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Unit 1 Econ
| Question | Answer |
|---|---|
| Traditional - Econ. Decisions Based On... | tradition or custom |
| Traditional - Strengths | continuity and preserves the culture |
| traditional - weaknesses | slow to no econ. growth; limited choices; slow to change |
| traditional - required | limited contact with the world |
| traditional - examples | primitive cultures and 3rd world countries |
| command - econ. decisions based on | central planning agency |
| command - strengths | quick reaction; faster change; more control |
| command - weaknesses | hard to predict needs and wants; shortages and surpluses |
| command - required | strong control; gov. ownership of resources |
| command - examples | Cuba, China, North Korea, Vietnam |
| market - econ. decisions based on | supply and demand |
| market - strengths | promotes efficient use of resources; consumers get what they want |
| market - weaknesses | subject to wide fluctuations; unemployment; wide range of income levels |
| market - required | private property; freedom of exchange; competition; profit motive |
| market - examples | United States |
| sole proprietorship | owned and run by one person; easiest business to start |
| partnership | jointly owned by 2 or more people; potential for conflict between owners |
| corporation | separate legal entity with all the rights of an individual; raises financial capital easily |
| conglomerate | firm of at least 4 businesses, each making unrelated products and none responsible for a majority of sales |
| multinational | firm with manufacturing or service operations in a number of countries; produces tax revenues for host countries |
| nonprofit | schools, churches, medical care, facilities, co-ops; provides goods and services while pursuing nonfinancial rewards |
| labor union | works for members' employment interests; collects dues to support its activities |
| professional association | group of people in a specialized occupation |
| What is scarcity? | not enough resources for everybody's needs and wants |
| What causes scarcity? | not a lack of money but a lack of resources needed to make all the things people want |
| What is a need? | a basic requirement for survival |
| What is a want? | a means of expressing a need |
| 3 basic questions about limited resources | What to produce? How to produce? For whom to produce? |
| Why do economists tend to think of land as being fixed (or in limited supply)? | we can't create more land |
| What is capital? | tools, equipment, and factories |
| What is financial capital? | the money used to buy the tools and equipment used in production |
| What is labor? | people with all their efforts, abilities, and skills |
| What are entrepreneurs? | risk takers in business; people that start a new business or bring a new product to the market |
| What are the four factors of production? | land, labor, capital, and entrepreneurs |
| What is a good? | useful, relatively scarce, transferable, and tangible |
| What are durable goods? | goods that last 3 years or more |
| What are nondurable goods? | goods that last less than 3 years |
| What is a service? | work that is performed for someone |
| What is a consumer? | people who use goods and services to satisfy wants and needs |
| What is the process of using up goods and services in order to satisfy wants and needs? | consumption |
| What is the use of a good or service to impress others? | conspicuous consumption |
| What is a market? | location or other mechanism that allows buyers and sellers to deal readily in a certain economic product |
| What are markets where productive resources are bought and sold? | factor markets |
| What do households receive from businesses in factor markets? | income |
| What do businesses receive from households in factor markets? | resources |
| What are markets where producers offer goods and services for sale? | product markets |
| What happens in a product market? | Households buy goods and services from businesses. Business get consumer spending from households. |
| What is a trade-off? | alternative choices when spending their income or time |
| What do trade-offs result in? | opportunity cost |
| What is an opportunity cost? | the next best alternative use of money, time, or resources |
| What is a diagram representing various combinations of goods and/or services an economy can produce when all productive resources are fully employed? | the production possibilities frontier |
| What does the diagram illustrate? | total output when all resources are fully used; trade-offs; opportunity costs |
| What is an economy? | It’s an organized way of providing for the WANTS and NEEDS of their people. |
| What is capitalism? | a system in which private citizens own the factors of production |
| What does capitalism thrive on? | competition |
| What economy allows competition to flourish with a minimum of governmental interference? | free enterprise |
| What is a sole proprietorship? | a business owned and operated by one person; the most numerous of all businesses; smallest in size |
| What is a partnership? | a business jointly owned by 2 or more people |
| What is a general partnership? | all partners are responsible for the management and financial obligations of the business |
| What is a limited partnership? | at least one person is not active in the daily running of the business |
| What are the articles of partnership? | legal papers that state ahead of time how the profits and debts will be divided |
| What is a corporation? | a form of business organization recognized by law as a separate legal entity having all the rights of an individual |
| What must you do to incorporate? | you must file for permission from the national government or state where the business will have its headquarters |
| What is a charter? | a government document that gives permission to create a corporations |
| What does a charter specify? | the number of shares of stocks or ownership parts of the firm |
| Who are the shares sold to? | stockholders or shareholders |
| What may the corporation issue to a stockholder? | a dividend |
| What is common stock? | represents basic ownership of a corporation; receives one vote for each share of stock owned |
| What is preferred stock? | represents nonvoting ownership of a corporation; receives dividends before common stockholders |
| What is the Security and Exchange Commission? | federal government agency that corporations must register with if they want to sell stocks |
| What is a merger? | when two or more businesses form a single firm |
| What are the 3 reasons for merging? | efficiency (eliminate management positions); catch up with, or eliminate, rivals; lose corporate identity |
| When does a horizontal merger occur? | when 2 or more firms that produce the same kind of products join force |
| When does a vertical merger occur? | when firms involved in different steps of manufacturing or marketing come together |
| What are conglomerates? | firms that have at least 4 businesses, each making different products, and none of which is responsible for a majority of sales |
| What are 3 nonprofits? | schools, churches, hospitals, welfare, adoption agencies |
| What is a cooperative? | a voluntary association of people formed to carry on some kind of economic activity that will benefit its members |
| What is a consumer cooperative? | buy bulk goods on behalf of its members in order to offer these goods to the members at a lower price |
| What is a service cooperative? | deals with service rather than goods; i.e. credit union or bank |
| What is a producer cooperative? | helps members sell their products |
| What is a labor union? | an organization formed to work for its members' interests in various employment matters |
| What is collective bargaining? | refers to the negotiations between representatives of labor and management |
| What is a professional association? | a group of people in a specialized occupation that works to improve working conditions |
| What is a business association? | promotes the welfare of its members and the community; i.e. Better Business Bureau |
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