Scarcity and choice impact economic decisions of individuals in many ways. An Individual makes economic choices based on their needs and wants, which reflect their desires for certain goods and services. Since a persons wants are unlimited and their resources, such as money, are limited, they are forced to make a decisionto choose how they are going to spend their money. Scarcity causes a person to have to figure out how to allocate their resources in order to satisfy the greatest number of their needs and wants.

For example, a person has twenty dollars and they could either buy the nineteen-dollar Express shirt they have been wanting or the ten-dollar book they need to pass the upcoming English test. Since their money is scarce they have to choose only one. It would be in their best interest to buy the book because they need it more than they do the shirt. They could, however, get a similar shirt on sale someplace else for fourteen dollars and get the same book at a used bookstore for five dollars. Given that they allocated their resources effectively they were able to get both their need and their want.

Scarcity and choice impacts economic decisions of families in numerous ways as well. A family, resembling an individual, has a limited amount of resources which causes them to have to make decisions based on their needs and wants, which reflect their desires for certain goods and services. Most of the time however, unlike an individual, the way they allocate their resources and the choices they make, can be more serious. A family, which is made up of a group of individuals acting as one has to consider the needs and wants of not only themselves but the other members of their family.

The way they allocate resources depends on the urgency of each persons needs and wants and how it affects everyone as a whole. Groceries and water come before cable TV or a vacation because food and water are needs of the family and each individual that make up the family while cable TV and a vacation are only wants. Most of the time families have to choose needs before wants due to scarcity because each person in a family unit depends on each other and the decisions that are made. Scarcity and choice also impacts economic decisions of the community.

In a community limited amounts of resources causes people to make decisions based on their needs and wants, which reflect their desires for certain goods and services. To distribute resources effectively, an economic system or a society must address three basic economic questions: what to produce, how to produce and for whom to produce. The answers to these questions help a society determine the best distribution of resources to meet its needs and wants. Since a societys needs and wants can never be met completely they must determine the urgency of each. They must then decide how to allocate their resources effectively due to their scarcity.

Lastly they must agree on how to distribute the goods and services they produce while considering who will consume the goods and services. 12. 9. 2 Families must make choices as they budget their income and expenses. Families must make many choices as they budget their income and expenses. All financial planning begins with a spending and saving plan, or budget. The budget lists fixed expenses and flexible expenses. Fixed expenses are those payments that remain constant from month to month, such as payments for mortgage and insurance premiums. Flexible expenses can vary from month to month.

Examples include expenders for pizza and movies. The budget should also include the amounts that a person is willing and able to set aside for saving and investing. 12. 9. 3 Money, goods, and services link households and businesses in the U. S. economy: Households and businesses in the U. S. are linked together through money, goods and services. As economic actors, households and business distribute goods and services through a system of exchange. Goods and services are assigned a value or worth that can be expressed in terms of money. Money is an item readily accepted by people in return for goods and services.

Exchange reduces self-sufficiently and encourages interdependence, linking different regions and economic actors such as households and businesses. 12. 9. 4 People use psychological and intellectual resources to deal with scarcity. Scarcity is the basic fact of economic life. Human needs and wants are always grater than the resources available to satisfy them. Thus, choices must be made concerning how to best use the limited resources available. To make these choices, and economic system or society must answer the tree basic economic questions of what to produce, how to produce, and for whom to produce.

A nations answers to these questions are determined by its economic system. An economic system is the way that a nation or society is organized to produce and distribute goods and services. Economists have identified four types of economic systems: traditional, command, market and mixed. When people make choices they must sacrifice one choice for another, which is called a trade off. The next best chose is an opportunity cost. With a production possibilities curve people can figure out how to use scarce resources as efficiently as possible. 12. 9. 5 States and Nations use scarce resources to satisfy human wants.

To effectively allocate scarce resources in order to satisfy the greatest number of needs and wants of people, states and nations must address three basic economic questions of what to produce, how to produce and for whom to produce. States and Nations must determine the urgency of the peoples needs and wants which gives them the answer of what to produce. Then they determine how people will allocate the resources produced and who will consume their products. Once an economic system has answered the questions of what, how and for whom to produce, production must be carried out as effectively as possible. 2. 9. 6 Money encourages specialization, promotes markets, helps organize production, and distributes goods and services. Money encourages specialization, promotes markets, helps organize production, and distributes goods and services. Money, a means of exchange, reduces self-sufficiency and encourages interdependence, linking different regions and economic actors.

