Three types of economies?
Command, Traditional, and Market
Traditional Economy (advan/Disadvan)
Economic activity stems from ritual, habit, or custom (advantages): Everyone knows which role to play (disadvantages): discourages new ideas and new ways of doing things
Command Economy (Advan/Disadvan)
Central authority makes most of the decisions (advantages): it can change direction drastically in a relatively short time. (disadvantages): not designed to meet the wants of consumers
Market Economy (Advan/Disadvan)
People and firms act in their own best interests to answer the what how and for whom questions. (advantages): Over time, it can adjust to change also there is individual freedom (disadvantages): It does not provide for the basic needs of everyone in the society
A rise in the general level of prices
private citizens, many of whom are entrepreneurs, own the factors of production
This describes teh role of the consumer as sovereign, or ruler, of the market "customer is always right"
people carry on their economic affairs freely, but are subject to some government intervention and regulation
What are three forms of business organizations?
Sole Proprietorship, Partnerships, and Corporations
Sole proprietorship (advan/Disadvan)
A business owned and run by one person (advantages): The ease of starting up, and the ease of management (disadvantages): Unlimited liability; this means that the owner is personally responsible for everythign
A business jointly owned by two or more persons. (advantages): Ease of establishment, lack of special taxes (disadvantages): Each partner is responsible for acts of all other partners
A form of business organization recognized by law as a separate legal entity having all the rights of an individual (needs a charter) (advantages): Ease of raising financial capital (disadvantage): The difficulty and expense of getting a chargetr
Two or more firms that produce the same kind of product join forces
An automaker merging with a tire maker GET IT?!?!??!
A firm that has at least four businesses, each making unrelated products, none of which is responsible for a majority of its sales
A corporation that has manufacturing or service operations in a number of different countries
Non profit orgs
they make no money but donate services to the community
Cooperatives (consumer, service, producer)
a cooperative is a voluntary association of people formed to carry on some kind of economic activity that will benefit its members
a voluntary association that buys bulk amounts of goods such as food and clothing on behalf of its members.
Provides ervices such as insurance, credit and baby sitting to its members (credit union): financial org that accepts deposits from and makes loans to employees
helps members promote or sell their products
an organization of workers formed to rep its members interests
a group of people in a specialized occupation that works to improve the working conditions, skill levels, and public perceptions of the proffession
Chamber of commerce
this promotes the welfare of its members and of the community
Better Business Bureau
A non profit org sponsored by local businesses to provide general information on companies
investor or municipal owned companies that offer important products to the public, such as water or electric services
the desire, ability, and willingness to buy a product
the area of economics that deals with behavior and decision making by small units
Law of Demand
the quantity demanded of a good or service caries inversely with its price. Prices goes up, quantity demanded goes down.
the change in quantity demanded because of a change in price that alter consumers real income
the change in quantity demanded because of the change in the relative price of the product
change in income causes change in demand
Change in tastes change demand
products that can be use in place of other products
some goods are known as this because of the use of one increases the use of the other
Change in expectations
stop buying something because you waiting for the new better product
Number of consumers
A change in income, tastes and prices of related products affects the individual demand schedules and curves
a change in prices causes a change in quantity demanded corn, vegetables ect
a change in prices causes a relatively smaller change in the quantity demanded. ex: table salt
the amount of a product that would be offered for sale at all possible prices that could prevail in the market
Law of supply
the principle that suppliers will normally offer more for sale at high prices and less at lower prices
What causes a change in supply?
Cost of inputs, productivity, technology, taxes and subsidies, expectations, government regulations, number of sellers
Cost of imputs
imputs such as labor, if the cost of labor rises producers make less, and vise versa
when management motivates its workers, ect, productivity increases, which results in more things produced
A government payment to an individual, business, or other group to encourage or protect a certain type of economic activity
the cost that a business incurs even if the plant is idle and output is zero. (overhead)
A cost that changes when the business rate of operation or output changes. Costs for things such as labor and raw materials
the sum of fixed and variable costs
the extra cost incurred when a business produces on additional unit of a product.
the monetary value of a product as established b supply and demand
what are the advantages of prices
They help decide the three basic WHAT HOW AND FOR WHOME questions all societies face.
a system under which an agency such as government decides everyones "fair" share.
a partial refund of the original price of the product.
