Download Economics Notes - Leon County Schools

Economics, P. 450
Vocabulary
Economics is the study of how people make choices about using
scarce resources to fulfill their needs and wants. It studies how
things (goods) are bought and sold.
Define (p. 450) TWO COMPLETE SENTENCES PER WORD 
Free Market Economy
Profit
Scarcity
Law of Supply
Law of Demand
Free Enterprise
Capitalism
Monopoly
Scarcity and Choice
People deal in goods and services.
Goods are physical materials that are bought and sold.
Services are things that people do for one another.
People who offer them are called producers and people who
purchase them are consumers.
Scarcity is an economic term that means that there are not
enough resources to fulfill people’s unlimited wants. Because of
scarcity, choices must be made. Choices involve:
What to produce (or what to buy)
How to produce (or how much to spend)
Who to produce for (or who to buy from)
Consumers respond to these decisions with their buying power.
Cost of Choices
Every choice involves a sacrifice, or cost.
Opportunity cost refers to the “next best” choice one gives up in
making a decision.
Factors of Production
In order to produce goods and services, one must have:
land (a work area)
labor (a work force)
capital (start-up money, tools, materials)
entrepreneurs (people who start the business)
Entrepreneurs are people who organize and manage businesses.
They take risks and use factors of production to make a profit.
Their desire (and your desire) to make a profit is called profit
motive.
Economic Systems
Economic systems are the ways that a government manages an
economy (how goods and services are traded). There are
different types.
Traditional economy: based on tradition and bartering. (ex:
Fur Trade Era). People make their own goods, grow own food.
Command economy: the government controls what is bought
and sold (ex: North Korea, USSR)
Market economy: buyers and sellers freely choose what to
produce and buy (ex: United States). Less government
interaction but some does exist.
Mixed: a combination of free and command systems.
Competition exists between sellers to attract the most buyers in a
market. They do this by offering the best product they can for the
lowest price possible. Competition keeps the prices low and the
quality high.
Supply and Demand
Supply is the amount of a good available at a certain price while
demand is the amount of consumers willing to buy the good at
that price.
The Law of Supply: more products are produced when they can
be sold at a higher price (think like a business owner)
The Law of Demand: buyers will want more of a product when
the price is low (think like a consumer)
Therefore, when the demand for an item is high, the price will go
up. When demand is low the price drops.
Successful business owners figure out the price for an item that
leads to the most profit.
Our National Economy
Free Enterprise System: in the U.S., individuals are free to control
and own the means of production. Freedoms are somewhat
limited in that customers are protected from unfair business
practices:
Quality: products are legally warranted on at least some level
Price: gouging and fixing prices are illegal.
(gouging= sudden increase in price after a shock to
supply or demand). ex: fuel after a hurricane
Monopoly: Where one business is the only supplier of goods.
Government regulation prevents many monopolies from
forming.
Choice: the buying decisions of consumers ultimately decide who
stays in business and who fails. It leads to competition between
businesses to attract buyers.
Profit: after a business has paid for its materials and the costs of
producing a good (including labor) they can keep whatever is left
over. The desire to make money is called profit motive.