1. Why Do We Participate in the Economic System??? Everything we do is connected to the economic system in some fashion. Each day we go to work because the work we provide is in demand in the and the wages we receive enable us to get the the goods and services we need to live.

2. Goods and Services are sold to Consumers Money is exchanged for goods and services

3. Business and Gov’t pay individuals for labor Individuals provide labor for businesses and Gov’t

4. Government provides services to its citizens Citizens pay taxes to their government

5. Participation in Economic Activity is circular in its nature. Labor is provided for wages and wages are exchanged for goods. However the wages earned from labor are now gone and the process must begin again. This process will continuously repeat itself throughout your lifetime.

6. Economics -Economics -the system that society uses to produce and distribute goods and services -Why study economics??? Resources are limited and we need to decide: What to produce? How to produce it? Whom to produce it for? -Why does the government pay so much attention to the economy??? They want to know what goods and services the population needs to function.

7. Wants and Needs -Wants are the things which people would like to have -Needs are the things which people need to survive -Goods -things that can be made or manufactured -Capital goods are the things used to manufacture other goods (tools and machines) -consumer goods are goods meant to be sold to consumers for use -Services -work that is done for someone for a certain price (plumber, carpenter…)

8. Limited Availability -Goods and Services are produced using resources Natural Resources “gifts of nature” or Human Resources -Scarcity -the economic problems of limited goods and the unlimited wants of society in general -Scarcity limits the availability of goods and services that people desire or need. -This scarcity gives goods and services VALUE

9. Putting a Price on Things -Price or VALUE is based on two basic factors Supply and Demand -Supply -the amount of a good or service that is available for consumers to buy -Demand -the amount of a good or service that consumers are willing to buy

10. Determining Price -Price is determined by comparing the amount of demand to the amount of supply and finding an amount where they are equal -Market or Equilibrium Price -this is the point at which supply and demand meet and price is determined

11. Effects of Price -Shortages -when demand is greater than supply -What happens to price? Price goes up -Surplus -When supply is greater than demand -What happens to price? Price goes down

12. Law of Demand Demand- The amount of a particular good or service consumers want to buy Law of demand- as the price of a good increases the amount demanded will decease and as price decreases then demand will increase

13. Diminishing Utility -the law of demand says that a lower price will increase demand but this is limited -diminishing utility -the amount of satisfaction or usefulness of a product decreases as more and more are consumed. -Ex.—You can only enjoy so many soft drinks before you can’t drink anymore no matter the price you are paying (Think about when you get a pizza delivered and how good the first piece is compared to the 3 rd )

14. Elasticity -Elasticity -Is the degree to which a change in price affects the demand for the product -Elastic Demand -a change in the price does affect the quantity demanded (Soft Drinks or potato chips) -Inelastic demand -change in the price does NOT affect the quantity demanded (Example: heart medication)

15. Income Level Changes -The demand of many consumers is based on their income level or purchasing power -A change in either direction to a person’s purchasing power will change their demand for goods and services -personal income Amount of money that a person makes -disposable income Amount of money left after paying bills and taxes

16. Change in Consumers -The number of possible consumers in an area affects demand -Faster growth areas may face higher levels of demand -Areas of the country who are losing population will face lower demand for goods (If a new apartment complex is built the demand for goods and services will increase)

17. Consumer Expectations -Many consumers plan when making economic choices and their predictions for the future change their demand -a period of high unemployment or economic boom can greatly change the demand for certain goods

18. Consumer Tastes -Because consumers have many choices of where to spend their money, the popularity of items will change demand -Advertisers spend billions every year to shape the “tastes” of consumers -Some items become high demand items for a short while and then very little demand (the more popular a product is the higher demand will be for that product)

19. Substitute Goods -substitute goods are goods that can be used in place of another product ex.—chicken or beef (Coke vs. Pepsi) -if a good experiences a price change then the substitute good will face a demand change (Ex. If the price of Pepsi doubles the demand for Coke will increase) ex—chicken price increases, demand for beef increases

20. Complementary Goods -complementary goods are goods that work with another product ex-cd-roms and computers (Blu-Ray Player and Blu-Ray movies) -a change in the demand for one will many times affect the demand for the other as well (If the demand for Blu-Ray players increase so does the demand for Blu-Ray movies)

21. Law of Supply -Supply -the amount of a particular good/service that producers will supply at a given price -Law of Supply -as the price of a good/service increases then producers will supply more of the product and as the price decreases they will supply less.

22. Diminishing Returns -the law of supply says that producers will supply more at a higher price but this is limited -diminishing returns -the producer can only produce so much of the product before its cost is more than the profit received from its sale -Ex.—You can only increase factory production so far until a larger factory is needed which may be more costly than its worth

23. Elasticity -Elasticity -Is the degree to which a change in price affects the supply for the product -Elastic Supply -a change in the price does affect the quantity demanded – easily able to produce more (Ex. Food items, if the price goes up they can manufacture more food quickly) -Inelastic Supply -change in the price does NOT affect the quantity demanded – hard to produce more (oil)

24. Productivity -Productivity -the amount of a good/service than can be produced in a given time -Increases in productivity allow producers to make more of a product in a given time and at the same price which decrease cost and increases profits -better technology is a major focus of increasing productivity

