What is the Definition of economics?
Economics is defined as the study of the production and distribution of goods and services. It is the study of human efforts to satisfy unlimited wants with limited resources.
What did Adam Smith say motivates producers to provide goods for sale?
Producers are motivated by self-interest.
Why is Adam Smith called the father of economics?
Adam Smith is the founder of economics because he wrote the first modern work on economics called The Wealth of Nations. In this book, he talks about the "invisible hand" that guides people to do what is best for them. Smith believed that these actions wo
You take $40.00 shopping to buy a new skirt. You see one cotton skirt that sells for $20.00 and a leather skirt that sells for $40.00. You would like to purchase the leather skirt, but that would force you to spend all of your money. What are the drawback
If you purchase the cotton skirt, you will still have $20 left over to buy something else, maybe even a second skirt. But you will not be as fashionable as if you purchased the leather skirt. If you purchase the leather skirt, you will be more fashionable
List one economic right and one economic responsibility that you have as a consumer.
An economic right might be the ability to choose to purchase a want over a need. An economic responsibility might be that you should spend your money wisely, first purchasing those things you need for survival.
List the factors of production.
Land, labor, and capital are the factors of production.
Provide an example of each of the factors of production.
Possible answers: Land - trees, soil, oil, anything from nature; labor - farmer, teacher, beautician; capital - sewing machine, backhoe, blackboard
Describe an item that you recently purchased. Name the item and give a brief description. Then describe each of the factors of production that went into making the item.
Answers will vary but you should describe an item recently purchased and describe the land, labor, and capital elements that went into the production of the item. For example, you describe a sweatshirt you recently purchased. Then describe each factor of
Provide an example of scarcity and one of shortage.
Example of scarcity: No one can have an endless supply of everything. You might own hundreds of basketballs but sooner or later, a limit is reached. Example of shortage: The shelves in your local sporting goods store have no basketballs on them, yet, thre
Describe the four common methods used by countries to allocate resources.
Rule of force: There are no rules, and people simply take what they want by force.
First come-first served: Shoppers arrive when the store opens so they can buy all the goods on sale at low prices. This rule causes people to compete by waiting in line, wi
Why must individuals make choices?
Individuals cannot have everything they want and resources are limited.
Why must business decisions involve trade-offs?
To make decisions that provide the greatest possible return from the resources available, people and organizations must weigh the benefits and costs of using their resources to do a little more of some things, and a little less of others.
You are shopping for school clothes with your birthday money, and you would like to buy a pair of suede boots for $130, but you also need a new pair of sneakers that are on sale for $80. You don't have enough money to buy both the boots and the sneakers.
You should have two columns. One titled boots, the other titled sneakers. Then you should have four rows for your grid titled respectively: benefits, decision, opportunity cost, and benefits forgone. The following information might be found in your grid:
List three key economic questions all economic systems must answer
What should be produced?
How should we produce goods?
Who will consume what is produced?
List and describe the six economic goals
Efficiency: The country understands how to make the best use of its resources to make the most of its productive capabilities. Freedom: Refers to the ability of a country's citizens to make their own economic choices. Security: In general, people want to
Due to the fact that some resources are scattered across the planet, some countries must import resources to produce certain goods. What impact does this have on the country and the cost of the product?
Importation of resources encourages countries to interact, and sometimes even depend, on each other. It can also possibly drive up the cost of the finished product, since the cost of the imported good is part of the product's total cost. If the price of t
Why do markets exist?
No one can produce the items that they need to survive. Markets give producers and consumers a place to exchange their goods.
Lost and describe the advantages and disadvantages of a free market economy:
Advantages: Freedom: Consumers and producers make their own economic choices. Efficiency: Free market economies ensure that resources are used wisely. Only products that are desired by consumers are produced. Producers sell them for the prices that consum
How does a market self regulate themselves?
Markets are regulated by the "invisible hand." Self-interest ensures that producers will offer goods and services needed by society. Competition ensures that consumers will be able to purchase products at the lowest possible prices.
