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 well-informed 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