Standard CE.11a Economic Concepts

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1 Standard CE.11a Economic Concepts 1. Scarcity is the inability to satisfy all wants at the same time. All resources and goods are limited. This requires that choices be made. 2. Resources are factors of production that are used in the production of goods and services. Types of resources are natural, human, capital, and entrepreneurship. 3. Choice is selection of an item or action from a set of possible alternatives. Individuals must choose or make decisions about desired goods and services because these goods and services are limited. 4. Opportunity Cost is what is given up when a choice is made i.e., the highest valued alternative is forgone. Individuals must consider the value of what is given up when making a choice. 5. 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. 6. Incentives are things that incite or motivate. Incentives are used to change economic behavior. 7. 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. 8. 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. 9. Consumption is the using of goods and services. Consumer preferences and price determine what is purchased and consumed. Because of scarcity, I can t have everything I want. There aren t enough resources, so I have to make choices about what I want the most. When I make a choice, whatever I give up is called my opportunity cost. For example, I want to go to out to dinner with my friends before the dance and go to a movie the next day. Unfortunately, I don t have enough money to do both. I have to make a choice. I decide that I want to go out to dinner more than the movie. The movie, which I am giving up, is called my opportunity cost. Maybe if the movie theater offered an incentive, like half-price tickets, I could afford to do both! I guess I will just have to make the most of my dinner and CONSUME as much as I can afford!

2 Standard CE 11.b Major Economic Systems Every country must develop an economic system to determine how to use its limited productive resources. The key factor in determining the type of economy a country has is the extent of government involvement. The three basic questions of economics 1. What will be produced? 2. Who will produce it? 3. For whom will it be produced? Each type of economy answers the three basic questions differently. Characteristics of major economic systems 1. No country relies exclusively on markets to deal with the economic problem of scarcity. Traditional economy 1. Economic decisions are based on custom and historical precedent. 2. People often perform the same type of work as their parents and grandparents, regardless of ability or potential. Free market economy 1. Private ownership of property/resources 2. Profit motive 3. Competition 4. Consumer Sovereignty 5. Individual Choice 6. Minimal government involvement in the economy Command economy 1. Central ownership (usually by government) of property / resources 2. centrally-planned economy 3. lack of consumer choice Mixed economy 1. Individuals and businesses are owners and decision makers for the private sector. 2. Government is owner and decision maker for the public sector. 3. Government s role is greater than in a free market economy and _less than in a command economy. 4. Most economies today, including the United States, are mixed economies.

3 Standard CE.11c Characteristics of the United States Economy The United States economy is primarily a free market economy; but because there is some government involvement it is characterized as a mixed economy. Government intervenes in a market economy when the perceived benefits of a government policy outweigh the anticipated costs. Characteristics of the United States economy 1. Markets are generally allowed to operate without undue interference from the government. Prices are determined by supply and demand as buyers and sellers interact in the marketplace. 2. Private property: Individuals and businesses have the right to own real and personal property as well as the means of production without undue interference from the government. 3. Profit: Earnings after all expenses have been paid 4. Competition: Rivalry between producers and/or sellers of a good or service; usually results in better quality goods and services at lower prices. 5. Consumer sovereignty: Consumers determine through purchases what goods and services will be produced. Government involvement in the economy is limited. Most decisions regarding the production of goods and services are made in the private sector.

4 Standard CE.12a Business Organizations Basic types of business ownership 1. Proprietorship : A form of business organization with one owner who takes all the risks and all the profits. 2. Partnership : A form of business organization with two or more owners who share the risks and the profits. 3. Corporation : A form of business organization that is authorized by law to act as a legal entity regardless of the number of owners. Owners share the profits. Owner liability is limited to the amount of their investment. Entrepreneur 1. A person who takes a risk to produce and sell goods and services in search of profit 2. May establish a business according to any of the three types of organizational structures Standard CE.12b Economic Flow Resources, goods and services, and money flow continuously among households, businesses, and markets in the United States economy. Economic flow (circular flow) 1. Individual and business saving and investment provide financial capital that can be borrowed for business expansion and increased consumption. 2. Individuals (households) own the resources used in production, sell the resources, and use the income to purchase products. 3. Businesses (producers) buy resources; make products that are sold to individuals, other businesses, and the government; and use the profits to buy more resources. 4. Governments use tax revenue from individuals and businesses to provide public goods and services.