Who owns the factors of production in a free market economy?
Individuals and Firms
What do consumers use in the marketplace to purchase goods and how do they get it?
Consumers perform a job and earn money. They then take this money to the market and use it to purchase the items they need and want.
How do producers obtain the items they need to produce goods?
They take the money they earn from selling goods in the market and they buy more resources so they can continue to supply the market.
List the six economic goals and explain how each is prioritized in a command economy.
Efficiency: Not of high priority. State planners decide what is produced, how it is produced, and who will consume what is produced. Freedom: Very little priority. Consumers have little economic freedom and have few economic choices. Security: A toss up!
List and describe four characteristics of a command economy that you learned in Section 4
Possible answers:
* Consumers have little freedom.
* Government owns the factors of production.
* Central planners decide what is produced, how it will be produced, and for whom it will be produced.
* Consumers do not get to choose where they will work or
List two characteristics of the mixed economy of the United States that is similar to other countries with mixed economies that you learned about in Section 5.
Possible answers:
* United States supports many programs for the benefit of society; Sweden provides health care for population.
* United States and Hong Kong both protect private property.
* United States and France offer a number of programs for citizen
How is the government involved in the circular flow of money?
The government purchases goods and services from consumers and firms, and it collects taxes from consumers and firms.
How is the government involved in the circular flow of products?
The government purchases goods and services and factors of production from companies and individuals. It also provides services and products in the form of certain public goods, such as public libraries and roads.
What are the basic principles of the american free enterprise system
The principles are profit motive, voluntary exchange, private property rights, competition, and self-interest.
what are the benefits of the american free enterprise system
The benefits are government protection, economic freedom, variety of goods, responsive prices, investment opportunities, and government help for the economy.
explain the importance of the philisophies of Adam Smith and John Mayard kenyes on the american free enterprise system
Smith: He emphasized a very strong "hands off" sentiment regarding the government in his writings of the market economy. Therefore, the concept of limited government is very prevalent in the American economy.
Keynes: He saw the government as taking on the
How does the government protect the economic rights of people in the American Free Enterprise System?
Protection of Consumers: The government requires labels on products, such as nutritional labels on food products, warnings on products that could cause serious injury, and collecting safety information on products.
Occupational Health and Safety: The gove
List government programs that redistribute income among the population.
Cash Transfers (Social Security, Unemployment Insurance, Workmen's Compensation, Temporary Assistance for Needy Families); In-Kind Benefits (food stamps, free food, low cost housing); Medical Assistance (Medicare, Medicaid); Education
List three examples of public goods.
Possible examples: transportation, recreation areas, dams, and bridges
Why does the government want more entrepreneurs and better technology in the economy?
The government encourages these things because both stimulate economic activity, creating jobs and expanding markets and availability of goods.
List contributions of three of the entrepreneurs discussed in this section.
Answers will vary but examples are: Edison (light bulb and telegraph), Bell (telephone), Duryea Brothers (gas-powered automobile), Ford (assembly line), Goldmark (color TV), Yang (Internet search engine), Gates (universal operating system for computers),
Why does the government collect taxes?
The government collects taxes to fund programs that help improve the general welfare of its citizens. It also collects taxes to pay for the day-to-day operations of the government.
How do citizens benefit from the collection of taxes?
Citizens benefit because the government provides a variety of programs that assist those who are in need. By doing so, people may be more able to support themselves and maintain healthy lifestyles, as well as purchase items needed for survival.
How is mandatory and discretionary spending different? List some examples of expenditures that are found in each category.
Mandatory spending is spending that is required by law. Discretionary spending is money that the government can make decisions about how to spend. Examples of mandatory spending include Social Security and Medicare. Examples of discretionary spending incl
How does U.S. fiscal policy help the economy?
The government often uses fiscal policies to stabilize the economy. The government uses two "tools" known as Taxation and Spending as ways to accomplish this.
