumption
function.
17

VOCABULARY SET 2
24. Market for
Loanable Funds
the market for dollars
that are available to be
borrowed for
investment projects.
Equilibrium in this
market is determined
at the real interest rate
where the dollars saved
(supply) is equal to the
dollars borrowed
(demand)
25. Demand for
Loanable Funds
a hypothetical curve
that shows the
willingness to
borrow money to
fund investment
projects; as the
interest rate
decreases, the
quantity of loans
demanded will
increase.
26. Disposable
Income
income that is left
for consumption
after taxes are paid;
if your income is
$100 and you pay $5
in taxes, your
disposable income is
$95.
18

VOCABULARY SET 2
27. Private Saving
what is left of
disposable income
after consumption is
taken out; if your
disposable income is
$95 and you spend
$70, you have $25 left
in savings.
28. Public Saving
the difference
between taxes
collected and
government
spending; when
there is a budget
surplus, public
saving is positive,
but when there is a
budget deficit,
public saving is
negative.
29. National Savings
the total amount of
private saving and
public saving
19

VOCABULARY SET 2
30. Economics
the study of how
individuals and
societies choose to
allocate scarce
resources.
31. Economic
Resources
also called the factors of
production; these are the
land (natural resources such
as minerals and oil), labor
(work contributed by
humans), capital (tools,
equipment, and facilities),
and entrepreneurship (the
capacity to organize,
develop, and manage a
business) that individuals
and businesses use in the
production of goods and
services.
32. Normative
Analysis
unlike positive
analysis, normative
analysis is subjective
thinking about what
we should value or a
course of action that
should be taken, such
as the importance of
environmental factors
and the approach to
managing them.
20

VOCABULARY SET 2
33. Macroeconomics
the study of
aggregates and the
overall commercial
output and health of
nations; includes the
analysis of factors
such as
unemployment,
inflation, economic
growth and interest
rates.
34. Positive
Analysis
analytical thinking
about objective
facts and cause-and-
effect relationships
that are testable,
such as how much of
a good will be sold
when a price
changes.
35. Efficiency
the full employment
of resources in
production; efficient
combinations of
output will always
be on the PPC.
21

VOCABULARY SET 2
36. Productivity
(also called technology)
the ability to combine
economic resources; an
increase in productivity
causes economic
growth even if
economic resources
have not changed,
which would be
represented by a shift
out of the PPC.
37. Production
Possibilities Curve
(also called a
production
possibilities frontier) a
graphical model that
represents all of the
different
combinations of two
goods that can be
produced; the PPC
captures scarcity of
resources and
opportunity costs.
38. Specialization
when an individual
or a country
allocates most or all
of its resources
towards the
production of a
particular good or
service.
22

VOCABULARY SET 2
39. Inferior Good
a good for which
demand will decrease
when buyers’ incomes
increase.
40. Normal Good
a good for which
demand will increase
when buyers’
incomes increase.
23

› Student A
› 10/10
› Student B
› 10/10
› Student C
› 8/10
› Student D
› 10/10
24https://play.kahoot.it/#/k/9f3efd3c-d790-4d58-a24c-2e05a5955ae7

4.
VOCABULARY 3
20 more economic terms defined [60
total] + student scores

VOCABULARY SET 3
41. Equilibrium
in a market setting,
an equilibrium
occurs when price
has adjusted until
quantity supplied is
equal to quantity
demanded
42. Disequilibrium
in a market setting,
disequilibrium occurs
when quantity
supplied is not equal
to the quantity
demanded; when a
market is experiencing
a disequilibrium, there
will be either a
shortage or a surplus.
43. Market
an interaction of buyers
and sellers where goods,
services, or resources are
exchanged
26

VOCABULARY SET 3
44. Determinants of
Demand
changes in conditions
that cause the demand
curve to shift; the
mnemonic TONIE can
help you remember the
changes that can shift
demand (T-tastes, O-
other goods, N-number
of buyers, I-income, E-
expectations)
45. Law of Demand
all other factors being
equal, there is an
inverse relationship
between a good’s price
and the quantity
consumers demand; in
other words, the law of
demand is why the
demand curve is
downward sloping;
when price goes down,
people respond by
buying a larger quantity.
46. Law of Supply
all other factors being
equal, there is a direct
relationship between a
good’s price and the
quantity supplied; as
the price of a good
increases, the quantity
supplied increases;
similarly, as price
decreases, the quantity
supplied decreases,
leading to a supply
curve that is always
upward sloping.
27

