§7.1 – VOCAB LOG (11/04)

1. §7.1 – VOCAB LOG (11/04) SET UP NEW VOCAB SHEET. LABEL THE NUMBER (7.1) & DATE (11/04). • Economics: study of how we make decisions amid scarcity • Scarcity: unlimited wants/needs amid limited resources • Productivity: efficient use of resources to produce goods/services; making more goods/services w/ fewer resources • Specialization: concentrating on what one produces better than others • Division of labor: breaking down a job into smaller tasks, each done by different worker • Invention: new form of technology to satisfy a need or want • Innovation: change in way things are done; new technology or process • Automation: replacing human labor w/ machines PASS UP HALF SHEETS

2. §7.1 – FUNDAMENTALS OF ECONOMICS (P. 499) • Economics is the study of how we make DECISIONS in world in which RESOURCES are LIMITED as well as how things are BOUGHT, SOLD, & USED. (MAIN IDEA, 499) • Needs are things REQUIRED for survival (p. 499) • Ex.: FOOD, CLOTHING, SHELTER • Wants are things we would LIKE to have (p. 499) • Ex.: VACATIONS, ENTERTAINMENT • Resources are things USED in MAKING GOODS or PRODUCING SERVICES • TOOLS (machines, hammers, computers, etc.), NATURAL RESOURCES (wood, soil, water, etc.), & HUMAN RESOURCES(labor, skills, & knowledge) • Central problem of economics is SCARCITY(p. 501) • We have UNLIMITED WANTS & NEEDS, but we have LIMITED RESOURCES to make or provide them • Therefore, we must make ECONOMIC DECISIONS about what we would like to have

3. §7.1 – FUNDAMENTALS OF ECONOMICS (P. 499) • Three Economic Decisions Arising from Scarcity(p. 501-502) • WHAT to produce?: The more of one particular item that is produced, then the LESS of another item will be produced • HOW to produce?: Businesses want to produce as CHEAPLY as possible, but that can cause negative effects such as WASTE & POLLUTION. • FOR WHOM to produce?: • How will goods/services be DISTRIBUTED among its members • USA uses a PRICE SYSTEM • Other economies may distribute goods/services through MAJORITY RULE, by LOTTERY, on a FIRST-COME-FIRST-SERVED basis, by SHARING EQUALLY, or by MILITARY FORCE

4. §7.1 – FUNDAMENTALS OF ECONOMICS (p. 517) • Good: TANGIBLE PRODUCTS we use to satisfy our WANTS & NEEDS • Ex.: BOOKS & APPLIANCES • Service: WORK PRODUCED for someone else • Ex.: HAIRCUTS, HOME REPAIRS, ENTERTAINMENT • Factors of production: RESOURCES that are NECESSARY to produce GOODS & SERVICES that we NEED & WANT • LAND, LABOR, CAPITAL, & ENTERTAINMENT • Productivityis the EFFICIENT use of RESOURCES to produce the GOODS & SERVICES that we NEED & WANT (FACTORS of PRODUCTION) • Try to make MORE goods/services that people need and want with LESS factors of production

5. §7.1 – FUNDAMENTALS OF ECONOMICS (P. 524-525) • Increase in productivity can result from: • Specialization: when PEOPLE, BUSINESSES, REGIONS, or even entire COUNTRIES concentrate on producing goods and services that they can produce BETTER than anyone else • As a result, nearly everyone DEPENDS upon OTHERS to produce the things they CONSUME • When people specialize, they are usually far more PRODUCTIVE than if they attempt to do MANY THINGS • Division of labor: BREAKING DOWN job into SMALLER tasks performed by different WORKERS • Each person does the tasks for which they are BEST SUITED • Even if different people are equally suited, breaking down tasks can improve productivity, because one could DEVELOP BETTER TECHNIQUES for their assigned task • Ex.: ASSEMBLY LINE

6. §7.1 – FUNDAMENTALS OF ECONOMICS (see vocab log) • Increase in productivity can result from: • Invention: new form of TECHNOLOGY created to meet a NEED • COTTON GIN invented to remove seeds from cotton much quicker than removing by HAND • Innovation: something that profoundly CHANGES the way things are DONE; can be an INVENTION or a change in PROCESS (ex.: the INTERNET changes the way we can SHOP for items we want) • Automation: replacing HUMAN LABOR w/ MACHINES (ex.: “SELF-CHECKOUT” at grocery store) • Businesses decide to automate tasks when they believe that machines can complete the same tasks as humans at LOWER cost or w/ GREATER productivity

7. §7.2 – VOCAB LOG (11/07) LABEL THE NUMBER (7.2) AND THE DATE (11/07). • Trade-off: alternative that you face if you decide one thing rather than another • Opportunity cost: cost of the next-best use of your time, money, or other resources; the loss associated with what you give up when deciding one alternative over the next-best alternative • Incentive: things that motivate economic actors to act (profit, best value, time, effort, etc.)