25. Cost of Resources -The cost of the materials that go into goods and services can affect the production costs which affect the amount which can be supplied at each price level -Examples -higher wages lowers supply -cheaper resources increase supply

26. Company Expectations -Producers as well as consumers make economic plans. A company that expects record sales or few sales will adjust its supply levels -Economic forecasts by the government become very important to large producers (If the government reports a better economy companies will supply more. Ex. Car companies)

27. Government Policy -Governments can affect suppliers in many ways -More Regulations or fewer regulations producers must follow can affect supply levels -More regulations will increase costs and decrease supply) -Gov’t subsidies (government payment to a producer) can help some producers cut costs to increase supply levels while fewer subsidies cause production costs to rise

28. Taxation Policies -Taxes—higher or lower taxes affect the overall profit level which determines supply ( higher taxes = less profit-> less supply) -lower taxes means greater profits and more supply -higher taxes means fewer profits and less supply

29. Alternative Products -Supply can also be affected by other products that producers could supply -If price falls for one product then they will supply less and shift production to another type product

30. Comparative Advantage -Comparative Advantage When one nation is better able to produce a good or service than another nation -What causes the advantage??? Many different reasons such as natural resources, technology, and workforce.

31. Producing Goods -Productivity is the amount of a good or service that can be produced in a given time -What does Increased Productivity do? -What is the Effect of productivity on Inflation??? -Specialization of Labor / Division of Labor -method of having workers do only a part of a product but do it very efficiently -blue collar labor-Manual labor -white collar labor-Educated worker

32. Producing Goods -Labor Intensive Work- job that required a lot of human effort and physical contact -Lower paying jobs—Normally paid by the hour -Many labor intensive products produced overseas -Mechanization- using machinery to make products or provide services –called automation—Limits the need for human labor Machines sometimes take the jobs of people Increases Productivity

33. Producing Goods -Interchangeable Parts—Allows for easy fixes if a machine breaks down and increases productivity -Mass Production— Production of a large amount of products efficiently -Assembly Line– Sequence of steps that produces a finished product (Ford motor company started this in the 1908)

34. Growing Businesses -Economies of Scale -the idea that a larger business is more efficient than a smaller one because of its ability to do things in larger volume -Law of Diminishing Returns -economic law that states that the level of return for additional labor or work will decrease at some point and continue to decrease

35. Economic Choices -Opportunity Cost -this is the benefit that you have given up in order to pursue an alternative (Choose the movies over baseball game; the baseball game is your opportunity cost) -Trade Off -this is the choice that you make when faced with economic decisions where you have to choose one thing over another (Buying a new hat instead of buying new shorts)

36. 4 Factors of Production -1. Capital or Capital Goods---the money or tools needed to produce goods/services -2. Land / Resources– the natural resources needed to produce goods/services

37. 4 Factors of Production -3. Labor– the work required to produce goods/services -4. Management (Entrepuneurs) — the decision making process that is involved in producing goods/services

38. Traditional Economy -economy where people supply most of the goods and services they use -many things are done by tradition -usually in places of little modern technology Advantages - Passed down through generations and traditions. Ex. Fishing communities Disadvantages -Not very diverse - Lack a lot of the modern conveniences

39. Command Economy -economy where the government controls the factors of production -Government makes all decisions Advantages - One central authority makes decisions for the entire country. Disadvantages - Not very efficient

40. Market Economy -individuals make all economic decisions according to supply and demand -laissez-faire economics -also called free market, free enterprise, or capitalism -competition and supply and demand determine the economy-----the “invisible hand” (Adam Smith) Advantages - Competition leads to a higher quality product and better prices Disadvantages -Monopolies can control a whole industry and make up the rules - “rich get richer, poor get poorer”

41. Mixed Economy -a mixing together of market and command systems -individuals have economic freedoms -government retains some control for benefit of citizens *Most economies function with a mixed economy* Advantages - Can have the good qualities of capitalism and a command economy Disadvantages - Hard to keep a good mixture of the economies.

42. Sole Proprietorships -business owned by a single person or a married couple -3/4 of all businesses are sole proprietorships -Advantages Easy to make decisions quickly Proprietor receives all the profits -Disadvantages Owner has unlimited liability  If the business has debts than their personal property may be taken to pay those debt Hard to raise money to start the business

43. Partnerships -business owned by two or more people Articles of Partnership: Legal agreement between the partners in business -Advantages -pool resources and capital -Easy to raise money -Each partner has different talents -Disadvantages Unlimited liability: if the company gets sued you might have to pay out of your own money

44. Corporations -business that has a great many owners -Corporations can do anything that an individual can do Ex. Own property, pay taxes, get sued… -sell stocks to investors When you buy stock you own part of the company -pay dividends to shareholders Money paid to shareholders when the company makes a profit.

45. Corporations -Limited liability -the ability of a corporation to protect its shareholders by placing only the amount of capital they have invested at risk Charter: government document granting permission to organize -Incorporation---legal process of forming a corporation through state government -Advantages Sell more stock to make $ quickly -Disadvantages -Complex to set up and run on a daily basis

46. Non-Profit Organizations -business that is organized to provide a service and not to make large profits for the owners -many are charities or service groups -Advantages Exempt from taxes -Disadvantages Don’t make profits