Define expansionary policies and contractionary policies. How are they different?
Expansionary policies expand the economy. Contractionary ones slow down the economy. Expansionary policies involve increasing government spending and decreasing taxes. Contractionary policies involve decreasing government spending and increasing taxes.
Explain the series of steps that comprise the budget process of the U.S. Government.
First, proposals for money are given to the Office of Management and Budget (OMB). Then the OMB works with the President to draw up the budget, taking into account the requests from agencies for funding. The President then presents the budget to Congress.
Describe the effects of the national debt on the economy.
When there is a large national debt, the government has less money to help stimulate the economy and less money to spend on programs that are needed to help the disadvantaged and other programs that benefit society. When there is a large national debt, th
List the five main components of the Federal Reserve.
Board of Governors, District Reserve Banks, Member Banks, Federal Advisory Council, Federal Open Market Committee
Describe the roles of the Federal Reserve.
The Federal Reserve has the following roles:
a) Serves as government's bank - It issues checks, sells bonds and makes interest payments, handles checking account of the national government, distributes paper money, takes old bills out of circulation - and
Explain the tools the Federal Reserve uses to implement monetary policy.
The Fed encourages banks to make loans so people have more money to buy goods and boost economic activity. It does this by adjusting the amount that the banks are required to keep on reserve. It also adjusts the discount rate, which is the interest rate t
How does monetary policy work?
The monetary policies carried out by the Federal Reserve adjust the amount of money circulating in the economy. This in turn will affect interest rates. Interest rates then influence how much is being spent in the economy as well as how much is invested.
What is the law of demand?
consumers buy more of a good when its price decreases and less when its price increases
How is demand used to determine prices?
If items do not move quickly enough off of store shelves (there is not enough demand), producers will lower the price to increase demand.
List the factors that cause a change in the quantity demanded
Availability of substitute goods and the income effect.
Define elasticity and inelasticity as they pertain to the demand of certain goods.
Elasticity happens when the demand for a good is very dependent on price changes. In other words, demand will be affected frequently by a change in price. If the price rises drastically, consumers will demand less of the good. Inelasticity refers to the i
What is an individual demand schedule
A demand schedule is a table that lists the quantity demanded by an individual consumer of an item at various prices in the marketplace.
Explain what the demand schedule provided below is explaining about how many bagels consumers want.
Consumers demand 150 bagels at $1.00 each. They demand 100 bagels at $2.00 each and at $3.00 each they demand only 50 bagels.
Given the prices of $1.00, $2.00, and $3.00, ask yourself how many pizza slices you would demand at each of the these three prices. Then, create an individual demand schedule.
Answers will vary but you should provide a table listing the three prices on the left and then the quantity you demand of pizza slices at each price on the right.
Define law of supply
The law of supply is defined as the willingness of producers to produce or supply more of a good as the price increases
List factors that cause a shift in the quantity supplied
Production increases and establishment of new companies
How do supply and demand work together to create equilibrium in the marketplace.
Equilibrium is the point where supply and demand intersect. Each works to bring the market to equilibrium. Producers will only provide what consumers demand.
How do shortages impact prices?
Shortages of goods will eventually lead to an increase in prices. Suppliers will increase price to bring down the excess demand of the product.
How do surpluses impact prices?
Surpluses of goods will eventually lead to a decrease in prices. Suppliers will decrease price to get rid of the excess supply. They hope that by decreasing prices consumers will begin to demand more of the good and buy up the surplus goods that are sitti
List the characteristics of sole proprietorships and partnerships
Sole Proprietorships: Owner makes all decisions, keeps all profits, is solely responsible for debts, and owns all capital, few regulations, easy to start up.
Partnerships: Co-owners share the profits, make economic decisions together, assist in the busine
Describes the roles of sole proprietorships and partnerships in the economy
Sole Proprietorships: Three-fourths of all businesses in the United States are sole proprietorships but only conduct about six percent of the total sales conducted in the United States in a year. While this type accounts for the majority of businesses own
What are similarities and differences between sole proprietorships and partnerships
Similarities: Both are businesses, are easy to start up, and have few government regulations.
