Semester 1 Final - Ethics, Economy, and Entrepreneurship Mrs. Martinez

Benefits of Human Beings Being Social Animals

expanding our potential for mutually advantageous cooperation. Inventing ways to be of service to each other, and even to distant strangers, is our distinctively human survival mechanism. It allows us to complete tasks together in one year that may have otherwise taken 100 years alone. Cooperation, mutual benefit, trade

Ethical Decisions

Every business decision is an ethical decision. These choices affect the wellbeing of others or society as a whole. To make an ethical decision, one must maintain integrity.

Ethics

The subject of how people have to live in order for the world to be a better place with them than without them

Trade

Trade = cooperation. The exchange of goods, services, or ideas for the benefit of both parties. Requires trust which can be aided by contracts.

Zero-Sum Game

no one gains unless someone else loses; the benefit is zero because if one person win then the other person loses

Specialization

The process of concentrating on and becoming expert in a particular subject or skill

Making only one product; they can make a lot of one product; can then trade this product for other products; end up being able to get more than they can produce

Property Rights

A bundle of rights that include rights to sell, lend, bequeath, and exclude non-owners. Enable would be producers to enjoy the benefits of productive effort and insulate themselves from external costs associated with activities around the neighborhood.

Communicate for Trade

to be able to make one's intentions known is to be able to make promises, negotiate deals, and execute sophisticated joint-stock plans in environments where effective communication is increasingly important. Successful trade is dependent upon our ability to communicate: whether written, typed, spoken, drawn, etc.

Factor of Production

lLand (natural resources), labor (human skills), capital (built environment), and entrepreneurship (innovation). They are all resources needed to meet demand with proper supply.

Opportunity Cost

Whatever you otherwise would have done with your time and money.

Institutions

Durable frameworks for interaction and mutual expectation. Includes shared rules, customs, beliefs, and meanings that enable us to live together because they help to make us more predictable to each other. Minimize the trade off between economic and ethical success.

Money

a form of cooperation; it helps people to be useful to each other. facilitates exchange by providing a common source of value for all parties involved. Unit of account, store value, medium of exchange.

Marginal Cost

the cost of producing one more unit of a good

supply curve represents the potential cost to sellers of each unit of potential production

Broken Window Fallacy

Refers to what is seen and unseen; if a window-repair man purposely breaks a window so that a business has to pay him to fix it; him getting paid is seen; however, if he hasn't broken the window, the business would have given their money somewhere else, which is the unseen; so what is seen does not make up for what is unseen

Adam Smith and Progress

Adam is founder of modern economics. Market society frees us from starvation and servility and the liberating impacts of markets are not guaranteed because markets can be corrupted by crony capitalism

Negative Railroad

New innovations allow us to lower our transaction costs. Tariffs negate the benefits of lower transaction costs. Therefore, countries must trade within a reasonable amount.

Scarcity Problem

Because resources are limited, relative to human wants and needs, we have to make choices. Example: Shall we use our limited supply of oil for gasoline (transportation) or for producing heat for homes and power for factories?

Production Possibilities Curve

A collection of points that shows the relationship between maximum possible production outcomes given a fixed set of resources over a period of time. Under = inefficient/unemployed. Over = impossible/unattainable. On the line = Efficient.

Inefficiency

Any time the quantities traded are greater than the equilibrium quantity or any time the quantities produced are less than the potential capacity.

Comparative Advantage

An application of opportunity cost. The existence of a relative cost advantage in producing one type of good or service compared to another. Both parties are able to gain if they specialize in the production of a good or service with the most negligible relative cost and trade for the other good or service they discontinued.

Mercantilism

Guided by the principle that a country will prosper by exporting more than it imports, meaning a positive cash flow; involves tariffs.

Voluntary Trade

A trade that leaves both people better off; a win-win set of outcomes; change for the better; take into account others wants and needs

Demand

a graph of this shows the relationship between the price of a good and the desired quantity: indirect relationship

when people are willing and able to buy a good or service; the desired quantity of a good or service over a given period of time

Supply

a graph of this shows the relationship between the price of a good and the quantity supplied: direct relationship

willingness to sell goods and services at certain prices

Equilibrium

When the quantity supplied and demanded are in equilibrium

Complements

goods and services that are consumed together. changing the price of one complement changes the price of another because they go together (direct relationship)

Substitute

a good or service that can be consumed in place of another. opposite of complements, if the price of one product rises, the substitute product demand will increase.

Economic Surplus

another term for total welfare resulting from trade. welfare is attributed to both sides of the market: buyers and sellers. A direct result of beneficial trade.

High Prices and Incentivizing

for demand, less is demanded at high prices. for supply, more is demanded at high prices. High prices are an incentive to sellers to increase production to make more goods.