A situation in which prices are relatively stable, and the quantity of goods or services supplied is equal to the quantity demanded.
this is the price that clears the market by leaving neither a surplus nor a shortage at the end of the trading period.
A maximum legal price that can be charged for a product ex: rent control and gas station rationing
lowest legal price that can be payed for a good or service ex: minimum wage and farm prices
a price floor for farm products
a loan that carries neither a penalty nor further obligation to repay if not paid back
check sent to producers that makes up the difference between the actual market price and the target price
Laissez-faire (Adam Smith)
the philosophy that government should not interfere with commerce or trade
4 Market structures
Perfect competition: identical products (cant exist), monopolistic competition (product differentiation), oligopoly( a few large groups), monopoly (Natural geographical technological government)
Perfect competition examples
Monopolistic competition examples
different types of shoe makers
few large sellers dominate the industry: auto industry or steel industry
natural: costs of production are minimized by having a single firm product the product Geographic: based on the absence of other sellers in a certain area (gas station) Technological: ownership or control of a manufacturing method, process, or other scientific advance. Government: owned and operated by the government
a formal agreement to set prices or to otherwise behave in a cooperative manner.
agreeing to charge the same or similar prices for a product.
unintended side effect that either benefits or harms a third party not involved in the activity
collectively consumed products
Legally formed combinations of corporations or companies.
the practice of charging customers different prices for the same product
cease and desist order
An FTC ruling requiring a company to stop an unfair business practice.
the requirement that businesses reveal information to the public
FDA (Food and drug administration)
enforces las to ensure purity, effectiveness, and truthful labeling of food, drugs, and cosmetics
FTC (Federal Trade Commision)
Administers antitrust laws forbidding unfair competition
FCC (Federal Communications Commission)
Regulates radio and television
SEC (Securities and exchange commission)
Regulates and supervises the sale of listed and unlisted securities and the brokers, dealers, and bankers who sell them
FAA (Federal Aviation Administration)
Oversees the airline industry
EEOC (Equal employment opportunity commission)
Investigates and rules on charges of discrimination by employers and labor unions
OSHA (Occupational Safety and Health Administration)
Investigates accidents at the workplaces (protects employees)
CPSC (Consumer product safety commission)
Develops standards of safety for consumer goods
Sherman Anti-trust (1890)
Outlawed all contracts to halt the growth of trusts and monopolies
Clayton Anti-Trust (1914)
Strengthened the Sherman Act by outlawing price discrimination
Federal Trade Commission Act (1914)
Established the FTC to regulate unfair method of competition in interstate commerce
Robinson Patman Act (1936)
Forbade rebates and discounts on the sale of goods to large buyers unless the rebate and discount were available to all
The branch of economics that deals with the economy as a whole.
2 types of unions
Craft/trade union: perform same kind of work Industrial: Same industry of work
4 types of union arrangements
Closed shop(illegal), Union shops, modified union shops, agency shops
Closed Shops (illegal)
where the employers agrees to hire only union members
workers do not have to belong to the union to be hired, but must join soon after and remain a member for as long as they keep their jobs
Modified Union Shops
workers do not have to belong to a union to be hired and cannot be made to join one to keep their jobs.
does not require a workers to join a union as a condition to get or keep a job, but does require the worker to pay union dues to help pay collective bargaining costs.
reps from both sides meet, from union and management; they negotiate
Ways to resolve problems
Mediation, Arbitration, Fact-finding, injunction and seizure, presidential intervention
using a neutral third person to settle the dispute
Third party member makes final decision
neutral third party collect facts about a dispute and present non-binding recommendations
Injunction and Seizure
Injunction- court order not to act Seizure-temporary take over of company to resolve problems
president helps make decision
4 catagories of labor
Unskilled Labor (digging ditches, picking fruit...) Semiskilled Labor (dishwashers and operating lawnmowers...) Skilled Labor (Typists, computer techs...) Professional Labor (Layers, and scientists...)