Differences: Sole proprietorships are only owned and operated by one person, while two or more people are involved in partnerships. In partnerships, partners sha
How are corporations structured
Individuals purchase the shares of stock, and this money is used to fund the business and for operating costs. People who buy shares of stock are called stockholders. The shares that they own represent the portion of the company that they own. Stockholder
Describe the different types of corporate combinations
Horizontal Mergers: Two companies that produce the same product in the same market combine or merge.
Vertical Mergers: Two or more companies that produce different components of the same good or service combine or merge.
Conglomerates: Corporations buy ot
What are monopolies and oligarchies?
Monopolies are created when one firm is able to dominate the market and no other firm is able to enter the market. A company that is a monopoly is the only seller in the market and buyers are literally at the mercy of the company to obtain the product.
Ol
What are some real life examples of monopolies and oligarchies?
Monopolies: AT&T, Microsoft
Oligopolies: Large airlines like United Airlines and Delta, soda companies like Coca Cola and Pepsi
List the six characteristics of money
Permanent, transferable, easily divided, standard, limited supply, accepted everywhere
How do you use money to obtain consumer goods and services?
Money is a medium of exchange�it allows you to easily purchase items without carting a bunch of things around that have value. Money acts as a unit of account�it tells you the value of products and it provides you with the ability to compare prices.
How does the Federal Reserve handle the money supply
The goal of the Federal Reserve is to make sure that enough money remains in circulation to meet the needs of the people. It also stabilizes the economy by keeping the money supply stable.
What services to banks provide in the 21st Century
They store money for consumers, lend money to entrepreneurs and consumers, pay depositors interest, issue credit cards, and offer investment services and electronic banking options.
How do financial institutions affect households and businesses
Banks can help boost the economy by lending more money to consumers, and they can help decrease economic output by lowering the number of loans they give to consumers. A business' ability to expand relies greatly on banks and other commercial lenders. Oft
Compare and contrast different types of financial institutions
Commercial banks, credit unions, and savings banks all offer checking and savings account services to customers and provide loans. Finance companies do not offer these services but do offer loans to consumers, usually charging higher interest. Whereas com
Describe the four following investment options known as bonds, stocks, certificates of deposit, and money market mutual funds
Bonds represent loans that an investor gives to a company or government that must be repaid to the investor over time. Usually the investor receives the original amount of the loan as well as interest.
Certificates of deposit are accounts that are similar
What are the advantages and disadvantages of investing in bonds, stocks, certificates of deposit, and money market mutual funds?
Bonds: The advantages of bonds are that they are low risk (meaning the chances of getting your money back are pretty much guaranteed), they are paid a fixed amount of interest over a period of time at regular intervals, and investors can sometimes purchas
How does investing support the American Free Enterprise System?
A major principle of the American Free Enterprise System is that people are able to profit from their decisions and actions in the economy. Such profit is the encouragement that leads some people to invest their money.
What is the economic impact of investing in stocks and bonds?
When you give your money to a financial institution or other intermediaries to "store" or invest, these organizations (such as your local bank) are then able to lend your money to entrepreneurs who want to expand their businesses. Investment therefore sup
Explain the two ways the Gross Domestic Product is measured.
Income Approach: This is the most accurate way of calculating GDP. It is calculated by simply adding up all the income earned in the economy.
Expenditure Approach: This is a practical way of calculating GDP. It is calculated by estimating the annual amoun
What are the goals of U.S. economic policy? Give a brief explanation of each.
Efficiency: Obviously a strong economy is an efficient one.
Growth: U.S. economic policy calls for a steady growing economy.
Equity: The U.S. government has established a number of programs designed to help those less fortunate in society meet their basic
What is the difference between nominal and real GDP?
Nominal GDP is calculated using the current prices in a year; real GDP is calculated using constant or unchanging prices.
