Unit 1

1. Unit 1 Fundamentals

2. You can’t always get what you want, But you just might find, you can get what you need. -- Mick Jagger

3. Vocabulary Scarcity: Lack of adequate resources to obtain all of one’s wants. Productivity: The rate at which goods and services are produced. Input: Resources used in production. Output: Amount of goods/services produced.

4. how individuals and businesses (firms) can allocate (distribute) their limited resources most benefit out of limited resources at lowest cost. unlimited limited Economics: A.K.A.– Wants(___________) vs. Resources (money)(_________) As a result: people and businesses must make choices.

5. people and businesses can put to use (productivity); things needed to provide service or good. money, land, labor, time “Gifts of nature” Resources – Examples: Natural resources: Examples: Two types of natural resources: renewable – nonrenewable – trees, soil, water, etc. trees – they can be planted • crude oil – takes millions of years to replinish, but we are going through it too fast!

7. processed (put together to make a product). B. Productive Resources Resources must be Four factors of production productive resources are elements of every firm (business): 1. 2. 3. 4. Entrepreneurship: people create jobs; someone starts a business. Capital: resources – all manufactured aids used in producing products. Ex: factories, equipment, tools, supplies Land: location of business Labor: workers using both physical and mental abilities.

8. C. Scarcity- lack of adequate resources to obtain wants. Difference between “______ " and “_______": Hurricanes are rare but are not scarce. Why do you think? __________________________________________________ Gold is scarce – why do you think? ________________________________________________ so . . . it ______________a price. More scarce = _____________ Less scarce = ______________ rare scarce Rare because doesn’t happen often AND nobody wants them. There’s not a lot of it AND many want it. commands Higher price Lower price

9. D. Strategies for Dealing with Scarcity Scarcity exists: wants are greater than resources Example: Hurricane Katrina and gas prices The refineries knew storm was coming so they raised prices hoping that people would conserve. • Oil rigs and refineries were destroyed • gas supplies were scarce (less to sell) • consumer demand was still the same • prices were raised

14. II. Economic Decision Making Scarcity: A. Decision-Making Model Define the problem: Should I adopt a dog? List the alternatives: State Criteria (ask yourself questions) Evaluate Alternatives (trade-offs and opportunity costs) Make Rational Decision ***All economic decisions involve . households and firms must make choices trade offs, opportunity costs, marginal benefits, and marginal costs

15. B. Production Possibilities and Trade-offs Decision = must determine which ________ ________ are __________________. Trade offs are ______________ because __________ are __________. Must decide what to do without and what to use resources on (make ______). trade offs most beneficial unavoidable limited resources profits

16. Production Possibilities Curve depicts __________with available _________and _______________(decision that you don’t make or give up). production resources opportunity costs Which point represents the level at which snow skis alone could be MOST efficiently produced? Which point represents the level which is unattainable with the resources available? The trade-off of producing snow skis at point R to point X is roughly how many snow boards? Which point represents resources being used but not efficiently? W Y Opportunity cost of 100 snowboards (300 – 200) Z

22. Revenue: $ (Gross) Expenses: - (costs) Profit $ (Net) 125 35 90 Specialization and Voluntary Exchange1. Specialization and Division of LaborProducers (businesses) want to make as much money as they can (profits).Example: Cutting 5 lawns per week at $25 per lawn = $125 total revenue.Your cost of production is $35 (gas)Subtract the cost from the revenue to determine your profit.Which puts money into the owner’s pocket? Profits vs. Revenue__________________ = reduce expenses and sell at a price consumers are willing to pay. Reducing the cost of production =_________________________ Maximize profits increase productivity

23. Focus on one job division of labor more production Shoe factory, car plant, teaching, police force, etc. increases profit! Specialization is devoting of resources to a specific task . •Causes jobs to be more efficient combined with (splitting up work into smaller tasks). •Results in with better quality •Examples: _______________________________________________________. •Productivity , and so does !

24. freely choose money exchange balance consumers producers low cost high price 2. The Benefits of Voluntary Exchange Voluntary exchange is when individuals/businesses to _____________goods and services for something of value ( ). People do this every day! Provides a : have the freedom to buy and ____________have the freedom to pursue profits. Consumers want a ____________ and Producers want a _______________ (profit). Voluntary exchange provides a price that is best for both. Increases productivity and efficiency, encourages inventions and innovations Makes firms more profitable

28. What How For Whom III. Economic Systems (4 types) 3 fundamental economic questions: 1. _______will be produced? 2. will it be produced? 3. will it be produced?

