Economics

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Economics

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the study of how scarce resources are allocated among alternative uses

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Scarcity

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not having as much of something as you want

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Opportunity Cost

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the cost of something as measured by the loss of the best alternative thing or activity

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Capitalism

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private ownership of capital good
market for financial investment
Prices, output, and distribution of goods determined by competition in a free market

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Feudalism

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Capital owned by lords, king and church
No financial market. investments made by ing or lords for military or political purposes
Prices determined by tradition or lords and rarely change

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Effects of technology

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Rising standard of living sue to an increase in the number, quality, and variety of goods
Size of business firms increased
Improved the division of labor
Work became boring and people were less self sufficient
Each new level of technology threatened the position of those using the old technology

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Cost per unit of output

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total resource cost per hour of work/output per hour of work

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Adam Smith

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Because of freedom and competition, the economy could take care of itself and the government should leave it alone

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Karl Marx

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The economy is unstable, will eventually collapse and give way to Communism

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Keynes

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Mixed economy of the private sector and government. Government alters it's spending to offset undesirable changes in private sector spending

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Reasons for trend toward big business

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advances in technology-economies of scale
Corporate Mergers
Busniess Cycle of large firms replacing small ones

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Importance of small business

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Provide a variety of goods and services
Employ a quarter of the nations labor force

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Reasons why big businesses are not as big and powerful as they seem

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Foreign competition
THey can be so large that they become weak and inefficient

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Five layers of distribution of income

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Poor and near poor
Working class
Middle Class
Upper Class

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Poor and near poor

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young
colored
female head of household
old
no education
no wealth

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Working class

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factory workers, sales clerks
unionized
some wealth
high school education

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Middle class

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higher education
less successful job than upper class
wealth

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Upper Class

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Athletes, doctors, etc.
Large income
higher education

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Real Gross Domestic Product

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the value at base period prices of all final goods and services that are produced in a given country during a given period of time

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Consumer goods and services

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Goods and services purchased by households and governments for individual use

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Investment or capital goods

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goods that are used to produce other goods or to provide services

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Components of Real Domestic Income

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wages, salaries, benefits, etc

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Consumer price index

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a measure of the level of prices of several thousand consumer goods and services that are purchased by the average metropolitan area resident

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How CPI affects a persons real income

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If nominal income is more than the CPI, real income goes up

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Rate of unemployment

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percentage of the labor force that is looking for a job but cant find one

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Frictional unemployment

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unemployment by people who can get an acceptable job

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Structural unemployment

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unemployment for a long time because of lack of skills and personal characteristics

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Comparing the economies performance

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lowest inflation and unemployment, highest real GDP

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Macroeconomics

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study of unemployment, inflation, economic growth, and goverment policies

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Aspects of household saving

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Financial
Real

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What happens when household savings exceeds firms investment?

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prices and output go down due to lack of demand, unemployment goes up

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What can the government do about the previous problem?

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borrow the excess savings and use it for public investment

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Real personal consumption expenditures

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expenditures by households for consumer goods and services that are measured in real terms

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Real Wealth

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real value of property minus the real value of debts

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Real Gross Private Investment Expenditures

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real value of expenditures for plant and equipment, office buildings, homes, etc that are held for inventories