UNIT I: The Economy & You

CH01: Basic Economic Concepts

KEY TERMS:

Needs Things that you must have in order to survive (food, clothes & shelter)
Wants Things you do not need to survive, but would like to have
Goods Physical products
Services Tasks that businesses perform for consumers
Resources Items that people can use to make or obtain what they need or want
Business Any commercial activity that seeks profit by providing goods and services to
others in exchange for money
Profit The money left over after a business has paid the cost of providing its goods
and services
Competition The contest between businesses to win customers
Consumer Person who uses goods and services
Market The gathering and analysis of information on the size, location, and makeup
research of a product market

CHAPTER SUMMARY:

Resources limit the number of needs and wants people can satisfy. To make the best use of
limited resources, satisfy your needs first, then wants. You can make the most of your
resources by making careful choices about what to buy.

The decision-making process can help you make good choices and make the most of your
resources by considering alternatives and their consequences.
1. Identify the situation/problem
2. Identify possible courses of action (important choices/alternatives)
3. Determine the pros & cons (to compare and evaluate your choices)
4. Make a decision (rank your choices to select the best)
5. Evaluate your decision (satisfying results? Will make the same choice again?)

Business Activities
Businesses make money by offering goods and services to satisfy the wants and needs of
consumers and businesses and to make a profit. In this way, wants and needs drive the
economy. Businesses thrive on competition.

To able to make profits and compete, all businesses undertake the following activities:
1. identifying opportunities,
2. evaluating demand,
3. obtaining money,
4. managing production,
5. marketing to consumers and businesses, and
6. keeping records.

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Business activities should be supported by market research. Market research provides

information that can help a business identify opportunities, evaluate demand, and respond
to the wants and needs of consumers

Consumers affect businesses by deciding what kind of goods and services to buy.

Businesses affect consumers by making decisions about what products and services to offer
and by providing jobs.

CH02: Economic Resources & Systems

KEY TERMS:

Scarcity A shortage of resources – insufficient resources to fulfill all the wants

of the population.
Opportunity cost The sacrifice made when an alternative is chosen
factor One that actively contributes to the production of a result
Factors of All the economic resources necessary to produce a society’s goods
production and services (Land, Labor, Capital, Enterprise)
Natural resources Raw materials from nature used to produce goods
Labor resources Individuals who make the goods and services for which they are paid.
Teachers, coal miners, and farm workers are all human resources.
Capital resources The things (capital goods) used to produce goods and services, such as
tools and equipment.
Entrepreneurship The process of recognizing a business opportunity, testing it in the
market, and gathering the resources necessary to start and run a
business
Entrepreneur A person who recognizes a business opportunity, organizes, manages,
and assumes the risks of starting and operating a business - to meet
society’s needs and wants.
price The amount of money given or asked for when goods and services are
bought or sold
supply The amount of goods and services that producers will provide at
various prices
demand The amount or quantity of goods and services that consumers are
willing to buy at various prices
equilibrium price The point at which the quantity demanded and the quantity supplied
meet

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CHAPTER SUMMARY:

Natural resources (land) are materials from nature such as water, and grain. Some are
renewable, such as trees, wheat and cattle because they can be reproduced; some are
nonrenewable, such as oil, iron and coal. The amount of natural resources available to a
society has a direct effect on its economy.

When the demand for economic resources exceeds supply, scarcity develops. Deciding to
use a resource for one purpose means sacrificing the opportunity to use it for something
else. This is called an opportunity cost.

Factors of Production are always in limited supply. Therefore, we must decide which wants
we wish to satisfy and which we intend to sacrifice.

The 3 basic economic questions/decisions:

1. What to produce?
2. How to produce?
3. Who to produce for?

Economics is the study of how people make choices as they strive to satisfy wants and
needs.

Economic systems are the methods societies use to distribute resources.

In a market (private/free enterprise, or capitalism) economy, resources are privately owned

and decisions are made by buyers and sellers in the marketplace. The price for an item is
determined through the interactions of supply and demand. The higher the price, the less
consumers will buy.
The profit motive fuels economic activity.

In a pure command (socialism) economy, key decisions are made by a central authority, and
there is no private enterprise. In a moderate command economy there is some private
enterprise but major resources such as airlines and steel are owned by the state.
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Most nations have a mixed economy, combining features of a market economy and a
command economy.
For example, the United States is primarily a market economy, but the government provides
for highways, education, and defense.

CH03: Economic Activity in a Changing World

KEY TERMS:
GDP Gross Domestic Product. The total value of the goods and services
produced in a country in a given year
standard of living The level of material comfort as measured by the goods and services
that are available
inflation A general increase in the cost of goods and services
deflation A general decrease in the cost of goods and services
national debt The total amount of money a government owes
budget surplus A situation in which a government’s revenue exceeds its
expenditures during a one-year period
budget deficit When the government spends more on programs than it collects in
taxes
business cycle The rise and fall of economic activity over time; due to wars, foreign
competition, pandemics, technological changes, and changes in
consumer needs/wants.
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CHAPTER SUMMARY:

Throughout the years, our economic systems have evolved and changed.

In colonial times, the United States had begun its service-based economy. The 1700s saw
the rise of the agriculture-based economy. The Industrial Revolution in the l850s brought
about the industrial economy, characterized by the large-scale manufacturing of goods.
During the latter part of the 20th century, the information technology economy
revolutionized the business world.
Inflation
To measure the health of an Exports Purchasing
economic system, we use a variety Imports Power

of economic indicators, including Low

Inflation
GDP, unemployment rate, rate of
Currency Production
inflation, and national debt. Appreciation & Sales
Favorable National
Long-term Economic
Economic Conditions Balance
of
Economic
Objectives
Growth &
Living
Payments Standards

Profit
GDP
Margins
Low
Unemploy
ment

Production Investments
Output & Expansions
Unemployment
Rates

In a global economy, one country’s economy can affect the economy of its other trading
partners. The Fed adjusts monetary policies to try to level out the ups and downs of the
economy.

An economic/business cycle includes four stages:

Prosperity – the peak of economic activity

(increasing demand for and production of
goods/services, GDP, employment opportunities,
wages/income; deflation and low national debts)
Recession – a slowdown in economic activity
(declining demand for and production of
goods/services, GDP, employment opportunities,
wages/income; inflation and high national debts)
Depression – a deep recession that affects the
entire economy and lasts for several years
Recovery – a rise in business activity after a
recession

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CH04: Business Ethics

KEY TERMS:

ethics Moral principles by which people conduct themselves personally,

socially, or professionally
business ethics Rules based on moral principles about how businesses and
employees ought to conduct themselves
code of ethics A set of guidelines for maintaining ethics in the workplace
sweatshop A shop or factory in which workers are employed for long hours at
low wages and under unhealthy conditions
conflict of interest Conflict between self-interest and professional obligation
social responsibility The duty to do what is best for the good of society.

CHAPTER SUMMARY:

Ethics are the set of moral principles by which people conduct themselves personally,
socially, and professionally. Business ethics are guidelines for how businesses should
conduct themselves. Many unethical business practices are against the law. The guidelines
that can be used when facing ethical dilemmas are a lot like the steps of the problem-
solving process. Good ethics can be beneficial for the long-run profitability and success of a
business.

In today’s society, producing goods and services that are beneficial to society is not enough
for a business to be considered socially responsible. Businesses must also be ethical and fair
to consumers, workers, creditors, and society in general. Businesses also have a
responsibility to the environment. In a corporation, management must be truthful about the
financial health of the firm.

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