Unit 1Fundamentals

You can’t always get what you want,But you just might find, you can get what you need. -- Mick Jagger

VocabularyScarcity: Lack of adequate resources to obtain all

of one’s wants.

Productivity: The rate at which goods and services are produced.

Input: Resources used in production.

Output: Amount of goods/services produced.

Economics:

 

A.K.A. –  

 Wants (___________) vs.Resources (money) (_________) 

As a result:   

how individuals and businesses (firms) can allocate

(distribute) their limited resources

most benefit out of limited resources at lowest cost.unlimited

limited

people and businesses must make choices.

Resources –  

Examples:  Natural resources:  

Examples:  

Two types of natural resources:

renewable –

nonrenewable –

people and businesses can put to use (productivity); things needed to provide service or good.

money, land, labor, time

“Gifts of nature”

trees, soil, water, etc.

trees – they can be planted

crude oil – takes millions of years to replinish, but we are going through it too fast!

CapitalEquipment, tools, and resources used to create other goods and services 

Entrepreneurship

Risk-taker in search of profits that starts a business 

Human CapitalSum of people’s skills, abilities, health, and motivation

Product Market 

Market in which consumers purchase goods and services produced by business 

Resource Market

Where factors of production are purchased and consumed

B. Productive Resources Resources must be  Four factors of production productive resources are elements of every firm (business):

1. 2.

3.

4.

processed (put together to make a product).

Entrepreneurship: people create jobs; someone starts a business.

Capital: resources – all manufactured aids used in producing products. Ex: factories, equipment, tools, supplies

Land: location of business

Labor: workers using both physical and mental abilities.

C. Scarcity - lack of adequate resources to obtain wants. Difference between “______ " and “_______":  Hurricanes are rare but are not scarce. Why do you think?

__________________________________________________ Gold is scarce – why do you think?

________________________________________________so . . . it ______________a price.

 More scarce = _____________Less scarce = ______________

Rare because doesn’t happen often AND nobody wants them.

rarescarce

There’s not a lot of it AND many want it.

commands

Higher price

Lower price

D. Strategies for Dealing with ScarcityScarcity exists:

The refineries knew storm was coming so they raised prices hoping that people would conserve.

Example: Hurricane Katrina and gas prices

•Oil rigs and refineries were destroyed•gas supplies were scarce (less to sell)•consumer demand was still the same•prices were raised

wants are greater than resources

What is a bulldozer an example of?

A. capitalB. landC. natural resourceD. labor

Trees, minerals, and real estate on which a company builds its main manufacturing center are all examples of

A. capital goodsB. capital investmentC. landD. entrepreneurship

What is the lack of adequate resources to obtain all of one's wants

A. resourcesB. capitalC. scarcityD. entrepreneurship

Trade Off Act of giving up one thing of value to gain another

Opportunity Cost

Value of the next best alternative

Marginal Benefit

Amount of benefit a person, business or government receives once the cost of their decision is considered.

Marginal Costs The cost of a decision once it is weighed against the benefits.

II. Economic Decision Making Scarcity:  A. Decision-Making Model  Define the problem: Should I adopt a dog?  List the alternatives:

State Criteria (ask yourself questions)  Evaluate Alternatives (trade-offs and opportunity costs)   Make Rational Decision  ***All economic decisions involve .

 

households and firms must make choices

trade offs, opportunity costs, marginal benefits, and marginal costs

B. Production Possibilities and Trade-offs 

Decision = must determine which ________________ are __________________.

Trade offs are ______________ because __________ are __________. Must decide what to do without and what to use resources on (make ______).

tradeoffs most beneficial

unavoidableresources

limited

profits

Production Possibilities Curve depicts __________with available _________and _______________(decision that you don’t make or give up).

