Winter Packet

Unit 2: 1/12/16 Unit 3: 1/14/16 Unit 4: 1/19/16 Unit 5: 1/22/16

Chapter 1
Section 1-Scarcity & Factors of Production
1. The study of how people seek to meet their need and wants by making
choices.
2. Choices=trade offs-alternative sacrificed when making decisions
3. Scarcity- implies limited quantities of resources to meet unlimited wants
Shortage- situation in which a good or service is unavailable
4. Entrepreneurs- combine factors of production to produce final goods
and services
5. Factors of Production
Land- the natural resources used to make goods and services.ex.building
Labor- the effort that people devote to a task for which they are paid.ex. people
Capital- is any human made resource that is used to create other goods and
services ex.scissors
6. Physical-building and tools
Human- Knowledge, education, training, and skills
Need- Necessary for survival(air, food, water)
Want- item desired but is not essential for survival
Goods- physical objects
Services- activities one person performs for another(Hair Stylist)
Section 2-Opportunity Cost
1. It is the alternative sacrificed when making decisions. Everyone is forced
to make trade-offs(Guns and Butter)
2. Opportunity cost is the most desirable alternative given up as the direct
result of a decision
3. Guns or Butter- the most historic representation of trade-offs
4. Think at the Margin- decide to do or use one more unit of a resource
Marginal=1
Section 3-Production Possibilities Graph
1. PPF-Production Possibilities Frontier- line that represents that maximum
possible output with given resources
2. A-Underutilization
B-Efficiency
C- Impossible Combination

3.Law of Increasing Costs=Opportunity Costsas an economy shifts factors of production from

making one good to another, the cost of producing the second good continues to
grow. (You have to give up more of the first to get more of the second item)
Chapter 2:Economic Systems
Section 1-Answering the 3 Economic questions
1. Land, Labor, Capital
2. What to Produce, How to Produce, Who Consumes
3. Economic System- designed to form a method of distributing goods and
services
4. Traditional Economy-Looks to the past-relies on customs and traditional
values
Free Market-All questions are answered by supply and demand
Centrally Planned-Government answers all questions
Mixed Economy-Uses combo of other three
5. The government helps when the market does not distribute resources efficiently
Factor Payments-payments for Factors of Production
Standard of Living-degree of wealth available to person or community
Efficiency- Maximizing Profits
Section 2-The Free Market
1. Efficiency, Freedom, Security and Predictability, Equity, Growth &
Innovation
2. Specialization- Concentrate on a limited number of activities-leads to
economic goal of efficiency
3. NO GOVT- Supply and Demand Rules!
4. Self Interest is motivating force- Supply & Demand
5. Product-household purchase goods&serv. from firms
Factor- Firms purchase resources from households
6. Household- Person or Group of people in one house(own FOP)
Firm-Organization that uses resources to make goods&Serv.
7. Invisible Hand- Self regulating nature of the market
8. Consumer Sovereignty-Desires and needs of consumers control output
of producers
Section 3-Centrally Planned Economies
1. Opposite of free market. Government answers all economic questions,
owns all land and capital, control where people work/wages, No consumer
sovereignty.
Socialism- production, distribution and exchange should be handled by the community
Communism- property is publicly owned and each person works and paid according to
ability and needs
Authorianism- social organization characterized by submission to authority and thus
usually opposed to individualism, liberalism, and democracy.