8. §7.2 – TRADE-OFFS, INCENTIVES, OPPORTUNITY COST RECALL: • Main problem in economics: SCARCITY = UNLIMITED NEEDS & WANTS + LIMITED RESOURCES • THEREFORE, WE MAKE DECISIONS ABOUT WHAT TO PRODUCE, HOW TO PRODUCE, & FOR WHOM TO PRODUCE §7.2– TRADE-OFFS (p. 504) • Economic decision-making requires us to understand all of the COSTS & all of the BENEFITS of a CHOICE • Trade-off: the ALTERNATIVE you face if you decide to do ONE thing rather than ANOTHER • Trade-offs do not always involve MONEY; they could involve other scarce resources like TIME

9. §7.2 – TRADE-OFFS • YOU MAY WANT TO WRITE DOWN ON SEPARATE PAPER! • 16 hours from 3PM to 7AM  time is a limited resource GIVE UP MOVIE: • 16 hours – (4 hours for studying) – (8 hours sleep) – (2 hours practice) – (1 hour travel, shower, food) = 1 hour left • Not enough time for movie (opportunity cost) OR, GIVE UP PRACTICE: • 16 hours – (4 hours for studying) – (8 hours sleep) – (3 hours movie) – (1 hour travel, shower, food) = 0 hour left • Not enough time for practice, so don’t get to play in next game (opportunity cost) • Ex.: It’s 3PM. You have a test tomorrow at 7AM. You have estimated the following: • You need at least 2 hours of study to earn a C, 3 hours to study to earn a B, and 4 hours to earn an A. • You need 8 hours of sleep to get through the rest of the school day and be alert for the test. Less sleep automatically means an F. • You have team practice for 2 hours (until 5PM). If you skip, you won’t be able to start in the next game. • Getting to and from school, getting showered, dressed, and fed takes 1 hour. • You have a friend that wants you go see a movie. To meet them, see the movie, and get back home will take 3 hours. • Create two scenarios: • One where you can earn an A:

10. §7.2 – TRADE-OFFS • YOU MAY WANT TO WRITE DOWN ON SEPARATE PAPER! GIVE UP MOVIE: • 16 hours – (2 hours for studying) – (8 hours sleep) – (2 hours practice) – (1 hour travel, shower, food) – (3 hours movie) = 0 hour left • Not enough time to study for an A on the test (opportunity cost) • Ex.: It’s 3PM. You have a test tomorrow at 7AM. You have estimated the following: • You need at least 2 hours of study to earn a C, 3 hours to study to earn a B, and 4 hours to earn an A. • You need 8 hours of sleep to get through the rest of the school day and be alert for the test. Less sleep automatically means an F. • You have team practice for 2 hours (until 5PM). If you skip, you won’t be able to start in the next game. • Getting to and from school, getting showered, dressed, and fed takes 1 hour. • You have a friend that wants you go see a movie. To meet them, see the movie, and get back home will take 3 hours. • Create two scenarios: • One where you can earn an C:

11. §7.2 – TRADE-OFFS • TAKE-AWAYS: • What resources was limited in these examples? • time • What needs/wants did you have to consider? • Grade on test, practice, movie with friends • What was one trade-off you have to make in these examples? • Give up movie or playing in the next game to earn an A on the test §7.2 – TRADE-OFFS (p. 505) • Trade-offs also exist for BUSINESSES and entire COUNTRIES • Business can choose to invest more money into building a new STORE or more ADVERTISING • Countries can choose to use more of their resources on building up their MILITARY, but then there will be fewer RESOURCES for ROADS, HOSPITALS, SCHOOLS, and others things that its citizens need/want.

12. §7.2 – OPPORTUNITY COST (p. 405) • Opportunity cost: COST of the NEXT-BEST use of your TIME or MONEY when you CHOOSE to do ONE thing rather than ANOTHER • All TRADE-OFFS involve a LOSS (an OPPORTUNITY that is GIVEN UP) • Ex.: Going to college costs more than the tuition, books, & other expenses for which you pay. It also involves the loss of EARNINGS because of the TIME you will spend STUDYING & attending CLASSES. §7.2 – INCENTIVES • Incentives: things that MOTIVATE economic ACTORS to ACT • Ex.: Main incentive for PRODUCERS (people/businesses that make/do goods/services for people who are willing to pay for them) is to make the greatest PROFIT that they can. • Ex.: Main incentive for CONSUMERS (people who buy goods & services from others) is to get the greatest VALUE that they can.

