Free Enterprise

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is when there aren’t enough resources to supply the wants and needs of consumers. In other words, there is only a limited amount of gold in the world. The more scarce a good or service is, the higher the price will be

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Scarcity

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occurs when there is temporarily not enough of a resource to supply the wants and needs of consumers.

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Shortage

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Factors of Production are used to produces goods and services. These include

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1) Capital Resources
2) Human Resources
3) Land and Natural Resources
4) Entrepreneurship
5) Technology

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the dollar value of the tradeoff we make.

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Opportunity Cost

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The combinations of goods and services that are chosen

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Production Possibilities

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Different countries have different types of economic systems or economies. The four main types of economies are

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1) Traditional
2) Command
3) Pure Market
4) Mixed

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a term, which refers to the economic, material well-being of people. It is measured by the average value of goods and services used by the average citizen during a given period of time, usually 1 year

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Standard of Living

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states that an increase in price causes a decrease in quantity demanded. In other words, the more something costs, the few of them we will buy.

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Law of Demand

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Several reasons determine what we buy and how much.

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1) Price
2) Income Effect
3) Substitutional Effect
4) Diminishing Marginal Utility

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a small change in the price of a good will drastically change demand for that good.

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Elastic Demand

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no matter how the price changes, our demand for a particular good stays the same.

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Inelastic Demand

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states that the producers will produce and sell more when the price of a good is higher and less when the price is lower.

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Law of Supply

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Costs to produce a good that do not change no matter how many of them you produce.

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Fixed Cost

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Costs to produce a good which goes up or down depending on how many units of the good you produce.

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Variable Cost

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money or other benefits the government gives to private businesses.

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Subsity

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a government regulation that prevents prices from falling below a certain level (ex. minimum wage)

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Price Floor

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government regulation that prevents prices from rising above a certain level. (ex. postage stamps)

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Price Ceiling

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Businesses in a free enterprise system are commonly organized in three ways:

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1) Sole Proprietorship
2) Partnership
3) Corporation

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individuals who invest in a corporation by buying shares of stock.

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Stockholders

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Stocks earn money for stockholders in two ways:

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1) selling stock for more than its purchase price
2) dividends

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Four legal types of monopolies (and examples of each) that exist in the U.S. are:

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1) Natural
2) Technological
3) Government
4) Geographical

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public utility ( AT&T until 1984)

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Natural

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General Dynamics (Trident submarine)

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Technological

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US Post Office

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Government

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General store in a remote area

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Geographical

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when only a few producers dominate the production of an identical or similar product. Examples of this are oil companies, cereal companies, car manufacturers and airlines.

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Oligopoly

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regulates unfair competition in interstate commerce and advertising fraud

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Federal Trade Commission (FTC)

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regulates purity and safety of foods, drugs, and cosmetics

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Food and Drug Administration(FDA)

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regulates TV, radio, and telephone.

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Federal Communication Commission (FCC)

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all people who are at least 16 years old and who are working or actively looking for work.

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Civilian Labor Force

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Five major issues that have traditionally been or are currently a part of labor movement in U.S. are:

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1) Wages
2) Fringe Benifits
3) Working Hours
4) Grievence Procedure
5) Job Security

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Two ways companies resist the demands of labor:

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1) Lockout
2) Injuction

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Unemployment is divided into four categories:

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1) Frictional
2) Structional
3) Cyclical
4) Seasonal

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Taxing and spending policies created by Congress; used to stabilize the economy

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Fiscal Policy

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Changing the money supply policies created by The Federal Reserve Bank; used to stabilize the economy.

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Monetary Policy

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the dollar amount of all final goods and services produced within our nation’s borders in a single year.

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Gross Domestic Product (GDP)

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Government has gotten bigger for several reasons:

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1) A growing population in the U.S.
2) More national emergencies (tornadoes, hurricanes, Sept. 11)
3) Increase in the number of disadvantaged people
4) More government programs to help the citizens

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The three broad categories of taxes in the U.S. and examples of each are:

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1) Progressive
2) Regressive
3) Proportional

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takes a larger percentage of income from high-income people than from low-income people—For example, federal income tax

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Progressive

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takes a larger percentage of income from low-income people than from high-income people—For example, sales tax

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Regressive

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take the same amount of tax from all people—For example some state income tax. Proportional tax is also known as a flat tax

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Proportional

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Banks fulfill two needs in a community

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a) Provide a safe place for people to deposit their money
b) Lend money individuals and businesses to buy goods and services