1. ©2011 Cengage Learning

2. Chapter 2 REVIEW OF THE ECONOMIC PRINCIPLES OF CAPITALISM ©2011 Cengage Learning

3. Economics Revisited A Social Science Studying Distribution of Scarce Resources Choice & Opportunity Cost ©2011 Cengage Learning

4. Economic Value Utility Scarcity Effective Demand Transferability ©2011 Cengage Learning

5. Span of Economic Systems ©2011 Cengage Learning

6. Economics  about choices and trade-offs  not an exact Science ©2011 Cengage Learning

7. Society must answer these questions: What to produce? How to produce it? For whom to produce it? ©2011 Cengage Learning

8. Key Principles of Capitalism: Private Property Private Enterprise Competitive Markets Profit Motive ©2011 Cengage Learning

9. Pure Capitalism Supply and Demand decides what, how, and for whom products and services are produced. ©2011 Cengage Learning

10. United States Economy is a mixed capitalistic system ©2011 Cengage Learning

11. The four essential resources that are needed to produce goods and services( “Factors of Production”) 1. Land 2. Labor 3. Capital 4. Entrepreneurship Economic Principles in Action ©2011 Cengage Learning

12. In a capitalist economy Owners of land receive rent for its use. Lenders receive interest for capital use. Workers sell their labor for wages. Entrepreneurs earn profits. ©2011 Cengage Learning

13. The Circular flow of Economy Rents, Wages, Interest, and Profits constitute income. People use that income to buy goods & services. ©2011 Cengage Learning

14. What determines prices and output? The Marketplace A place where buyers and sellers meet to bargain and exchange goods & services at negotiated prices. Market and Prices ©2011 Cengage Learning

15. When perfect competition prevail: There are many buyers and sellers. No one buyer or seller influences the market. Goods and services are similar. Bargaining establish prices. ©2011 Cengage Learning

16. Imperfect competition prevails: if either buyer or seller exercises some control over the market. ©2011 Cengage Learning

17. Demand created by: Increase or decrease in population Increase or decrease in per capita income Changes in consumer taste or products The amount and cost of credit The effect of advertising ©2011 Cengage Learning

18. Laws of Demand & Supply The lower the price - more sales The higher the price - less sales More products & services offered as prices increase Less products offered as prices decrease ©2011 Cengage Learning

19. Elasticity The ratio of percent change in one variable to the percent change of another variable. ©2011 Cengage Learning

20. Causes for shift in supply: Change in the cost of production. Change in demand for one product can change supply of another. Anticipation of future prices and profits can change the amount of goods supplied. High profits can bring about ruinous competition. Above market profits can bring in other suppliers. ©2011 Cengage Learning

21. Product Market Goods and Services Resource Market Factors of Production Individuals and Households Business Land, labor, and capital Receive goods and services Sell goods and services Supply Demand The Circular Flow of Economy goods and services ©2011 Cengage Learning

22. Product Market Goods and Services Resource Market Factors of Production Individuals and Households Business (rent, wages, interest) $$ Expenses $$ Income (rent, wages, interest) $$ Expenditures $$ Spend Income Revenue $$ Supply Demand The Circular Flow of Economy Dollars ©2011 Cengage Learning

23. Product Market Goods and Services Resource Market Factors of Production Individuals and Households Business (rent, wages, interest) Land, labor, and capital $$ Expenses $$ Income (rent, wages, interest) $$ Expenditures Receive goods and services $$ Spend IncomeRevenue $$ Supply Demand The Circular Flow of Economy Sell goods and services ©2011 Cengage Learning

24. Understanding how market changes will influence price and output is essential for real estate investors. The interaction of supply and demand determines prices paid and quantity produced. Certain influences cause supply or demand to change. Prices and output change. ©2011 Cengage Learning