CH 1, Sect 3 CH 2, Sect 1 &2 1

Section 3 Trade-off alternative choices Limited spending power Variety of wants Variety of criteria 2

CH 1, Sect 3 Opportunity cost the cost of the next best alternative use of money, time, or resources When one choice is made over another. “what are you giving up?” “Why?” 3

CH 1, Sect 3 Production possibilities frontier a diagram representing various combinations of goods and/or services an economy can produce Considers all available resources 4

CH 1, Sect 3 Cost-benefit analysis a way of thinking about a problem – Compare the cost of an action To the benefit(s) received – A person’s ability to predict and handle risk is important here. 5

CH 1, Sect 3 Free enterprise economy consumers and privately owned businesses decide: – What to make? – How to make it? – For Whom to make it? 6

CH 1, Sect 3 Standard of living the quality of life based on Possession of necessities and luxuries that make life easier 7

Economy/economic system: an organized way of dealing with and providing for the wants and needs of a people. – Traditional – Command – Market Chapter 2 Economic Systems and Decision Making Section 1 8

Chapter 2, Section 1 Traditional economy allocation of scarce resources based on – Ritual – Habit – Custom Rarely creative or innovative Rely heavily on a barter system and rarely produce a surplus of goods. Example – Inuit communities in Canada 9

Chapter 2, Section 1 Command economy allocation of scarce resources based on: Government planning – Prices controlled so most people can afford things. – Quotas does not allow for more demand of a product that is in short supply. People wait in lines and might not get what they want anyway. Examples – North Korea and Cuba 10

Chapter 2, Section 1 Market economy: aka free market economy Buyers and sellers act the way they want Prices are set between – What the seller wants to be paid – What the buyer is willing to pay – Supply of the good/service – Demand for the good/service Example – The United States 11

Social security a federal program of benefits for working people – Retirement – Disability 90% of Americans participate – Retirees – Disabled persons – Survivors Spouses Children – Medicare recipients 65 or older Section 2 12

Chapter 2, Section 2 Inflation a rise in the general level of prices – People need more money to pay for Food Clothing Shelter Caused by – Economic change Rise in price of a key resource Raise in salaries and wages of employees – Falling value of currency Too much money available 13

Chapter 2, Section 2 Fixed income an income that does not increase even though the cost of living increases. – Retirement – Government benefits/entitlements 14