Economics Chapters 1 and 2 Class Notes Homework Questions to Study for Test

What do supporters of capitalism believe the system allows for?

—Supporters of capitalism believe that individuals use resources efficiently and end up achieving the maximum good possible for society.

What are the three basic questions any economic systems must answer

—1—WHAT should be produced? ——>guns vs. butter —2—HOW should goods and services be produced? ——>Human Labor ——>Animal Labor ——>Mechanical Labor ——>Any Combination of types of Labor —3—For WHOM should goods be produced? ——>By Price (main one for US) - whoever can afford it ——>By Lottery- chance ——>By Majority Rule - vote ——>By Equality- someone decides "fairness" ——>By First Come- First Served - stand in line ——>By Need- someone decides who "needs" the good ——>By Military Necessity- military get first, civilians get leftover

What is a pure capitalistic system?

—A pure capitalist system is one in which the government lets people and businesses make their own economic decisions without government interference

authoritarian socialism

—A system that supports revolution as a means to overthrow capitalism and bring about socialist goals; the entire economy is controlled by a central government; also called communism.

What is a trade-off?

—A trade-off is when you sacrifice one thing in favor of another. —In business a trade-off might be choosing to produce one good or provide one service in favor of another good or service.

democratic socialism

—A type of socialist system that works within the constitutional framework of a nation to elect socialists to office. In democratic socialist nations, governent usually controls only some areas of the economy.

Describe a situation in which a lack of competition caused you to pay more for a good or service than you would have otherwise.

—Any time I have ever had to buy food or drink at a place like Disney World I have had to pay more for food or drink than I would out in the real world where I coud pick my food or drink providers.

Another factor of production is previously manufactured goods used to produce other goods and services and this is called ___________.

—CAPITAL

Individuals own the favors of production and make their own decisions in a __________ economic system.

—CAPITALIST

Economists use a __________ model to illustrate how the market work.

—CIRCuLAR FLOW

In a __________ economic system everything is operated according to government controls.

—COMMAND

Government leaders control the factors of production and make all economic decisions in a __________.

—COMMAND ECONOMY

__________ is the rivalry among producers or sellers of similar goods to win more business.

—COMPETITION

What does freedom of choice mean?

Consumers decide what is produced.

Individuals, families, and businesses make trade-offs. Create a chart like the one below, and for each example given, add a likely opportunity cost.

ED =Economic Decision LOC = Likely Opportunity Cost ED = Individual Gets a second job LOC = Loss of sleep and free time. ED = Family Purchases car LOC = Loss of money that could be used for other things. ED = Business Paves parking lot LOC = Could have spent that money on a raise for their employees or other improvements.

Study the list of goods and services below. Then identify wh you believe controls most decisions involved with each example, and explain your choice.

Electricity —Who Controls? = Business, but mostly government —Why? ——>In industries where there are only a few providers like electricity, the government often regulates prices to protect consumers. Lawn mowing service —Who Controls? =.Individual —Why? ——>A lawn mowing service can be run by an individual and does not even necessarily have to have a large amount of land as part of the business as a capital investment, just tools. Ice Cream Store —Who Controls? = Individual with some government involvement —Why? ——>The invidual business owner can set prices and make decisions about what to sell, but the government will probably inspect the business to protect food and health standards for consumers.

Wants and needs are not always easy to separate. Identify each of the following as a want or a need, and tell why you made that choice.

Food —Need —you will die if you do not eat. Car —Want —Most people do not need a car, but want one for convenience. —However, there are some situations where people might need a car like if they had to work to help support their family but lived out in the countryside and no other way to get to a job because no public transportation. Yearly physical exam —Need —Healthy workers are more productive. Cell phone —Want —You can live and work without a phone.

Scarcity leads to economic choices. Give an example of an economic decision you made and what you gave up when you made your choice. Then think of a choice our country has made and what we may have given up in making that choice.

