1. Economic Concepts
What do I need to know?

2. How has opportunity cost affected decision making throughout history?
Rationing of goods during times of war- Example: You only get a pound of butter a month with your ration card, but you have a big party coming and want to make a cake. Do you save your butter to make cake, or do you use it for normal day-to-day cooking and not have a cake for your party?
Budgeting by the government to spend tax money- Ex: new military equipment vs. medical research, etc.

3. How do price incentives affect people’s behavior and choices?
Incentives are reasons or motivations given to attain a desired behavior. Businesses price their goods and services in order to give people an incentive to buy/use what they are selling.
Example: the cattle industry started because people in Texas saw that they could make money by selling beef to the cities in the east and west where people couldn’t keep cattle. The shortage of beef in the cities made prices for beef higher. It worth the cowboys time and trouble to round up the cattle and get them to market. It was profitable!
Example: Andrew Carnegie started his steel company when manufacturing steel became cheaper and he knew he had a good market for it in the rail roads and all the track they were building. He built his factories in an area where he was centrally located to be close to raw materials, customers who wanted the steel, and shipping lanes to get the materials and finished product where they needed to be in the least expensive way possible.
Example: People shop at whichever store has the best prices on goods. If cereal is $1.00 cheaper at Kroger than Publix, customers are more likely to buy it at Kroger.

4. How does job specialization help people earn higher wages?
Specialization is the idea that you do just one thing while you are at work. If you do that thing well, you will be paid well.
Businesses that focus on just one thing do that thing very well, so they get lots of business=more money.
When individuals spend time doing one job, they don’t have time to do others (If I teach, I don’t have time to farm, so I have to pay someone else to produce my food). This means everyone will specialize in something, so we can all make money.
Historical example: The differences in climate made different industries thrive in the North and South at the beginning of the 20th century. The North specialized in factory made items from tools, to cars, to textiles. Farming remained the major industry in the South, but factories were built in the South that used the crops grown there, such as textile/fabric mills since cotton was a major Southern crop.

5. What is voluntary exchange? How does it help buyers and sellers?
Voluntary exchange is when a worker trades his/her skills with an employer for money. It is voluntary because both the worker and the employer benefit from it and want to do it.
This concept help buyers because they have wants and needs. The sellers have items to sell. The buyer gives the seller money in exchange for goods or services. This benefits both because the buyer needs the good or service and the seller needs the money. It is an acceptable arrangement for both.
This also leads to specialization since different businesses will choose different products and services to sell to buyers based on what they think buyers want and need.

6. How does trade among nations promote economic activity?
Does the U.S. produce everything it wants/needs? No! When we trade with other nations, we get goods we need from them. When we spend our money on their products, they have more money, too.
Do other countries produce everything they want/need? No! When we sell them things they want, we get money from them.
In both cases, jobs are produced for the people producing the goods. Trade stimulates economic growth because the goods being produced and sold mean someone who is producing it has a job and now has money to spend themselves.
The U.S. tried to capitalize on this positive interaction by building the Panama Canal to make trade with Asia easier, safer, cheaper, and faster.

7. How do advances in technology impact how businesses produce goods?
What was manufacturing like before the assembly line? Slow and more expensive. New technology changes how goods are produced, usually making goods less expensive and better quality.
What newer developments continue to make change? Computers and internet! When records can be kept on the computer, it makes businesses run smoother with fewer workers which makes goods cheaper and the business more efficient. Customers can get information and order items on the internet which reduces the number of workers needed who used to answer phones or take mailed orders in. These jobs are often replaced by other jobs that arise as a result of the technology changes, such as IT jobs.

8. How do individual households contribute to the economy?
Do families need things? Do families want things? Yes!
Households purchase goods and services making it possible for those businesses to exist. They consume goods and services
Households also provide human resources so that these businesses have employees to produce their goods and services.

9. What is the function of a private business?
Private businesses provide our goods and services! They fill the needs for us that we can’t fill for ourselves.
They can also provide jobs so that households have money to spend on goods and services.

10. What are the three functions of a bank?
Checking accounts so that we can have access to the money that we need to spend.
Savings accounts so that we have a safe place to store the money that we don’t want to spend right now but save for later—and pay us some interest on so our money can make more money!
Loans-house loans (mortgages), car loans, credit cards, so that we can buy things that cost more than the money we actually have right now.

11. How does the government use taxation to effect the economy?
The government taxes the citizens of the country so that they can use that money to provide goods and services.
Examples: defense (the military), police departments, fire departments, schools, roads, social security pensions, etc.
Remember: we get services we need and these services also provide jobs which, in turn, keep the economy moving.

12. How do competition, markets and prices influence consumer behavior?
Consumers want the best prices.
Consumers shop where they can get the best prices. They will take their business where they can get a good deal and feel like they’ve been treated well. Example: Publix and Kroger price their goods competitively so that you won’t shop somewhere else. If cereal at Publix is $5.00 and cereal at Kroger is $3.00, where are you going to go?

13. In what ways do people earn income?
People sell their labor to businesses.
Sell? Yes, sell! You have a skill that the business needs, so the business pays you money to use your skill. That is a form of buying and selling.

14. What risks do entrepreneurs take on to develop new goods or start a business?
Financial: it takes money to start a business. You need a place, supplies, advertising, employees, etc. This requires you to have money before you start, either saved, invested, or borrowed.
Failure: many businesses fail. If it fails the entrepreneur risks bankruptcy, reputation, and the possibility of not getting another job.

15. What is a personal budget?
Everyone has income (money earned) and expenses (money spent on food, clothing, housing, etc.)
A budget is a person’s plan for how they will spend their income in a way that allows them to pay for all of their expenses and savings needs.
Budgeting requires self-discipline! Wants and needs have to be assessed. Sometimes a budget requires that we put off our wants to provide for our needs.

16. Why are personal spending and saving decisions important?