1. Chapter 1
Economics – study of the choices that consumers and producers make.
Capitalism – United States Economic System. Laissez Faire – Free Enterprise – Private Property-
Adam Smith – the “Wealth of Nations”

2. 4 factors of Production Human Resources Capital Resources
Natural Resources
Entrepreneurship

3. Scarcity – limited resources
The Fundamental Economic Problem
Unlimited needs and wants with limited resources = scarcity which leads to choices for producers.

4. 3 Basic Economic Questions
What to Produce?
How to Produce?
For whom to Produce for?

5. Trade Offs and Opportunity Costs
Trade offs - Alternatives –giving up one thing for the use of another
Opportunity Cost - The next best choice (with the most value)
that an individual chose not to do.

6. The Production Possibilities Frontier – PPC
One company making two products – with only so many resources, a company must choose to produce more of one thing, while producing less of the other thing.
hotdogs
hamburgers

7. PPC continued … Trade offs and opportunity costs
As a entrepreneur – you must decide which product is in more demand and concentrate your production efforts on the item in more demand by the public.

8. Economic Theory / Marginal Analysis
Simple theory designed to make sense of the world around us.
Ex – pound on the vending machine to make the quarter fall.
Marginal cost vs. marginal benefit
-Does the cost of the product exceed the benefit?
If so, do you buy?

9. Circular Flow Model Types of exchanges : Households and Government
-households provide resources to the government for income
-households pay taxes to the government for services
Households and Businesses
-households provide resources to businesses for income
-households pay businesses for products

10. Circular Flow Model Cont.
Businesses and Government
-businesses provide products to the government for money
-businesses pay taxes to the government for service

11. Forms of exchange Barter - trade – ancient societies
Money – measure of value
Credit – borrowed money

12. Chapter 2
Economic Systems

13. Traditional Economy Based on custom and tradition
Products produced and distributed among the groups
Only items that are necessary are produced
Rarely used today

14. Command Economy Government officials make decisions Planned economies
Ancient system – not seen today

15. Market Economies
Individuals hold control and answer the three basic economic questions
Self-interest
System is set up to reward people – incentives exist
Creates a class system

16. Mixed Economies
Authoritarian / Communism – government controls all factors of production
Example – U.S.S.R.
Capitalism – government involvement is limited
Example – U.S.A.
Democratic Socialism – government ownership is limited to key industries
Example - Canada

17. Five features of the U.S. Free Enterprise System
Free enterprise – an economic system in which business can be conducted freely with limited gov. involvement.
Private property – people have the right to own private property and enter into contracts.
Engage in economic competition!
Make decisions based on self-interest!
Participate in the economy with limited government involvement!

18. Key terms :
Utility - usefulness of a product - The utility of a certain good can vary from person to person.
Self – sufficiency – when you can fulfill all your needs with no outside influence
Interdependence – when one area or region is affected because of the events and incidences that occurred in another region.

19. Key Terms cont.
Productivity – level of output that results from a given level of input
Efficiency – the use of the smallest amount of resources to produce the greatest amount of output
Division of labor – assigning a small number of tasks to each worker
Specialization – the focus on one activity

20. Comparative v. Absolute Advantage
Comparative advantage – the worker, firm, region, or country with the lower opportunity cost of producing a particular output should specialize in that output
Absolute advantage – being able to do something using fewer resources than other producers