Business Essentials 2.02 Test

Trade-offs

All economic choices involve these; Giving up all or part of one thing in order to get something else; Based on opportunity costs involved

The Equilibrium Price

Also known as the market-clearing price; This is the price at which the quantity that buyers want to buy is equal to the quantity that sellers are willing to sell; Very rarely in the marketplace does this price exist

Natural Resources

Any resource found in nature that are used to produce goods and services; Sometimes referred to as land but usually include much more

Consumer

Anyone who uses goods and services

Demand Impact

As price decreases, demand goes up; As price increases, demand goes down

Supply Impact

As price increases, supply goes up; As price decreases, supply goes down

(Relative Prices) How will products be produced

At the lowest cost possible

Materials Industrial Products

Become part of a finish product after they have been processed; Some are considered raw materials because they are received in their natural state; Some have been processed in some way before the producer receives them (Ex: Yarn, Flour)

Business/Resource Owner's reaction to Relative Prices

Businesses compare the relative prices of different resources to determine which combination to use in production; Resource owners compare relative price sin different markets to determine where to sell their resources

Two markets

Buyer's market and Seller's market

Price Factors

Buying power, Value, Relative Price

Noneconomic wants

Can be satisfied without spending money

Capital Goods and Technology

Capital goods reflect a society's technology; Leaders in technology often have the most up-to-date capital goods; Developing countries might use hand tools to produce goods and services whereas industrialized nations use sophisticated technology

The Substitution Effect

Changes in relative price cause buyers to substitute the purchase of one product with another; Whenever the demand price of the product changes, the relative prices of other products change; When the relative prices of other prices change, consumers change combination of products they buy

Supplies Industrial Products

Constantly being purchased and used up in the operation of business; Usually the least costly type of industrial product; (Ex: Cash register, Pencils, Stationery, and Shipping materials)

Unsought Consumer Products

Consumers buy these out of adversity instead of desire (Coffin, Crutches, or a Life Insurance Policy; Consumers wouldn't like to think about needing, but circumstances might make them necessary

Shopping Consumer Products

Consumers may "Shop around" to get these items. They tend to pay more for these then convenience products, and usually want advice of a salesperson (Ex: Furniture, Large Appliances, College Educations, Computers)

Money Values

Consumers pay more for things that bring them greater satisfaction; Values attached to money payments depend on: Productivity, Demand, and Availability or Supply

Convenience Consumer Products

Consumers purchase these items quickly and without much thought or effort, Usually for a low cost. Substitutes are applicable, and they may be staple items (Bread/Milk)

Classifications of Consumer Products

Convenience, Shopping, Specialty, Unsought

Factors affecting Supply

Cost of production, Number of products, Future prices, Disasters and emergencies, Government, Technology

Economics in Action

Countries, Businesses, Consumers

Economizing

Deciding which goods and services lead to the most satisfaction

Elastic Demand

Demand changes when prices change (Non-essentials, wants)

Popularity of a business

Demand for the products; Ready to buy at a particular price/time; Willingness of consumers to pay the price

Inelastic Demand

Demand is constant, even if prices change (Essentials, needs)

Conditions for Demand to Exist

Desire for a good or service; Buying power to pay for a good or service; Willingness to give up some buying power

Wants

Desires for thing that may or may not actually be required (Craving/Wish/Need); Unlimited; Vary from person to person; Competing;

Factors of Production

Economic Resources are also known as Factors of production; They enable businesses to produce the goods and services that consumers want

Economic Activity of Distribution

Economic process or activity by which income is divided among resource owners and producers; Money is received by resource owners and producers is known as income; The two often engage in a tug of war to how to divide the income they receive from their consumers (Depends on society's economic system)

Economic Activity of Production

Economic process or activity of producing goods and services for consumption

Objective for studying economies

Effective decision making; Responsible citizenship in society

Two Types of Demand

Elastic Demand and Inelastic Demand

Examples of Capital Goods

Equipment, Machinery, Tools, Supplies, Buildings, Trucks, Roads, and Ports (NOT MONEY- That is financial capital)

Limited Natural Resource Response

Find another source; Find an alternative source; Conserve the resource; Pay a higher price for the resource

How Goods, services and resources move

From one person to another with four economic activities making it possible: Consumption, Exchange, Production, and Distribution

Consumer or Industrial Classification

Helps marketers plan activities; Serves as a guide for: Promotion, Distribution, and Selling

Installations Industrial Products

High cost, long-lasting items that are used to produce other goods and services; They affect the amount of goods and services that a producer can expect to make (Ex: Buildings, Conveyer belt, Blast furnaces)

Producers

Individuals who make or provide goods and services

Functions of Relative Prices

Information, Incentives, and Rationing; Higher price = Lower quantity purchased, Lower Price = Higher quantity purchased

Economic Resources

Items that can be used to product goods and services; Inputs that enable businesses to operate; Require more as businesses grow; They vary; Producers are responsible for choosing the best combination

Resources

Items used to accomplish other activities such as producing/providing goods and services (Human & Natural Resources + Capital Goods)

Specialty Consumer Products

Items with special or unique characteristics that consumers are willing to spend special efforts to obtain. In many cases, it relates to the item's brand name (Gucci) and are willing to pay high prices to get them without substitutes. (Ex: Sports cars, Fine china, Luxury spa services, or Antiques