Me: ——>I made the choice to go the library instead of my Geometry tutorial. This meant that I gave up the option to ask questions which therefore hurt me a bit since I spent time struggling on questions I did not understand. Country: ——>Our country announced a decision to pull out of the Paris Climate Accords. As a result we have given up status and leadership in the world community allowing other countries such as China to take the lead in important new technology development involved with preserving the environment. Not that our current President cares.

Who does the economic planning under capitalism and socialism?

a. Capitalism: o Most decisions are made by inviduals who are acting in response to the ups and downs of the market, but the government makes some laws/rules protecting people and regulating some businesses like utilities. Economic planning is done by private businesses, individuals, and the government. b. Socialism: o All economic planning is done by the government.

What are the six major characteristics of a pure market economy?

a. limited role/involvement of government b. focus on private property c. freedom of enterprise d. competition e. profit incentive f. freedom of choice

How can capitalism best be described in the United States today?

—Caplitalism as practiced in the United States today would be best defined as an economic system in which private individuals own the factors of production but use them within certain legislated limits

What are the effects of competition?

—Competition leads to a more efficient use of resources because businesses have to keep prices low enough to be attractive to buyers, but keep them high enough to turn a profit which means they have to keep their production costs as low as possible to maximize their profit margin.

__________ __________ is an expansion of the economy to produce more goods, jobs, and wealth.

—ECONOMIC GROWTH

A nation's ____________ determines how the gods and services will be distributed among the people.

—ECONOMIC SYSTEM

Individuals who take the initiative to start a new business or introduce a new product or new way of doing something are demonstrating ___________.

—ENTREPRENEURSHIP

Fair and just treatment for oneself and others is also known as __________.

—EQUITY

When economists refer to scarce resources, they are referring to the __________, which are the resources necessary for the production of goods and services.

—FACTORS OF PRODUCTION

In a system of __________ __________, individuals may own and control the factors of production.

—FREE ENTERPRISE

How do freedom of enterprise and freedom of choice apply to the American economy?

—Freedom of choice is the other side of freedom of enterprise. —It means that buyers, not sellers, make decisions about what should be produced. —The success or failure of a good or service in the marketplace depends on individuals freely choosing what they want to buy.

People work to produce __________, which are tangible items, and ____________, which are activities done for others for a fee.

—GOODS —SERVICES

A nation must determine what ___________ to produce and how to produce them.

—GOODS AND SERVICES

According to the Marxian view, what is communism?

—In Marx' view, pure sommunism would be "an idealized system with no need for a government" in which "workers would contribute to society to their full abilities and, in return, take only what they needed.

In a capitalist system, why might business owners resist government intervention in their business?

—In a capitalist system, business owners would probably resist government intervention because it would probably cut in on their profit and interfere with control.

What problems does caplitalism have according to its critics?

—Income is unequally distributed throughout the economy —Although capitalist nations generally have enough government-provided goods such as highways, they do not have enough schools and museums for the general public.

How did Marx view history?

—Karl Marx viewed history as a continual struggle between various groups, or classes, in society.

Another factor of production is the work people do (also known as __________ and often referred to as a human resource).

—LABOR

One factor of production called ___________ is a natural resource present without human intervention.

—LAND

__________ is the term used to describe the freely chosen activity between buyers and sellers.

—MARKET

Under a Market Economy system, the economy is based on information obtained from the _____________, where the voluntary exchange of __________ takes place.

—MARKET —GOODS AND SERVICES

In contrast, individuals in a ____________ economy, control economic decisions.

—MARKET ECONOMY

In a __________ economic system, both government controls AND individual decision making are involved.

—MIXED

In a __________, which combines the basic elements of the Command and Market Economies, there is private ownership of property and individual decisions are combined with government intervention.

—MIXED ECONOMY

How were workers exploited according to Marx's theories?

—Marx believed that capitalists exploited the proletariat, or used them unfairly" because "the value of goods depends only on how much labor is used in producing them" and "when capitalists sold a good and kept the profit, they were taking income that rightly belonged to the proletariat, the people who were actually doing the work.