Collective- group of entities that share or are motivated by at least one common issue
or interest
Heavy Industry- capital intensive-require a lot of machinery and equipment to produce
Section 4-Modern Economics
1. Laissez-faire is an economic system in which transactions between
private parties are free from government interference such as regulations,
privileges, tariffs, and subsidies.
Chapter 3-American Free Enterprise
Section 1-Preserving Economic Freedoms
1. Economic growth, efficiency, freedom.
2. Persuade public officials to effect policy.
3. By requiring companies to give consumers important info about their
products
Interest Group-Determine to encourage or prevent changes in public policy without
trying to be elected
Public Interest-the welfare or wellbeing of the general public
Section 2-Promoting Growth and Stability
1. Micro-The individual Macro-economy as a whole
2. dollar value of all final goods and services produced in a
country in a given year
3. more efficient
Section 3-Providing Public Goods
1. positive gives back. Negative hurts -side effects
2. everyone can use it which creates benefits. Like a more
improved environment
3. Free rider doesn't pay for goods but gets benefits
4. Public Sector-owned and operated by the government
Private-privately owned
Section 4-Providing a Safety Net
1. welfare helps them survive and prosper
2. People can choose how to make their money
3. Cash is paid by the govt in cash, in-kind comes from federal
or state and not paid directly in cash
4. SS is taking a small amount of an income and storing it over
time
Poverty Threshold-Income level below which income is insufficient to support family or
household.
Chapter 4-Demand
Section 1-Understanding Demand

1. Law of Demand-Consumers buy more of a goof when its price decreases

and less when its price increases.
2. A Demand Schedule lists how much people will buy at different prices
while a market demand schedule shows the whole population.
3. Substitution effect- consumers react to an increase in the price of a good
by purchasing less of that good and more of another good.
4. Income effect- change in consumption resulting from a change in the real
income.
Section 2-Shifts of the Demand Curve
1. Normal Good is a good consumer's demand of when income
and an Inferior Good is a good that consumers demand of when
income
2. Shift occurs when people are buying more or less at every price level
3. A Complement works together and a Substitute is in place of
Section 3-Elasticity of Demand
1. Demand Elasticity is a measure of how consumers react to change in
price
quantity demanded
2. Elasticity=
price
3. Elastic 1
Inelastic 1
Unitary =1
4. It is inelastic because in the winter people will need heat no matter what
so price doesn't affect the demand
Chapter 5-Supply
Section 1-Understanding Supply
1. Law of Supply is a positive relationship between price and quantity
supplied.
2. Quantity Supplied is how much firms are willing and able to sell at a price
during that period of time and Supply is just the amount of goods available.
3. If quantity supplied of a good has a large elasticity of supply (greater than
one) then the reaction is elastic.
4. In the long run firms are more flexible so supply is more elastic
5. New firms may be attracted into a market because of the expectation of
profits and existing firms may leave because they cannot cover their costs, and
make losses.
Section 2-Costs of Production

1. The marginal product of labor produces an increase in output for the

company because the labor has increased.
2. Diminishing Marginal Returns- as the labor increases the output
decreases because there are too many workers and not enough capital to go
around.
3. Fixed costs remain the same, no matter how much output a company
produces. A variable cost is a company's cost that is associated with the amount
of goods or services it produces.
4. A Factory will shut down when the cost of production exceeds
demand(profit)
Section 3-Changes in Supply
1. The supply curve will shift due to a change in resources, technology, taxes
and subsidies, prices of other goods, producer expectation, or number of
suppliers.
2. Subsidies are government payments that support a business/market.
3. Regulation can affect a producer's output decisions by making it more
expensive to produce the product, therefore making the business less willing to
continue making the product.
Chapter 6:Prices
Section 1-Combining Supply and Demand
1. Equilibrium-Point where quantity demanded and supplied are equal
2. Disequilibrium-Any price not equilibrium
3. Excess demand- Quantity supplied is greater than quantity demanded
4.
Disequilibrium:

Section 2-Changes in Market Equilibrium

1. Market prices change whenever something causes a change in demand
2. Surplus-excess supply-QS QD Shortage-demand of a good at the
market price is greater than supply.
3. Search cost-Gas

