How can we help?

You can also find more resources in our Help Center.

58 terms

Ch 3 & 5 Economics and Free Enterprise

STUDY
PLAY
economy
Organized way a nation provides for the wants/needs of its people
scarcity
the difference between unlimited wants/needs and resources; forces everyone (nations and people) to make economic choices
resources
All things used in the production of goods and services
factors of production
land, labor, capital and entrepreneurship
land
everything contained in the earth or found in the seas
labor
all the pople who work
capital
money to start and operate a business
infrastructure
the physical development of a country; roads, bridges, etc.
entrepreneurship
the skills of people who are willing to invest their time and money to run a business
3 Questions Economies must Answer
What to produce? How to produce? For whom?
surplus
when supply exceeds demand
Market economy
in a pure market economy there is no government involvement in economic decisions
Command economy
also called a Planned Economy; government answers questions and controls the factors of production
Mixed economy
philosophy of government affects economic structure; all economies in the world today are considered to have this type
communism
totalitarian form of gov't; one political party; people share common economic and political goals; ex: Cuba, North Korea, China
socialism
gov't tries to reduce differences between the rich and poor; lots of gov't assistance social service programs; key industries run by gov't; ex: Germany, Great Britain, Canada, France
capitalism
democratic government; marketplace competition and private ownership = free enterprise; ex: US, Japan
Characteristics of Free Enterprise
freedom of ownership, competition, risk, profit, supply and demand
supply
the relationship between the amount of a good or service that businesses are willing and able to make available and the price
demand
the relationship between the amount of a good or service that consumers are willing and able to purchase and the price
market price/equilibrium
point at which supply and demand intersect
developing economies characteristics
literacy level, technology, agricultural dependency
productivity
output per worker per hour; specialization increases productivity
Gross domestic product (GDP)
output of goods and services produced by labor and property located within a country; 2008 US GDP = $14.2 Trillion
inflation rate
rising prices; 1-5% is stable; 10% or more is devastating to an economy; CPI is used to measure inflation
Gross National Product (GNP)
goods and services produced by a nation, including goods produced abroad by a country's citizens and companies
Consumer Price Index (CPI)
measures the change in price of goods over time of 400 retail goods/services used by the average household
Unemployment rate
% of labor force that is unemployed; current US rate is 9.7%; GA = 10.5%
business cycle
recurring changes in economic activity
Expansion/Prosperity
stage when the economy is flourishing/growing; unemployment low, consumer confidence and spending is high
Recession
economic slowdown; companies reduce workers; less $ to spend
Depression
prolonged recession; nearly impossible to find a job
Recovery
increase in economic activity; increase in jobs; increase in demand for goods and services
How can the gov't affects the business cycle?
laws and programs such as bailouts, social services, stimulus packages
shortage
when demand exceeds supply
business plan
outlines a strategy to turn a business idea into a reality
trough
low point in the business cycle, transition from recession to recovery, economy stops slowing and begin to see signs of recovery
free enterprise
encourages individuals to start and operate their own business in a competitive system without government involvement
freedom of ownership
personal property (cars, homes, land, etc.) and business ownership and intellectual property (patent, trademark, copyrights)
competition
struggle for customers
price (focus on sale price of the product) vs. non-price competition (focus on quality, service, location and reputation)
risk
potential for loss or failure
profit
money earned from conducting business after all costs and expenses have been paid
monopoly
exclusive control over a product or means of producing it
public sector
government financed agencies such as education, military, social security, medicare, etc.
private sector
business not associated with the government
organizational chart
diagram of the company's departments and jobs with lines of authority clearly shown
liability
a debt that you owe to others
asset
anything of monetary value that you own such as cash, real estate, etc.
personal financial statement
a summary of your current personal financial condition
income statement
a summary of income and expenses during a specific period such as a month
net income
amount left after the total expenses are subtracted from gross profit
balance sheet
a summary of a business's assets and liabilities
economic utility
the satisfaction/value that a consumer receives from the product
form utility
changing raw materialsor putting parts together to make them more useful
place utility
having a product where customers can buy it
time utility
having a product available at a certain time of year or a convenient time (ex: 24 hr ATM, or selling bathing suits in Feb/March)
possession utility
exchange of a product for money; retailers may accept cash, credit or finance the purchase
information utility
involves communicating with the consumer; salespeople provide information or the product's package/label displays information