GHSGT Review Economics

Unit 1 – Fundamental Concepts of Economics

Limited resources and unlimited wants Scarcity – basic condition which exists when unlimited wants exceed limited productive resources Trade-offs – alternatives that must be given up when one choice is made over another Opportunity cost – the next best alternative given up when individuals, businesses and governments confront scarcity by making choices

The Factors of Production Land – natural resources not created by human effort Labor – people with all their abilities and efforts Capital – tools, equipment, and factories used in production Entrepreneurs – risk-taking person or people who bring the other 3 factors of production together

The basic economic questions What to produce How to produce For whom to produce

Economic systems Traditional economy – the allocation of resources is the result of ritual and custom Command economy – central authority makes the major economic decisions and allocates resources Market economy – (free enterprise economy) supply, demand, competition, and the price system make economic decisions and allocate resources

Unit 2 – Microeconomics

The Law of Demand Demand – combination of desire, ability, and willingness to buy a product Law of Demand – rule stating that more will be demanded at lower prices and less at higher prices

The Law of Supply Supply – schedule of quantities offered for sale at all possible prices in the market Law of Supply – rule stating that more will be offered for sale at high prices than at lower prices

Competition, price, and equilibrium Price – monetary value of a product as established by supply and demand Competition – the struggle among sellers to attract customers while lowering costs Equilibrium price – price where quantity supplied equals quantity demanded

Unit 3 – Business Organizations

The three forms of business organizations Sole proprietorship – unincorporated business owned and operated by a single individual who has the rights to all profits and unlimited liability for all debts of the firm; the most common form of business organization in the United States

The three forms of business organizations Partnership – unincorporated business owned and operated by two or more people who share the profits and have unlimited liability for the debts of the firm

The three forms of business organizations Corporation – form of business organization recognized by law as a separate legal entity with all the rights and responsibilities of an individual, including the right to buy and sell property, enter into legal contracts, sue and be sued

Market structures in the economy Monopoly – market structure characterized by a single producer Oligopoly – market structure in which a few large sellers dominate an industry

Market structures in the economy Monopolistic competition – market structure having all the conditions of perfect competition except for identical products Perfect competition – market structure characterized by a large number of of well- informed independent buyers and sellers who exchange identical products

Unit 4 – Macroeconomics – Measurements of the economy

The means by which economic activity is measured Gross Domestic Product (GDP) – the dollar value of all final goods, services, and structures produced within a country’s national borders during a one-year period Consumer Price Index (CPI) – index used to measure price changes of frequently used consumer items

The means by which economic activity is measured Inflation – the rise in the general level of prices over time Unemployment rate – ratio of unemployed individuals divided by the total number of people in the civilian labor force, expressed as a percentage

The means by which economic activity is measured Economic growth – a sustained period during which a nation’s total output of goods and services increases Recession – a decline in the nation’s total output of goods and services for two or more quarters Depression – a severe recession where the economy experiences large numbers of unemployed and general economic hardship

The means by which economic activity is measured Deficit spending – spending by the government in excess of revenues collected Federal debt – the total amount borrowed from investors to finance the government’s deficit spending Balanced budget – an annual budget in which expenditures equal revenues

Unit 5 – Macroeconomics – Policies and International Economics

The Federal Reserve and monetary policy Federal Reserve (Fed) – privately owned, publicly controlled, central bank of the United States As the nation’s central bank, the Federal Reserve uses monetary policy to promote price stability, employment and economic growth

The Federal Reserve and monetary policy Monetary policy – actions by the Federal Reserve to expand and contract the money supply in order to affect the cost and availability of credit Monetary policy affects the size of the money supply, and therefore the level of interest rates, the cost of borrowing money

The Federal Reserve and monetary policy Fiscal policy – the use of government spending and revenue collection measures (taxes) to influence the economy When implementing fiscal policy through taxing and spending decisions, the government impacts the nation’s economy

International Trade Absolute advantage – a country’s ability to produce more of a given product than another country Comparative advantage – a country’s ability to produce a given product relatively more efficiently than another country; production at a lower opportunity cost

International Trade Both production and consumption increase when individuals, businesses and governments specialize in what they can produce at the lowest opportunity cost and then trade At different times nations advocate free trade or erect trade barriers for different reasons

International Trade Trade barriers: Tariff – a tax placed on an imported product Embargo – a prohibition on the export or import of a product Quota – a limit on the amount of a good that can be allowed into a country Subsidy – government payment to encourage or protect a certain economic activity

Unit 6 – Personal Finance

Financial institutions and investment options Banks and financial institutions are essential links between savers and investors Investment options include: Stocks – certificate of ownership in a corporation; may gain or loose value over time Bonds – formal contract to repay borrowed money and interest in the future Mutual funds – stock in a company that buys and sells stocks and bonds issued by other companies

Spending, saving, and credit Rational decision-making helps people make wise choices Monetary and fiscal policies can have an impact on an individual’s spending and saving choices Using credit can have both positive and negative effects on present and future economic well-being