In the United States, most goods and services are distributed through a __________.

—PRICE SYSTEM

The term __________ is used to describe the money left over after costs, including taxes, have been paid.

—PROFIT

What ideals do people who favor capitalism believe in?

—People people who favor capitalism believe in private property owned by individuals or groups; in freedom of enterprise; in freedom of choice; in competition; in the idea of profit incentives; and in the idea that the government should have a limited role in the economy.

What is pure socialism?

—Pure command socialism is an economic system in which there is little private property and the state owns virtually all the factors of production, such as big factories. In a socialist economic system, the government attempts to manage the production and especially the distribution of goods.

An economic system is a way of determining how to use __________ to satisfy people's wants and needs.

—RESOURCES

The amount of involvement a society's leaders have in allocating scarce ___________ helps determine it's economic system.

—RESOURCES

___________ describes the problem in which people do not have enough income, time, and other resources to satisfy all their wants.

—SCARCITY

Explain why scarcity and choice are basic problems in economics.

—Scarcity is always a problem because if items are in high demand and we don't have the resources to keep making those items people may start fighting over them. Even if its something stupid like a phone. —Choice is about how people choose to spend their limited income or time. If you make devote more of your time to your wants, then you may not have time for your needs.

Some economists today consider the use of science to produce goods and services an additional factor of production. This use of science to produce new/better ways of goods and services is called __________.

—TECHNOLOGY

A __________ is a kind of economic system that operates according to the way that things have always been down.

—TRADITIONAL

In limited parts of the world, a ____________, based on customs and beliefs, exists.

—TRADITIONAL ECONOMY

What is profit?

—The amount left after all the costs of production have been paid, including wages, rents, interest, and taxes. The amount earned after a business subtracts its costs from its revenues

What is the role of government in our free enterprise economy?

—The government acts as a provider of public services, such as maintaining our national parks. It also acts as protector in the form of food and drug inspection.

How does the government in the United States limit choices in order to protect buyers?

—The government in the United States protects buyers by limiting choices in the following ways: ——>laws involving safety standards ——>regulation of industries like public utilities where price regulations are needed.

What does freedom of enterprise (free enterprise) mean?

—The individual is free to own and control the factors of production.

What is the opportunity cost of any trade-off?

—The opportunity cost is the value of the next best alternative (activity or item) that you gave up. —The opportunity cost is the value of what you lost in making your trade-off.

What did Smith mean when he referred to an "invisible hand" that guides people's economic choices?

—The term "invisible hand" is a metaphor for how, in a free market economy, self-interested individuals operate through a system of mutual interdependence to promote the general benefit of society at large

What do individuals own and control under a free enterprise system?

—Under a free-enterprise system "individuals own the factors of production and decide how to use them wihtin legal limits

Economists consider everythng other than basic survival needs to be a ???

—WANT

A politician promises to increase funding for both the space program and education. Knowing about opportunity costs, what question should you ask as a citizen?

—Where is the money going to come from for this? In other words, what is going to get cut in order to allocate stuff to the space program and education?

What is important to know before one makes a decision related to their available resources?

—all the things that could possibly be done with available resources and their opportunity costs before deciding how to allocate those resources. —a production possibilities curve can be used to visualize these

How did Mill think society should go about achieving "the greatest happiness of the greatest number?"

—by adopting policies and distributing wealth in whatever way possible to keep the largest number of people happy.

What is a production possibilities curve?

—graph that shows maximum combinations of goods and services that you can produce with a fixed amount of resources for a set period of time.

The classic example for explaining the production possibilities curve shows the relationship between what two factors?

—guns (military spending) v. butter (domestic spending)

What benefit is there from a nation, business, or individual using the production possibilities curve?

—helps to figure out what are the ways to use their limited resources because they can visualize what will be lost or gained when one thing is chosen over another.

