Economics

1. Economics

2. Economics -Economics -the system that society uses to produce and distribute goods and services -Why study economics??? -Why does the government pay so much attention to the economy???

3. Wants and Needs -Wants are the things which people would like to have -Needs are the things which people need to survive -Goods -things that can be made or manufactured -Capital goods are the things used to manufacture other goods -consumer goods are goods meant to be sold to consumers for use -Services -work that is done for someone for a certain price

4. Limited Availability -Goods and Services are produced using resources Natural Resources or Human Resources -Scarcity -the economic problems of limited goods and the unlimited wants of society in general -Scarcity limits the availability of goods and services that people desire or need. -This scarcity gives goods and services VALUE

5. Putting a Price on Things -Price or VALUE is based on two basic factors Supply and Demand -Supply -the amount of a good or service that is available for consumers to buy -Demand -the amount of a good or service that consumers are willing to buy

6. Determining Price -Price is determined by comparing the amount of demand to the amount of supply and finding an amount where they are equal -Market or Equilibrium Price -this is the point at which supply and demand meet and price is determined

7. Effects of Price -Shortages -when demand is greater than supply -What happens to price? -Surplus -When supply is greater than demand -What happens to price?

8. Law of Demand Demand- The amount of a particular good or service consumers want to buy Law of demand- as the price of a good increases the amount demanded will decease and as price decreases then demand will increase

9. Diminishing Utility -the law of demand says that a lower price will increase demand but this is limited -diminishing utility -the amount of satisfaction or usefulness of a product decreases as more and more are consumed. -Ex.—You can only enjoy so many soft drinks before you can’t drink anymore no matter the price you are paying

10. Elasticity -Elasticity -Is the degree to which a change in price affects the demand for the product -Elastic Demand -a change in the price does affect the quantity demanded -Inelastic demand -change in the price does NOT affect the quantity demanded

11. Income Level Changes -The demand of many consumers is based on their income level or purchasing power -A change in either direction to a person’s purchasing power will change their demand for goods and services -personal income -disposable income

12. Change in Consumers -The number of possible consumers in an area affects demand -Faster growth areas may face higher levels of demand -Areas of the country who are losing population will face lower demand for goods

13. Consumer Expectations -Many consumers plan when making economic choices and their predictions for the future change their demand -a period of high unemployment or economic boom can greatly change the demand for certain goods

14. Consumer Tastes -Because consumers have many choices of where to spend their money, the popularity of items will change demand -Advertisers spend billions every year to shape the “tastes” of consumers -Some items become high demand items for a short while and then very little demand

15. Substitute Goods -substitute goods are goods that can be used in place of another product ex.—chicken or beef -if a good experiences a price change then the substitute good will face a demand change ex—chicken price increases, demand for beef increases

16. Complementary Goods -complementary goods are goods that work with another product ex-cd-roms and computers -a change in the demand for one will many times affect the demand for the other as well

17. Law of Supply -Supply -the amount of a particular good/service that producers will supply at a given price -Law of Supply -as the price of a good/service increases then producers will supply more of the product and as the price decreases they will supply less.

18. Diminishing Returns -the law of supply says that producers will supply more at a higher price but this is limited -diminishing returns -the producer can only produce so much of the product before its cost is more than the profit received from its sale -Ex.—You can only increase factory production so far until a larger factory is needed which may be more costly than its worth

19. Elasticity -Elasticity -Is the degree to which a change in price affects the supply for the product -Elastic Supply -a change in the price does affect the quantity demanded –easily able to produce more -Inelastic Supply -change in the price does NOT affect the quantity demanded –hard to produce more

20. Productivity -Productivity -the amount of a good/service than can be produced in a given time -Increases in productivity allow producers to make more of a product in a given time and at the same price which decrease cost and increases profits -better technology is a major focus of increasing productivity

21. Cost of Resources -The cost of the materials that go into goods and services can affect the production costs which affect the amount which can be supplied at each price level -Examples -higher wages lowers supply -cheaper resources increase

22. Company Expectations -Producers as well as consumers make economic plans. A company hat expects record sales or few sales will adjust its supply levels -Economic forecasts by the government become very important to large producers

