test 1

Econ 101

Choices- Unless you are fabulously wealthy, you have to make economic choices. Economics-( the study of how individuals, families, businesses, and societies use limited resources to fulfill their needs and unlimited wants) To economists “needs” are those things necessary for survival ( food, clothing, and shelter). “Wants” are everything else.Businesses and governments also have to make choices about making purchases and using resources. Choices are made because resources are scarce.

Scarcity- At any moment only a fixed amount of resources is available. At the same time, people are competing to use these resources. People competing for limited resources results in scarcitmomenty. (The condition of not being able to have the goods and services one wants). Scarcity is the basic problem of economics. While scarcity always exists, shortages are temporary. Ex: There is always a scarcity of oranges. A freeze in Florida could destroy oranges, causing a shortage.

Factors of production-( the resources needed to produce goods and services) The factors of production are:

  1. Land also includes water, animals, and minerals
  2. Labor is the work people do to produce goods (tangible items people buy) and services, Activities are done for others
  3. Capital is the manufactured good used to make other goods and services. A car may be a product or a capital. Capital is important because it increases productivity ( the amount of goods and services) A gardener is more productive with a lawnmower than with scissors.
  4. Entrepreneurship- risk-taking individuals to develop new products or businesses to make
  5. Technology- advances in knowledge leading to improved goods and services and better ways of producing them.

Trade-offs

Trade-off- (Exchanging one thing for another) Two examples:

  1. Buying an iPhone is exchanging one product( money) for another (the iPhone)
  2. Work full-time after graduation or get more education and work later

The result of a trade-off is an opportunity cost.

Opportunity cost- (the value of the next best alternative that had to be given up) If you choose to study for your econ test, you give up other activities. The next best thing you give up is your opportunity cost. At a larger level, the state may spend billions of dollars on health care instead of highway safety, with the opportunity cost being unsafe highways.

Production possibilities curve- Organizations will make charts to visualize the opportunity cost of taking different actions, a production possibility curve is a model that shows the maximum combinations of goods and services that can be produced from a fixed amount of resources in a given period of time. Businesses and nations use these models to show the different choices they may make many of the costs of those choices.

Economic Systems

Economic system-( a way of determining how to use resources to satisfy people’s wants and needs) Any system must answer three questions:

  1. What should be produced?- This involves choices and trade-offs
  2. How should it be produced?- This involves decisions concerning labor and capital.
  3. For whom should it be produced?- This involves keeping in mind the end users.

Types of economic systems- Economists have identified four systems but no one system is pure.

  1. Traditional economy- The way things have always been done. A combination of traditional customs and religious beliefs answers the three questions. Today this found in only places like rainforests and deserts
  2. Command economy- Government makes all decisions about how goods and services are distributed.
  3. Market economy- individuals make decisions that advanced one’s own interests. This is also called capitalism. A market is the voluntary exchange of goods and services between buyers and sellers. A marker may be local ( buying a slurpee at 7/11) or global (oil)
  4. A mixed economy-this combines the systems above we leans toward a ,aring company but there are elements of the other. In the US you are free to seel===

But government will tell you it mst have seat belts

The American Economy

Market economy- While no pure market economy exists, the US is fairly close. A market economy( also called capitalism and free enterprise) has six major characteristics:

  1. Limited role for government- in his book The Wealth of Nations(1776), Adam Smith described how and why a market system succeeds. While a Capitalist system frees people to own the factors of production and make their own economic decisions, government roles include protecting private property rights and settling disputes.
  2. Freedom of enterprise- You are free to start your own business and make lots of money but you may lose it all, there is no guarantee of success.
  3. Freedom of Choice- You are free to buy what you wish. Sellers must pay attention to the buyers because the buyers ultimately decide what is produced.
  4. Profit incentive - Profit is money left over after all production costs (wages, taxes, rent…) have been paid. The profit incentive, or profit motive, is what gets people to start businesses or produce new goods and services. If there are losses, that means resources need to be moved elsewhere.
  5. Private Property-( that which is owned by individuals rather than the government) This includes land and capital. If the right to property is threatened, people will not risk investing.
  6. Competition- if one producer raises prices, consumers may go elsewhere. Competition leads to efficient use of resources, lower prices, and/or.

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