Chapter 1 Economics study of the choices that

Chapter 1 Economics – study of the choices that consumers and producers make. n Capitalism – United States Economic System. Laissez Faire – Free Enterprise – Private Propertyn Adam Smith – the “Wealth of Nations” n

4 factors of Production n n Human Resources Capital Resources Natural Resources Entrepreneurship

Scarcity n The Fundamental Economic Problem n Unlimited needs and wants with limited resources = scarcity which leads to choices for producers.

What to Produce? n How to Produce? n For whom to Produce for? n

Trade Offs and Opportunity Costs n n n Alternatives –giving up one thing for the use of another The next best alternative Example – what value does a person lose if they decide to do one thing versus the other

The Production Possibilities Frontier - PPC tanks sailboats

PPC continued … Trade offs and opportunity costs n The costs of idle resources? n Economic growth n As a entrepreneur – you must decide which product is in more demand concentrate your production efforts on the item in more demand by the public. n

Forms of exchange n n n Barter - trade – ancient societies Money – measure of value Credit – borrowed money

Chapter 2 Economic Systems

Traditional Economy n n n Based on custom and tradition Products produced and distributed among the groups Only items that are necessary are produced n Rarely used today

Command Economy n n n Government officials make decisions Planned economies Ancient system – not seen today

Market Economies Individuals hold control and answer the three basic economic questions n Self-interest n System is set up to reward people – incentives exist n

Mixed Economies n n Authoritarian / Communism – government controls all factors of production Example – U. S. S. R. Capitalism – government involvement is limited Example – U. S. A. n n Democratic Socialism – government ownership is limited to key industries Example - Canada

Five features of the U. S. Free Enterprise System n n n Free enterprise – an economic system in which business can be conducted freely with limited gov. involvement. Private property – people have the right to own private property and enter into contracts. Engage in economic competition! Make decisions based on self-interest! Participate in the economy with limited government involvement!

Circular Flow Model Types of exchanges : Households and Government -households provide resources to the government for income -households pay taxes to the government for services Households and Businesses -households provide resources to businesses for income -households pay businesses for products

Circular Flow Model Cont. n Businesses and Government u -businesses provide products to the government for money u -businesses pay taxes to the government for service

Key terms : Utility - usefulness of a product - The utility of a certain good can vary from person to person. n Self – sufficiency – when you can fulfill all your needs with no outside influence n Interdependence – when one area or region is affected because of the events and incidences that occurred in another region. n

Key Terms cont. Productivity – level of output that results from a given level of input n Efficiency – the use of the smallest amount of resources to produce the greatest amount of output n Division of labor – assigning a small number of tasks to each worker n Specialization – the focus on one activity n