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Study of how SCARCE resources are managed to address society's needs.
Study of small economic units: individual customers, families and businesses
Focus on supply and demand
Study of a nations overall economic issues
Look at GDP (Sum of goods and services) and things that affect it
An organized way of providing the WANTS AND NEEDS of the consumers
2 types of Economic Systems:
- Command- Socialism/Comunism
- -Gov decides everything
- Free Market- Capitalism
- -Market decides everything
- Highly controlled
- State controls factors of production
- Gov decides who makes the products, who sells them, and how much trade is
- People have very little choice
Limitations of Communism
- Limited personal freedom
- Limited opportunity
- Shortages of food and other products
- Lack of motivation to work hard
- Little incentive for business people
- Planned economic system
- Gov owNs and operates all major businesses
- Private ownership of the smaller businesses
- Personal choice is LIMITED
- Individuals own and operate the majority of businesses that provide goods and services
- Limited role of government
Capitalism was derived from whose ideas?
- ADAM SMITH- Father of modern economics
- -Invented the "invisible hand" (self regulating nature of the marketplace).
- -Laissez Faire Economics (hands free)
Mixture of both the command & free market systems, to different degrees
If consumers are free to make choices and sellers are free to produce and sell then supply and demand will result in...
Willingness and ability of buyers to purchase goods and services
Willingness and ability of sellers to provide goods and services
- Describes how much product buyers will purchase at different prices
- Typically slopes downward and to the right
- High price-low demand
- Low price-high demand
- Shows the relationship between different prices and the quantities that sellers will offer for sale
- Slope upward and to the right showing higher prices drive willingness to produce
- Low price-low supply
- High price-high supply
Equilibrium Price/Market Equilibrium
Supply and demand are equal, setting the price at which you can buy an item
Surplus & shortage
- Surplus- Too many goods produced..(top of curve)
- Shortage- Too little goods produced..(bottom of curve)
Why is perfect equilibrium seldom achieved?
Because supply and demand are always changing.
What are the four forms of Free-Market competition?
- Monopolistic Competition
- Perfect Competition
- Only one seller, no competitors
- Legal monopoly and natural monopolyExamples:A single power supplier
- A patented drug
- Many competitors
- Homogeneous product
- Easy entry and exit
- No market power
- A few sellers
- Considerable control over price
- One seller can have a strong effect on competitors
- Ex: Cereal manufactures, coke & pepsi
- Many buyers and sellers
- Process of developing differences between one's products and all similar products
- Ex: fast food, bakeries, college
Most industries in the US fit into what 2 forms?
Monopolistic & oligopoly
Circular Flow Model
- Goods and services flow from producers to consumers.
- Money flows from consumers to producers, in exchange
The US is a _______ economy
Mixed economy- some control
What are the four stages of the Business Cycle?
What are the 3 key indicators of economic performance?
- GPD- U.S. GDP is increasing slower than China/India (Sum of all good and services produced within a countries boundaries during a specific time period)
- Unemployment Rate- Highest of all time
- Price Indices- All prices are increasing... (CPI- measure of the average change in prices of goods and services over time).
What are some common measures used to evaluate a nations economic health?
- New housing starts
- Prime interest rate
- Balance of trade
- Bank credit
- Corporate profits
- Inflation rate
- National income
What are the 2 tools for measuring economic performance?
- Monetary policy- actions to increase or decrease money supply and change banking requirements and interest rates to influence loans
- Fiscal policy- gov spending and tax decisions designed to control inflation, reduce unemployment and encourage economic growth
What are the 5 looming economic challenges?
- Aging population
- Escalation federal deficit
- Increased energy and commodity costs
- Balance of payment issues
- Threat of terrorism
Sum of all outstanding debt owed by the Federal Gov
Who does the government owe?
U.S. is $16 trillion in the hole
- 50% owned to people who purchased Treasury Bills, Notes and Bonds
- 50% to itself
Purchase of goods and services from abroad that leads to an outflow of currency
Sale of goods and services to buyers from other countries leading to an inflow of currency
Balance of Trade...
- Balance of Trade: Exports = Imports
- Favorable B.of.T: Exports > Imports (Trade Surplus)
- Unfavorable B.of.T: Exports < Imports (Trade Deficit)
Benefits of trade
- More countries are better off
- Literacy rates increased by 30%
- Life expectancy increased by 30 years
Downsides of trade
- Job losses from outsourcing
- Losses of whole industries
Trends in trade
- Falling trade barriers
- Increased overall trade
- Establishment of international organizations to promote trade: WTO, WORLD BANK, EU, NAFTA, CAFTA
Balance of Payments
- Overall money flow into and out of a country
- Surplus: money in > money out
- Deficit: money in < money out
Value of ones nations currency relative to the currencies of other countries
Tax imposed on imported goods
Revenue tariffs do what?
Generate income for the government
Total ban on importing specific products
Limit set on imports
Selling prices abroad below production costs
Barter agreement which involves payment of products and not currency
Absolute advantage is when..
You have a monopoly or you can produce a product at a lower cost than a competitor
Comparative advantage is when..
You can supply a product more efficiently and at a lower price than it can supply other good, in comparison to other countries