13. §7.3 – VOCAB LOG (11/09) LABEL THE NUMBER (7.3) AND THE DATE (11/09). • Factors of production: (also called MEANS of production) resources needed to produce goods & services – incl., land, labor, capital, & entrepreneurship • Land: property & natural resources • Natural resources: raw materials in nature used to make what we need/want • Labor: human contribution to making goods/services • Physical capital: structures & equipment used to make goods/services • Human capital: skills/knowledge needed to make goods/services • Capital: money used to invest in production of goods/services • Entrepreneurship: creative, managerial, & risk-taking capabilities involved in running a business Have out your 7.2 HW to check & 7.2 exit slips

14. §7.3 – FACTORS OF PRODUCTION (p. 504-505) RECALL: • Central problem in economics is SCARCITY • We have unlimited WANTS & NEEDS • Yet, we have limited RESOURCES to make and provide the GOODS & SERVICES we NEED & WANT • This means we must make economic DECISIONS about how to use resources • All economic decisions involve TRADE-OFFS & OPPORTUNITY COSTS • The resources we use to make/provide the goods/services we need/want are called FACTORS OF PRODUCTION FACTORS OF PRODUCTION: RESOURCES necessary to PRODUCE GOODS & SERVICES; incl. LAND, LABOR, CAPITAL, & ENTREPRENEURSHIP • ALSO CALLED THE MEANS OF PRODUCTION

15. §7.3 – FACTORS OF PRODUCTION (p. 517, HANDOUT) • Land: PROPERTY & all the NATURAL RESOURCES involved in the production of a good or service • Ex.: SURFACE LAND, WATER, MINERALS, FISH & ANIMALS, PLANTS • Natural resources: RAW MATERIALSin NATURE used to PRODUCE what humans NEED or WANT • RENEWABLE resources: can be REPLENISHED or REPLACED over time (ex: we can use TIMBER to make furniture, but then PLANT more TREES to replace the supply for future use) • NON-RENEWABLE resources: cannot be REPLENISHED over time (ex: PETROLEUM or CRUDE OIL used for energy takes MILLIONS of years to replenish)

16. §7.3 – FACTORS OF PRODUCTION • Labor: CONTRIBUTIONS of HUMAN WORKERS in producing a good or service; incl. both MENTAL & PHYSICAL EFFORTS efforts • Ex.: MECHANICS, ACCOUNTANTS, CHEFS, TEACHERS, PHYSICIANS

17. §7.3 – FACTORS OF PRODUCTION (p. 517-518) • Capital:STRUCTURES & EQUIPMENT involved in the MANUFACTURING or production PROCESS, including HUMAN capital (157) and physical capital (incl. CAPITAL goods) • Human capital: what makes workers more PRODUCTIVE • KNOWLEDGE, SKILLS, & EXPERIENCE that workers bring to production of goods/services • Ex.: Medical knowledge, car repair skills, customer service experience • Physical Capital/CAPITAL Goods: tangible inputs required to PRODUCE goods/services (517) • Satisfy our wants INDIRECTLY • Ex.: MACHINES, BUILDINGS, & TOOLS USED TO PRODUCE GOODS/SERVICES WE NEED/WANT • Differentfrom CONSUMER GOODS (things that DIRECTLY satisfy our wants, such as CLOTHES, CLOCKS, FOOD, & RADIOS)

18. §7.3 – FACTORS OF PRODUCTION (p. 517-518) • Entrepreneurship:the CREATIVE, MANAGERIAL, & RISK-TAKING capabilities involved in STARTING & RUNNING a BUSINESS • Ex.: Developing a BUSINESS MODEL (plan for the conduct of BUSINESS OPERATIONS), raising FUNDSneeded to form a business, HIRING qualified workers to produce goods/services, creating an ADVERTISING campaign to make consumers want to buy (more) of your product

19. §7.4 – VOCAB LOG (11/09)  Label as 7.4 & 3/23 • Market: free & willing exchange of goods/services b/w buyer & seller • Factor markets: where indvs earn income & where productive resources (factors) are bought • Product markets: where indvs spend their incomes on consumer goods & where producers earn revenue by selling goods/services • Circular flow model: flow of goods/services, factors of production, & money among the business, consumer, government, & foreign sectors Have out your 7.4 notes