VOCABULARY SET 3
47. Determinants of
Supply
changes in non-price factors
that will cause an entire supply
curve to shift (increasing or
decreasing market supply);
these include 1) the number of
sellers in a market, 2) the level
of technology used in a good’s
production, 3) the prices of
inputs used to produce a good,
4) the amount of government
regulation, subsidies or taxes in
a market, 5) the price of other
goods sellers could produce,
and 6) the expectations among
producers of future prices.
48. Exports
goods and services
produced within a
country that are
purchased in other
countries
49. Imports
goods and services
that are produced in
other countries but
are purchased in
your country.
28

VOCABULARY SET 3
50. Labor Force
the number of people
in a population who
are either employed
or unemployed
51. Unemployment
Rate
the percentage of
the labor force that
is unemployed
52. Labor Force
Participation Rate
the percentage of
the eligible
population that is in
the labor force
29

VOCABULARY SET 3
53. Transfer Payment
any payment by a
government to a
household that is not in
exchange for a good or
service; for example, if
the government hires a
contractor they are
buying a service that is
included in GDP, but if
they send a retired
person a pension check
they are not buying a
good or service and it is
not counted in GDP.
54. Quality of Life
(sometimes called
“well-being”) the
standard of health,
happiness, security,
and material comfort
of an individual, a
group of people, or a
nation
55. Non-Market
Transactions
economic activity that takes
place in the informal sector
(from babysitting, to lawn
mowing, to illegal drug sales),
sometimes called the gray
market or the black market
economy; non-market
transactions are not recorded,
taxed, or officially monitored
by the government. Because
of this, the output and income
generated is not included in
the calculation of a nation’s
GDP.
30

VOCABULARY SET 3
56. Income
Inequality
when a disproportionate
share of a nation’s income
is earned by a small
minority of households; for
example, when the top
10% of households earn
80% of the total income in
a country, there is a high
degree of income
inequality; GDP does not
account for income
distribution in any way.
57. Human
Development Index
a composite
measure of nation’s
social and economic
development
developed by the
United Nations that
includes measures of
health, wealth, and
education
58. Discouraged
Workers
people who do not have a
job, but they will take a job
if offered one. However,
they have given up looking
for work, so they are not
counted in the labor force;
for example, if Carol gives
up looking for work
because she is having
trouble finding a job, she is
no longer in the labor force
and therefore is not
counted as unemployed.
31

VOCABULARY SET 3
59. Structural
Unemployment
unemployment that occurs as
a result of a structural change
in the economy, such as the
development of a new
technology or industry; this is
a part of the natural rate of
unemployment. For example,
Negan finds a cure for all
dental diseases, and as a
result, Rosita loses her job as
a dentist and is now
structurally unemployed.
60. Frictional
Unemployment
the component of the
natural rate of
unemployment that
occurs because the job
search process is not
instantaneous; for
example, after Rosita
graduated from dental
school, it took her a few
weeks to find a job as a
dentist. During this period
she will be frictionally
unemployed.
32

› Student A
› 10/10
› Student B
› 9/10
› Student C
› 8/10
› Student D
› 9/10
33https://play.kahoot.it/#/k/87ee6a36-dd2f-4cac-899a-ecce3c64c663

5.
Economic Concepts 1
5 key economic concepts + student
scores

ECONOMIC CONCEPTS SET 1
1. Trade-Offs
- involves a sacrifice that must be made to get a certain product or
experience. A person gives up the opportunity to buy 'good B,'
because they want to buy 'good A' instead. This implies that
nothing is “free”, even if there is no monetary cost.
- EX: Going out on Friday night could involve several economic
trade-offs. Let's say you really want to go to the bar with your
friends. You will likely get home at 1 AM. The trade-off is the four
hours you are giving up that you could be spending studying.
35

