CIVICS: free enterprise

What percent of annual output (amount produced) of the world did America produce at the start of this century?

$10 trillion, 30%

adam smith

-1700's invented the market of supply and demand (capitalism) -market is governed/guided by a secret hand to equilibrium -the market is self-correcting -private property rights, and all the factors of production are owned privately

what government has done to protect consumer rights

-Congress has passed laws to protect consumer rights -Many involve the labeling of food items Ex. Fair Packaging and Labeling Act requires every package have a label identifying the contents and the weight

does GDP measure quantity of final goods and services or quality?

-QUANTITY -example: a Mac bought this year and a Mac bought five years ago for the same price do not have the same product QUALITY at all, yet that is not reflected in the GDP

rights of consumers

-Should find out all about a product to decide if it is a good product or not -Should find out where the best value for our money is -Cannot rely on stores and businesses -protect ourselves

role as a consumer

Depends on: your available income How much of it you choose to spend or save

consumerism

Educates buyers on the purchases they make and to demand better and safer products from manufacturers

what questions should you ask yourself when getting ready to decide about your savings?

How much do you spend on your everyday expenses? What are your primary reasons for saving? How much interest can you earn on your savings and how fast will your savings grow? How much income do you think you will be earning in the future? If you expect to make a much higher income tomorrow, there is less reason to save today's income

how to save money regularly

In order for saving to be easier to most people, most employers withhold a fixed amount from employees' paychecks. That money would be automatically deposited into the employees' savings account. However many people like to handle there savings themselves, by each week or month they budget a certain amount of money to put aside in there savings. When some people think of saving they think about putting there money in a savings bank, where it will earn interest.

consumer bill of rights

In the 60s, President Kennedy and President Nixon emphasized the five rights of consumers 1. Consumers have a right to be informed for protection against misleading and deceitful information 2. Right to safe production 3. Have availability to a variety of products 4. Consumer interests will be taken into account when new laws are being written 5. If the product causes financial or physical damage to the buyer, they have a right to obtain payment from the manufacturer

SHIFTS IN DEMAND (the curve)

LEFT • Change in income (decreases) ; increase in demand for cheaper goods • Change in taste and preference (nobody buys VHS anymore) • Change in population (decreases) ; less people to buy products RIGHT • Change in income (increases); you can afford to buy a little more expensive • Change in taste and preference • Change in population (increases)

SUPPLY SHIFTS (the curve)

LEFT • Higher taxes • Increase in input costs RIGHT • Lower taxes (make more widgets for less price, more profit, willing to supply more at every price) • Decreases in input cost • Technology

when does productivity increase?

Productivity increases whenever more output can be produced with the same amount of input OR when the same output can be produced by less input. (Does not only apply to labor, it applies to all the other factors of production too, like using the most fertile land for crops)

benefits of saving

Saving involves a trade-off The more you save today, the more you can spend in 10 years Saving increases a person's future purchasing power It is a good idea to have a savings plan for retirement or in case of emergencies

disadvantages to not saving for the future

Some people do not save their money, and as time goes on, it becomes harder for them to afford large purchases that they want to buy.

consumer responsibilities

The consumer must begin the problem solving process if the product they buy is faulty but fixing it yourself may cancel the warranty -It is expected that the consumer behave ethically and respect the rights of the producers and sellers

substitute

a competing product that consumers can use in place of another

subsidy

a government payment to an individual, business, or group in exchange for certain actions

charge acccount

a line of credit that a particular store extends to its regular customers

product market

a market where producers offer goods and services for sale

budget

a plan for making and spending money;it's important to consider goals when making a buying decision. these help people achieve their personal financial goals because a budget can cut out unnecessary purchases. This leaves more money for financial goals and necessities, which can limit negative consequences.

economic interdependence

a reliance on others, as they rely on you, to provide goods and service to be consumed (without this there wouldn't be capitalism)

credit cards

a small plastic card issued by banks and some businesses Allows holder to purchase goods and services on credit A person may use a credit card in any business that accepts the card. The business collects the purchased price from the credit card issuer, which sends a monthly bill to the cardholder. The cardholder may pay the bill all at once or in installments. Late payment may result in additional chargers. Late charges are figured on a percentage of the amount owed.

voluntary exchange

act of buyer and sellers freely and willingly engaged in market transactions

how does GDP affect the standard of living in a country? and how does it not?