20. 7.4 – CIRCULAR FLOW MODEL OF ECONOMIC ACTIVITY • Markets are not necessarily PLACES, they are any FREE & WILLING EXCHANGE of GOODS & SERVICES • In a market economy the FLOW of RESOURCES, GOODS/SERVICES, & MONEY is CIRCULAR • This flow involves four SECTORS: CONSUMER, BUSINESS, GOVT, & FOREIGN • Consumer sector: producers spend money &consumers earn their income in FACTOR markets (where PRODUCTIVE resources are BOUGHT & SOLD) • Consumers, as WORKERS, earn their income in WAGES, SALARIES, & TIPS in exchange for their LABOR • Consumers, as OWNERS of land/buildings may loan it in return for income known as RENT • Consumers, as INVESTORS, own capital, & exchange it for INTEREST payments (on debt) or for DIVIDEND payments (share of profits) by those who use this capital

21. 7.4 – CIRCULAR FLOW MODEL OF ECONOMIC ACTIVITY • Business sector: consumers spend money and producers earn money in PRODUCT markets(where producers offer goods & services for SALE) • Businesses use the money earned in PRODUCT markets to purchase productive resources, or FACTORS OF PRODUCTION, such as NATURAL RESOURCES, LABOR, & CAPITAL goods • Businesses purchase more factors to continue to PRODUCE more GOODS/SERVICES • Government sector: • Because govt also PRODUCES goods/services, it spends money (EXPENDITURES) on productive resources (INPUTS) in FACTOR markets • Govt receives money (REVENUE) in the form of TAXES, FINES, FEES, & FARES (BUS/TRAIN) • Foreign sector: • Represents all of the COUNTRIES in the WORLD • We both BUY & SELL goods/services in FACTOR & PRODUCT MARKETS in other COUNTRIES

22. 7.4 – CIRCULAR FLOW MODEL OF ECONOMIC ACTIVITY Complete the chart below. Use pages 521-523 and match the number of the appropriate statement corresponding with the arrows in the chart. (1) Govt receives labor (govt workers) & tax payments from citizens (2) Consumers earn their income from wages, salaries, tips, rent, or interest/dividend payments (3) Businesses sell goods/services that consumers need/want (4) Receives tax payments & goods/services from businesses. (5) Govt provides public services & transfer payments to citizens. (6) Govt provides subsidies & services to businesses. (7) Consumers purchase goods/services (8) Businesses receive payments from consumers to purchase more inputs/factors

23. 7.4 EXIT TICKET – BOTTOM OF NOTES COMPLETE ON A SEPARATE SHEET OF PAPER & TURN IN BEFORE THE END OF CLASS Read pages 521-523, & answer the questions below. (1) What is a market or marketplace? (521) (2) Are markets always physical places? (521) (3) How can markets differ geographically? (521) (4) What four things flow between sectors in a market economy? (521) (5) What type of flow takes place between the four sectors of the economy? (521) (6) What are the four sectors in our market economy? (521) (7) What are the two types of markets? (521-522) (8) Where do consumers earn their income? (521) (9) Where do consumers spend their income? (522) (10) Where do producers/businesses earn their revenue? (522) (11) Where do producers/businesses spend their revenue? (521) (12) What are two examples of how government spends money in factor markets? (523) hint: concrete for ______ (resources) & _______ for fire protection (labor) (13) What are two examples of how government spends money in the product markets? (523) hint: they buy finished products like ____, ____, & ____ for public schools (14) What are two ways that the government sector receives revenue? (523) WHEN YOU ARE FINISHED, FINISH UP YOUR 7.3 BUSINESS POSTER. LET ME SEE YOUR DRAFT, SO I CAN GIVE YOU A CHECKMARK.

24. §7.5 – VOCAB LOG (11/14)  Label as 7.5 & 11/14 • Costs: money spent on factors to make goods/services sold to consumers • Fixed costs: costs that remain the same regardless of how much is produced • Variable costs: costs that change depending on how much is produced • Total costs: the sum of variable costs & fixed costs • Marginal cost: additional cost spent to produce one more of an item • Revenue: money collected from sale of goods/services to consumers • Total revenue: number of units sold multiplied by sales price per unit • Marginal revenue: change in total revenue from the sale of one additional unit • Break-even point: when total revenues equal total costs • Profit: when total revenues exceed (are greater) than total costs • Loss: when total revenues are less than total costs Have your 7.5 notes ready to begin