2. Supply
- describes the total amount of a specific good or service that is available to
consumers. Supply can relate to the amount available at a specific price or
the amount available across a range of prices if displayed on a graph. The
supply provided by producers will rise if the price rises because all firms
look to maximize profits. As the supply increases, the price will fall given
the same level of demand. Ideally, markets will reach a point of equilibrium
where the supply equals the demand (no excess supply and no shortages)
for a given price point; at this point, consumer utility and producer profits
are maximized.
- EX: If there is a sudden increase in the price of bubble gum, Trident will
increase their production. Once the market is filled with bubble gum, the
price will decrease and Trident will begin lowering production again.
36

3. Demand
- a consumer's desire and willingness to pay a price for a specific good or
service. Holding all other factors constant, an increase in the price of a good
or service will decrease demand, and vice versa. If suppliers charge too
much, demand drops and suppliers do not sell enough product to earn
sufficient profits. If suppliers charge too little, demand increases but lower
prices may not cover suppliers’ costs or allow for profits. Some factors
affecting demand include the appeal of a good or service, the availability of
competing goods, the availability of financing and the perceived availability
of a good or service.
- EX: If bubble gum prices suddenly drop because there is a surplus of gums,
demand will increase as consumers purchase more at lower prices.
37

4. Interest Rates
- amount of interest due per period, as a proportion of the amount lent,
deposited or borrowed. The central bank reduces interest rates when
they wish to increase investment and consumption in the country's
economy. However, a low interest rate as a macro-economic policy
can be risky and may lead to the creation of an economic bubble, in
which large amounts of investments are poured into the real-estate
market and stock market.
- EX: If an individual was thinking about buying a home or a car, and the
interest rates suddenly go down, he or she might decide to take out a
loan and spend because it is now less expensive to do so.
38

5. Open Market Operations
- involves the Federal Reserve buying or selling Treasury bonds in the
open market. This practice is akin to directly manipulating interest
rates in that OMO can increase or decrease the total supply of money
and also affect interest rates. If the Fed buys bonds in the open
market, it increases the money supply in the economy by swapping
out bonds in exchange for cash to the general public. Conversely, if
the Fed sells bonds, it decreases the money supply by removing cash
from the economy in exchange for bonds.
- EX: The Federal Reserve notices that inflation is increasing at an
alarming rate. They will follow contractionary policy by selling U.S.
securities, thus, decreasing the amount of cash available.
39

ECONOMIC CONCEPTS 1 SCORES
› Student A
› 5/5
› Student B
› 4/5
› Student C
› 5/5
› Student D
› 4/5
40https://create.kahoot.it/k/a45e93a0-f000-43f7-b9fb-258f7cc2c428

6.
Economic Concepts 2
scores

1. Diamond Water Paradox
- This concept looks at the fact that water is more useful to humans considering
the whole, you know, survival thing, but diamonds are worth more in the market.
A diamond could be sold for a large amount of money, while water is given away
for free. Economists thought for a while that this contradiction might come from
the amount of labor put into each commodity, but it’s now generally accepted
that the answer is in the products’ marginal utility, or how useful each unit of the
product is. Because there is so much water in the world, we are able to easily
cover our highest-priority uses and use water for minor things like washing our
cars and watering our lawns. This makes us value it less, but if there were a water
shortage, we would gladly pay large amounts to make sure we had enough for
our survival.
- EX: You would pay thousands of dollars for a diamond ring, but no more
than $2 for a bottle of water, which is something you need to live.
42

2. Incentives
- An incentive is kind of like a bribe, but we’ll call it a good bribe. It’s basically
anything that motivates us to do a certain thing or buy a certain product.
Economists will tell you that incentives are everything. They’re given to
employees to encourage them to work hard (like bonuses and personal
development) and given to consumers to give them a reason to buy (like discount
cards). During hard economics times, they are particularly useful as they can keep
businesses alive and give rewards to customers. As a consumer it’s important to
understand how the incentives are benefiting you and also how they benefit the
economy.
- EX: To attract customers, Macy’s implemented a rewards program that awarded
points that could be used for Macy’s gift cards for every dollar spent at Macy’s.
43

