Individuals are free to decide what to produce, how to produce it, and at what price to sell it.
The organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society's needs.
What 4 resources does a business must combine to be successful?
the personnel of a business or organization.
Anything of value or usefulness in the form of material possessions.
provide the background necessary to evaluate current performance and plan future progress
The money available to a business for spending in the form of cash, liquid securities and credit lines
What remains after all business expenses have been deducted from sales revenue.
results when a firm's expenses are greater than its revenues.
The study of how wealth (anything of value) is created and distributed.
The study of the decisions made by individuals and businesses.
The study of the national economy and the global economy.
The system through which a society creates and distributes wealth.
4 Factors of Production
Land and natural resources.
A person who risks time, effort, and money to start and operate a business.
What are the 4 basic economic questions?
What goods and services produced?
How will they be produced?
For whom will they be produced?
Who owns and controls the major factors of production?
Economic system which individuals own and operate the majority of businesses that provide goods and services.
a society's best interests are served by individuals pursuing their own self-interest.
4 Basic assumptions of Laissez-Faire capitalism
Creation of wealth.
Right to own private property and resources.
Economic freedom and freedom to compete.
Right to limited government intervention.
Free Market Economy
Businesses and individuals decide what to produce and buy; the market determines quantities sold and prices.
What type of capitalism occurs in the US?
Mixed economy with elements of capitalism and socialism.
social system or theory in which the government owns and controls the means of production (as factories) and distribution of goods
Households and Capitalism
Consumers of goods and services.
Resource owners of some factors of production.
Businesses and Capitalism
Produce goods and services to exchange for revenues (money)
Use revenues to purchase factors of production.
Governments and Capitalism
In exchange for taxes, governments provide public services that would not be provided by business or would be produced only for those who could afford them.
Economic systems in which government decides what will be produced, how its produced, who gets what is produced, and who owns and controls the major factors of production.
Examples of Command Economies
Socialism and communism
4 factors of socialism
1. Key industries are owned and controlled by the government.
2. Small-scale private businesses may be permitted and workeds may choose their own occupations.
3. Production based on national goals and distribution is controlled by the state.
4. Intent is the equitable distribution of income, elimination of poverty, social services to all who need them, elimination of the economic waste of captialistic competition
Which economic system has key industries owned and controlled by government?
Which economic system has production based on national goals and distribution controlled by the state?
Which economic system's intent is equitable distribution of income, elimination of poverty, social services to all who need them, elimination of economic waste of capitalistic competitiion?
4 Factors of Communism
1. All factors of production are owned and controlled by the
government as proxy for ownership by all citizens
2. Production is based on centralized state planning to meet the needs of the state and not necessarily the needs of its citizens
3. The state dictates occupational choices and sets prices and wages
4. Intent is to create Karl Marx’s concept of a classless society where all contribute according to their ability and receive benefits according to their needs.
Which economic system have all factors of production are owned and controlled by the government as proxy for ownership by all citizens?
Which economic system has Production is based on centralized state planning to meet the needs of the state and not necessarily the needs of its citizens?
Which economic system has the state dictates occupational choices and sets prices and wages?
Which economic system's Intent is to create Karl Marx’s concept of a classless society where all contribute according to their ability and receive benefits according to their needs.?
The average level of output per worked per hour.
Gross Domestic Product (GDP)
The total value of all goods and services produced by all people within the boundaries of a country during a one-year period.
7 Ways to measure economic performance
Gross Domestic PRoduct (GDP)
Consumer Price Index (CPI)
Producer Price Index (PPI)
A general rise in the level of prices
A general decerase in the level of prices
The percentage of a nation's labor force unemployed at any time.
Consumer price index (CPI)
A monthly index that measures the changes in prices of a fixed basket of goods purchased by a typical consumer in an urban area.
Producer price index (PPI)
An index that measures prices that producers receive for their finished goods.
7 Ways to Evaluate a Nation's Economic Health
Balance of trade
New Housing Starts
Prime interest rate
Balance of Trade
The total value of a nation’s exports minus the total value of its imports over a specific period of time
A statistic that measures the lending activity of commercial financial institutions
The total amount of profits made by corporations over selected time periods
An economic statistic that tracks the increase in prices of goods and services over a period of time; usually calculated on a monthly or annual basis
The total income earned by various segments of the population, including employees, self-employed individuals, corporations, and other types of income
New Housing Starts
The total number of new homes started during a specific time period
Prime Interest Rate
The lowest interest rate that banks charge their most creditworthy customers
Business Cycle Definition
The recurrence of periods of growth and recession in a nation's economic activity.
Two or more consecutive three-month periods of decline in a country’s gross domestic product
A severe recession that lasts longer than a recession
Federal Reserve decisions that determine the size of the supply of money in the nation and the level of interest rates
Government influence on the amount of savings and expenditures; accomplished by altering the tax structure and by changing the levels of government spending
A shortfall created when the federal government spends more in a fiscal year than it receives
The total of all federal deficits
Rivalry among businesses for sales to potential customers.
Perfect (pure) competition
Market situation in which there are many buyers and sellers of a product, and NO SINGLE buyer or seller is powerful enough to affect the price of that product.
The quantity of product that PRODUCERS are willing to sell at each of various prices.
The quantity of a product that BUYERS are willing to purchase at each of various prices.
Market Price (Equilibrium)
The price at which the quantity demanded is exactly equal to the quantity supplied.
Market situation where there are many buyers along with a relatively larger number of sellers who DIFFERENTIATE their products from the products of competitors.
The process of developing and promoting differences between one's products and all similar products.
A market situation (in industry) in which there are few sellers.
Sizable investments in enter.
Each seller has considerable control over price.
Market actions of one seller can have strong effects on competitors.
Examples of oligolpoly
automobile manufacturers, car rental agencies, farm implement industries
Market (or industry) with only one seller.
An industry requiring huge investments in capital and within which duplication of facilities would be wasteful and thus not in the public interest.
Production concentrated in SINGLE firm.
Legal monopoly (limited monopoly)
A monopoly created when a government entity issues a franchise, license, copyright, patent, or trademark protecting the owners of written materials, ideas, or product brands from unauthorized use by competitors
specific product or service at a regulated price and can either be independently run and government regulated, or government run and regulated
Standard of living
A loose, subjective measure of how well off an individual or a society is mainly in terms of want satisfaction through goods and services
A system of exchange in which goods or services are traded directly for other goods and/or services without using money
A method of manufacturing in which an entrepreneur distributes raw materials to various homes, where families process them into finished goods to be offered for sale by the merchant entrepreneur
A system of manufacturing in which all the materials, machinery, and workers required to manufacture a product are assembled in one place
The separation of a manufacturing process into distinct tasks and the assignment of the different tasks to different individuals
the organized effort of individuals to produce and sell through the Internet, for a profit, products and services that satisfy society’s needs
an economy in which more effort is devoted to the production of services than to the production of goods