Download GHSGT_Review_-_Economics

GHSGT Review
Economics
Unit 1 – Fundamental Concepts of
Economics
Limited resources and unlimited
wants



Scarcity – basic condition which exists when
unlimited wants exceed limited productive
resources
Trade-offs – alternatives that must be given up
when one choice is made over another
Opportunity cost – the next best alternative
given up when individuals, businesses and
governments confront scarcity by making
choices
The Factors of Production




Land – natural resources not created by
human effort
Labor – people with all their abilities and
efforts
Capital – tools, equipment, and factories used
in production
Entrepreneurs – risk-taking person or people
who bring the other 3 factors of production
together
The basic economic questions



What to produce
How to produce
For whom to produce
Economic systems



Traditional economy – the allocation of
resources is the result of ritual and custom
Command economy – central authority
makes the major economic decisions and
allocates resources
Market economy – (free enterprise economy)
supply, demand, competition, and the price
system make economic decisions and allocate
resources
Unit 2 – Microeconomics
The Law of Demand


Demand – combination of desire, ability, and
willingness to buy a product
Law of Demand – rule stating that more will be
demanded at lower prices and less at higher
prices
The Law of Supply


Supply – schedule of quantities offered for
sale at all possible prices in the market
Law of Supply – rule stating that more will be
offered for sale at high prices than at lower
prices
Competition, price, and equilibrium



Price – monetary value of a product as
established by supply and demand
Competition – the struggle among sellers to
attract customers while lowering costs
Equilibrium price – price where quantity
supplied equals quantity demanded
Unit 3 – Business Organizations
The three forms of business
organizations

Sole proprietorship – unincorporated
business owned and operated by a single
individual who has the rights to all profits and
unlimited liability for all debts of the firm; the
most common form of business organization in
the United States
The three forms of business
organizations

Partnership – unincorporated business owned
and operated by two or more people who share
the profits and have unlimited liability for the
debts of the firm
The three forms of business
organizations

Corporation – form of business organization
recognized by law as a separate legal entity
with all the rights and responsibilities of an
individual, including the right to buy and sell
property, enter into legal contracts, sue and be
sued
Market structures in the economy


Monopoly – market structure characterized by
a single producer
Oligopoly – market structure in which a few
large sellers dominate an industry
Market structures in the economy


Monopolistic competition – market structure
having all the conditions of perfect competition
except for identical products
Perfect competition – market structure
characterized by a large number of of wellinformed independent buyers and sellers who
exchange identical products
Unit 4 – Macroeconomics –
Measurements of the economy
The means by which economic
activity is measured


Gross Domestic Product (GDP) – the dollar
value of all final goods, services, and
structures produced within a country’s national
borders during a one-year period
Consumer Price Index (CPI) – index used to
measure price changes of frequently used
consumer items
The means by which economic
activity is measured


Inflation – the rise in the general level of
prices over time
Unemployment rate – ratio of unemployed
individuals divided by the total number of
people in the civilian labor force, expressed as
a percentage
The means by which economic
activity is measured



Economic growth – a sustained period during
which a nation’s total output of goods and
services increases
Recession – a decline in the nation’s total
output of goods and services for two or more
quarters
Depression – a severe recession where the
economy experiences large numbers of
unemployed and general economic hardship
The means by which economic
activity is measured



Deficit spending – spending by the
government in excess of revenues collected
Federal debt – the total amount borrowed from
investors to finance the government’s deficit
spending
Balanced budget – an annual budget in which
expenditures equal revenues
Unit 5 – Macroeconomics – Policies
and International Economics
The Federal Reserve and monetary
policy


Federal Reserve (Fed) – privately owned,
publicly controlled, central bank of the United
States
As the nation’s central bank, the Federal
Reserve uses monetary policy to promote price
stability, employment and economic growth
The Federal Reserve and monetary
policy


Monetary policy – actions by the Federal
Reserve to expand and contract the money
supply in order to affect the cost and
availability of credit
Monetary policy affects the size of the money
supply, and therefore the level of interest rates,
the cost of borrowing money
The Federal Reserve and monetary
policy


Fiscal policy – the use of government
spending and revenue collection measures
(taxes) to influence the economy
When implementing fiscal policy through taxing
and spending decisions, the government
impacts the nation’s economy
International Trade


Absolute advantage – a country’s ability to
produce more of a given product than another
country
Comparative advantage – a country’s ability
to produce a given product relatively more
efficiently than another country; production at a
lower opportunity cost
International Trade


Both production and consumption increase
when individuals, businesses and governments
specialize in what they can produce at the
lowest opportunity cost and then trade
At different times nations advocate free trade
or erect trade barriers for different reasons
International Trade
Trade barriers:
 Tariff – a tax placed on an imported product
 Embargo – a prohibition on the export or
import of a product
 Quota – a limit on the amount of a good that
can be allowed into a country
 Subsidy – government payment to encourage
or protect a certain economic activity
Unit 6 – Personal Finance
Financial institutions and
investment options
Banks and financial institutions are essential
links between savers and investors
Investment options include:
 Stocks – certificate of ownership in a
corporation; may gain or loose value over time
 Bonds – formal contract to repay borrowed
money and interest in the future
 Mutual funds – stock in a company that buys
and sells stocks and bonds issued by other
companies

Spending, saving, and credit



Rational decision-making helps people make
wise choices
Monetary and fiscal policies can have an
impact on an individual’s spending and saving
choices
Using credit can have both positive and
negative effects on present and future
economic well-being