29. history small inherited Laborers Upper class protects Not very common A. Traditional Economies Existed throughout . Workers usually produce at a subsistence level (for their own people). Usually a wealthy class that hands down wealth (). - little opportunity for economic advancement benefits – their wealth and status today; grew unstable. More opportunities in market economy Ex- Amish, Aborigines, & Inuit

30. Everyone gets the same amount, but piece of pie is smaller. Government owns produced priced goods distributed distributed equally bad Low B. Command Economy • - property and factors of production; small amount of private ownership. • Government determines what is , and how _________ are . • Distribution of goods/services based on equity () • unemployment; working conditions •Little motive; sense of to the . •Less than economies profit country duty efficient market

31. lower corruption innovation financial gain Slow surpluses B. Command Economy Continued •Attracts poorer individuals (equity) •Susceptible to ; productivity; economy set by gov't (not demand & competition) •Little little limited voluntary exchange • to react to changes; - items that aren't desired; shortages of items that are in demand •Examples: former Soviet Union, Cuba, Vietnam, & North Korea

32. Producers & Consumers C. Market Economydetermine goods/services produced& factors of ___________________(land, labor, capital, & entrepreneurship) are owned (by )owns only enough to carry out its roleProducers produce what consumers demand (right price)Business motivation is _________. Workers earn wages.Competition = choices for consumers (lowest prices)thrives through _____________________.government interference.and steer the market. Property production privately people Government profit higher Innovation competition Little demand Supply

33. D. Mixed EconomiesMixed economies have elements of and _____________economiesMost economic systems are mixedThe ___________ is technically a mixed economy with more elements of a ____________system._________________is also a mixed economy with more elements of a _________________system. market command U.S. market China command

35. E. The Role of Government in a Market-EconomyGov't provides __________ goods and services Examples: military, police, fire protection, parks, schools, etc. Society needs these services regardless of profits for public order.Gov't may ______________________ income: ________________ of payment - take money from those who have it and give it those who don't a.k.a - tax people for welfare programsResolve market failures (recent gov't bailouts) Another example - New Deal Gov't also uses _________, subsidies, lowering interest rates (Federal Reserve), EPA, FDA, etc.Gov't also protects _____________________(owning property) such as business, house, cars, etc. (incentives drive the economy) public redistribute transfer tariffs Property rights

40. F. Deregulation http://www.businessinsider.com/ridiculous-regulations-big-government-2010-11?op=1________or decrease regulation (rules) of the gov't in the economy -Ex- airline industry in the 1970sDeregulation usually ______________competitionLack of regulation: less __________ in the workplace, damage to the ________________,________ labor practices, _______________ in investingGov't balances - efficient market economy & protecting social welfarehttp://www.youtube.com/watch?v=Mh47zb615X8 Stop increases safety unfair environment corruption

41. Rate IV. InvestmentA. Productivity__________ at which goods/services are produced (make as many as quick as possible)More ________ in less ________= _____________productivityProductivity is _______ for growthIncreased productivity = more goods available = financial rewards (_________________)______________are all the factors of production that go into producing a good -Ex- workers, machinery, tools equipment, materials, etc._____________ are the goods/services producedProducers - produce enough output to earn a _____________.Inputs must _________________than ____________________ from outputs. goods greater time key incentives Inputs Outputs profit cost less income earned

42. increases B. The Impact of InvestmentInvestment productivityInvestment is using resources for gaining greater benefits later -Ex - people putting money in their 401k plans at work Production grows due to in capital goods and human capital.___________________ are products used to make other goods -Ex- metal, glass, bolts, rubber, factory, bulldozer, etc.Remember: Capital goods are different than consumer goods_____________________ is an investment in . -Ex - health insurance, maternity leave, getting another degree, job trainingEducation and training increase the value of workers which increases the possibility of earning more money. This can provide a higher standard of living. Capital investment Capital goods Human Capital people

45. V. Economic InterdependenceA. The Circular Flow of Economic Activity3 main actors in economic activity: 1) ________________________ 2) ________________________ 3) ________________________Households ( ) supply to businesses in exchange for .Businesses use the labor to which are then _____________by & .& pay _________ to the gov'tGov't uses this tax money to attempt to . Thus, there is economic ! HOUSEHOLDS BUSINESSES GOVERNMENT individuals labor money produce goods purchased households businesses Households businesses taxes benefit society interdependence

46. B. Product and Resource (Factor) Marketare sold to consumers for (product market) Ex- running shoes, groceries, laptops, televisions, etc.market - businesses seek to make a .Businesses also purchase for production in the market (four factors of production).Producers in new and . earn their income from businesses.Thus, there is economic _______________________! Goods consumption Product profit increasing goods factor invest capital labor Producers interdependence