Economics Unit 1

Scarcity

Society not having enough resources to produce all things people want

Why is scarcity important in economics? 

Effects all the decisions people make

Define a need, include an example

Basic requirement for survival

Food/water, clothing, and shelter

Define a want, include an example

Something we would like to have but not necessary to survive

Car and designer clothes

Define a good, include an example. 

A useful item or product that is used to satisfy a need or want

Tangible item

Book, car, MP3 player

Define services and give an example. 

Work or labor performed for someone

Haircuts, home repairs, forms of entertainment: concerts

What do economists mean when they say, “There is no such thing as a free lunch.” 

1. Resources are limited and everything we do has a cost, even when it seems we are getting something for free

2. Business that gives something away still has to pay for the resources of item so it it charges more for other products to try and cover the costs

3. You may actually in the end be paying for your free lunch

What are the three basic economic choices societies have to make? Why do societies face these three basic questions? 

1. In order to meet the needs and wants of the people society faces these questions:

   1. What to produce?

   2. How to produce?

   3. For whom to produce?

Define gross domestic product (GDP). 

Monetary value for all final goods, services, and structures produced within countries borders during a one year period

Define factors of production. 

1. Resources needed to produce the things we want

2. Land, labor, capital, and entrepreneurs are all needed to make goods

Define land. 

Natural resources

“Gifts of nature”

Define Capital. 

Tools used to create goods and services

Define labor. 

People with efforts, abilities, and skills

Not entrepreneurs

Define entrepreneurs. 

Risk takers who make new products with resources and are looking for profit

Define opportunity cost, include an example

Cost of the next best choice that you gave up

Money, time, resources 

1. Define trade-offs 

2. What are examples of trade-offs for consumers? 

1. Choice given up when one choice is made rather than the other, choice that isn’t picked

2. On brand or off brand clothing, time with friends or homework

What are the rights of consumers? 

1. Consumerism- movement attempt to educate buyers about purchases they make and to demand better and safer products from producers

   1. Right to safety

      1. Protection against goods that are dangerous to life and health

   2. Right to be informed

      1. Receive information that can be used for reasoned choices and protection against fraud

   3. Right to choose

      1. Right to be protected in markets where competition may not always exist 

   4. Right to be heard

      1. Guarantee that consumer interests will be considered when laws are being written

   5. Right to redress

      1. Ability of consumers to receive adequate payment from producers if they are harmed by their products

What are the responsibilities of consumers? 

1. Include important details and copies of receipts, guarantees, and contracts to support your case

2. Report the problem immediately. Do not try to fix a product yourself, because doing so may cancel the warranty

3. If you need to contact the manufacturer in writing, type your letter or send an email directly. Keep a copy.

4. Keep cool. The person who will help you solve your problem is probably not responsible for causing the problem

5. Keep an accurate record of your efforts to get the problem solved. Include the names of people you have spoken to or written to and the dates on which you communicated

Define and describe a traditional economy. 

1. System in which decisions are made based on the customs, traditions, or rituals inherited from previous generations

2. Economic system in which the allocation of scarce resources, and other economic activity, is the result of ritual, habit, or custom

Define and describe a command economy. 

1. System in which decisions of what to produce, how and whom are determined by the state

2. Economic system characterized by a central authority that makes most of the major economic decisions

Define and describe socialism. 

Economic system in which the government owns some factors of production and has a role in determining what and how goods are produced

What are some characteristics of command economies and socialism? 

1. Command economy is where a central authority makes the major decisions about what, how, and for whom to produce

   1. King, president, etc.

2. Socialism is a version of the command economy

   1. Central authority makes the decisions about what, how, and for whom to produce

3. Socialism is a system in which the government owns some but not all means of production

   1. Government plays major role in answering most of the what, how, and for whom questions

What are the advantages of a command economy? 

1. State controls everything so it can make drastic changes in short amount of time

2. Due to its population vision, basic services such as education, health, are free but of low quality

What are the disadvantages of a command economy? 

1. Not interested in the needs and desires of consumers

2. There is no competition so wages are low and there are no incentives to work

3. There is a lot of bureaucracy which increases costs and slows down processes

4. The state is not willing to make changes that harm its system

5. Establishes limitations to the private initiative

What are the characteristics of a market economy? 

Individuals and companies carry out the production and exchange of goods and services through transactions involving prices and markets, decisions made by the people for their best interests

Define capitalism. 

Economic system in which private citizens own and use factors of production in order to generate profits

Private ownership of resources

Define mixed economies. 

1. Economic system that encompasses the development of private companies and the existence of state-owned companies or public control

2. The means of production are shared between the private and public sectors

What caused the development of mixed economies? 

1. An economy is mixed as a result of a combination of extreme economic systems such as traditional, command and market systems that are not applicable in real life.

2. Another reason why an economy is mixed is that it has been shown that due to external causes such as wars, conflicts, natural disasters or recessive economic cycles, a mixed economy has facilities to adjust and devise more effective solutions to these problems with the lowest possible cost.

3. Finally, one of the elements that makes a mixed economy is its flexibility and its tendency to evolve over time and allowing it to modify or establish new measures or policies that work in current times.

How do different mixed economies answer the what, how and for whom decisions? 

Decisions are made by private individuals and businesses, firms

Define communism. 

1. Economic and political system in which factors of production are collectively owned and directed by the state

2. Theoretically classless society in which everyone works for the common good

3. States of economic and political affairs where everyone would contribute according to his or her abilities and consume according to his or her needs

Define free enterprise. 

Resources privately owned, competition allowed to flourish without much government interference

Identify the characteristics of a capitalistic free economy.

1. High degree of individual freedom

2. Adjusts gradually over time

3. Small degree of government interference

4. Everyone has a voice in the way the economy is run, decentralized

5. Variety of goods and services are produced

6. High degree of consumer satisfaction

7. Goods are privately owned and they last longer than goods owned by others

Explain economic freedom. 

1. Ability of people in an economy to take their own economic action

   • Engage with trade with any person of their choosing

   • Buying and selling goods and property

   • Choose your occupation, employer, and job location

   • Free to hire in a business

   • Make many items of choosing

Define profit. 

Difference between the revenue from sales and full opportunity costs of resources involved in producing

Define and explain profit motive. 

The driving force that encourages individuals and organizations to improve their material well-being

Define and explain competition. 

1. A rivalry between two or more businesses trying to sell products to the same customer or market

2. One company sells for a lower price taking away the business from the other company

Why are entrepreneurs an important part of a free enterprise economy? 

They are willing to take risks and start a new business, they are the catalyst or the starting point for the economy

Describe consumer sovereignty.

1. A characteristic of a market economy that gives consumers the power to decide what businesses produce

2. The ability that all individuals have when going to market and consuming to determine what goods they will buy and which ones they will not. 

3. Consumer will ultimately have the decision of what to produce in the economy

Why are consumers an important part of a free market economy? 

1. Consumers compete for goods and services

2. Answers are answered by the consumers

   1. What, how, and for whom

Define regulator. 

Someone or something that controls activities

• Government in businesses and in the world

Describe the role of the government as a protector. 

Enacting and upholding consumers rights through legal framework ensuring that producers don't exploit their consumers.

Describe the role of the government as a provider. 

It provides the essential public goods like defense, etc which private players fail to provide.

Describe the role of the government as a regulator.

It regulated the market to keep it competitive and prevent misuse of power by market players. Thus it ensures that consumers finally get what they want and at the best possible price.