MKT Economics

Basic questions of economics

1. What to produce? - what goods and services 2. How to produce it? 3. For whom? Who will consume the goods and services?

Market Economy What? How? For Whom?

A market economy is an economy in which decisions regarding investment, production, and distribution are based on supply and demand, and prices of goods and services are determined in a free price system. an economic system in which individual following their self-interest makes the decisions about production and distribution. In market economies, economic decisions are made by individuals. The unfettered interaction of individuals and companies in the marketplace determines how resources are allocated and goods are distributed. Individuals choose how to invest their personal resources—what training to pursue, what jobs to take, what goods or services to produce. And individuals decide what to consume. Within a pure market economy the government is entirely absent from economic affairs. The United States in the late nineteenth century, at the height of the lassez-faire era, was about as close as we've seen to a pure market economy in modern practice.

Standard of Living

A measure of quality of life based on the amounts and kinds of goods and services a person can buy.

Labor Productivity

A measurement of economic growth of a country. The quantity of goods and services that can be produced by one worker or by one hour of work

Labor

All people who work; including part and full- time employees and managers.

Command Economy What? How? For Whom?

An economic system in which the government controls a country's economy. an economic system in which the government usually decides what to produce, how to produce it, and who will consume it. In a command economic system or planned economy, the government controls the economy. The state decides how to use and distribute resources. The government regulates prices and wages; it may even determine what sorts of work individuals do. Socialism is a type of command economic system. Historically, the government has assumed varying degrees of control over the economy in socialist countries. In some, only major industries have been subjected to government management; in others, the government has exercised far more extensive control over the economy. The classic (failed) example of a command economy was the communist Soviet Union. The collapse of the communist bloc in the late 1980s led to the demise of many command economies around the world; Cuba continues to hold on to its planned economy even today.

Traditional Economy What? How? For Whom?

An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next. an economic system, which is based on what has been done in the past. an original economic system in which traditions, customs, and beliefs shape the goods and the services the economy produces,. A traditional economic system is shaped by tradition. The work that people do, the goods and services they provide, how they use and exchange resources... all tend to follow long-established patterns. These economic systems are not very dynamic—things don't change very much. Standards of living are static; individuals don't enjoy much financial or occupational mobility. But economic behaviors and relationships are predictable. You know what you are supposed to do, who you trade with, and what to expect from others. In many traditional economies, community interests take precedence over the individual. Individuals may be expected to combine their efforts and share equally in the proceeds of their labor. In other traditional economies, some sort of private property is respected, but it is restrained by a strong set of obligations that individuals owe to their community. Today you can find traditional economic systems at work among Australian aborigines and some isolated tribes in the Amazon. In the past, they could be found everywhere—in the feudal agrarian villages of medieval Europe, for example. How:

3. The Cuba Planning Commission decides how many pounds of sugar should be produced in Cuba.

Command

4. Doctors are employees of the government; any fee they charge for home treatment is regulated by the state.

Command

9. Sandra and her family live in housing that the federal government provides.

Command

_____ 4. Economic decisions are made by central planners, like the government

Command Economy

_____ 7. Individuals have little choice about the work they do.

Command Economy

Land

Economic resources which include everything contained in the earth or found in the seas.

Provide two examples of government involvement in the US economy:

Government regulation of Telecommunications later de regulated Banking: sets interest rates. requires banks to have deposit insurance

A healthy economy should have high or low labor productivity.

High

Circle the correct answer: A healthy economy should have a high low GDP.

High

Circle the correct answer: A healthy economy should have a high low standard of living.

High

Circle the correct answer: A healthy economy should have a high low inflation rate.

Low

Circle the correct answer: A healthy economy should have a high low unemployment rate.

Low

2. Madison believes that her community needs another restaurant, so she decides to open a new restaurant.

Market

5. To increase her income, Susan makes pillows and sells them at a local flea market.

Market

7. Morgan bought a new pair of jeans because her old ones were torn.

Market

_____ 2. Individuals are encouraged to develop new ideas and businesses.

Market Economy

_____ 3. Large numbers of people are involved in decision-making.

Market Economy

_____ 5. Buyers and sellers make economic decisions.

Market Economy

_____ 6. Land, tools, and factories are privately owned.

Market Economy

_____ 8. Individuals may choose what kind of work they do.

Market Economy

_____ 9. Workers can bargain for higher wages.

Market Economy

_____10. Consumers may buy or not buy products and services.

Market Economy

10. Mr. Derek Johnson owns a shirt factory. O. S. H. A. (Occupational Health and Safety Administration) checks to make sure the employees work in a safe environment.