affects the standard of living when the GDP grows faster than the population, so there are more goods and services for the individual person. but a high GDP doesn't necessarily measure the well-being of society, and other factors like crime, equal opportunities, and drug/alcohol use can take part

entrepeneur

an innovative individual who is willing to take risks and who starts a new business, introduces a new product, and improves a management technique

law of demand

as price goes down, the quantity demanded goes up (inverse: as price goes up, the quantity demanded goes down) -the curve doesn't change, the price has increase/decrease in demand at EVERY price

law of supply AND demand

both laws combined

division of labor

breaking down of a job into seperate smaller tasks to be performed individually, improves productivity and makes use of difference in skills and abilities. example: if there are people working on a farm and some are better with animal and some are better with crops, the work would be dividing to where the ones who specialize with animals stay with the animals and the crops with crops.

four sectors of the circular flow of economic activity

business sector, foreign sector, consumer sector, and govenment sector

what are the difference between consumer goods and capital goods?

capital goods satisfy wants INdirectly by helping in producing the actual consumer goods, like machinery.

diminishing marginal unity

decreasing satisfaction or usefulness as additional units of a product are acquired

demand curve

downward sloping line that graphically shows the quantities demanded at each possible price

free enterprise

economic system in which individuals and businesses are allowed to compete for profit with a minimum government interference

laissez faire economics

economic system where government should not interfere in the market place, and should keep "hands off"

socialism

factors of production are owned by both the governement and privately

government sector

federal, state, and local. they purchase productive inputs in the factor market and receives revenue from the services it sells in the product markets, like university tuition, city bus fares, but mostly from taxes

factors of production: natural resources (examples)

fertile land for crop growing or building on, abundant rainfall for crops, mineral deposits like iron and steel, and wood from forests

market

free and willing exchange of goods and services between buyers and sellers; at local, regional, national, and global levels

private property rights

freedom to own and use our own property as we choose as long as we do not interfere with rights of others

natural resources

gifts of nature that make production possible

saving for the future

helps people afford major purchases. Saving is to set aside a portion of money to be used at a later date. If the individual saves, the entire economy benefits, as it allows businesses to expand and provides money for people to invest or spend.

law of supply

if the price goes up, the supply goes up (to make more money) -the curve doesn't change, the price has increase/decrease in supply at EVERY price

infinite demand

inelastic demand; something people will ALWAYS demand (like diabetics always need insulin) -price increases, demand still increases

what types of sales and goods are not included in the country's GDP and why?

intermediate goods that go into making a final good, like the wheat and flour used to make a loaf of bread(final good) that has already been sold. this would be double-counting. secondhand sales are not counted either because nothing new has been created

communism

karl marx's theory of the proleteriat (workers) violently overthrowing and killing the bourgeoisie (owners) and then all the workers would own the companies and work equally towards a worker's paradise -not effective, there is no motivation to suceed or improve -no private ownership, "everyone" owns everything because "everyone is the government" (factors of production are owned by government) -all is a monopoly -results in waiting in line to get food, and buying all you can, because you don't know when you're going to get it again. a black market results from the surplus

foreign sector

less than 4 percent of the nation's GDP. it's double sided, and where goods are bought and where goods are sold to other countrires, and the value of goods purchased or sold in foreign sector tend to offset each other, so it's the weakest sector

factor market

market where productive resources are bought and sold (where consumers earn their income) -example: where workers earn wages for their labor; landlords collect rent money-

demand elasticity

measure of responsivness relating change in quantity demanded to a change in price

profit

money a business receives for its products or services over and above its costs

discretionary income

money left over after paying for these necessities Spent on satisfying wants Ex. Luxury items

why do companies specialize?

more output can be made for specializing in one group of things that you can do well than a lot you are kinda good at. and it increases productivity (like building a house and having different companies, like plumbers, painters. etc)

how to compute GDP

multiply the number of items produced by the average price, then add up everything. if the result is higher than the past year's, the economy is expanding, and vice versa.

better business bureau

one of the many private groups and organizations have taken on the task of protecting consumer rights These are run by businessmen who realize that the key to success is earning the trust of their customers

labor

physical and mental human effort directed toward producing goods and services, like teachers, carpenters, etc.

what accounts for changes in the size and quality of the labor force?

population growth, immigration, education, war, and disease

capital

previously manufactured goods(manmade, not natural resources) used to make other goods and services; anything that helps a person or a company provide a good or a service; example: barber's capital includes scissors, mirrors, chairs, combs, brushes, etc.