25. 7.5 – COSTS & REVENUES (p. 506-507) • Costs (or EXPENSES) are money SPENT on the FACTORS of PRODUCTION to produce the goods/services that consumers need/want • Fixed costs: costs or expenses that remain the SAME no matter how many UNITS of a good/service are PRODUCED • Ex.: MORTGAGE OR LEASE ON PROPERTY, WORKERS’ SALARIES • Variable costs: costs or expenses that CHANGE with the NUMBER of UNITS or ITEMS PRODUCED • Ex.: WAGES ($/HOUR), RAW MATERIALS ($/GAL, $/FOOT) • Total costs: the sum of FIXED & VARIABLE COSTS • Ex.: IF FIXED COSTS = $2,000, VARIABLE COSTS = $50/UNIT, & 20 UNITS ARE PRODUCED, $2,000 + ($50/UNIT)(20 UNITS) = $3,000 • Some businesses use AVERAGE TOTAL COSTS when making decisions, which involves taking the TOTAL COSTS & DIVIDING it by the number of UNITS PRODUCED

26. 7.5 – COSTS & REVENUES (p. 507-508) • Marginal costs: the ADDITIONAL cost spend to produce ONE ADDITIONAL UNIT of a good or service • Ex.: IF IT COSTS $1,000 TO MAKE 50 UNITS & $1,020 TO MAKE 51 UNITS, THEN MARGINAL COSTS = $1,020 - $1,000 = $20 PER UNIT • Revenuesare money COLLECTED from the sale of goods/services that consumers need/want • Total revenue: number of UNITS SOLD multiplied by the AVERAGE PRICE per UNIT • Ex.: IF 500 UNITS ARE SOLD FOR AN AVERAGE PRICE OF $3/UNIT, (500 UNITS)($3/UNIT) = $1,500 • Marginal revenue: CHANGE in or ADDITION to the TOTAL REVENUE from SELLING another UNIT • Ex.: IF REVENUE IS $500 FOR SELLING 10 UNITS & $550 FOR SELLING 11 UNITS, $550 - $500 = $50/UNIT

27. 7.5 – COSTS & REVENUES (p. 507-508) • MATHEMATICAL RELATIONSHIP  JUST LIKE SLOPE-INTERCEPT FORM IN MATH! • Y = TOTAL COSTS • mx = VARIABLE COSTS • m = MARGINAL COSTS • x = UNITS PRODUCED • b = FIXED COSTS • RELATIONSHIP IN GRAPH FORM

28. 7.5 – BREAK-EVEN POINT, PROFITS, & LOSSES • The balance between costs & revenues results in three scenarios • Break-even point: when REVENUES are (less than / equal to / greater than) COSTS • Mathematically expressed: • REVENUES – COSTS = 0 • REVENUES = COSTS • Profit: when REVENUES are (less than / equal to / greater than) COSTS • Mathematically expressed: • REVENUES – COSTS > 0 • REVENUES > COSTS • COSTS < REVENUES • Loss: when REVENUES are (less than / equal to / greater than) COSTS • Mathematically expressed: • REVENUES – COSTS < 0 • COSTS > REVENUES • REVENUES < COSTS • The goal of every business is to make a PROFIT & avoid a LOSS; in other words, businesses must MAKE more money selling goods & services to customers than the money they SPEND producing these goods & services

29. 7.5 – BREAK-EVEN POINT, PROFITS, & LOSSES Pam’s Pizza Parlor sells pizzas for $10 each. In the current month the store made and sold 2,000 pizzas. Ingredients are $3 per pizza, and the pizza chef’s wages with tips are an average of $2 per pizza. Utilities (electricity, water, Wi-Fi, etc.) average $1 per pizza. The lease on the shop is $2,000 for the month, and Pam’s salary as the owner-manager is $2,000 for the month. (1) Which expenses are fixed costs, and which are variable costs? Lease [FIXED COST or VARIABLE COST] Utilities [FIXED COST or VARIABLE COST] Salary [FIXED COST or VARIABLE COST] Ingredients [FIXED COST or VARIABLE COST] Wages/Tips [FIXED COST or VARIABLE COST] (2) What are the fixed costs for the month? FIXED COSTS = $2,000 (LEASE) + $2,000 (SALARY) = $4,000 (3) What are the marginal costs for each additional pizza that is MADE? (per pizza cost) MARGINAL COSTS = ($3/PIZZA)[INGRED.] + ($2/PIZZA)[WAGES] + ($1/PIZZA)[UTIL.] = $6/PIZZA (4) How many pizzas were made? 2,000 PIZZAS

