Economics Unit 1

Scarcity

when something is in short supply and in demand it is scarce.

choice

when faced with scarcity we must make a choice on what is more important to us.

human resources

effort and creativity people; time, energy, effort and skill.

capital resources

not money; tools, machinery and factories

natural resources

resources that are naturally formed; forest, water.

value

the more scarce it becomes the more valuable it becomes and the less scarce it becomes the less valuable it becomes.

opportunity cost

the value of your next best option.

economics

a bunch of people making decisions

2 key economic assumption

1. all humans are rational and self interested.

2. everything has a cost

sunk cost

is the amount already invested which cannot be recover or taken back.

tradition economy

system in which economic decisions are based on customs and beliefs that have been handed down from generation to generation

command economy

An economic system in which the government controls a country's economy.

market economy

Economic decisions are made by individuals or the open market.

3 key economic questions

What should we produce?

How will we produce?

For whom? (and who gets how much)

Productions Possibilities Curve (PPC)

it illustrates the fundamental problem of scarcity and choice.

Ceteris Paribus

all things being equal (images that if the weather could always be constant.

Cost Benefit Analysis (CBA)

assigning both pro’s and con’s with a value and deciding whether or not to pursue which ever option.

Sole Proprietorship

one business owner, is relatively easy to from and has unlimited liability for all debts of the business. Long hours maybe a couple or 100 employees.

Partnership {General}

Easy to form, similar to sole proprietorship, unlimited liability, if one chooses to leave the other can run it solo. It’s like a marriage good communication and decision making to keep the business succesful.

Partnership {Limited}

the limited partner is responsible only for the contribution they have made to the partner ship. Many people become limited because it’s less risky.

Corporation

more complicated, an attorney required, follow stricter rules both state and federal. provides limited liability for its investors, no stockholders cover debt, unlimited life span of ownership. Files its own taxes and pays taxes on its incomes.

Franchise

hybrid offers the advantages or a quick start up, proven business plan, recognizable trademark and brand. For most can only be a temporary business investment opportunity without the hassles of a long term ownership

Co-operative

is a business that is a joint owned and democratically controlled by its member. through shared ownership and decision making members work together to meet economic, social needs and hope.

Not for profit

limited funding, employee commitments (think of schools, churches, clinic’s, hospitals). They receive tax exempt status from the government so they don’t have to pay income tax.

Adam Smith

• Invisible Hand Theory

• wealth is created through productive labour, and that self interest motivates people to use their resources to best use.

Karl Marx

the capitalistic system would inevitably destroy itself. recognized that prices do not equal labour values but tried to explain how they are related to labor values.

John Maynard Keynes

if government spend less when everyone is spending less it only makes the economy worse. Bad times spend money, good times spend less and tax more to recover.

Milton Friedman

proposed that money supply changes have immediate and long term effects. government intervention only causes inflation and unemployment.

Inflation

• the value of money decreased.

• the same good or service has increased in price but stays the same.

mixed economy

• all current economies are considered mixed economies

• an economic system combining private and public mission.

Communism

It is when everything is publicly owned and each person is paid based on there skills and needs.

Socialism

• A system in which society, usually in the form of the government, owns and controls the means of production

Capitalism

An economy where the government basically takes the excess profit made from workers, meaning that these workers have to come up with other ways to make money.

Fascism

Government ruled by a dictator which controls the lives of the people and in which people are not allowed to disagree.

Marginal Analysis

list your benefits and costs (should i do this next; think of the candy eating game).

GDP Equation

C+I+G (X-IM)

real GDP

it accounts for inflation. It calculates the current years productions according to a base year price.

nominal GDP

is recording in terms of actual dollars.