1. Households, Businesses, And Governments

3. Supply and Demand In economics, what does the word supply mean? The word supply is the amount of goods and services producers want to provide at different prices. In your groups, discuss what happens to supply as the price of goods or services increase and decrease. As the price of goods goes up producers are willing to produce more goods. If the price decreases producers are not willing to produce as much. What does the word demand mean? The word demand refers to the quantity of goods or services consumers are willing to purchase at different prices.

4. Supply and Demand In your groups, discuss what happens to demand when the price increases and decreases. As the price of goods goes down the supply will go down because consumers buy more ( demand increases). When the price increases supply will increase because consumers will buy less ( demand decreases). What is a surplus? A surplus is having more of a product than is demanded. What is a shortage? A shortage occurs when suppliers produce less than is demanded by consumers.

5. Supply and Demand Using the chart discuss in your groups the following questions. What happens to the price and quantity as demand increases? As the demand increases the price increases but the quantity decreases. What happens to price and quantity as the supply increases? As the supply increases the price and quantity increase. What happens to the price and quantity as demand decreases? As demand decreases the price decreases but the quantity increases. What happens to price and quantity as supply decreases? As the supply decreases the price and quantity decrease. What happens when the market reaches equilibrium? When supply and demand reach equilibrium all of the goods produced will be sold and the market is said to be cleared.

6. Complements and Substitutes What are complements? Complements are goods that make other goods more desirable, like peanut butter and jelly. In your groups, give an example of complements? What are substitutes? Substitutes are goods or services that are used to replace other goods and services. For example you buy store brand cereal instead of a name brand. In your group give some examples of substitutes.

7. Factors Affecting Supply Name three factors that affect supply? Three factors that affect supply are: 1) Costs of production 2) Degree of competition 3) Changes in technology Explain how costs of production affects supply? When cost of production decreases, profit increases and supply increases. Explain how the degree of competition affects supply. If there is a high degree of competition, more goods will be produced at a cheaper cost to the consumer. How does technology affect supply? New technology increases efficiency which lowers the cost of producing the product.

8. Factors Affecting Demand Name two factors that affect demand. Two factors that affect demand are: 1) Consumer tastes 2) Change in income levels What is consumer tastes? Consumer tastes are things that the consumer wants to buy. As these tastes change so does the demand for products and services. How does a change in income levels affect demand? If income levels rise the demand for goods will increase. If income levels decrease so will the demand for goods.

9. Government Actions and Interventions in the Economy Explain how the government uses taxes to motivate people into certain actions. The government uses taxes to motivate people into certain actions. 1) If the government wants to stimulate the housing industry they will give a tax deduction on interest paid on home loans. 2) If they want to stimulate research and development they will give a tax deduction to companies that work in that field. 3) If the government wants to reduce the use of tobacco or gas use they will raise the taxes on those products.

10. Government Actions and Interventions in the Economy What is the purpose of the antitrust laws? Antitrust laws: 1) Stop companies from forming monopolies. 2) Stop companies from selling products for a price below the cost of making the product, in order to drive smaller companies out of business. This is called price fixing. What organization ensures that these laws are carried out? The Federal Trade Commission (FTC) enforces the antitrust laws. What is the function of the Federal Communications Commission? The Federal Communications Commission (FCC) regulates the television and radio industries.

11. Government Actions and Interventions in the Economy Explain the purpose of the Department of Agriculture. The Department of Agriculture ensures that meat products have been prepared in sanitary conditions and contain acceptable levels of bacteria.

12. Global Economy What is free trade? Free trade is the elimination of barriers to trade with foreign countries. What is protectionism? Protectionism is the policy of increasing trade barriers to reduce the imports into a nation. What is a trade deficit? A trade deficit occurs when a country imports more goods than it exports. What is a balance of trade. Balance of trade occurs when the goods imported equals the goods exported.

13. Balance of Trade What is meant by the phrase foreign exchange rate? The foreign exchange rate is the value that one currency trades for with respect to another currency. Explain how foreign exchange rates affect the economy. If the U.S. dollar is more valuable than the British pound U.S. imports will go up and British exports will go down. If the U.S. dollar is less valuable than the British pound then U.S. imports will decrease and U.S. exports will increase.

14. Understanding Economic Indicators What is one of the most important economic indicators? One of the most important economic indicators is the stock market. When the economy is good, people buy stocks, and companies have money to invest in capital. When the economy is bad, people sell stocks, and companies do not have money to invest. What are stock exchanges? Stock exchanges are places where investors buy stock in a company. The New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASDAQ) are two of the largest stock exchanges.

15. Understanding Economic Indicators How is the unemployment rate an economic indicator? The percentage of unemployed workers is an indicator of how well the economy is able to employ those that are looking for work. What is inflation? Inflation is a period in which prices increase. What is deflation? Deflation is a period of time when prices decrease. In your group discuss how inflation and deflation affect the economy. If inflation gets too bad, people will quit buying goods and factories will lay off people. If deflation gets too bad, producers will not produce as much because they are not making a profit.

16. Understanding Economic Indicators What is the leading indicator of the amount of inflation or deflation? The Consumer Price Index (CPI) is the leading indicator of the amount of inflation or deflation in the country. What is the Consumer Price Index? The Consumer Price Index is a measure of the average price of all goods and services sold within the nation. A CPI greater than 100 means that inflation has occurred and a CPI of less than 100 means that deflation has occurred. What is used to determine the standard of living in a country? The Gross Domestic Product ( the value of all goods and services / population ) is a measure of the standard of living in a country.

17. Government Revenue and Spending Name some ways the government uses it tax revenues. The government uses its tax revenues on programs of national interest such as: 1) Social Security: provides a modest retirement income for those over 67 as well as income for those who are disabled. What is the difference between Medicare and Medicaid? Medicare provides medical benefits for those of retirement age. Medicaid provides medical coverage for low income families or those on welfare.

18. Government Revenue and Spending 2) Military spending 3) Making payments on the National Debt. http://www.usadebtclock.com/

19. Monetary Policies What government agency is responsible for printing, coining of money? The Treasury Department is responsible for the printing and coining of money. Which government agency is responsible for controlling the supply of money? The Federal Reserve is responsible for controlling the Nation’s supply of money.

20. Monetary Policies Explain ways the Federal Reserve controls the Nation’s money supply. The Federal Reserve controls the Nation’s money supply by: 1) Buying treasury bills from the public. This puts more money into the economy during deflation. 2) By changing interest rates. Higher interest takes money out of circulation and lower rates puts money back into circulation. 3) Changing bank reserve requirements. This is money that banks must keep in their vault. Raising requirements takes money out of circulation. Lowering money increases circulation of money. What is the purpose of the Federal Deposit Insurance Corporation? The Federal Deposit Insurance Corporation or ( FDIC) ensures that everyone who deposits money into a bank account will not lose all their deposits.