1. Which point represents the level at which snow skis alone could be MOST efficiently produced?

2. Which point represents the level which is unattainable with the resources available?3. The trade-off of producing snow skis at point R to point X is roughly how many snow

boards?4. Which point represents resources being used but not efficiently?

productionresources opportunity costs

WY

Opportunity cost of 100 snowboards (300 – 200) Z

Ted wants to be a lawyer. He also wants to buy a brand new car. Since law school and the car are potentially very expensive, he cannot afford both. If Ted decides that the marginal benefit of going to law school are greater than the marginal costs of buying a new car, then the MOST rational decision Ted could choose is

A. use the money for law schoolB. invest the money in the stock marketC. buy the new carD. neither; just start working

You bought a new iPod with the last $150 in your checking account instead of going to eat and a Braves game with your friends. What is the opportunity cost of getting the iPod?

A.the difference between the cost to produce the iPod and the price you paid for itB. $150C. going out to eat and a Braves game with your friendsD. knowing you are the first of your friends to get the newest iPod

Which of the following would consumers MOST OFTEN need to consider when trying to make a rational economic decisions?

A. the impact of the governmentB. potential opportunity costsC. factors of productionD. net exports

According to the production possibilities graph, at which point on the graph would Woodstock Shoe House be producing only tennis shoes?A. V C. XB. W D. Y

Specialization Using resources to one specific task   

Division of Labor

Type of specialization which different workers do different parts of the same job. 

Voluntary Exchange

People/businesses freely choose to engage in market transactions 

Specialization and Voluntary Exchange

1. Specialization and Division of Labor

Producers (businesses) want to make as much money as they can (profits).

Example: Cutting 5 lawns per week at $25 per lawn = $125 total revenue.Your cost of production is $35 (gas)Subtract the cost from the revenue to determine your profit.

Which puts money into the owner’s pocket? Profits vs. Revenue

__________________ = reduce expenses and sell at a price consumers are willing to pay.

Reducing the cost of production =_________________________

Revenue: $ (Gross)

Expenses: - (costs)

Profit $ (Net)

Maximize profits

125 35

90

increase productivity

Specialization is devoting of resources to a specific task. •Causes jobs to be more efficient combined with (splitting up work into smaller tasks).

•Results in with better quality

•Examples: _______________________________________________________.

•Productivity , and so does !

Focus on one job

division of labor

more production

Shoe factory, car plant, teaching, police force, etc.

increases profit!

2. The Benefits of Voluntary Exchange Voluntary exchange is when individuals/businesses to _____________goods and services for something of value ( ). People do this every day!

Provides a : have the freedom to buy and ____________ have the freedom to pursue profits.

 Consumers want a ____________ and Producers want a _______________ (profit). Voluntary exchange provides a price that is best for both. Increases productivity and efficiency, encourages inventions and innovations Makes firms more profitable

freely choose

exchange money

balance consumersproducers

low cost high price

Which of the following describes how goods pass from producers to consumers in a free enterprise system (market economy)?

A.capital investment B.specializationC. voluntary exchange D. taxes and subsidies

The act of dividing up or splitting up work in smaller tasks so work is done more efficiently and productive is referred to as

A. specializationB. voluntary exchangeC. division of laborD. capital investment

Command Economy

Economy in which the gov’t makes all economic decisions 

Market Economy

Economy based on private ownership and the determination of prices by supply and demand 

Mixed Economy

Economy that has elements of a market and command economy 

III. Economic Systems (4 types)

3 fundamental economic questions:

1. _______ will be produced?2. will it be produced?3. will it be produced?

What

How

For Whom

A. Traditional Economies

Existed throughout . Workers usually produce at a subsistence level (for their own people).

Usually a wealthy class that hands down wealth ( ).

- little opportunity for economic advancement

benefits – their wealth and status

today; grew unstable. More opportunities in market economy

Ex- Amish, Aborigines, & Inuit

history

small inherited

Laborers

Upper class protects

Not very common

B. Command Economy

• - property and factors of production;

small amount of private ownership.

• Government determines what is , and how

_________ are .

• Distribution of goods/services based on equity (

)

• unemployment; working conditions

•Little motive; sense of to the .