complement

product often used with another product example: pencils are a complement of paper

what happens when businesses invest in human capital?

productivity increases, employers are rewarded with people making higher quality product and more produts, and workers benefit from higher pay, better jobs, and more satisfaction from work

entrepreneurship

rarest of all commodities because 70% of businesses fail, and most people want to build up a business to a large value to sell it for a lot of money later to make a profit, (like house-flipping)

Factors of production

resources necessary to produce goods and services

factors of production

resources necessary to produce goods and services

ethical consumer behavior

respecting the rights of producers and sellers -example: a responsible consuer will not try to return a used item because it has been advertised elsewhere for a lower price

with every right, there comes :

responsibility!

supply elasticity

responsiveness of quantity supplied to a change in price

consumer sovereignty

role of consumers as the ruler of the market, determining what products will be produced

competition

struggle that goes on between buyers and sellers to get the best products at the lowest prices

human capital

sum of the skills, abilities, and motivaiton of people

capitalism is a system in which who owns most of the factors of production?

system in which private citizens own most, if not all, of the means of production and decide how to use them within legislated limits

demand schedule

table showing quantities demanded at different possible prices

supply schedule

table showing quantities supplied at different possible prices

goods

tangible products that we use to satisfy our wants and needs

supply

the amount of goods and services that producers are able and willing to sell at various prices during a specified time period

utility

the amount of satisfaction one gets from a good or service

demand

the desire, willingness, and ability to buy a good or service

profit motive

the driving force that encourages individuals and organizations to improve their material well-being

standard of living

the material well-being of an individual, group, or nation, measured by how well their necessities and luxuries are satisfied

productivity

the measure of the amount of output given by the amount of inputs in a specific period of time.

technology

the methods or processes used to make goods and services

disposable income

the money income a person has left after all the taxes on it have been paid Spent on many kinds of goods and services Ex. Food, clothing, housing

interest

the payment people receive when they lend money or allow someone else to use their money. A person receive interest at periodic intervals on his or her saving as long as funds are in the account.

unemployment rate

the percentage of people in the civilian labor force who are not working but are looking for a job

warranty

the promise made by a manufacturer to repair or replace a product within a certain time period if it is faulty

market demand

the total demand of all consumers for a product or service

market supply

the total of the supply schedules of businesses that provide the same good or service

business sector

-consumers SPEND their income in the product markets. they receive payments in the product markets when they sell their goods and services to consumers. they use this money to pay for natural resources, labor, capital, etc. -they also pay for some of the output it produces to keep producing even more goods and services, like tools, factories, etc. (15-20% of our GDP, so its smaller than the factor markets) -labor is a factor of the business market, coming from the factor markets

caveat emptor

-let the buyer beware (for consumer rights)

what are the four factors of production? (FOP)

1.) natural resources 2.) labor(both physical and mental; natural, human resources) 3.) capital 4.) entrepreneurship

opportunity cost

the value of your highest alternative choice that you did not make (all steps in decision making involve this) Regardless of the size of a person's income, spending that income requires constant decision making. Consumers have a series of choices to make. Suppose a friend recently purchased athletic shoes. You like them, and you want to buy a pair for yourself. Before you buy them, ask yourself, " what can't I buy or do, if I buy these shoes?" In other words, you have to decide if the shoes are worth what you would give up to buy them.

why are entrepreneurs the driving force of the American economy?

they use the factors of production to actually make new products or provide new services

goal of circular flow of economic activity

to keep the circle growing bigger and bigger

gross domestic product (GDP)

total dollar value of all FINAL goods and services produced in a country during a single year; a reasonably accurate and useful measure of economic performance

supply curve

upward sloping line that graphically shows the quantities supplied at each possible price

specialization

when people, businesses, regions, and/or nations concentrate on goods and services that they can produce better than anyone else -these people and businesses depend on other people for products that are consumed (like the factors of production)

when does growth of the economy happen related to productivity?

when productivity increases, and increases when more output can be produced with the same amount of input or the same output with less input

consumer sector

where consumers EARN their income in the factor markets, and create resources FOR the factors of production to use in the factor markets(like labor markets). consumers buy about 2/3rds of the resources they produce. examples: wage salaries, rent land/property(natural resource), or exchange capital for interest(to maybe make a business)

services

work performed by a person for someone else