30. 7.5 – BREAK-EVEN POINT, PROFITS, & LOSSES Pam’s Pizza Parlor sells pizzas for $10 each. In the current month the store made and sold 2,000 pizzas. Ingredients are $3 per pizza, and the pizza chef’s wages with tips are an average of $2 per pizza. Utilities (electricity, water, Wi-Fi, etc.) average $1 per pizza. The lease on the shop is $2,000 for the month, and Pam’s salary as the owner-manager is $2,000 for the month. (5) What is the variable costs, based on the number of pizzas made? VARIABLE COSTS = (MARGINAL COSTS)×(PIZZAS MADE) VARIABLE COSTS = ($6/PIZZA)×(2,000 PIZZAS) = $12,000 (6) What are the total costs? TOTAL COSTS = VARIABLE COSTS + FIXED COSTS TOTAL COSTS = $4,000 [STEP 2] + $12,000 [STEP 5] = $16,000 (7) How many pizzas were sold? 2,000 PIZZAS (8) What is the total revenue for the month? TOTAL REVENUE = (MARGINAL REVENUE)×(PIZZAS SOLD) TOTAL REVENUE = ($10/PIZZA)×(2,000 PIZZAS) = $20,000 (9) What is the profit or loss for the store, based on the total revenue and total costs? PROFIT/LOSS/BREAK-EVEN = TOTAL REVENUE – TOTAL COSTS PROFIT/LOSS/BREAK-EVEN = $20,000 – $16,000 = +$4,000 CHOOSE: PROFIT or LOSS or BREAK-EVEN

31. §7.6 – VOCAB LOG (11/15)  Label as 7.6 & 11/15 • Marginal cost: additional cost spent to produce/consume one more unit of an item • Marginal benefit: additional satisfaction/benefit from producing/consuming one more unit of an item • Law of diminishing returns: less satisfaction is received from consuming/producing the next unit than is received from the last unit • Cost-benefit analysis: economic decision-making to determine up to which point marginal benefit is greater than the marginal cost of producing/consuming additional units • Have your 7.5 notes out • Put your name HW 7.5 sentences if you did them as well as any other missing HW or exit slips from the unit

32. 7.6 – MARGINAL COST/BENEFIT, DIMINISHING RETURNS • Marginal cost: the cost of producing ONE MORE UNIT • Marginal benefit: the ADDITIONAL SATISFACTION or benefit received by ONE MORE UNIT • Ex.: If you are dehydrated in the desert and suddenly come across water, the FIRST cup will be the most BENEFITS. The second cup will still provide a benefit, but not as great as the first. The third will provide less than the second, and so on. Eventually, drinking more water would no longer be beneficial, where the COSTS outweigh the benefits. • Law of diminishing returns: there is LESS benefit with each ADDITIONAL unit produced, such that it is best to stop producing when MARGINAL COSTS become greater than MARGINAL BENEFIT • Also known as law of diminishing BENEFITS

33. 7.6 – MARGINAL COST/BENEFIT, DIMINISHING RETURNS Ex.: Chefs in a restaurant kitchen According to the chart, when should the restaurant stop hiring additional chefs? After the _______ chef What are some possible reasons why MC would be greater than MB after hiring additional chefs beyond a certain point? • Kitchen becomes too crowded with chefs • Some chefs may become lazy & expect others to do all the work • Difficulty coordinating tasks among chefs

34. 7.6 – MARGINAL COST/BENEFIT, DIMINISHING RETURNS Ex.: Number of additional shoe stores According to the chart, when should the owner stop opening additional stores? After the _________ store What are some possible reasons why MC would be greater than MB after opening additional stores beyond a certain point? • Demand for shoes stores sells can only go so high, but store costs remain same • Difficulty coordinating stores w/ one another

35. 7.6 – MARGINAL COST/BENEFIT, DIMINISHING RETURNS • Cost-benefit analysis: making economic decisions based on MARGINAL COSTS & MARGINAL BENEFITS • Economic actors should decide how much to produce based on whether MARGINAL BENEFIT is greater than MARGINAL COSTS • When to stop additional production: when MARGINAL COSTS become greater than MARGINAL BENEFITS WHEN FINISHED, COMPLETE THE EXIT TICKET (BACK OF NOTES) ON A SEPARATE SHEET OF PAPER & TURN IN BEFORE THE END OF CLASS. IF YOU FINISH EARLY, MAKE-UP MISSING EXIT SLIPS & HW SENTENCES FOR UNIT #7. MANY OF YOU HAVE TURNED IN NO HW FOR THE UNIT, SO THIS IS A GREAT CATCH-UP OPPORTUNITY.

