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Production Possibilities

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All the combinations of goods and services than can be produced from a fixed amount of resources in a given time period.

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Economics

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The study of how individuals and countries make choices about how to use scarce resources to fulfill their wants and needs. [[Best and Efficient Choice!]]

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Economic System

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The way in which a country uses its resources to satisfy its people's needs and wants.

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Opportunity Cost

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The value of the next best alternative the had to be given up for the alternative chosen. It is the value of the thing being given up, not all things being given up.

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Distribution of Income

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Money payment for work.

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Competition

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Rivalry among producers or sellers of similar goods to win more business by offering lower prices or higher quality.

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Freedom of Choice

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Buyers make the decisions about what should be produced.

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Trade-Off

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Exchanging one thing for another.

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Voluntary Exchange

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Basis of activity in a market economy. -A buyer and seller exercise their freedom by working out the terms of an exchange. -Seller ALWAYS sets the price, buyer can (if able) purchase the good at that price. -Since economic activity in a market economy is voluntary, prices are subject to the laws of supply and demand.

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Scarcity

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There are not enough resources in the world to satisfy every human want.

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Factors of Production (List examples and explain)

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Used to provide goods and services. -_Land_: (natural resources) found on or in the Earth. -_Labor_: work people do, human resource. -_Capital_: property used to make other things. -_Entrepreneurship_: ability of people to create and start new businesses, new products, and new technologies.

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Goods

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Things people buy.

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Services

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Activities done for others for free.

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Standard of Living

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Material well-being of an individual, group, or country measured by the average value of goods and services used by the average citizen during a period of time.

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Resource — Examples

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Anything that people can use to make or obtain what they want. There are limited, despite unlimited wants. Examples: -_Land_: (natural resources) found on or in the Earth. -_Labor_: work people do, human resource. -_Capital_: property used to make other things.

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Utility

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The power of a good to satisfy a want.

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Economy

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All the activity in a country that together affects the production, distribution, and use of goods and services.

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Adam Smith

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He wrote /The Wealth of Nations/. -He believed that the government should have lithe to dow with a nation's economic activity — /laissez faire/ — "leave it alone." -Individuals left on their own will work in their own _self-interest_. -They will be guided by the _invisible hand_ of competition to achieve maximum good for society.

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Productivity

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Production of goods and services in a better and faster way.

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Circular Flow Model of Economic Activity

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-Individuals spend money for goods and services — money goes to business. -Business provides good and services for individuals. -Individuals provide factors of production for business. -Business pays individuals for those resources — money goes to individuals.

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Law of Diminishing Returns

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Adding units of a factor of production increases total output for a time. After a certain point, the extra output for each additional unit will begin to decrease.

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Substitution Effect

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If two items satisfy the same want, and the price of one of the items rise, people will buy the cheapest one.

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Demand Curve

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Helps show the *INVERSE RELATIONSHIP* between price and quality demanded. It will almost always be sloped *DOWN* and to the *RIGHT*.

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Supply Curve

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Helps show the *DIRECT RELATIONSHIP* between price and quantity supplied. It will almost always be sloped *UP* and to the *RIGHT*.

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Elastic — Demand, Curves, and Products

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Consumers are very responsive to changes in prices. Examples: particular brands, luxury goods.

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Inelastic — Demand, Curves, and Products

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Consumers do not respond to changes in in prices. Examples: electricity/gas, salt and pepper, light bulbs, medicine.

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Law of Demand

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Explains how people react to changing prices in terms of the quantities of a good that they purchase. Less Price = Higher Demand. High Price = Low Demand.

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Law of Supply

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As the price of a good rises, the quantity supplied rises. As the price of a good falls, the quantity supplied falls.

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Price Elasticity of Demand

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How responsive consumers will be to an increase or decrease in the price of a product.

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Determinants of Demand

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/Changes mean shifts in curve./ -_Population_: increases mean more demand at all possible prices = curve shifts to the *right*. -_Income_: increases in overall income means more demand at all prices = curve shifts to the *left*. --Tastes and Preferences_: fads/fashions cause curve shifts. -_Substitutes_ -_Complementary Goods_: decrease in the price of a good leads to increase in demand for that good and all of its complementary goods.

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Determinants of Supply

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-_Price of Inputs_: if the price of factors of production decrease, there will be an increase in supply at all prices = curve shifts to the *right*. -_Technology_: improvements cause an increase in supply at all prices = curve shifts to the *right*. -_Number of Firms in an Industry_: more firms enter the industry = curve shifts to the *right*. -_Taxes_: more taxes mean less supply = curve shifts to the *left*.