For every purchase you make, you affect the economy. List three items you bought recently. For each item, list three businesses that benefited from your purchase.

—purchased the game Gang Beasts for my PS4. As a result, the Sony Corporation, Boneloaf (the game developer), and Double Fine Presents (the game publisher) all benefitted. —ordered a pair of hiking boots for the upcoming Biology field trip. ——>The following companies benefited: Amazon.com and Ariat International Corporation and whichever delivery company brings them, most likely the United Parcel Service. —Recently I purchased the game The Room IV: Old Sins. ——>The following companies benefited: Apple (the App store), Fireproof Games, and A.T.&.T (as I paid for data when playing it on my phone on the bus).

What is the goal of utilitarianism?

—to promote the greatest happiness for the greatest number

What kinds of trade-offs do you make as a student?

—typical trade-offs include —>doing school work instead of having a life —>choosing to study one subject more than another; choosing where to go for tutorial —>choosing one elective over another.

What does an opportunity cost cause a person to lose?

—value of the next best opportunity to the one that he or she chose.

Some economic systems work better with democracies and some work better with authoritarian rule. Which political system best matches each economic system? Why?

——>Market and Mixed economies work best with democracies because they allow for individiual choices and democratic socieities usual center around the rights of individuals. ——>• A command economy works best with a totalitarian or authoritarian rule because in a command economy the government makes all the decisions which is basically a hallmark of an authoritarian ruling system. ——>• A traditional economy doesn't fit perfectly with either a democratic or authoritarian system. Because a traditional economy focuses around common customs, it could work with an authoritarian government as long as the country wasn't so big that there were multiple ethnic groups with different customs.

OC of Working after school every day.

—• Opportunity cost = better grades that you could have if you were spending the time studying (and possibly loss of ability to get into better college and therefore loss of eventual earnings potential associated with a degree from a quality school).

Why is the principal of private property important for capitalism?

—• Private property drives the economic engine of capitalism because if you didn't have private property as an incentive you wouldn't have any reason to work harder.

List three examples in which a person's pursuit of his or her own self-interest might benefit society as a whole.

• 1. The invention of a device meant to solve an individual's problem (like a more efficient bucket) might help many. • 2. The desire of people who become professors to keep learning new things would benefit others as they shared that knew knowledge in their classes. • 3. The desire of someone to be a writer or a playwright might benefit society through the enjoyment of their art.

Think of how you spend your time each day. Some goods and services you encounter are a result of our capitalist economy; someone made these items for a profit. Government provides other goods and services. Of the goods and services you used in the past 24 hours, which were made for a profit, and which were provided by the government?

• Electricity (profit, partially government regulated) • Water (provided by government, but paid for by family) • Prepackaged Food (profit) and ingredients for other food • Food from restaurats (profit) • car (profit) • highways and roads (government) • school (private school, proft) • television (profit, Comcast cable) • paper, pen, computer, books, school supplies (profit)

OC of restricting the development of nuclear power plants.

• Opportunity cost = cheap and pretty safe energy with less pollution as a result compared to something like a coal burning plant.

OC of Living at home while attending college.

• Opportunity cost = loss of chances to socialize with and learn how to get along with people your own age instead of your parents and/or siblings if you have any.

OC of Training to be an Olympic champion.

• Opportunity cost = loss of free time and better grades you could have and loss of time spent with friends.

OC of Commuting a long distance to work.

• Opportunity cost = lost time spent with family or lost time spent at work.

OC of Cleaning lakes and rivers of industrial wastes.

• Opportunity cost = money could be spent on preventingpollution in the first place or treating people with illnesses as a result of the pollution you are cleaning up.

OC of Increasing federal spending on national defenses.

• Opportunity cost = money spent on national defenses has to be taken away from domestic spending like education or social programs.

OC of Dating only one person during high school.

• Opportunity cost = you don't get experience meeting a lot of different people and figuring out what kinds of people you do and do not like from a romantic point of view.