36. §7.7 – VOCAB LOG (11/16)  Label as 7.7 & 11/16 • Sole proprietorship: business owned by one person or household • Partnership: business owned by two or more people • Corporation: companies owned by shareholders who buy stocks and elect a board of directors that hires managers for the business operations • Non-profit: firm that provides a good/service, but that does not have to make a profit (only cover operating expenses) • Franchise: when a sole proprietor or partnership purchases license to set up a business that is pre-made by a corporation • Conglomerate: corporation made up of several businesses • Merger: when one company joins or buys out another • Monopoly: market where only one firm provides good/service & has no competition • Oligopoly: market where only a few firms provide a good/service

37. 7.7 – SOLE PROPRIETORSHIPS (P. 601) • Business owned by an INDIVIDUAL or members of one HOUSEHOLD • Advantages: • FULL PRIDE in owning & operating business • Receives all the PROFITS • Can make DECISIONS QUICKLY without having to CONSULT with others • Pay no corporate INCOME TAXES (p. 601, textbook) • Disadvantages: • Owner has UNLIMITED LIABILITY: he/she is legally responsible for all DEBTS incurred by the business; owner’s PERSONAL ASSETS (such as their homes, cars, & jewelry) may be SOLD to pay the debts • Difficult to raise FINANCIAL CAPITAL (money needed to run or grow business) • Difficulty attracting QUALITY EMPLOYEES (high school & college graduates often find jobs with better BENEFITS in larger businesses)

38. 7.7 – PARTNERSHIPS (P. 602-603) • Business owned & operated by TWOor MOREpeople • Partnerships are started by signing a CONTRACT or legal agreement known as ARTICLES of PARTNERSHIP • Identifies how much each partner will CONTRIBUTE & what ROLE each partner will play in business • Spells out how you will share PROFITS or LOSSES • Describes how you will ADD/REMOVE partners or BREAK UP business if you want to shut it down • Types of partnerships: • GENERAL partnership: all partners RESPONSIBLE for FINANCIAL & MANAGERIALobligations • LIMITED partnership: at least one partner is not ACTIVE in the DAILY RUNNING of the business, although they may have CONTRIBUTED FUNDS to finance the operation

39. 7.7 – PARTNERSHIPS (P. 602-603) • Advantages: • PRIDE of sharing ownership • Can usually RAISE more MONEY • Pay no corporate income TAXES • Each partner often brings their own special TALENTS to the business • Larger size allows for more EFFICIENT operations • Disadvantages: • Legal structure is COMPLEX • Partners have UNLIMITED LIABILITY; even though business partners may share PROFITS equally, you still have total liability for all DEBTS or DAMAGES if other partners cannot pay

40. 7.7 – CORPORATIONS (P. 603-604) • Organized businesses recognized by LAW have many of the RIGHTS & RESPONSIBILITIES of individuals • Corporations can do anything a PEOPLE can do, except VOTE • Structure: • Corporations are started by CHARTER • Issues STOCK, or ownership shares of the corporation (each shareholder owns percentage of company) • Stockholders elect a BOARD of DIRECTORS • The board hires MANAGERS to run the company on a daily basis

41. 7.7 – CORPORATIONS (P. 604-605) • Advantages: • Ease of raising FINANCIAL CAPITAL; if it needs more money to expand business operations, it can SELL new shares of STOCK • The board of directors can hire PROFESSIONAL MANAGERS to run the business who are qualified • OWNERSHIP of corporation easily TRANSFER by SELLING or BUYING shares of STOCK

42. 7.7 – CORPORATIONS (P. 605-606) • Disadvantages: • Often EXPENSIVEand COMPLEX to set up • Business owners (SHAREHOLDERS) have very little say in the MANAGEMENT of the business • Subject to more REGULATIONS by government than other forms of business, including RELEASE of certain REPORTS on a regular basis detailing FINANCIAL INFORMATION to inform CURRENT & POTENTIAL SHARHOLDERS (INVESTORS) about state of the business • DOUBLE TAXATION • Corporation pays a tax on its PROFITS • Profits are DISTRIBUTEDto SHAREHOLDERS (known as DIVIDENDS), and they must pay a tax on these EARNINGS

43. 7.7 – NON-PROFITS (P. 606) • These entities do not have to make any more money beyond that which is required to cover OPERATIONAL COSTS (paying staff, building, equipment, supplies, etc.) • Ex.: CHURCHES, HOSPITALS, SOCIAL SERVICE AGENCIES • Well-known examples would include: RED CROSS, UNITED WAY, YMCA, DOCTORS WITHOUT BORDERS • One type of non-profit is a COOPERATIVE or “co-op” • VOLUNTARY association of people that carry out economic activity that BENEFITS ALL MEMBERS • Types: CONSUMER cooperatives, SERVICE cooperatives (like CREDIT UNIONS), & PRODUCER cooperatives (farmer cooperatives help individual member-farmers sell their goods directly to central markets or companies)