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Inflation — Theories

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Prolonged rise in the general price level of goods and services. -_Demand-Pull Theory_: prices rise as a result of excessive business and consumer demand — if aggregate demand increases faster than aggregate supply, the resulting shortage will lead to a bidding up of prices. -_Cost-Push Theory_: wage demands become excessive (improved union position, higher minimum wages, etc.) a large profit motives from corporations push up prices.

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Deflation

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Prolonged decrease in general price level — rarely happens.

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Stagflation

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Combination of inflation and low economic activity => leads to a VERY BAD recession.

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Medicare

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Healthcare for the elderly.

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Medicaid

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Healthcare for the poor (low-income) and disabled.

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Interlocking Directorates

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Occurs when some members of the Board of Directors of competing companies are the same. => only one group of people manages both companies => reduces competition. It was outlawed by Clayton Act (1914).

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Business Cycle Phases

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Changes in the level of total output measured by real GDP.

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Saving

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Nonuse of income until it is needed later.

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Interest

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Money paid for the use of money.

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Maturity

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Time you must leave money on deposit in time deposit account.

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Investing

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/Stock/ — entitles the buyer to a part of the future profits and assists of a corporation.

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Unemployment Types

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Percent of civilian labor force that is without jobs, but are _actively_ seeking work. -_Cyclical_: associated with ups and downs in the business cycle — rises during recessions, falls during recoveries/booms. -_Structural_: caused by changes in the economy — technological improvements => unemployment. (If a robot can do a better job then you, then you're out of a job). -_Seasonal_: caused by changes in the weather — construction, seasons. -_Frictional_: temporary unemployment — in between jobs due to retraining, education.

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Funds — Mutual, Money Market

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-_Mutual_: pools the money from many investors to buy stocks, bonds, or other investments. -_Money-Market Fund_: uses investor's money to purchase short term debt of companies.

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Preferred Stock

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Guarantees dividend and first claim, but no voting rights.

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Common Stock

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Gives holder part ownership and voting rights, but does not guarantee a dividend.

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Certificates of Deposit (CD)

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AKA Savings Certificate. It states the amount of deposit, maturity, and rate of interest.

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Dividends

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Money return (profit share) on money invested.

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Capital Gains

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Sell stock for more than the purchased price.

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Consumer Price Index (CPI)

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Measurement of the change in price over time of a specific group of goods and services the average household uses — "*market basket*" — about 400 goods and services including food, housing, transportation, clothing, entertainment, medical care, etc.

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Gross Domestic Product (GDP)

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Total dollar _value_ of all _final_ goods and services produced in the nation during a single year.

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Fiscal Policy — Taxes, Spending

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Government taxing and spending. -_In a recession_ — decrease taxes and increase the government spending. -_With inflation_ — increase taxes and decrease the government spending.

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Monetary Policy — Interest Rates, Reserve Requirements, Open Market Operations

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The Federal Reserve changes the supply of money. -_Interest Rates_ — amount charged for the use of money — low rates encourage borrowing/spending; discourage saving. -_Reserve Requirements_ — percentage of deposits banks must keep on hand — lower requirements encourage lending/borrowing. -_Purchase/Sale of Government Securities_ — sell securities = increases debt to spend more; buy securities = put money in system and reduced debt.

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Partnerships

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Business organization owned and operated by two or more people.

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Monopolies — Types

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-_Natural Monopoly_: products produce for lowest cost drive out all competitors (undersell competition), need for large investment, more efficient. -_Geographic Monopolies_: best location, difficult now due to online shopping. (Ex: a gas station in the middle of nowhere). -_Technological Monopolies_: patent — exclusive right to manufacturer and sell a product for a certain number of years. -_Government Monopolies_: created by legal barriers to entry.

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Mergers — Types

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Occurs when one corporation joins with another corporation. -_Horizontal Merger_: two corporations in the same business. -_Vertical Merger_: when a business that is buying from or selling to another business joins with that business. -_Conglomerate Merger_: buying of a corporation in a totally unrelated industry.

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Competition — Types

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Rivalry among producers or sellers of similar goods to win more business by offering lower prices or higher quality. -_Perfect Competition_: very many sellers — Ex: Wheat Farmers. -_Monoplolistic Competition_: many sellers — Ex: brand name toothpaste, soap, cosmetics, and clothes. -_Oligopoly_: few sellers — Ex: airline industry. -_Monopoly_: one seller — Ex: local power company, postal service.

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