Free enterprise

Individuals are free to decide what to produce, how to produce it, and at what price to sell it.

Business

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?

Human resources

Material resources

Informational resources

Financial resources

Human resources

the personnel of a business or organization.

Material resources

Anything of value or usefulness in the form of material possessions.

Informational resources

provide the background necessary to evaluate current performance and plan future progress

Financial resources

The money available to a business for spending in the form of cash, liquid securities and credit lines

Profit

What remains after all business expenses have been deducted from sales revenue.

Negative profit

results when a firm's expenses are greater than its revenues.

Economics

The study of how wealth (anything of value) is created and distributed.

Microeconomics

The study of the decisions made by individuals and businesses.

Macroeconomics

The study of the national economy and the global economy.

Economy

The system through which a society creates and distributes wealth.

4 Factors of Production

Land and natural resources.

Labor

Capital

Entrepreneurship

Entrepreneur

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?

Capitalism

Economic system which individuals own and operate the majority of businesses that provide goods and services.

Laissez-fair capitalism

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.

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.

Command Economies

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?

Socialism

Which economic system has production based on national goals and distribution controlled by the state?

socialism

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?

socialism

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?

Communism

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?

Communism

Which economic system has the state dictates occupational choices and sets prices and wages?

Communism

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.?

Communism

Productivity

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

Productivity

Gross Domestic PRoduct (GDP)

Inflation

Deflation

Unemployment Rate

Consumer Price Index (CPI)

Producer Price Index (PPI)

Inflation

A general rise in the level of prices

Deflation

A general decerase in the level of prices

Unemployment rate

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

Bank credit

Corporate Profits

Inflation Rate

National Income

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

Bank Credit

A statistic that measures the lending activity of commercial financial institutions

Corporate Profits

The total amount of profits made by corporations over selected time periods

Inflation Rate

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

National Income

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.

Recession

Two or more consecutive three-month periods of decline in a country’s gross domestic product

Depression

A severe recession that lasts longer than a recession

Monetary Policies

Federal Reserve decisions that determine the size of the supply of money in the nation and the level of interest rates

Fiscal Policy

Government influence on the amount of savings and expenditures; accomplished by altering the tax structure and by changing the levels of government spending

Federal deficit

A shortfall created when the federal government spends more in a fiscal year than it receives

National debt

The total of all federal deficits

Competition

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.

supply

The quantity of product that PRODUCERS are willing to sell at each of various prices.

Demand

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.

Monopolistic competition

Market situation where there are many buyers along with a relatively larger number of sellers who DIFFERENTIATE their products from the products of competitors.

Product differentiation

The process of developing and promoting differences between one's products and all similar products.

Oligopoly

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

Monopoly

Market (or industry) with only one seller.

Natural monopoly

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

Barter system

A system of exchange in which goods or services are traded directly for other goods and/or services without using money

Domestic system

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

Factory system

A system of manufacturing in which all the materials, machinery, and workers required to manufacture a product are assembled in one place

Specialization

The separation of a manufacturing process into distinct tasks and the assignment of the different tasks to different individuals

E-business

the organized effort of individuals to produce and sell through the Internet, for a profit, products and services that satisfy society’s needs

Service economy

an economy in which more effort is devoted to the production of services than to the production of goods