Unit 1 and 2

free enterprise

an economic system in which privately owned businesses have the freedom to operate for a profit with limited government intervention

opportunity cost

an economics term that refers to the value of what you have to give up in order to choose something else, a value of the road not taken.

nondurable goods

an item that lasts for fewer than three years when used on a regular basis (food, writing paper, clothing)

questions all societies face

What to Produce? A society cannot produce everything its people want, so it must decide what to produce. How to Produce? Should factory owners use automated production methods that require more machines and fewer workers, or should they use fewer machines and more workers? Depends on unemployment rates and number of machines For whom to Produce? Poor, rich, or middle class?

consumer good

a good intended for final use by individuals (shoes, shirt, or car)

demand curve

a graph showing the quantity demanded at each price that might prevail in the market

supply curve

a graph showing the various quantities supplied at all possible prices that might prevail in the market at a given time

price system

a means of organizing economic activity. It does this primarily by coordinating the decisions of consumers, producers, and owners of productive resources.

demand

describes the various amounts of a product that someone is willing and able to buy over a range of possible prices at one point in time/when someone wants or needs something

capital

result of production, sometimes called "capital goods," and is the tools, equipment, machinery, and factories used in the production of goods and services

limited supply

scarcity, the reason why people need to make choices and weigh opportunity costs

capitalism

economic system in which private citizens own and use the factors of production in order to generate profits, market economy

market economy

economic system in which supply, demand, and the price system help people allocate resources and make the WHAT , HOW, and FOR WHOM to produce decisions; same as free enterprise economy

mixed economy

economic system that some combination of tradition, command, and market economics. We have freedom to create what we want, but we have to follow government regulations. For instance, Ms. Mangle has to pay more taxes this year because she started her own business.

market

key feature of circular flow, a location or other mechanism that allows buyers and sellers to exchange a specific good.

monopoly

market structure characterized by a single producer; form of imperfect competition (you want to own EVERYTHING)

monopolistic competition

market structure having all conditions of pure competition except for identical products; a form of imperfect competition designer clothing, cosmetics, some shoe industries (Sephora)

oligopoly

market structure in which a few large sellers dominate the market and have the ability to affect prices in the industry; form of imperfect competition (gas, opec or phone brands)

price ceiling

maximum legal price that can be charged for a product

equilibrium quantity

quantity of output supplied that is equal to the quantity demanded at the equilibrium price

what happens to price when a market is not in equilibrium?

surplus/shortage

barriers to competition

taxes, subsidies, trade restrictions, other pricing limitations that create inefficiencies within a market system

land

the "gifts of nature"/ natural resources not created by people (deserts, fertile fields, mineral deposits, livestock, sunshine, and the climate necessary to grow crops)

wealth

the accumulation of products that are tangible, are scarce, have utility, and are transferable from one person to another (only goods, not services)

supply

the amount of a product that would be produced, grown, or acquired and offered for sale at all possible prices that could prevail in the market/making stuff people need or want

quantity supplied

the amount that a single producer or all producers bring to market at any given price/how much we have!

macroeconomics

the branch of economics that studies the behavior and performance of an economy as a whole

economics

the social science about how and why people buy, sell, and distribute goods and services based on the choices we make and the result of those choices

competition

the struggle among sellers to attract consumers

microeconomics

the study of individuals, households and firms' behavior in decision making and allocation of resources

quantity demanded

the total amount of a good or service that consumers demand over a given interval of time. It depends on the price of a good or service in a marketplace.

perfect competition

theoretical market structure characterized by a large number of well-informed interdependent buyers and sellers who exchange identical products and have freedom of entry and exit. Anything sold on Etsy is perfect competition because anyone can enter or exit the market. Jewelry, masks, etc.

suppliers

timber company, electricity company, phone company, toolmaker, water supply company, target, drug dealers, amazon

voluntary exchange

voluntary act of buyers and sellers freely and willingly engaging in market transactions

how do price floors affect supply?

A price floor makes a surplus in supply permanent. A shift in demand could cause the surplus to increase or decrease, but it will persist as long as the price floor stays above its equilibrium price. ex. Many governments establish price floors to ensure that farmers make enough money by guaranteeing a minimum price that their goods can be sold for. (and minimum wage)

what happens to demand when trends change?