Section 3-The role of Prices

1. A supply shock affects equilibrium price by raising it, and reduces the
quantity
2. Rationing is different from a price-based market system because rationing
makes it so only the people that have lots of money and absolutely need the
product will pay for it, while a price-based market system makes it so the majority
of people can afford the product and would be willing to pay for it.
Chapter 7:Market Structures
Section 1-4 Perfect competition, monopoly, monopolistic competition and oligopoly,
regulation and deregulation
1. 4 conditions for a perfectly competitive industry is many firms, ability to
enter and exit the market easily, each firm produces and sells a non differentiated
product, and all firms have complete information about prices, product quality,
and production techniques.
2. Two barriers to entry could be Government intervention, start-up costs, or
natural(patents)
3. Start-up costs discourage entrepreneurs from entering a market because
they would need to spend a lot of money that will be at risk.
4. Monopoly-The exclusive possession or control of the supply or trade in a
commodity or service.
5. Natural Monopoly- most efficient for production to be permanently
concentrated in a single firm rather than contested competitively. Prices would go
sky high like water.
6. The government issues patents to encourage research and innovation
7. Price Discrimination- divisions of customers into groups based on how
much they will pay for a good.
8. Monopolistic Competition-market structure, many companies sell
products that are not identical but similar. Smart phones, toilet paper
9. NonPrice Competition-way to attract customers through style, service,
or location. Price Comp.-using prices to compete with other business/industries
10. Oligopoly- market dominated by few large companies. ex.Cereal, Tv, Cell
11. Price fixing and collusion helps producers by setting similar prices
12. Anti-Trust Laws-Attempt to preserve competition. Outlaws certain
monopolies so that one doesn't become too powerful.
13. Predatory Pricing-selling a product below cost to drive out competition.
14. Deregulation-Removal of government controls-airline, banking, power.
large airlines competed for busiest routes and airports.

Chapter 8:Business Organizations

1. Proprietorship-Business owned and managed by a single individual
Partnership-Business owned by 2 or more who agree on responsibilities and
profits.

Corporation-Legal entity owned by stockholders

2. Proprietorship Advantages:
ease of start-up
few regulations
sole receiver of profit
full contro;
easy to discontinue
Partnership
Ease of start-up
Shared decision making
Larger pool of capital
No taxation
Corporation
Limited Liability for stockholder
flexibility of stockholder
potential for growth
can borrow/raise money
Chapter 9:Labor
Section 1-Organized Labor
1. Labor Unions want to improve working conditions, wages and benefits for
its members
2. Collective Bargaining- Process in which workers and management must
negotiate a contract
3. Mediation-neutral mediator to broker compromise(non-binding)
Arbitration-parties agree to have a third party settle disputes(legally binding)
Strikes-damaging both labor and management must negotiate a contract
Section 2-Labor and Wages
1. The labor force is all nonmilitary people who are employed or unemployed
2. Unemployment are people who are without work but looking
3. Productivity-the effectiveness Of productive effort, especially in industry,
as measured in terms of the rate of output per unit of input-efficiency
4. High wages-firms will tend to substitute capital for labor-ATMs

Section 3-Labor and Market Wages

1. Screening Effect-temporary workers Learning Effect-in education
produc.
2. human capital- wages
3. Glass Ceiling-Unofficial, invisible barrier that prevents women and
minorities from advancing in businesses dominated by white men
4. ???

Chapter 10:Money and Banking

1. Medium of Exchange-Measure of the value during exchange of goods and
services
Unit of account - way to compare values of goods and services
store of value - keeps its value is held onto instead of being sent
2.
3. Ensures deposits up to $2,500
4. Money Supply-all available money in the U.S economy
5. M1-Currency, demand deposits, other checkable deposits, traveler's
checks- assets in M1 Have liquidity - able to be used as, or directly turned into
cash. M2-M1, savings account, money market accounts, small time
deposits(CDs- certificate of deposits) - assets which can be converted into cash
with ease
6. A bank receives, keeps and lends money
Chapter 11:Financial Markets
1. Investment-act of directing todays resources so they may create
benefits in the future.
2. financial intermediaries help channel funds from savers to borrowers.
Banks, finance companies, mutual funds, life insurance companies, pension
funds.
3. Risk-chance you may lose money
4. Bond-certificates sold by governments or companies as a means of
borrowing money