Learn: Comprehensive Economics: Resources, Systems, Business Structures & Decision Making

Scarcity

Society not having enough resources to produce all the things people would like to have.

Economics

Is the study of how people try to satisfy seemingly unlimited and competing wants through the careful use of relatively scarce resources.

Need

Basic requirement for survival, such as food, clothing, and shelter.

Want

Some things we would like to have but is not necessary for survival.

TINSTAAFL

There is no such thing as a free lunch.

What to Produce

A society cannot have everything its people want so it must decide what to produce.

How to Produce

Lower costs make manufactured items less expensive and therefore available to more people.

For whom to Produce

A society has to make a choice about who will receive the existing supply.

Factors of Production

Land, capital, labor and entrepreneurs.

Land

Gifts of nature - not created by people such as deserts, fertile fields, forests, mineral deposits, livestock, sunshine and climate.

Capital

Tools, equipment, machinery and factors used in the production of goods and services.

Labor

People with all their efforts, abilities and skills.

Entrepreneurs

A risk taker in search of profits who does something new with existing resources.

Production

Everything we make requires all four factors.

Gross Domestic Product (GDP)

The dollar value of all final goods, services, and structures produced within a country's borders in a 12 month period.

Economic Health

Key measure of a nation's economic health.

Value

Refers to a worth that can be expressed in dollars and cents.

Paradox of Value

Scarcity was needed for something to have value.

Utility

Capacity to be useful and provide satisfaction.

Wealth

Accumulation of products that are tangible, scarce, useful and transferable from one person to another.

Circular Flow

How households and businesses interact in a market to exchange products.

Markets

Location or other mechanism that allows buyers and sellers to exchange a specific product.

Factor Markets

Where individuals earn their incomes and factors of production are bought and sold.

Product Markets

Markets where producers sell their goods and services.

Economic Growth

Occurs when a nation's total output of goods and services increases over time.

Productivity

A measure of the amount of goods and services produced with a given amount of resources in a specific period of time.

Human Capital

Sum of people's skills, abilities, health, knowledge and motivation.

Division of Labor

The way of organizing so that each individual worker completes separate part of the work.

Specialization

Where factors of production perform only tasks that can do better or more efficiently than others.

Economic Interdependence

We rely on others and others rely on us to provide most of the goods and services we consume.

Trade-offs

Alternative choices.

Opportunity Cost

Cost of the next best alternative.

Production Possibilities Frontier

A diagram representing various combinations of goods and services an economy can produce when all its resources are fully employed.

Point Y

Cannot be reached.

Frontier

Shows the maximum combinations of goods and services that can be produced.

Economic Model

A simplified equation, graph, or figure showing how something works.

Cost-Benefit Analysis

A way of comparing the costs of an action to the benefits received.

Free Enterprise Economy

Consumers and privately owned businesses make the majority of the WHAT, HOW, and FOR WHOM decisions.

Standard of Living

The quality of life based on the ownership of the necessities and luxuries that make life easier.

Economic System

An organized way of providing for the wants and needs of the people of a country.

Traditional Economy

Uses ritual, habit, or custom to answer the basic economic questions.

Command Economy

Relies on central authority to make most of the economic decisions.

Market Economy

Consumers and businesses jointly answer the what, how, and for whom questions.

Capitalism

An economic system where private citizens own the factors of production.

Mixed Economy

A mix of traditional, command, and market economies.

Socialism

A mixed economy where the government owns and controls some but not all of the basic productive resources.

Communism

An extreme form of socialism where all property is collectively owned.

Economic Freedom

The freedom to choose occupation, employers, and uses for money.

Economic Efficiency

Resources are scarce, and we don't want to waste resources.

Economic Equality

Equal pay for equal work, which created the minimum wage.

Economic Security

Protection from layoffs and illnesses.

Social Security

Provides for disability and retirement benefits that cover most working people.

Disadvantages of Traditional Economy

Tends to discourage new ideas and can lead to economic stagnation.

