Economics Chapter 3

What is economics? How a country makes decisions to satisfy the unlimited human needs and wants with limited resources.

Basic Economic Problem Scarcity – People’s wants and needs are unlimited but there are limited resources

Economic Resources Natural resources Equipment Capital Labor

Private enterprise Based on independent decisions by businesses and consumers with only a limited government role regulating those relationships.

Private Enterprise Characteristics Resources owned by producers Producer are motivated by profit motive Consumers decide what to buy Consumers use value to determine what to buy Government not involved unless there is problems.

Role of: Consumers – Limited resources so must choose what best meets their needs and wants Producer – Gather information on what consumers want Government – Usually no interference unless problems (laws and regulations)

Three economic questions: What goods and services to produce? How should goods and services be produced? For whom should goods and services be produced?

Capitalism/Market Private ownership of business Government cares about people Marketplace competition Elect our officials Democracy – power in hands of people More than one political party

Socialism Increased government involvement Keep prices low and provide employment Government runs key industries Telecommunication, mining, transportation More social services Alot higher taxes

Communism Government runs everything (totalitarian) People assigned jobs Government tells you where to go to school and live Everyone has a place to live and food Medical care is free People that don’t work get paid assistance

Macroeconomics (Big Picture) Study of economic behavior and relationships of a whole society. Examples: Gas prices, milk prices

Microeconomics (small picture) Study of relationships between individual consumers and producers. Examples: A set of customers for a local store

Law of demand When the demand for a product is high the price is typically higher. Example: A new game system or cell phone (new Blackberry phone) $259.99

Law of Demand (continued) When demand for a product is low, the price will typically be lower. Example – Razor phone

Factors affecting Demand Whether the need or want is strong Available supply of products/services to meet needs and wants Availability of alternative products

Supply = amount the supplier is willing to produce When the supply for a product exceeds demand a surplus occurs Example: Mrs. Harris has too many homecoming shirts left over (have to reduce price to sell When the demand for a product exceeds supply a shortage occurs. Example: Mrs. Harris does not have enough homecoming shirts to sell

Market price The point where supply for product is equal to the demand (also equilibrium price)

Law of supply Increase in price = increase in supply Decrease in price = decrease in supply

Factors that affect supply Possibility of profit Amount of competition

Struggle of businesses for customers What is competition? Struggle of businesses for customers

Types of competition Pure competition – Large # of suppliers offering similar products Agricultural (wheat, corn, livestock, milk) Gas Pens Light bulbs

Monopolies Only one supplier offering a unique product No competition Government limits Examples Gas, electric, and water companies

Oligopolies A few businesses offer very similar products and services Airlines, automobile manufacturers, oil refineries, long-distance services.

Which of the following would be considered price competitors in business? A. Lowes and Goodys B. Wendy’s and McDonalds C. KMART and Wal-Mart Both b and c

Customers are willing to pay top dollar for the new popular toy for Christmas this year. According to the law of supply, producers will be willing to produce _________ systems in this situation. A. the same amount of B. fewer C. more D. no more

Businesses that use their resources to make goods are called A. consumers B. wholesalers C. retailers D. producers

If there are no alternative products to satisfy customer’s needs, A. the supply will be large B. consumers will pay more C. the price will be low D. supply and demand will be the same

Kroger is having a big sale on their cereal Kroger is having a big sale on their cereal. According to the law of demand, what will happen to the demand for cereal? A. Demand will decrease B. Demand will increase C. Demand will stay the same D. There will be equilibrium

Roles of government in capitalism Provider of services: Safety: Police, fire, military Educational: GED program Transportation: Build roads Health: Medicare and Medicaid

Supporter of business Disaster assistance (tornado, hurricane) Small business Administration (provide loans) Consume goods that businesses provide Establish trade alliances

Government’s role as regulator Food and Drug (unsafe foods and drugs) Equal Employment Opportunity Commission Health Department Environmental Protection Agency Security and Exchange Commission

Government’s role as competitor U.S. Post Office Tennessee Valley Authority (electric) Amtrak

Measures to analyze our economy Employee productivity – output per worker hour measured over defined period of time (when productivity goes down, costs of products go up which leads to inflation)

Gross Domestic Product Gross domestic product (GDP) – measure of goods and services produced in our country using our labor and property When our GDP is high, our economy grows, when it is low, our economy is slower

Measures of our economy (cont.) Inflation rate – rising prices Higher inflation: chances of economic slowdown Lower inflation: economic growth

Economic Measurements Unemployment rate – number of people without jobs Higher unemployment rate: chance of economic slowdown Lower unemployment rate: economic growth

One way that the government supports businesses is by Having healthcare Having disaster assistance The Small Business Administration Both b and c

In Pulaski County, there is currently a low unemployment rate In Pulaski County, there is currently a low unemployment rate. Under this situation, what impact will this have on the economy? The economy will probably grow The economy will probably slow down Inflation will go up There will be no change on the economy

What does the government use to pay for the services that they provide to us (police, fire, roads,etc.)? A. federal reserve money B. stocks C. income taxes D. stocks

The U.S government acts as a competitor in what role? A. healthcare B. the health department C. United Postal Service D. the military

The only true monopolies that are allowed by our federal government are A. gas companies B. electric companies C. water companies D. all of the above

Having a high inflation rate is: A. good for the economy B. doesn’t affect the economy C. bad for the economy D. none of the above

The unemployment rate is: A. The percentage of workers who have jobs B. The output per worker hour C. The percentage of workers who do not have jobs D. Both B and C

If the available want or need of a product is strong, what would happen to demand? A. it would stay the same B. it would go down C. it would go up D. all of these