23. Government Policy -Governments can affect suppliers in many ways -More Regulations or fewer regulations producers must follow can affect supply levels -Gov’t subsidies can help some producers cut costs to increase supply levels while fewer subsidies cause production costs to rise

24. Taxation Policies -Taxes—higher or lower taxes affect the overall profit level which determines supply -lower taxes means greater profits and more supply -higher taxes means fewer profits and less supply

25. Alternative Products -Supply can also be affected by other products that producers could supply -If price falls for one product then they will supply less and shift production to another type product

26. Why Do We Participate in the Economic System??? Everything we do is connected to the economic system in some fashion. Each day we go to work because the work we provide is in demand in the and the wages we receive enable us to get the the goods and services we need to live.

27. Goods and Services are sold to Consumers Individuals / Consumers Business / Government Money is exchanged for goods and services

28. Business and Gov’t pay individuals for labor Individuals / Consumers Business / Government Individuals provide labor for businesses and Gov’t

29. Government provides services to its citizens Individuals / Consumers Business / Government Citizens pay taxes to their government

30. Participation in Economic Activity is circular in its nature. Labor is provided for wages and wages are exchanged for goods. However the wages earned from labor are now gone and the process must begin again. This process will continuously repeat itself throughout your lifetime.

31. Economic Terms

32. Comparative Advantage -Comparative Advantage When one nation is better able to produce a good or service than another nation -What causes the advantage???

33. Producing Goods -Productivity is the amount of a good or service that can be produced in a given time -What does Increased Productivity do? -What is the Effect of productivity on Inflation??? -Specialization of Labor / Division of Labor -method of having workers do only a part of a product but do it very efficiently -blue collar labor -white collar labor

34. Producing Goods -Labor Intensive Work- job that required a lot of human effort and physical contact -Lower paying jobs -Many labor intensive products produced overseas -Mechanization- using machinery to make products or provide services Machines sometimes take the jobs of people Increases Productivity

35. Producing Goods -Interchangeable Parts -Mass Production -Assembly Line

36. Growing Businesses -Economies of Scale -the idea that a larger business is more efficient than a smaller one because of its ability to do things in larger volume -Law of Diminishing Returns -economic law that states that the level of return for additional labor or work will decrease at some point and continue to decrease

37. Economic Choices -Opportunity Cost -this is the benefit that you have given up in order to pursue an alternative -Trade Off -this is the choice that you make when faced with economic decisions where you have to choose one thing over another

38. Economic Systems

39. Factors of Production -Capital or Capital Goods---the money or tools needed to produce goods/services -Land / Resources– the natural resources needed to produce goods/services

40. Factors of Production -Labor– the work required to produce goods/services -Management—the decision making process that is involved in producing goods/services

41. Traditional Economy Advantages Disadvantages - - -economy where people supply most of the goods and services they use -many things are done by tradition -usually in places of little modern technology

42. Command Economy Advantages Disadvantages - - -economy where the government controls the factors of production -Government makes all decisions

43. Market Economy Advantages Disadvantages - - -individuals make all economic decisions according to supply and demand -laissez-faire economics -also called free market, free enterprise, or capitalism -competition and supply and demand determine the economy-----the “invisible hand”

44. Mixed Economy Advantages Disadvantages - - -a mixing together of market and command systems -individuals have economic freedoms -government retains some control for benefit of citizens

45. Types of Businesses

46. Sole Proprietorships -business owned by a single person or a married couple -3/4 of all businesses are sole proprietorships -Advantages -Disadvantages

47. Partnerships -business owned by two or more people -Advantages -pool resources and capital -Disadvantages

48. Corporations -business that has a great many owners -sell stocks to investors -pay dividends to shareholders

49. Corporations -Limited liability -the ability of a corporation to protect its shareholders by placing only the amount of capital they have invested at risk -Incorporation---legal process of forming a corporation through state government -Advantages -Disadvantages

50. Non-Profit Organizations -business that is organized to provide a service and not to make large profits for the owners -many are charities or service groups -Advantages -Disadvantages