Capital Good Resources Limitations

Lack of labor, natural resources, technology, and money to produce them

Examples of Natural Resources

Land, Minerals, Energy reserves, Bodies of water, Wildlife and vegetation, Air, Weather Conditions

Buyer's market

Large supply, Small demand, Lower prices

Producers Relation to Economy

Limited resources to make products; Must make sure they produce what consumers want

Consumers Relation to Economy

Limited resources to purchase products; Communicates wants by purchasing or not purchasing

Limited Capital Goods Response

Maintain the capital good; Change inventory procedures; Find alternatives; Modify current technologies

Capital Goods

Manufactured or constructed items that rare used to produce goods and services; Created by people; Human resources use these to transform natural resources from their original state to products; Help productivity

Classifications of Industrial Products

Materials, Parts, Installations, Equipment, Supplies

Economic Goods

Must be Physical (Tangible), Useful, Scare (Limited), Transferable

Categories of Economic Resources

Natural Resources, Human Resources, and Capital Goods; They are all Limited

Limited Human Resource Response

Offer higher wages; Offer training and retraining; Promote job openings; Find new sources of human resources; Increase automation; Offer Employee-assistance programs; Offer benefits, flextime, and shared time

Relative Price

One price compared to another, the ratio between two prices

Exchange Movement

Payments for Human resources: Wages, Salaries, Profits; Payments for Capital goods: Interest or Rent; Moves in a circle

Resource Owners

People and organizations who provide human resources, natural resources, or capital goods for use in production

Human Resources

People whose physical and mental work produces goods and services

Economic Services

Productive acts that are useful, scarce, and transferable and which satisfy economic wants (Same characteristics as Economic goods except they are intangible)

(Relative Prices) What will be produced?

Products that are most profitable, sold at the highest prices the market will bear

Consumer goods and services

Purchased and used by the ultimate consumer (final user)

Industrial goods and services

Purchased by producers; For resale, to make other goods and services, and to use in business operations

Law of Demand

Quantity of a good or service that consumers will buy varies inversely with the price of it; Buy more at lower prices; Buy less at higher prices

Supply

Quantity of a good or service that producers are able and willing to offer for sale; At a specified price and in a given period of time

Law of Supply

Quantity of a good or service that will be offered for sale varies in direct relation to its selling price; Higher price means: Greater quantity supplied, more price

Examples of Human Resources

Real estate agents, Truck drivers, Marketing Researchers, Operations Managers, Entrepeneurs

Economic Wants

Require you to spend money to satisfy them

Seller's market

Small supply, Large demand, Higher prices

Human Resource Limitations

Some people are unable or unwilling to work; There are shortages for certain jobs or professions: Lack of training or skills, Lack of Interest, Changing demographics, Geographically unavailable

Need

Something required or essential that is lacking

Natural Resource Limitations

Supply problems due to overuse of nonrenewable resources (Like Fossil Fuels or Minerals); Difficulty/costly to obtain; Lack of technology; Unsuitable weather conditions

Entrepeneuership

The act of organizing resources and accepting risk in order to obtain a profit; Some say without it, the other facts would be useless; Other economists say its a form of human resources, not a separate category

Market price

The actual price in a market at any particular time; Excess supply or demand cause the market prices to fluctuate

Price

The amount of money that is paid for a good, service or resource

Opportunity Cost

The benefit that is lost when you decide to use scarce resources for one purpose rather than for another (Ex: Government spending more money on defense than education)

Economic Activity of Exchange

The economic process of trading one good/service for another; Producers, consumers, and resource owners exchange money payments

Economic Activity of Consumption

The economic process or activity of using goods and services; This is the ultimate goal of all economic activity; Involves a Consumer

Scarcity

The gap between unlimited wants for goods and services and limited resources; Scarce resources must be allocated to their best use- Economizing

Excess Demand

The quantities supplied are less than demanded, The price is set lower than the equilibrium price; A seller's market develops

Excess Supply

The quantities supplied are more than demanded, The price is set higher than the equilibrium price; A buyer's market develops

Economics

The study of how to meet unlimited, competing wants with limited resources; The heart of it is decision making

The law of Supply and Demand

The supply of a good or service will increase when the demand is great and decrease when demand is low. When demand is great: Prices usually increase along with supply, When demand is low: Prices usually decrease along with supply

Human Resources Importance

They are required in the production of all goods and services, They combine other resources to produce goods and services

Economic Activity of Balancing Production and Consumption

This relationship must be balanced; Sustainability is shifting towards minimizing resource use and pollution in the process of it

(Relative Prices) How will products be allocated?

To whoever is willing and able to pay the price

Characteristics of Wants

Unlimited - Always have wants; Changing - Wants change during our lifespan; Competing - Limited money must be spent wisely

Equipment Industrial Products

Used in the operation of the business but not in the actual production of a good or service; Cost less and have a shorter life span than installations; (Ex: Computers, Forklifts, Phones)

Factors affecting Demand

Utility (Usefulness), Buying power, Price of other goods and services, Consumers

Consumer reaction to Relative Prices

Whether the prices go up or down, relative prices do not change if the ratio remains the same; By comparing relative prices, consumers choose the combinations that bring them the most satisfaction

Parts Industrial Products

Will become part of a finished product but do not need any additional processing (Ex: Bolts, Screws, and Tires)