5 Economic Flow Chart 1. In our economy, individuals (households) do all except A reinvest profits by buying more resources. B sell their resources (labor). C use their income to purchase goods and services. D limit their purchases according to government recommendations. 2. Businesses most frequently participate in the economic circular flow of resources by A buying resources and making products to sell to consumers. B providing public goods and services by use of tax dollars. C providing investment capital to expand. D consuming products. 3. When the government uses tax dollars to purchase products and/or services from the public, they are participating in what economists consider the A spread of money. B economic flow. C purchasing of products. D stock purchases. 4. Reinvesting tax dollars into public goods and services shows one aspect of the government s involvement in the A supply and demand curve. B market equilibrium. C economic flow. D consumer product safety. Standard CE.12c Private Financial Institutions Private financial institutions act as intermediaries between savers and borrowers that include households and business investors. Private financial institutions 1. Include banks, savings and loans, and credit unions 2. Receive deposits and make loans 3. Encourage saving and investing by paying interest on deposits

6 Standard CE.12d Global Economy Virginia and the United States pursue international trade in order to increase wealth. Terms to know 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 1. To obtain goods and services they cannot produce or cannot produce efficiently themselves 2. To buy goods and services at a lower cost or lower opportunity cost 3. To sell goods and services to other countries 4. To create jobs Virginia and the United States specialize in the production of certain goods and services, which promotes efficiency and growth. Impact of technological innovations 1. Innovations in technology (e.g., the Internet) contribute to the global flow of information, capital, goods, and services. 2. The use of such technology also lowers the cost of production. Standard CE.13a Marketplace Competition The government and marketplace competition. Ways the government promotes marketplace competition 1. Enforcing to discourage the development of monopolies 2. Engaging in 3. Supporting Government agencies that regulate business 1. FCC ( ) radio, TV, etc. 2. EPA ( ) Clean Air Act 3. FTC ( ) Trade with China 4. These agencies oversee the way individuals and companies do.

7 Standard CE.13b Public Goods and Services Government provides certain goods and services that individuals and businesses cannot provide efficiently. Characteristics of most goods and services provided by government 1. Provide benefits to many 2. Would not likely be available if 3. Include such things as Ways governments pay for public goods and services 1. Through 2. Through borrowed 3. Through fees (e.g., ) Standard CE.13c Impact of Taxation 1. The government,, and to influence economic activity. 2. Government tax increases the funds available for individual and business spending; tax decreases funds for individual and business spending. 3. Increased government borrowing available for borrowing by individuals and businesses; decreased government borrowing available for borrowing by individuals and businesses. 4. Increased government spending, which may increase employment and production; decreased government spending, which may result in a slowing of the economy. 5. Increased government spending may result in taxes; decreased government spending may result in taxes. 6. The to the Constitution of the United States of America authorizes Congress to tax personal and business incomes.

8 Standard CE.13d Federal Reserve System The Federal Reserve System is our. As the central bank of the United States, the Federal Reserve System 1. Has the duty to maintain the value of the (dollar) 2. Regulates banks to ensure the soundness of the and the 3. Manages the amount of money in the economy to try to keep low and 4. Acts as the Standard CE. 13e Consumer and Property Rights 1. The United States government and creates to protect consumer rights and property rights. 2. Individuals have the right of private ownership, which is protected by that are. 3. Government agencies establish guidelines that protect and. 4. Consumers may of consumer rights.

9 Standard CE.13f Coins and Currency Money is defined as anything that is generally accepted as a. When the United States government issues coins and currency, people accept it in exchange for goods and services because they have. Government to facilitate this exchange. The three types of money generally used in the United States are (currency paper money) 3. that can be accessed by checks and debit cards. Time To Review 1. The radio disc jockey on Z104 aired a portion of his/her broadcast that was inappropriate and against the law. Which governmental regulatory agency will most likely levy a fine and/or penalty against the radio station? A Federal Trade Commission B Federal Communications Commission C Consumer Protection Safety Commission D Federal Deposit Insurance Corporation 2. If the state of Virginia decided to buy and sell goods with a foreign company, which governmental regulatory agency would be required to approve the venture? A Environmental Protection Agency B Interstate Commerce Commission C Securities and Exchange Commission D Federal Trade Commission 3. What government regulatory agency monitors television programming? A Federal Communication Commission (FCC) B Environmental Protection Agency (EPA) C Federal Trade Commission (FTC) D North Atlantic Free Trade Organization (NAFTA) 4. What government regulatory agency regulates the disposal of hazardous wastes from hospitals? A Federal Communication Commission (FCC) B Environmental Protection Agency (EPA) C Federal Trade Commission (FTC) D North Atlantic Free Trade Organization (NAFTA)

10 Standard CE.14 Personal Finance and Career Opportunities An awareness of personal talents, interests, and aspirations is needed to select a career. Attitudes and behaviors that support a strong work ethic enhance career success. There is a correlation among skills, education, and income. Changes in technology influence the abilities, skills, and education needed in the workforce. 1. Career planning starts with. 2. Employers seek employees who demonstrate the attitudes and behaviors of a. 3. Higher skill and/or education levels generally lead to. 4. Supply and demand also influence. 5. Employers seek individuals who have kept pace with by updating their. 6. Technological advancements in the workplace. 7. Technology and information flows permit people to. This creates from foreign workers for United States jobs but also may create opportunities for United States workers to work for companies based in other countries. 8. Being fiscally responsible includes making careful, saving and for the future, having, keeping to a, using wisely, as well as understanding how contracts, warranties, and guarantees can the individual. According to the cartoon, supply and demand can influence A individual skills. B production costs. C job income. D competition.

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