•Less than economies

Government owns

Everyone gets the same amount, but piece of pie is smaller.

produced priced

goods distributed distributed equally

Low bad

profit duty country

efficient market

B. Command Economy Continued

•Attracts poorer individuals (equity)

•Susceptible to ; productivity; economy

set by gov't (not demand & competition)

•Little little limited

voluntary exchange

• to react to changes; - items that aren't

desired; shortages of items that are in demand

•Examples: former Soviet Union, Cuba, Vietnam, & North Korea

corruption lower

innovation

financial gain

Slow

surpluses

C. Market Economy

determine goods/services produced

& factors of ___________________(land, labor, capital, & entrepreneurship) are owned (by )

owns only enough to carry out its role

Producers produce what consumers demand (right price)

Business motivation is _________.

Workers earn wages.

Competition = choices for consumers (lowest prices)

thrives through _____________________.

government interference.

and steer the market.

Producers & Consumers

Property production

privately people

Government

profit

higher

Innovation competition

Little

Supply demand

D. Mixed Economies

Mixed economies have elements of and _____________economies

Most economic systems are mixed The ___________ is technically a mixed economy with more elements of a ____________system. _________________is also a mixed economy with more elements of a _________________system.

marketcommand

U.S.

market

China

command

Regulation Using laws to control what businesses can do

Deregulation Gov’t decides to stop its involvement in a particular industry 

Public Goods Government provided goods for everyone to use

Investment Using resources that could bring immediate benefits for the purposes of gaining greater benefits

 Capital Investment

 Using business profits to buy new machines, equipment, new technology and education

E. The Role of Government in a Market-Economy

Gov't provides __________ goods and services Examples: military, police, fire protection, parks, schools, etc. Society needs these services regardless of profits for public order. Gov't may ______________________ income: ________________ of payment - take money from those who have it and give it those who don't a.k.a - tax people for welfare programs

Resolve market failures (recent gov't bailouts) Another example - New Deal

Gov't also uses _________, subsidies, lowering interest rates (Federal Reserve), EPA, FDA, etc.

Gov't also protects _____________________(owning property) such as business, house, cars, etc. (incentives drive the economy)

public

redistribute transfer

tariffs

Property rights

In a market economy, what is the primary motivation for producers to sell their products at a price consumers can afford?

A.patriotism B.profitC. sense of duty D. fear of government regulations

In what kind of an economy does the government make all the decisions?

A.traditional economy B.command economyC. socialists D. free enterprise

In China, the government owns many industries throughout the economy. However, some of their businesses are privately owned that competefor business. Which of the following would BEST describe the type of economy China has?

A. traditionalB. commandC. marketD. mixed

The economic system that is based on equity and the government decides what gets made and sets prices is referred to as what?

A.market system B.political economyC. traditional economy D. command economy

F. Deregulation http://www.businessinsider.com/ridiculous-regulations-big-government-2010-11?op=1

________or decrease regulation (rules) of the gov't in the economy

-Ex- airline industry in the 1970s

Deregulation usually ______________competition

Lack of regulation: less __________ in the workplace, damage to the ________________, ________ labor practices, _______________ in investing

Gov't balances - efficient market economy & protecting social welfarehttp://www.youtube.com/watch?v=Mh47zb615X8

increases

Stop

safetyenvironment unfai

rcorruption

IV. Investment

A. Productivity__________ at which goods/services are produced (make as many as quick as possible)

More ________ in less ________= _____________productivity

Productivity is _______ for growth

Increased productivity = more goods available = financial rewards (_________________)

______________are all the factors of production that go into producing a good -Ex- workers, machinery, tools equipment, materials, etc.

_____________ are the goods/services produced

Producers - produce enough output to earn a _____________.

Inputs must _________________than ____________________ from outputs.

Rate

goods time greater

key

incentives

Inputs

Outputs

profit

cost less income earned

B. The Impact of Investment

Investment productivity

Investment is using resources for gaining greater benefits later -Ex - people putting money in their 401k plans at work

Production grows due to in capital goods and human capital.