Advantages of Command Economy

Can change direction drastically and provides many public services at little or no cost.

Disadvantages of Command Economy

Ignores basic wants and needs of consumers.

Advantages of Market Economy

Highest degree of individual freedom and variety of goods and services.

Disadvantages of Market Economy

Does not provide for everyone and has a high degree of uncertainty.

Advantages of Mixed Economy

Provides assistance for some people who might otherwise be left out.

Disadvantages of Mixed Economy

Tends to have higher tax rates as the government provides more services.

Full Employment

Most people want their economic system to provide as many jobs as possible as they are then earning income and producing goods and services for others.

Price Stability

Inflation - a rise in the general level of price - means people have to pay more for everything, like food, clothing and shelter.

Fixed Income

Income that does not go up even though prices go up and thus they have a harder time paying bills and planning for future.

Interest Rates

If too high they discourage both borrowing and spending.

Future Goals

Cleaner environment, protection of endangered species.

Minimum Wage Trade-off

A trade off of the minimum wage is that fewer workers will be hired.

Free Enterprise

The United States is based under Free Enterprise - as our resources are privately owned and competition is allowed to flourish with a minimum of government interference.

Voluntary Exchange

The act of buyers and sellers freely and willingly engaging in market transactions.

Private Property Rights

Allows people to own and control their possessions as they wish.

Profit Motive

The incentive that encourages people and organizations to improve their material well being.

Competition

Struggle among sellers to attract consumers.

Role of Entrepreneur

They are the driving force of free enterprise system.

Consumer Sovereignty

The role of the consumers as ruler of the market when determining types of goods and services produced.

Role of Government

We want government involved in the economy, and we want them to serve as a protector, provider, regulator and consumer.

Protector (Government Role)

Enforces laws such as those against false and misleading advertising.

Provider (Government Role)

Provide goods and services for citizens.

Regulator (Government Role)

Preserving competition in the marketplace.

Sole Proprietorship

Business owned and run by a single person who has the rights to all profits and unlimited liability for all debts of the firm.

Advantages of Sole Proprietorship

Easy to set up, management of one, keeps all profits, does not pay separate business income taxes.

Disadvantages of Sole Proprietorship

Unlimited liability, difficulties of raising financial capital, limited life.

Partnership

Unincorporated business owned and operated by two or more people who share the profits and responsibilities for debts.

General Partnership

In which all partners are responsible for the management and financial obligations of the business.

Limited Partnership

At least one partner is not active in the daily running of the business.

Advantages of Partnership

Ease of start up, each partner brings something to the game, can attract financial capital more easily.

Disadvantages of Partnership

Each partner is fully responsible for the acts of all other partners, potential for conflict between partners.

Corporations

A form of business organization recognized by law as a separate legal entity with all the rights of an individual.

Charter

A government document that gives permission to create a corporation and specifies the number of shares of stock.

Stockholders

Investors who own part of the corporation through shares.

Dividend

A check that transfers a portion of the corporate earnings to each stockholder.

Common Stock

Basic ownership of a corporation, providing one vote for each share of stock.

Preferred Stock

Non-voting ownership shares of the corporation that receive dividends before common stockholders.

Limited Liability

The corporation itself is fully responsible for its obligations, protecting owners from personal loss.

Unlimited Life

A corporation continues to exist even when ownership changes.

Double Taxation

Corporate profits and stockholder dividends are taxed twice.

Merger

When two or more businesses join together to form a single firm.

Horizontal Merger

When firms that produce the same kind of product join forces.

Vertical Merger

When companies involved in different stages of manufacturing or marketing join together.

Conglomerate

A firm that has at least four businesses making unrelated products.

Diversification

A strategy to reduce risk by spreading investments across various products or markets.

Multinationals

Corporations that have manufacturing or service operations in multiple countries.

Non-Profit Organizations

Organizations that promote the collective interests of their members rather than seeking financial gain.