Analyze the four phases of the business cycle. Include a description of the phase and the factors involved.
Expansion is when the economy is growing and real GDP increases. At the peak, real GDP figures level off. There is no more growth but just a steady "status quo" to the economy.
Contraction occurs when the economy begins to lag a bit and takes a downhill t
List the factors that influence the business cycle.
Customer viewpoints, uncontrollable events, interest rates, and capital investment influence the business cycle.
How do economists forecast business cycles?
Economists often look at the operations of the stock market. Not always, but often, if a recession is coming, the stock market will take a quick nosedive. Also, economists use the data collected by the Conference Board. This is an organization that conduc
List and describe the four types of unemployment.
Frictional is when people take time to find a job. Cyclical is unemployment that is affected by downturns in the economy or during a contraction in the business cycle. Structural occurs when workers skills do not match the jobs available. Season unemploym
How does the government calculate the unemployment rate?
The unemployment rate is calculated by taking the number of employed and unemployed people and adding them together to get the total number of people in the labor force.
Then the number of unemployed people is divided by the total labor force and then mul
Name the ways the unemployment rate influences economic performance.
Extremely low rates of unemployment are actually not very desirable in the economy. During periods of rapid growth, companies may encounter difficulties hiring enough workers to fill all production jobs. During these times, companies may encounter problem
Describe the concept of inflation
Inflation is a general rise in the prices of goods and services.
How is inflation measured?
The government uses the Consumer Price Index to help them calculate the inflation rate. The formula used is: Year #1 = Year #2 Price x (Year #1 CPI divided by Year #2 CPI).
What are the names of the three theories that explain the causes of inflation?
Quantity Theory, Demand-Pull Theory, Cost-Push Theory
How is inflation used as a measure of economic performance?
When inflation is rising, economists know that there may be a variety of causes (as mentioned in the previous screens). There is either too much money in the economy, demand for goods exceeds the supply, the costs of producing goods has risen, or a combin
What are the functions of the World Bank
The WB lends billions of dollars each year to countries for economic development. It is the largest provider of development assistance. These loans help countries build new hospitals, roads, educational institutions, improving the lives of citizens throug
How do trade barriers and free trade influence economic activities
Trade barriers are used to block imports of certain products or from specific countries. This lowers the competition that domestic companies have to deal with. They also protect jobs. Despite protectionism, many countries have entered trade agreements, wh
What are the influences of trade and multinational corporations on global economic activities?
Multinational corporations provide jobs and build infastructure. These companies benefit from lower wage requirements and a large workforce resource. Trade benefits countries because it allows them to focus on producing goods at a lower opportunity cost,
How is trade important to the United States?
It boosts the economy, and allows companies to sell more goods and expand markets. US companies can manufacture a great variety of goods, sell, and boost economy. Imports are important because we can recieve goods at a cheaper price than it would be to ma
Why do countries trade with each other?
A country may not have the ability or materials to produce another. So they develop trading partners. In addition, countries may be able to produce items at a lower opportunity costs, which lead to the best utilization of resources.
How do the values of society affect economic development in countries
Some societies do not value education, some take health very seriously. Traditional economies often move slower than free market.
List three major exports, imports, and trading partners of the US
Imports: Vehicles, Crude oil, electrical machinery
Exports: Chemicals, machinery, airplane parts
Partners: European Union, China, South Korea
Why are exchange rates between countries so variable?
Exchange rates are variables because the value of one currency does not always match the value of another.
List 3 developed areas and the 3 characteristics of both developed and undeveloped countries
3 less developed: Central America, East Africa and South Central Asia
Developed: Longer life expectancy, better education, low unemployment
Undeveloped: Higher mortality rate, low standards of living, less education
What are the functions of the United Nations Development Program and the International Monetary Fund
The UNDP was organized in the mid 60's. It's main goal is the eradication of poverty through economic development. It provides grants to LDN's to help improve economic and social processes. The international monetary fund was originally established to sta