Chapters 1-5

Chapter 1 Want vs. Need Needs are required for basic survival Used interchangeably Needs are required for basic survival Food Clothing Shelter Wants are anything other than what is needed for basic survival. Electricity Technology (Computers, Cellphones)

Chapter 1 Scarcity – Resources are limited Factors of Production Creates competition Exists because people cannot satisfy every want Shortages are temporary Factors of Production Land – Natural resources and location Labor – Work people do Capital – Manufactured goods used to make other goods and services Entrepreneurship – Ability to start a new business or create new products Technology – Use of science to develop new products and production methods

Something to Think About What is your most scarce resource? What competing uses do you have for that resource? All of the factors are important, but which factor do you consider to be the most important? Why?

Chapter 1 Trade-offs – Exchanging one thing for the use of another Economic models – Theories in a simplified format to represent the real world Shows how people behave economically Not always accurate due to inability to predict human nature Economic thought can influence laws and government policies Often depend on a person’s values/beliefs Economics does not judge whether a policy is good or bad

Chapter 2 Three Basic Questions: What goods and services should be produced? If a product is produced, then another product ceases production How should they be produced? Consider resources Who will get the goods, and how will they distributed? Consider the population Consider form of distribution and price

Chapter 2 Types of Economic Systems Traditional – Based on customs and beliefs, passed down for generations Inuit, Africa, Native Americans prior to Europeans Command – Gov’t leaders answer the three basic questions USSR, China, Liby, Afghanistan, Iraq, Iran Market/Capitalist – Individuals make the choice No true Capitalist economy in the world Mixed – Combination of market and command economies. United States, Canada, Mexico, Brazil

Chapter 2 Role of Government Freedom of enterprise and choice Adam Smith – famous economist who wrote Wealth of Nations Described an economic system called capitalism Pure capitalism – laissez faire (gov’t hands off) Basis of the US’ economic system Freedom of enterprise and choice Individuals own and control the factors of production No guarantee of success – 80% of new businesses fail in the first year Gov’t place few restrictions to protect the individual People buy what they want Demand determines production Gov’t sets safety standards

Something to Think About Why might less government involvement be helpful to an economy? Why might less government involvement hurt an economy?

Chapter 2 Profit incentive – Produce goods and services to earn a profit (make money) Private Property – property owned and held by individuals/groups Controlled by the individual Protected by the US Constitution Competition Creates lower prices and better quality goods and services

Something to Think About Think of a situation in which quality was more important to you than price and vice versa. How did you compare quality? How did you compare price?

Chapter 3 Disposable vs. Discretionary Income Money left after paying all taxes Money left after paying for necessities/ can be saved/ spent on luxury items Ability to consume depends on a person’s income and how much is spent or saved

Chapter 4 Credit – Receive funds for services or goods with intent of paying back those funds in the future Principal – amount borrowed Interest – amount added on for the privilege of borrowing Installment debt – loan paid back overtime Debit Cards – Not loan; transfer funds directly from bank account to store Credit rating – determines the risk of a bank lending money

Chapter 4 Financial Institutions Commercial Banks – Offer widest range of services Savings and Loans Associations – Lower interest rates Credit Unions – Owned and operated by members; higher interest rates for savings, lower for loans Finance Companies – Collect debt for stores’ loans; high interest rate for loans

Chapter 4 Truth in Lending Act – Expanded government’s role in protecting users of consumer credit Equal Credit Opportunity Act – Creditors cannot discriminate on basis of race, religion, national origin, gender, marital status, or age 1974 – Women no longer depended on fathers and husbands to sign a loan or receive a credit card Usury laws – set a maximum interest rate in a state Bankruptcy – Occurs when a person cannot repay any of their debts

Something to Think About How does the Equal Credit Opportunity affect you? Does this mean you will automatically be approved for credit? Why or why not? Why do you think it is important that states establish their own interest ceilings instead of having it be the same nationwide?

Chapter 5 Comparison Shopping – making comparisons to decide what to shop for and where to shop Advertisements and coupons help save time and money Trade-offs in Food Stores Club Warehouse Stores – Offer lower prices, but items only sold in bulk with fewer options Convenience stores – Carry few items, higher prices, open longer Brand names – Well-known nationally or regionally Supermarkets/Wholesale Stores – Wider selection with market prices Some supermarkets produce their own brand Generic products have no brand name

Chapter 5 Comparing Clothing Current Styles – Change from year to year, can be expensive because new clothes must be bought annually (if not more frequently) Classic Styles – Basic, do not change as much, help clothes last longer, saves money Service flow is the amount of time you get to use the product and the value you place on that use Factor in the coast of care involved in clothing that must be hand washed or dry cleaned versus machine washable

Something to Think About How can the cleaning method affect the service flow of a piece of clothing?

Chapter 5 Getting More for Less Clothing costs have decreased significantly over time. Clothing sales generally happen at the end of a season Bargain fanatics buy items just because they are on sale If you buy an unnecessary item because it’s on sale, you may not be saving money at all.

Chapter 5 How much should you spend on a house? Avoid spending more than you can afford You will need the cash down payment and closing costs Be aware of points or fees paid to the lender Financing the purchase of a House Different types of mortgages and financing packages available Mortgages involve down payments and interest Paid in monthly installments Property tax, homeowners insurance, and mortgage insurance often included

Chapter 5 Renter rights and responsibilities Usually sign a lease Be wary of clauses in lease; read carefully Have the right to use the property as stated in the lease and privacy Must pay rent on time, take care of property, alert landlord of needed repairs In case of damaged property, tenants pay a security deposit Must give written notice if leaving prior to lease’s end Landlords must obey building and safety laws Rent-control laws limit the amount a landlord can charge

Chapter 5 Buying a vehicle Registration fees are state fees paid annually Normal maintenance and repairs Depreciation or a decrease in value Insurance Cost varies based upon age, sex, and driving history

Something to Think About What are some reasons why car owners might continue to make expensive repairs on an old instead of buying new one?