3. Inflation
- When you think back on what you used to be able to buy for a dollar and what
you can get now, you’re getting a glimpse of inflation. Inflation is the increase in
the overall prices of products and services in the economy. Each dollar buys less
and we all probably start to feel poorer. A low, stable rate of inflation is normal
and economists consider it ideal, but high inflation can happen when the money
supply expands too much and too quickly. It’s obviously not seen as a great thing
by consumers who have to pay more for goods, and there are other negative
effects including less investment and savings and possibly a shortage of goods if
people start hoarding them. But there is a silver lining for the economy: central
banks can make adjustments to nominal interest rates that help ease recessions.
- EX: 80 years ago, a newspaper costs 5 cents. Now, newspapers cost $1.
44

4. Unemployment
- It’s easy enough to tell you the basic definition: the number of people in the
civilian labor force divided by the number of people who are unemployed. Simple.
But knowing exactly what that means and how to interpret the data is much
more complicated. You first have to know who counts as being unemployed. To
be unemployed in the U.S., you have to not have a job, have actively looked for
work in the last four weeks, and be available for work. This means that people
who have given up looking for work don’t count toward the unemployment
numbers anymore. You should keep that in mind when interpreting changes in
the rate, since some drops could mean lots of jobless people have just stopped
trying. You should also compare the latest numbers with the same month the
previous year to avoid getting confused by seasonal differences.
- EX: If John got let go 6 months ago and has not looked for a job since, he is not
officially unemployed, at least not according to the U.S. census.
45

5. Free
- It doesn’t exist. Even the brightest economists will tell you, “There’s no
such thing as a free lunch,” meaning nothing is entirely free of cost.
One speculation of where the phrase originated is when saloons
would give free lunch to anyone who bought a beer. They’d serve the
men the saltiest foods so they’d end up buying more beer, thus
making the meal cost something. Today, the concept isn’t too much
different. If you think you’re getting something for free, you’re
probably paying for it through hidden costs or costs that are
distributed to someone else or society.
- EX: If John is offered a free burger for signing up for Burger King’s app,
it is not really a free burger as he paid with the time it took to create
an account.
46

› Student A
› 5/5
› Student B
› 5/5
› Student C
› 5/5
› Student D
› 4/5
47https://create.kahoot.it/k/96cb159b-70a7-493b-b0cc-6aebc4bc5fe6

7.
Economic Concepts 3
scores

1. Factors of Production
- Land: Comprise of all exploitable resources found on earth such as crude oil.
- Capital: These are the physical apparatuses and equipment employed in the process of
production.
- Labor: These are the people who work or the human skills applied to facilitate
production.
- Entrepreneurs: These are the people who identify new opportunities or mobilize
resources for business or bring products to markets to meet the needs of society
- An economy is said to be in full production when resources are used efficiently, at the
lowest possible cost (productive efficiency) to address the particular needs of the society
(allocative efficiency). Trade-offs are made to maximize the productive and allocative
efficiency by the concept of marginal analysis of each choice. Below is more on what is
marginal analysis.
- EX: A factory is classified as capital and trees are classified as land. Labor is the workers
and entrepreneurs are the founders..
49

2. International Trade
- When two countries trade, one country can have a comparative or an
absolute advantage over the other. The concept of opportunity cost
and production possibility graphs is used to establish this. Both
countries can use this principle to identify the circumstances which
mutually beneficial trade can occur.
- EX: if we have wheat and sugar on the production possibility curves
of the U.S. and Brazil, and the U.S. needs 2 tons of sugar to make a ton
of wheat while Brazil needs 1.5 tons. Brazil has a comparative
advantage over the U.S. in the production of sugar.
50

3. Marginal Analysis
- This basic economic concept assumes that the additional benefit of a
commodity diminishes with every extra unit consumed.
- EX: If you take a bottle of soda, the first one will give you the
maximum benefit. However, a third, fourth or fifth bottle will not give
you as much satisfaction as the first one did. Although you probably
got some benefit from the fourth soda, the extra value diminishes
with every additional unit consumed.
51

