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)