44. 7.7 – FRANCHISES • Businesses where sole proprietors or partnerships purchase legal rights to a trademark corporation • Franchise owner (franchisee) much pay licensing fee and maintain a contractual agreement with trademark corporation (franchiser) • Ex.: many gas stations & fast-food restaurants • Advantages: Name recognition & back-upsupport that national chain can provide • Disadvantage: lack of freedom & limited creativitythat owners have, because they must uphold national chain’s identity& sell only certain products

45. 7.7 – MARKETS & COMPETITION • In a truly competitive market system, there must be four conditions: • Large number of buyers (or consumers) & sellers (producers) • Products must have the same quality • No major barriersto entering the market • Free exchange of price information(consumers & producers must have access to know what each producer is charging for their goods)

46. 7.7 – MARKETS & COMPETITION • Situations where perfect competition does not exist: • MONOPOLY: market where there is only one PRODUCERof good/service & no substitutes • Since they are the only SUPPLIER of a good, they can dictate the PRICES, QUALITY, & QUANTITY of how much they sell • Can charge HIGHER prices & produce LESS because they have no COMPETITION & CONSUMERShave nowhere else to purchase good/service • OLIGOPOLY: market where there are only a FEW PRODUCERS of a given good/service • Usually form in industries that require large amounts of FUNDING • Ex.: UTILITYcompanies like those that provide ELECTRICITY & require large amounts of INVESTMENTSfor various projects • Oligopolies are a mix of purely competitive markets who have business COMPETITORS and monopolies that can influence PRICES

47. 7.7 – MARKETS & COMPETITION • Conglomerates & Mergers: • Conglomerates are LARGE COMPANIES that consist of many BSUINESSES, some of which may be UNRELATED • Conglomerates form through MERGERS(when one firm BUYSor JOINS w/ another) • MULTINATIONAL CONGLOMERATEShave companies that operate in more than one country • Two types of mergers: • VERTICAL: when a company buys out another company that was its SUPPLIERor that it PREVIOUSLY SUPPLIED(ex.: car company buys tire company) • HORIZONTAL: when two firms join together that make similar products (ex.: one oil company merges with another oil company

48. §7.8 – VOCAB LOG (11/17)  Label as 7.8 & 11/7 • MARKET ECONOMY / CAPITALISM / FREE ENTERPRISE: indvs & businesses make all major economic decisions • PROFIT MOTIVE: force that drives indvs & businesses to work hard & take risks • CONSUMER SOVEREIGNTY: consumers decide what businesses should produce • LAISSEZ-FAIRE: Smith’s idea that govt shouldn’t interfere w/ economic decisions of indvs & businesses • INVISIBLE HAND: Smith’s idea that indvs & businesses produce goods/services, not out of kindness, but out of self-interest • COMMAND ECONOMY / COMMUNISM: govt makes all major economic decisions • CENTRAL PLANNING: central govts make all of the decisions about what, how, & for whom to produce • MIXED ECONOMY: where BOTH govt & indvs/businesses make economic decisions • SOCIALISM: some factors of production owned/controlled by govt & others are by indvs/business • KEYNESIANISM: idea that govt should step in & provide income to people during economic downturns to promote economic recovery/growth • TRADITIONAL ECONOMY: economic decisions are based on customs & habits

49. 7.8 – TYPES OF ECONOMIES • There are four main types of economic systems: • FREE MARKET ECONOMY / CAPITALISM • COMMAND ECONOMY / COMMUNISM • MIXED ECONOMY • TRADITIONAL ECONOMY

50. 7.8 – MARKET ECONOMIES MARKET ECONOMIES / CAPITALISM / FREE ENTERPRISE • PURE market economies seldom exist; the GOVERNMENT usually plays SOME role in every economy • Protecting PRIVATE PROPERTY of its citizens & businesses • Protecting CONSUMERS from UNFAIR BUSINESS PRACTICES • Characteristics: • PRIVATE CITIZENS, not the govt, OWN & USE the FACTORS of PRODCUTION • The QUANTITY and PRICE of goods/services produced is based on the INTERACTIVE forces of SUPPLY & DEMAND • INDIVIDUAL FREEDOM: businesses & consumers make economic decisions for themselves • COMPETITION b/w many different businesses (govtcan INTERVENE to punish businesses that break laws) • Dealing with EXTERNALITIES (UNINTENDED SIDE EFFECTS) • Can be NEGATIVE like POLLUTION from manufacturing businesses • Can be POSITIVE like INNOVATIONS that lead to new businesses & products • Usually high PER CAPITA Gross Domestic Product (GDP) compared with other types of economies