4. Scarcity
- Economics is described as the science of choice, centered on the
principle that society has unlimited wants but depends on scarce
resources. Therefore, decisions are made to maximize satisfaction.
Scarcity causes people and firms to pick suitable alternatives at the
cost of the less preferred options creating opportunity costs and
trade-offs.
- EX: For example, many people would like to own a Ferrari, but most
settle for cars which they can afford.
52

5. Microeconomics vs Macroeconomics
- The distinction between these two sub-fields of economics
is somewhat arbitrary, but important. Macroeconomics
concerns the aggregate choices of members of a society and
things that affect whole populations, such as inflation and
unemployment. Microeconomics concerns individual and
small-group choices, such as firms attempting to maximize
their business profits.
- EX: The U.S. government’s fiscal policy would be examined by
a macroeconomist whereas Google’s business policies would
be examined by a microeconomist.
53

› Student A
› 5/5
› Student B
› 5/5
› Student C
› 5/5
› Student D
› 5/5
54https://create.kahoot.it/share/economic-concepts-set-3/53ab5d6e-6b0f-4627-a1e4-7982bd33211a

8.
Essential Graphs 1
3 key graphs + student scores

GRAPHS 1
1. Production Possibility Frontier
- The production possibilities curve (PPC) illustrates trade-offs
and opportunity costs when producing two goods. There is
one curve, which shows all possible combinations that can
be produced given the current stock of capital, labor, natural
resources, and technology. A straight line represents
constant opportunity costs, and a bowed out line represents
increasing opportunity costs. each axis represents a good
that a country produces, such as capital goods and consumer
goods.
56

GRAPHS 1
2. The Market Model
- The market model is used to illustrate how the forces of supply and
demand interact to determine prices and the quantity that is sold. This
model is important because many other models are variations of it,
such as the market for loanable funds and the foreign exchange
market. There are two axes: a vertical axis labeled “Price” or “P” and a
horizontal axis labeled “Quantity” or “Q”. There are two curves: a
downward sloping demand curve labeled “D” and an upward sloping
supply curve labeled “S.” The intersection of the two curves is where
the equilibrium lies.
58

GRAPHS 1
3. Aggregate Demand/Aggregate Supply (AD/AS) Curve
- The AD-AS (aggregate demand-aggregate supply) model is a way of
illustrating national income determination and changes in the price
level. We can use this to illustrate phases of the business cycle and
how different events can lead to changes in two of our key
macroeconomic indicators: real GDP and inflation. There are two axes:
a vertical axis labeled “Price level” or “PL” and a horizontal axis labeled
“real GDP.” There is a downward sloping aggregate demand curve
labeled “AD.” There is an upward sloping short-run aggregate supply
curve labeled “SRAS.”
60

GRAPHS 1 SCORES
› Student A
› 5/5
› Student B
› 4/5
› Student C
› 3/5
› Student D
› 4/5
62https://create.kahoot.it/share/economic-graphs/fef84776-5e32-484a-b4ea-94de27a19bac

9.
Essential Graphs 2
2 key graphs + student scores

GRAPHS 2
1. Laffer Curve
- The Laffer Curve is a theory developed by supply-side
economist Arthur Laffer to show the relationship between
tax rates and the amount of tax revenue collected by
governments. The curve is used to illustrate Laffer's main
premise that the more an activity — such as production — is
taxed, the less of it is generated.
64

GRAPHS 2
2. Foreign Exchange Market Graph
- Exchange rates are determined by the interaction of people
who want to trade in their currency (the supply of a
currency) with other people who want to obtain that
currency (the demand for a currency). The foreign exchange
model is a variation on a market model. The y-axis represents
the exchange rate and the x-axis represents the quantity of
one currency.
66

GRAPHS 2 SCORES
› Student A
› 4/4
› Student B
› 4/4
› Student C
› 3/4
› Student D
› 4/4
68https://create.kahoot.it/share/essential-graphs-2/ae1ea326-c6d6-402e-81ef-529d995a9763

10.
2006 Practice Test
student scores
69https://app.box.com/s/ckycn3u2gp

2006 Practice Test Scores
› Student A
› 97/99
› Student B
› 83/99
› Student C
› 87/99
› Student D
› 90/99
70

11.
PROGRESS
student score progress
71

Fbla Economics Study Guide

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