2. What goods and services should be produced? How should they be produced? For whom are they produced? How a society answers these questions determines the type of economy it has. BASIC ECONOMIC QUESTIONS

3. Economic decisions are based on tradition and customs People usually perform the same type of work as their family TRADITIONAL ECONOMY

4. Private ownership of property and resources Profit motive and competition Consumer choices Adam Smith was main founder FREE-MARKET ECONOMY (CAPITALISM)

5. Government ownership of property and resources Government planned economy Lack of consumer choice Karl Marx- ideological foundation for communism COMMAND ECONOMY (COMMUNISM)

6. Individuals and businesses make decisions for the private sector Government makes decisions for the public sector Government’s role is greater than in a free market and less than a command economy Most countries today have a mixed economy MIXED ECONOMY

7. Ability to earn money Right to purchase property Right to spend incomes on goods and services Right to choose occupations or change jobs Right to make choices about saving money Right to start a new business (be an entrepreneur) ECONOMIC FREEDOMS OF INDIVIDUALS

8. High degree of economic freedom High degree of political freedom DEMOCRATIC NATIONS

9. Limited economic freedom Limited political freedom AUTHORITARIAN NATIONS

10. Gross Domestic Product (GDP) – Total dollar value of all final goods and services produced in a year GDP of the U.S. is roughly $18 trillion, making up about 18% of the world’s GDP. Unemployment Rate – Percentage of the labor force without jobs (who want jobs) Stock Market Average – select groups of stocks whose performance over time is a good measure of the overall market. (Dow Jones, S&P 500) Productivity – amount of output per unit of input over time ECONOMIC MEASUREMENTS

11. Organizational abilities and risk-taking involved in starting a new business Entrepreneurs must be willing to take risks, handle rejection, survive financial uncertainty, and make personal sacrifices ENTREPRENEURSHIP

12. The difference between the revenue from the sale of a good or service and the costs of providing that good or service The possibility of making a profit encourages entrepreneurs to grow their business. This is called profit motive. PROFIT

13. Proprietorship – one owner who takes all the risks and all the profits Partnership – two or more owners share the risks and profits Corporation – authorized by law to act as a legal entity regardless of the number of owners. Profit is shared among the owners in the form of “shares” or stock in the company. Whoever owns the most stock has the most power and profit. TYPES OF PROFIT-SEEKING BUSINESSES

14. Labor – also called human resources, any form of human effort Capital – human made resources such as tools, buildings, equipment, etc. Natural Resources – items provided by nature such as lumber, water, land, minerals, etc. Entrepreneur – organizes these resources to produce goods or services FACTORS OF PRODUCTION

15. Supply – Willingness and ability to provide various quantities of a good or service at various prices Law of Supply – the lower the price, the lower the quantity supplied -- the higher the price, the higher the quantity supplied Demand – Willingness and ability to buy various quantities of a good or service at various prices Law of Demand – the lower the price, the higher the quantity demanded -- the higher the price, the lower the quantity demanded SUPPLY AND DEMAND

16. Taxes increase = slowed economic growth Taxes decrease = boosted economic growth Gov’t spending increase = boosted economic growth Gov’t spending decrease = slowed economic growth FISCAL/MONETARY POLICY