Mixed

6. Mr. Smith is retired and collects Social Security.

Mixed

8. Curt Jones decided to produce Dippin' Dots® Ice Cream. The Kentucky Department of Health has regulations concerning the clothing the workers wear.

Mixed

When inflation is high, ____________________ loses its value.

Money

Capital

Money to start and operate a business; goods and services used in the production process; can also include infrastructure

What type of economic system actually exists in countries around the world?

No economy is purely traditional, market, or command. Every economy has influences that make it somewhat _______Mixed____________. The United States has a _______Market____economy with leanings toward a _____Comman______economy.

Entrepreneurship

Skills of people who are willing to invest their time and money to run a business; they organize and manage the factors of production: entrepreneurs are risk takers.

The GDP is composed of ___________________investment, ____________________spending, ________________________spending, and total _____________________________ of goods and services.

The GDP is composed of Business____________investment, ___Government_________spending, _________Personal______spending (Consumption), and total ___Net__Export_______ of goods and services.

Scarcity

The difference between wants and needs and available resources.

Economy

The organized way a nation provides for the needs and wants of its people. Economic systems around the world differ in how they use their limited resources to produce and sell goods and services that the people need and want.

Gross Domestic Product

The total value of goods and services produced within the borders of a country during a specific time period, usually one year. Country's total economic output for a year Measures of a nations total output of goods and services.

1. Joe became a plumber because his father and grandfather were plumbers.

Traditional Economy

_____ 1. Economic decisions are based on customs from the past.

Traditional Economy

How do the concepts of specialization and division of labor contribute to productivity

When someone is specialize they can do it faster than someone who is a generalist.

Mixed Economy / Market

an economic system in which is combination of the different economic systems. The Government has laws to protect private business owners, courts enforce laws to protect consumers and businesses: the government has very few barriers, the government controls or regulates a few industries to include the postal service and healthcare. The above statement describes which economic system?

Factors of production

economic resources: land, labor, capital, and entrepreneurship.

When inflation starts to go up, many governments raise _________________________ to discourage borrowing and spending.

interest rates

When more people work, there are more people spending _________________ and paying __________________.

money, taxes

To calculate Standard of Living, you divide the GDP of a country by its________________________________

population

Unemployment Rate

the percentage of the labor force that is unemployed

Inflation Rate

the percentage rate of change in price level over time

Infrastructure

the physical development of a country; includes roads, ports, sanitation facilities, utilities, and telecommunications.

division of labor

the production of most goods can be broken down into a number of specific tasks Division of labor on the other hand is the cooperative specialization of labor. Division of labor can be dated as early as the start of civilization and was practiced by the Sumerians to group different jobs according to various skills of the members of the society. Division of labor is historically associated with increased growth in total output and is viewed as the rise of capitalism. It also helps to solve some of the most complex industrialization Processes. Division of labor as explained by Adam smith can be restricted based on the market extent. Adam has suggested that the bigger the market the higher the specialization. It can then be deduced that the global market that we are currently enjoying has resulted to so much specialization. The conditions for specialization to thrive on the global market are a free trade, free mobility and migration of labor. The process of specialization brings the law of comparative advantage into the mind. It is commonly referred to as the law of association by many economists. This is so because division of labor, free trade, specialization and law of comparative advantage results into a relationship between individuals.

specialization

with each of these tasks assigned to specific workers Specialization is a wide economic concept that is used to describe the process of separation of various tasks within a system or a firm. Specialization will give each individual a chance to specialize in the area that one is best in. In the context of economics it describes the specialization of all the factors of productions. The factors of productions that are subjected to specializations are land, labor, capital and entrepreneurship. This different category gives rise to the four categories of specialization, land specialization, capital specialization, labor specialization or division of labor. Specialization will help in the accomplishment of some of unattainable goals of the factors of productions. In all the cases of specialization all the individual of the system will become very dependent on other units and will be difficult to work outside the specialized systems.