If a product is successfully advertised, its popularity and demand increases because consumers tend to buy more of it at all possible prices. If a trend stops, demand goes down and supply goes down. Think Macy's and JC Penny.

what happens to demand when consumer income changes?

If consumer income increases, consumers are more likely to buy different amounts of products at all possible prices. As a result, demand increases.

trade-offs

Making the right decision, or at least the best decision from a limited group of alternatives, is not always easy. This is because every decision we make has its trade-offs, or alternative choices that are given up in favor of the choice we select.

market power

Market power refers to a company's relative ability to manipulate the price of an item in the marketplace by manipulating the level of supply, demand or both. A company with substantial market power has the ability to manipulate the market price and thereby control its profit margin, and possibly the ability to increase obstacles to potential new entrants into the market. For example, Walmart can lower prices so much that no one can compete. Once they have market power, they raise their prices back up and no other companies can compete.

how do price ceilings affect shortages in supply?

Price ceilings make shortages in supply permanent. A shift in demand could cause the shortage to increase or decrease, but it will persist as long as the price ceiling stays below its equilibrium price. ex. People want rent price ceilings during pandemic because the market is demanding a higher price, but renters can't afford it, so the building is essentially driving people out. A price ceiling leads to a shortage in the producer's income because they can't rent out more expensive apartments.

how does the scarcity of productive resources affect economic choices

Scarcity of productive resources would result in a greater opportunity cost. If a company's machine malfunctions, it has to decide between stopping production and losing money or training employees to do what the machine did and lose time.

what happens to supply when technology changes?

The introduction of a new machine or industrial process can lower the cost of production, which increases productivity. Supply goes up.

determinants of demand and supply

The price of the good or service. The income of buyers. The prices of related goods or services—either complementary and purchased along with a particular item, or substitutes and bought instead of a product. The tastes or preferences of consumers will drive demand. Consumer expectations. Most often, this refers to whether a consumer believes prices for the product will rise or fall in the future.

what happens to supply when wages change?

When wages go up, workers are encouraged to work harder at a certain type of economic activity. Production goes up, so supply goes up. More wages, more people have money so more people have buying power so demand goes up so supply goes up. Wages go down, demand goes down because people won't have as much money to spend on wants.

shortage

a situation in which the quantity demanded is greater than the quantity supplied at a given price...BELOW equilibrium price

surplus

a situation in which the quantity supplied is greater than the quantity demanded at a given price...ABOVE equilibrium price

value

a term that refers to a worth that can be expressed in dollars and cents

capital good

a tool or good such as machinery or equipment that is used by businesses to produce other products

good

a useful, tangible item, such as a book, car, or MP3 player that can be used to satisfy a need or want

characteristics of perfect competition

benefits both producers and consumers, assures consumers unpopular products will not be produced if consumers don't buy them, assures consumers that producers are always working to bring newer, better, and less expensive products, assures producers they will thrive while consumers find their product efficient, but consumers will die off if their product becomes less efficient, no barriers to entering or exiting market

north korea is a _____, whereas new zealand is a ___________

command economy (total govt regulation), free market (no govt regulation)

what economy does america have?

free enterprise mixed economy, aka modified free enterprise economy

economic entities

hospitals, companies, municipalities, and federal agencies

impact of increased trade

increased competition, more variety, lower price, higher quality of goods, more services in a market

durable good

one that lasts three years or more when used on a regular basis (robot welders, tractors, and cars)

labor

people with all their efforts, abilities, and skills (includes all people except entrepreneurs)

circular flow

producers put goods and services into the system, consumers give money and take those goods and services. ex: Government is a part of this because people get stimulus checks. Consumers are supposed to spend this money to keep the economy going, but a lot are saving, so the stimulus checks aren't working the way they were supposed to work.

scarcity

the gap between limited - that is, scarce - resources and theoretically limitless wants. This situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants as possible.

price floor

the minimum legal price that a seller can charge

price

the monetary value of a product

equilibrium price

the price at which the number supplied equals the number demanded

service

work that is performed for someone (haircuts, home repairs, and forms of entertainment such as concerts)