Needs vs. Wants
Need= something essential for survival such as food or medical care
Want= something that we desire but that is not necessary for survival
Needs and wants are satisfied with goods and services
What are "goods
Physical objects that someone produces, such as food, clothing, or video games
What are "services
Services are actions or activities that one person performs for another (medical care and haircuts)
Scarcity
The principle that limited amounts of goods and services are available to meet unlimited wants
- Very few limits on needs and wants
- Many limits on Goods and Services
- Scarcity forces choice
- Always exists, unlike shortages
Entrepreneur
- Decides how to take resources and create goods and services
-Factors of Production-
-Land
-Labor
-Physical Capital
-Human Capital
-LAND-
- All natural resources used to produce goods and services "The STUFF"
-LABOR-
- Taking the resources and making the stuff
- The effort people devote to tasks for which they are paid
-PHYSICAL/HUMAN CAPITAL-
- Human-made resources used to make STUF
Opportunity Cost
- The most valuable thing you give up by choosing what you did
What is Economics
The study of how people seek to satisfy their needs and wants by making choices
Efficiency
- The use of resource in such a way as to maximize the output of goods and services
Underutilization
- The use of fewer resources than an economy is capable of using
Production Possibilities Curve/Frontier
- A way to visualize how you use your resources
- Every business needs to maximize efficiency
-Shows how efficiently a company or economy is using it resources (land, labor, capital)
- Shows opportunity costs of producing one more particular good or servi
Profit
The amount of money a business receives in excess of its expenses
Laissez-Faire
The doctrine that government generally should not intervene in the marketplace
Traditional Economy
Relies on habit, custom, or ritual to answer the three key economic questions
- Small and close knit
- Family/Community-centered
- Well-Defined Roles
- Multi-Generational
Free Market Economy
- Market- arrangement that allows buyers and sellers to come together to exchange things
- Exchange what we have for what we want
- Allows for specialization- everyone concentrating on a limited number of activities within the economy
- Individuals determ
Four advantages of free market
1. Economic Efficiency
- Only stuff people want will be produced
- Little waste
2. Economic Freedom
- People can work where they want
- People can buy what they want
- Firms produced what they want
3. Economic Growth
- Competition leads to innovation
- In
Centralized Economy
- Called "command economy"
- Government commands what is made, how and who gets it
- Values economic equity and stability
Mixed Economy
The government has a role in the economy
- Provides Services
- Protects Private Property
- Protects Consumers (households)
- Protects Firms from monopolies
Household
a person or group of people living in a single residence
Firm
An organization that uses resources to produce a product or service, which it then sells
- Firms transform inputs, or factors of production, into outputs, or goods and services
Incentive
Firms have incentives to:
- make good products
- make products that household want
- keep prices reasonably priced
Household have incentives to:
- buy the best products
- seek the lowest prices
Incentive motivates production
Competition
- Struggle among producers for consumers' dollars
- Works because of incentives
Privatization
- The process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the marketplace
Private Property Rights
The principle the people have the right to control their possessions and use them as they wish
- Allows people to make their own decisions about their own property
Voluntary Exchange
The principle that people may decide what, when, and how they want to buy and sell
Eminent Domain
The right of government to take private property for public use
Patent
- A government license that gives the inventor of a new product the exclusive right to produce and sell it
Copyright
- A government license that grants an author exclusive rights to publish and sell creative works
Public Goods
- A shared good or service for which it would be inefficient or impractical to make consumers pay individually to exclude those who did not pay
Market Failure
- A situation in which the free market, operating on its own, does not distribute resources efficiently
In-Kind Benefits
- Goods and services provided for free or a greatly reduced prices
Socialism
A range of economic and political systems based on the belief that wealth should be distributed evenly throughout a society
Communism
A political system in which the government owns and controls all resources and means of production and makes all economic decisions
Reasons for government intervention in an economy
The government
1. Seeks to promote the public interest through regulation
2. Promotes growth and stability of the system
3. Provides public goods
4. Provides a safety net
Key principles of the Free Enterprise System
- An economic system characterized by private or corporate ownership of capital goods
- Investments in firms are made in a free market by private decision
Legal Equality
- The principle that everyone has the same legal rights
Questions in an Economy
- What goods and services should be produced
- How should these goods and services be produced
- Who consumes these goods and services
Factor Market
When the government pays someone to work for it, it is contributing to this
- The arena of exchange in which firms purchase the factors of production from households
Product Market
When the government purchases goods and services from firms
- The arena of exchange in which firm purchase the factors of production from households
Characteristics of American Free Enterprise
1. Profit motive
2. Open opportunity
3. Legal equality
4. Private property- includes eminent domain
5. freedom to buy and sell
Two advantages of the free market economy over central/comand economy (use words such as
-essay-