The Study of Economics
This is defined as the study of how society manages its scarce resources.
What is economics?
These are the three basic economic questions each society must answer.
What to produce? How to produce? For whom to produce?
This is an alternative choice given up in favor of the choice we select.
Trade-off
This characteristic means the ability to buy the things you want, choose your occupation, employer, & job location. Businesses are not told by a gov't agency how much or what to produce.
Economic freedom
This is a listing showing the quantity demanded at all possible prices that might prevail in the market a given time.
This is a graph showing the quantity demanded at each and every possible price that might prevail in the market at a given time.
demand schedule
demand curve
This is considered the most fundamental economic PROBLEM.
What is scarcity?
You must say which economic question is being answered in the situation.
Decision: Produce housing. Low, middle, or upper-income housing?
A society cannot produce everything its people want, so it must decide WHAT to produce.
This is the VALUE of the next best alternative given up.
Opportunity cost
This is the voluntary act of buyers and sellers freely and willingly engaging in market transactions.
voluntary exchange
State the Law of Demand.
Explain what kind of relationship there is between the two factors that are a part of the Law of Demand.
More will be demanded at lower prices and less at higher prices; there is an inverse relationship between price and quantity demanded.
This is what scarcity requires people to do.
Scarcity requires people to make choices.
Should we use more machines or more workers to produce our goods and services?
HOW to produce?
Give three clear examples of trade-offs and opportunity costs that you, as a young adult, encounter throughout the school year.
Studying vs. hanging out
Sleeping in vs. getting class credit
More costly, healthier food vs. cheaper, unhealthier food
Saving for a big event vs. spending money on little things
Saving time with an Uber; paying less to take the train
This gives people an incentive to work, save, and invest. It allows people to own and control their possessions as they wish.
private property rights
Explain diminishing marginal utility in terms of how a consumer might react to buying an expensive bottle of water when they are thirsty. What will affect their choice to buy another one?
The extra satisfaction we get from using additional quantities of the product begins to decline. They will be less likely to buy a second or third bottle of water once their thirst has been quenched.
a) This is the lowest hourly rate one can be paid by an employer.
b) This is the minimum income necessary for a worker to meet needs that are considered to be basic.
Minimum Wage.
Living Wage
Explain how the three economic questions are answered in a traditional economy. Also, give an advantage and disadvantage of living in one. Give an example of one of these types of economies.
WHAT to produce: family & community customs
HOW to produce: the same way it has always been done
FOR WHOM to produce: determined by customs & traditions of society
ADV: you know what is expected of you
DISADV: new ideas & ways of doing things are discouraged; lack of progress; stagnant economy
The INUIT (Canada/Alaska); African Mbuti; Australian Aborigines
Name all four factors of production.
Land, labor, capital, and entrepreneurship.
This is the incentive to improve one's material well-being.
This is the struggle among sellers to attract consumers with the best products at the lowest price.
profit motive
competition
Explain what happens to a demand curve when there is an increase of decrease in price or quantity demanded.
There will be movement up or down the curve. (The curve itself does not move.)
a) a basic requirement for survival (food, clothing)
b) something we would like (not necessary for survival)
c) a useful, physical object or item
d) work that is performed for someone
a) need
b) want
c) good
d) service
Compare & contrast the ways COMMAND & MARKET economies answer the three questions.
Give examples of advantages & disadvantages.
Give one example of each type of economic system.A central authority answers all 3 economic questions in a command economy.
ADV: quick growth of industry can help the economy
DISADV: loss of freedom of choice, not all needs are met (hunger), low-quality good
North Korea, Cuba, Venezuela
A market economy has its questions answered by the people (buyers & sellers).
ADV: individual freedom, low gov't interference, economy is easier to adjust than command.
DISADV: doesn't provide for everyone, may not be enough basic goods and services, high degree of uncertainity
United States of America, Western Europe, anywhere there is capitalism.
Give an example of each of the four factors of production.
Land - a field growing crops
Labor - a worker in a factory or store
Capital - tools, equipment, & machinery used to produce goods
Entrepreneurship - risk-takers who start new businesses or bring new products to the market
Name and give an example of how we experience the five benefits of a free enterprise system.
Clues: Individual _________
A _______ of Goods
Adapting to __________
Promoting __________
Creation of __________
Freedom, Variety, Change, Progress, Wealth
p. 75 - 78 for examples
List all six determinants of demand and what happens to the demand curve when there is a change in the determinant.
Consumer income, consumer tastes, substitutes, complements, expectations, & number of consumers.
It will shift to the left to represent a decrease; it will shift to the right to show an increase.