___________________ are products used to make other goods -Ex- metal, glass, bolts, rubber, factory, bulldozer, etc.

Remember: Capital goods are different than consumer goods

_____________________ is an investment in . -Ex - health insurance, maternity leave, getting another degree, job training

Education and training increase the value of workers which increases the possibility of earning more money. This can provide a higher standard of living.

increases

Capital investment

Capital goods

Human Capital people

Human capital includes

A. the salary paid to an accountant.B. a person’s education that allows them to get a jobC. the machinery used in a factoryD. the equipment used by a doctor to cure a patient.

Apple Inc. just had a record setting year in profits. Rather than use the resources to raise production, they decide to purchase more land and materials build a new plant in China with updated technology. Apple'sactions represent what?

A. failure to recognize opportunity costsB. capital investmentC. consumer investmentD. investment in human capital

V. Economic Interdependence A. The Circular Flow of Economic Activity

3 main actors in economic activity:

1) ________________________

2) ________________________

3) ________________________ Households ( ) supply to businesses in exchange for . Businesses use the labor to which are then _____________ by & . & pay _________ to the gov't Gov't uses this tax money to attempt to . Thus, there is economic !

HOUSEHOLDS

GOVERNMENT

BUSINESSES

individuals

labormoney

produce goods

purchased households businesses

Households businesses

taxes

benefit society

interdependence

B. Product and Resource (Factor) Market

are sold to consumers for (product market)

Ex- running shoes, groceries, laptops, televisions, etc.

market - businesses seek to make a .

Businesses also purchase for production in the market (four factors of production).

Producers in new and . earn their income from businesses.

Thus, there is economic _______________________!

Goods consumption

Product profit

goods increasingfactor

invest capital labor

Producers

interdependence

According to the circular flow diagram, the market for labor would be in the __________ market.

A.product B.wage C. factor D. free

According to the circular flow diagram, the market for consumer would be in the __________ market.

A.product B.wage C. factor D. free

Sole proprietorship  

Business owned by a single owner

Partnership 

 

Type of business where risks and profits of a business are divided among owners

Corporation   

Type of business in which investors own shares of stock

Stock   

Share of ownership in a corporation

Franchise Sole proprietor or partnerships purchase the local rights to a corporation

VI. The Organization and Role of Business

A. Sole Proprietorship

_________ form

by an or . Advantages: , direct between ________ and , business decisions, easiest to , being your . Disadvantages: unlimited , limited , usually have limited (possible loans).

Simplest

liability

individual household

flexibility interaction owner

consumers quick

Startup and stop own boss

life

funds

Owned

B. Partnership

people who share the and . -Common examples: law firms, doctors offices, & accounting firms Advantages: can raise money, expertise, fairly easy to . Disadvantages: to reach decisions, potential , ________of dissolving the partnership, are responsible.

2 or more profitsrisks

more combine

start up

difficultconflict

legality all partners

C. Corporation

Separate entity.

Owned by . Shareholders buy ( of ownership) Corporations sell their stock on the ___ (ex-NYSE) for _______________. Stocks can go and depending on the . Advantages: limited , raise more (selling stocks & bonds), unlimited . Disadvantages: double , internal between owners, and have little say.

legal

shareholders

stock share

stock exchange

investment

up down economy

liability money

life

taxation conflictsowners

D. Franchise

Person(s) the to a corporation.

Ex-McDonald's, Chick-fil-A, Zaxby's, etc. Pay a fee and agreement (must do things a certain way)

purchase local rights

license contractual

E. Nonprofit

Businesses that don’t earn a profit.Example: churches, schools, charities, etc.

Which of the following is an advantage of a sole proprietorship?

A. No one is responsible if it fails. B. It is the easiest way to start a business. C. It is an easy way to make a lot of money.D. It is easy to get financing to start one.

A type of business that has unlimited life is which of the following?

A.cooperative B.partnershipC. corporation D. sole proprietorship

With respect to raising funds, the primary difference between a corporation & other types of businesses is

A.they can sell shares of the company to the general publicB. they obtain loans from banksC. they always have collateral, but other businesses do notD. they can more easily make decisions about whether to seek a loan