Prices

enable people to form mutual expectations; they help people to coordinate in complex ways as they individually decide what to produce or consume.

Price Floors

minimum allowable prices; must be set above where prices would have been in the absence of floors; makes it illegal to buy or sell for anything less than a mandated price; lowers quantity supplied

Price Ceilings

maximum allowable prices; must be set below where prices would have been in the absence of ceiling; makes it illegal to buy or sell for higher than a mandated price; creates shortages

Agents and Principals

Principal relies on agent to act on their behalf (ex: owner of the store is the principal, the employees are the agents)

Negative Externality

External costs imposed on bystanders (ex: if one fisherman decides to overfish, there won't be enough fish for the others)

Private Property

Enables and incentivizes people to take responsibility for conserving scarce resources. It preserves resources under a wide variety of circumstances. It is the preeminent vehicle for turning negative sum commons into positive sum property regimes.

Market System

System where people are interdependent on each other, innovating by freely meeting the demands and needs of one another rather than being at the mercy of having to follow a single commander.

Positive Externality

external benefits imposed on bystanders (ex: a beekeeper's bees will also pollinate neighbors trees)

Monopoly

a situation in which there is only one seller who has complete pricing power

Market Power

power to manipulate prices

Tariffs

Taxes on imported or exported goods

Free Trade

international trade left to its natural course without tariffs, quotas, or other restrictions.

Minimum Wage

a minimum price that an employer can pay a worker for an hour of labor

Example of a price floor

Marginal Benefit

the additional benefit to a consumer from consuming one more unit of a good or service

(Amount ppl are willing to pay for a product)

Evaluation of Loans by Banks

Banks receive deposits, they release funds as loans, the loans themselves become deposits, those deposits are loaned out, and the process continues. Banks use credit scores to see your capacity to pay the loan back.

FOMC (Federal Open Market Committee)

Monetary policymaking body of the Federal Reserve System that formulates the bulk of the nation's monetary policy; consists of voting members

Government Bonds

The gov issues bonds to the federal reserve to get money and then they send that money to people in government programs

Expansionary Fiscal Program

When spending is higher than revenues and results in a deficit

Unemployment Rate

Ratio of the number of unemployed individuals by all individuals currently in the labor force; unemployed/anyone who does or could have a job = rate

GDP (Gross Domestic Product)

Broad measure of economic activity that is commonly used to gauge the economic performance of a whole country or region and to make international comparisons; market value of all finished goods and services produced within a country's borders in a specified period of time

What's in the GDP

C + I + G + (X-N)

c=consumption, i=investment, g=government, x=exports, and n=imports

Inflation Rate

Rate of increase of prices in a given time; percentage rate of change of a price index

How Economists Measure the Inflation Rate

Percentage rate of change= (item 1-item 2/ item 1) x 100 ; percentage rate of change of a price index

Budget Deficit

When the government spends more than its revenue in a given year

National Debt

An accumulation of deficits over time is debt; a budget can be in surplus and a country can still be in debt; current and future tax revenues are used to pay back the debt with interest

High Inflation

if we have high inflation, the value of our money is less, meaning one cannot buy as much.

When inflation is high, money is

losing in value

Capitalism

similar to science —> make a hypothesis and then test it out. take a look at the demand and supply that is there and then test out what you can do to meet it.

Creative Destruction

Process by which innovation disrupts markets and industries, and where the new methods drive out old ones

Positive Economic Profits

signal to potential new firms that operating in that particular market is a productive use of resources and there is further opportunity to gain

Calculating Interest

interest = principal x rate x time

I = P x R x T

Insurance

form of risk management: ex) auto insurance, health insurance, dental insurance, home insurance, etc.

How much should you have in savings at all times?

between six and twelve months of savings

Entrepreneur

entrepreneur sees an opportunity that other people have not seen, then decides to take the risk of running with that opportunity and seeing what can be made of it

Effectuation Process

helps in creation of new firms and markets and industries; as one leaves, new innovation helps to make another one; creative destruction. End result, new businesses

Competitive Advantage

being the most efficient (lower resource costs) and effective (most appealing value of products)

Unemployment

Measures the number of people who are able to work, but do not have a job during a period of time.

Unemployed/ employed + unemployed

Essay: How do Ethics, the economy, and entrepreneurship come together and how do they influence the world today and how the economy should work.

Ethics, economics, and entrepreneurship are three intrinsically related terms. These three concepts influence the world today by acting as a guideline for innovation. Entrepreneurship creates innovation. Innovation leads to the production of new goods and services that stimulate the economy. During the production of these new goods and services economist must also consider the ethical application of these new products. Through the proper use of combining these terms a perfect market with benefit for all can arise; however, people that ignore any part of this equation can cause the market to collapse.