Economics Study Guide

1. Economics Study Guide Question # 1 What is economics? Economics is the social science dealing with making choices about how we use our resources including money and time. It deals with the production of goods and services in a country. Economists are people that study how households, industry, labor unions, retail stores and the government handles their resources.

2. Economics What is the difference between a need and a want? Experiment 9-A You cannot have everything therefore the law of scarcity comes into play. The law of scarcity states: All things are limited. In order to get something you always have to give up something else. Prove this by example.

3. Economics Question # 2 What are the three basic questions every society must answer in making economic choices? • What should be produced? All resources are, open to options, so what do you do with them? • For whom should we produce? Should everyone have equal opportunity to buy? • How should they be produced? Mass production or one at a time? Which is better? Experiment 9-B

4. Economics What are three ways that you can become a better consumer? A consumer is a person that buys and rents goods and services and then uses them. When was the last time you were a consumer? When do you start being a consumer? When does you ability to consume come to an end?

5. Economics Question # 3 What are three ways you can become a better consumer? • Do some research? Find out about the product you are buying. Check it out on-line through reviews. Check consumer reports. • Shop around. Get the best price. • Check guarantee or warranty. • Check with the Better Business Bureau. • If you are not satisfied, let the company or service provider know. CAVEAT EMPTOR-Buyer Beware. If it sounds to good to be true, it probably is. Scams exist everywhere.

6. Economics Question # 4 Name and describe the four factors of production. These items are necessary to produce a product. • Land- To build your factory on, to harvest natural resources from? How much new land is being made today? Is it a limited resource? • Labor- you ability to work. Manual labor or brain power which is your thing? Which is in demand? • Capital- money. Investment dollars are necessary to start a new business venture. • Management-someone needs to bring all of these factors together to make all of this work. These people are paid the big bucks. The CEO of Oracle makes $278,440.

7. Economics Question # 5 Describe the three major kinds of economies. • Traditional economies- based on the concept of barter. Usually third world undeveloped countries. • Market or free enterprise economy- consumer driven, you as a consumer keep a company in business. Usually a highly developed economy. • Command-majority of economic decisions made by the government. Communist countries were examples of this.

8. Economics Experiment 9-C Question # 6 What is the law of supply? Law of supply states: as the price of a product goes up producers are willing to produce more, when the prices go down producers tend to produce less. The key is profit. Law of demand states: as the price of the product goes up people will buy less, as the price of the product goes down people will buy more. The key is a bargain. When you graph these price will always be on the vertical and quantity will be on the horizontal.

9. Economics When the supply equals the demand you have reached the equilibrium point. If supply exceeds demand you will have a surplus. If demand exceeds supply you will have a shortage. Why would a company want to avoid both a shortage and a surplus? Experiment 9-D Handout Experiment 9-E Text

10. Economics Price has a lot to do with a shortage or surplus, explain. Can you think of a time when price would not be the ultimate factor in the purchase of a product. Think of milk for example. Experiment 9-F

11. Economics Question # 8 What are the characteristics of a market economy? • Private ownership- anyone can start a legal business in free enterprise. • Profit is the bottom line to stay in business. • About 50% of all new businesses fail in their first year of business. There are several types of free enterprise business structures. They include:

12. Economics • Single propritership- one person owns the company and is responsible for it’s operation. • Partnership-two or more individuals own a business and share the risk an or profit from the company. • Corporation-numerous people own this type of business structure and hire people to manage their business for them. Limited risk involved in this one.

13. Economics Question # 9 Stocks are ownership in a company. If the company makes money or a profit you will be paid a dividend for every share of stock that you own. Stocks are sold as common and preferred, biggest difference is payment of dividend. Preferred stock always paid first, common if anything is left over get the rest.

14. Economics Bonds are different from stocks based on ownership. If I have a share of stock I actually own part of the company. If I have a bond I simply have loaned the company or organization some money to use and expect to get paid interest in return for the use of my money. What is the most common type of bond that virtually anyone can buy? How does it work? Experiment 9-G Text Experiment 9-H Text

15. Economics Question # 10 What is a business cycle? There are four basic business cycles in an economy. They are: • Recession- the pattern of the economy is downward. Less people working, less goods manufactured, lifestyles slowed. • Depression- the pattern of the economy is at it’s bottom. Extremely high unemployment, very few goods being produced, lifestyle very poor. • Recovery-the pattern of the economy on an upward swing. More hires, more goods, more people buying homes, better life style. • Prosperity- the pattern of the economy is at it’s peak, low unemployment, lots of goods, life is good.

16. Economics GNP stands for gross national product, the sum total of all goods and services produced in a country in a year. If the economy is good the GNP is high, if the economy slows the GNP goes down. Where is the economy at right now? Where do you think it is headed? The business cycle is affected by world events, by wars, by seasons, by companies, by all kinds of things.

17. Economics Question # 11 What part does advertising play in a market economy? The bottom line for a company is profit. If a company is going to make money they have to convince people to buy their product rather than someone else's. The goal of advertising is exactly that. Convince the consumer they can’t live without it. Experiment 9-I Experiment 9-J

18. Economics Question # 12 What is the role of labor in our American economy? Labor produces the products that consumers demand. Workers or laborers expect to be paid for what they do in money and in benefits. Labor unions were organized to give workers more power in negotiating their contracts with their bosses. Most people today do not belong to unions.

19. Economics Labor unions have four basic rights: • Right to organize. • Right to elect their own leaders. • Right to bargain collectively for their members. All of the workers benefit. • Right to strike if there is an issue with their employer. Except those people deemed necessary to the country. Police, firefighters, teachers cannot strike. Some say labor unions are to blame for the state of the economy today.

20. Economics Question # 13 What is money? Money is defined as a measure of value in an economy. At one time money was represented by material things: chickens, cows, feathers, whatever the society decided. Today money for the most part is currency issued by the government of the country. It’s value is based on the good name and reputation of that country, not on gold.

21. Economics Money is used to: Give a material item value. Material goods will be given a fair price tag associated with currency. Act as a medium of exchange, it’s tough to carry twenty chickens in your wallet. It is a standard of payment, you can purchase on credit agreeing to pay more than the product is worth. Acts as a medium of savings. General rule says that 10% of your earnings should be saved.

22. Economics Inflation and deflation have an impact on what your dollars can buy. If a country has a high level of inflation your dollar buys less because the cost of goods goes up faster than does your income. Deflation means that the price of products is coming down. That is not always a good thing because companies are making less of a profit and are therefore reluctant to expand and hire new workers. Experiment 9-K

23. Economics Question # 14 What is a bank? A bank is an institution that handles currency. A commercial bank anyone can use. Baylake, First National are examples. A federal reserve bank is in business to serve other banks. A full service commercial bank provides customers with services like, checking, savings accounts, loans, etc. Experiment 9-L Text

24. Economics Question # 15 What is meant by economic interdependence? Most countries in the world are not independent or self-sustaining countries. They rely upon other nations for goods and services through a system of trade to meet the needs of their consumers. Imagine a banana less existence. How could I get by?

25. Economics Question # 16 Describe two careers available in one field of economics. The world of business is big in the United States. Companies hire countless numbers of people to manage and control their companies in a way that will generate a profit. Economists study the trends in a society and try to predict where the economy is going. Teachers give students some background in the field of economics.