Economics SOLs
Scarcity is the inability to satisfy all wants at the same time. All resources and goods are limited.
This requires that choices be made.
Resources are factors of production that
are used in the production of goods and services. Types of resources are natural,
human, capital, and entrepreneurship.
Choice is selecting an item or action
from a set of possible alternatives. Individuals
must choose/make decisions about desired goods and services because these goods
and services are limited.
Price is the amount of money
exchanged for a good or service. Interaction of supply and demand determines
price. Price determines who acquires goods and services.
Incentives
Incentives are things that incite or motivate. Incentives are used to change economic
behavior.
Supply and demand
Interaction of supply
and demand determines price. Demand is the amount of a good or service that
consumers are willing and able to buy at a certain price. Supply is the amount
of a good or service that producers are willing and able to sell at a certain
price.
Production
Production
is the combining of human, natural, capital, and entrepreneurship resources to
make goods or provide services. Resources available and consumer preferences
determine what is produced.
Consumption
Consumption
is using goods and services. Consumer preferences and price determine what is purchased.
Characteristics of major economic systems
· Free market
- Private ownership of property/resources
- Profit
- Competition
- Consumer sovereignty
- Individual choice
· Command economy
- Central ownership of property/resources
- Centrally-planned economy
- Lack of consumer choice
· Mixed economy
- Individuals and businesses as decision makers for the private sector
- Government as decision maker for the public sector
- A greater government role than in a free market economy
-
Most common economic system today
In the
Characteristics of
the
· Free markets—Markets are allowed to operate without undue interference from the government.
· Private property—Individuals and businesses have the right to own personal property as well as the means of production without undue interference from the government.
· Profit—Profit consists of earnings after all expenses have been paid.
· Competition—Rivalry between producers/sellers of a good or service results in better quality goods and services at a lower price.
· Consumer sovereignty—Consumers determine through purchases, what goods and services will be produced.
Basic types of
business ownership
· Proprietorship—A form of business organization with one owner who takes all the risks and all the profits.
· Partnership—A form of business organization with two or more owners who share the risks and the profits.
·
Corporation—A form of business organization that
is authorized by law to act as a legal person regardless of the number of
owners. Owners share the profits. Owner
liability is limited to investment.
Entrepreneur
· A person who takes a risk to produce goods and services in search of profit
· May establish a business according to any of the three types of organizational structures
Economic flow
· Individual and business saving and investment provide financial capital that can be borrowed for business expansion and increased consumption.
· Individuals (households) own the resources used in production, sell the resources, and use the income to purchase products.
· Businesses (producers) buy resources; make products that are sold to individuals, other businesses, and the government; and use the profits to buy more resources.
· Governments use tax revenue from individuals and businesses to provide public goods and services
Characteristics of
private financial institutions
· Include banks, savings and loans, credit unions, and securities brokerages
· Receive deposits and make loans
· Encourage saving and investing by paying interest on deposits
Global Economy—Worldwide markets in which the buying and selling of goods and services by all nations takes place
Reasons that states
and nations trade
· To obtain goods and services they cannot produce or produce efficiently themselves
· To buy goods and services at a lower cost or a lower opportunity cost
· To sell goods and services to other countries
· To create jobs
Impact of
technological innovations
· Innovations in technology (e.g., the Internet) contribute to the global flow of information, capital, goods, and services.
· The use of such technology also lowers the cost of production.
Ways the government
promotes marketplace competition
· Enforcing antitrust legislation to discourage the development of monopolies
· Engaging in global trade
· Supporting business start-ups
Government agencies
that regulate business
· FCC (Federal Communications Commission)
· EPA (Environmental Protection Agency)
· FTC (Federal Trade Commission)
These agencies oversee the way individuals and companies do business.
Characteristics of
public goods and services
· Include such items as interstate highways, postal service, and national defense
· Provide benefits to many simultaneously
· Would not be available if individuals had to provide them
Ways governments
produce public goods and services
· Through tax revenue
· Through borrowed funds
Government tax increases reduce
the funds available for private and business spending; tax decreases increase
funds for private and business spending.
Increased government borrowing
reduces funds available for borrowing by individuals and businesses; decreased
government borrowing increases funds available for borrowing by individuals and
businesses.
Increased government spending
increases demand, which may increase employment and production; decreased
spending reduces demand, which may result in a slowing of the economy.
Increased government spending
may result in higher taxes; decreased government spending may result in lower
taxes.
The 16th Amendment to the Constitution
of the
The Federal Reserve System (Fed)
is the central bank of the
Federal Reserve banks act as a
banker’s bank by issuing currency and regulating the amount of money in
circulation.
To slow the economy, the Federal
Reserve Bank restricts the money supply, causing interest rates to rise; to
stimulate the economy the Fed increases the money supply, causing interest
rates to decline.
Ways the Federal Reserve Bank slows the economy
· Increases the reserve requirement
· Raises the discount rate
· Sells government securities
Ways the Federal Reserve Bank stimulates the economy
· Lowers the reserve requirement
· Lowers the discount rate
· Purchases government securities
Individuals have the right of
private ownership, which is protected by negotiated contracts that are
enforceable by law.
Government agencies establish
guidelines that protect public health and safety.
Consumers may take legal action
against violations of consumer rights.
Career planning starts with self-assessment.
Employers seek employees who demonstrate the attitudes and behaviors of a strong work ethic.
Higher skill(s) and/or education level(s) generally lead to higher incomes.
Supply and demand also influence job income.
Employers seek individuals who have kept pace with technological change/skills.
Technological advancements create new jobs in the workplace.