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Economics Notes (3:4)

economics honors practice test and notes

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11 views

Economics Notes (3:4)

economics honors practice test and notes

Uploaded by

hendrixsimonlee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Hendrix Lee

Economics Notes (March 4th)

Bell Ringer:
Self-interest is something that someone does solely and purposely for their own benefit.
Examples: self care/hygene or studying for a test

Why Markets Exist?


• All of them are examples of markets
• Market: an arrangement that allows buyers and sellers to exchange things
• Markets exist because no one is self-sufficient-none of us produce ALL we require to
satisfy our needs and wants
• Markets allow us to exchange the things we have for the things we want

Specialization
• Instead of being self-sufficient, each of us produces just one or a few products
• Specialization: concentration of the productive efforts of individuals and firms on a
limited number of activities
• Examples: nurse specializes in helping the sick, Big 5 Sporting goods
• Specialization leads to efficient use of resources, including capital, land, and labor
• It’s easier to learn one task very well than to learn them all

Example of Specialization in Schools: cafeteria ladies/work

Buying and Selling


• Since each of us specializes in producing just a few products, we need markets to sell
what we have and to buy what we want
• The typical person earns an income (specializing in a particular job) and uses the income
to buy the product that they want to consume
• There would be no need for markets if we were self-sufficient

Free Market Economy


• Economic systems that are based on voluntary exchanges in markets are called free
market economies
• Individuals and businesses use markets to exchange money and products
• Individual and businesses privately own factors of production, make what they want, and
buy what they want
• Free market economy functions best in an environment of decentralized decision-making

Households
• Household: a person or group of people living in the same residence
• Households own the factors of production and are also the consumers of goods and
services

Profit
• Profit: is the financial gain made in a transaction
Product Market
• Product market: the market in which households purchase the goods and services that
firms produce

The Self-Regulating Nation of the Marketplace


• How can firms and households cooperate to give each other what they want
• We live in a competitive society!
• Adam Smith says “Competition and our own self-interest keep the marketplace
functioning”
• Smith wrote The Wealth of Nations in 1776 where he described how the market functions

Self Interest
• Adam Smith observed that an economy is made up of countless individual transactions
• In each transaction, the buyer and seller consider only their self-interest
• Self-interest: one’s own personal gain
• It is the motivating force in the free market

Incentives
• Consumers in pursuit of their self-interest, have the incentive to look for lower prices
• Incentive: an expectation that encourages people to behave in a certain way
• Hope of reward or fear of punishment
• Monetary incentive= profit
• Nonmonetary incentive= gifts, services, other goods
• Businesses aim to make greater profits by increasing sales
• If a shirt manufacturer finds that Hawaiian shirts are outselling polka dot shirts--Their
incentive is to make more potential sales and profits so they would then produce more
Hawaiian shirts
• Other manufacturers observing the consumers’ desire for striped shirts, also have the
incentive to sell them

Example of nonmonetary gifts: reward programs

Competition
• Another incentive is for manufacturers to make the most profit in selling Hawaiian shirts
• Their pursuit of profit doesn’t interfere with the prices because if they charge $20 for a
shirt, another company can charge $15
• The company would then have to lower their price if they wanted to keep selling the
shirts as consumers, pursuing, their self-interests, will buy the cheaper one
• Economists call this struggle competition
• Competition: the struggle among producers for the dollars of consumers

The Invisible Hand


• Competition causes more production and moderates business prices
• Overall result is consumers get the products they want at prices that closely reflect the
cost of production
• Invisible hand: describes the self-regulating nature of the marketplace
Advantages of the Free Market
1. Economic efficiency= self-regulation responds efficiently to rapidly changing conditions.
Producers make only what consumers want, when they want it, and for the price they
want.
2. Economic freedom=free markets have the highest degree of economic freedom so
workers can work where they want, business can produce what they want, and
individuals consume what they want.
3. Economic growth= competition encourages innovation so entrepreneurs are always
seeking profitable opportunities and contributing to new ideas.
4. Additional goals=wider variety of goods and service are offered because producers have
incentives to meet consumer desire.

No Pure Market Economy


• Despite its advantages, no PURE market economy exists on any meaningful scale
• The same features that make it attractive also make it weak
• The goals of economic equity and economic security are difficult to achieve in a pure
market economy

It’s easier to learn one task very well than to learn them all is a concept of?
a. Command economy
b. Specialization
c. Factor Payments
d. Factors of production

When Kohl’s gives customers “Kohl’s cash” they are providing a ____________.
a. Factor payment
b. Nonmonetary incentive
c. Increase in Physical Capital
d. Profit

Which country is a pure example of a Market Economy?


a. Cuba
b. Japan
c. There are none
d. Australia

What is the name of Adam Smith’s book on economics?


a. To Help the Poor
b. The Invisible Hand
c. Economics at Best
d. The Wealth of Nations

Which of the following is NOT an advantage of a free market economy?


a. Economic growth
b. Economic freedom
c. Factor Payments
d. Economic efficiency

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