Interdependence in turn, encourages specialization, as individuals, industries, and regions concentrate on producing specific goods and services to meet particular needs and wants. 12. 9. choices translate into opportunity costs that result in trade-offs, which determine what goods, and services are provided. Scarcity requires choice. Economists call the sacrifice of one choice for another a trade-off and the next best choice an opportunity cost. The production possibilities curve can be used to analyze the trade offs and opportunity costs involved in producing specific combination of goods and services. A production possibility curve assumes that the amount of available resources and the state of technology will not change during the period being studied and that resources are used as efficiently as possible.

Changes in resources or technology result in a shift of the entire production possibilities curve either to the left or the right. The assumptions are important because they determine which production combinations will fall on the curve and which will not. All of the combinations on the curve meet these assumptions. Combinations that lie inside (below) the curve, on the other hand represent an inefficient use of existing resources. Combinations that lie outside (above) the curve represent production impossibilities, given existing technology.

Each production combination is measured in terms of opportunity costs. That is, more of one good can be produced only by making less of the other good. 12. 9. 8 Economic decision-making based on marginal benefit and marginal cost for individuals and government: To make production decisions, businesspeople or the government need to know not only their companys total costs but also the marginal costs for the company. Marginal costs are the additional costs of producing one more unit of output. To determine marginal costs as production levels change, a business must look at its variable costs alone.

This allows business people to calculate the exact cost of any change in production levels. Many businesspeople or the government do indeed make marginal production decisions-decisions to produce a few more or a few less units of output. Marginal casts allow the business to determine th profitability of increasing or decreasing production by a few units. 12. 9. 9 Explain how consumers spend their budget to maximize the net benefits of their income. Consumers must make many choices as they budget their income and expenses, which allow them to maximize the net benefits. They must make a financial plan.

All financial planning begins with a spending and saving plan, or budget. The budget lists fixed expenses and flexible expenses. Fixed expenses are those payments that remain constant from month to month, such as payments for mortgage and insurance premiums. Flexible expenses can vary from month to month. Examples include expenders for pizza and movies. The budget should also include the amounts that a person is willing and able to set aside for saving and investing. After fixed expenses are paid and savings are set aside a consumer can decide what else they want to buy which fall under their flexible expenses.

2. 9. 10 The present day choices that may have important future consequences. The ways people choose to spend their money have important future consequences. If they do not spend their money wisely (spending it all on what they want) than they may not have enough later to but what they need. Because resources are scarce people have to be careful of how they allocate them. If they use to many than there wont be enough for later use. 12. 9. 11 Factors of production Economic decisions involve resources. A resource is anything that can be used to satisfy a consumers need or want.

Resources that can be used to produce goods and services are known as factors of production Economists general recognize four categories of resources: natural resources human resources, capital resources, and entrepreneurship. Items provided by nature that can be used to produce goods and to provide services are called natural resources. A natural resource is considered a factor of production only when its scarce and some payment is necessary for its use. Any human effort exerted during production is considered a human resource. The effort can be either physical or intellectual.

Capital resources are the manufactured materials used to create products. Capital resources include capital goods and the money used to purchase them. Capital goods are the buildings, structures, machinery and tools used in the production process. Capital goods are the manufactured resources that are used in making finished products. These finished products-the goods and service that people buy-are consumer goods. The organizational abilities and risk taking involved in starting a new business or introducing a new product are called entrepreneurship.

The goal of entrepreneurship is to develop a new combination of the other factors of production, creating something of value. 12. 9. 12 Specialization and division of labor permit scarce resources to be used more efficiently. To reach the highest possible levels of productivity, producers may rely on division of labor and specialization. Productivity is the given level of output that results from a given level of input. One option to improve efficiency might be the introduction of division of labor, assigning a small number of tasks to each worker. Since these steps are performed repeatedly, workers gain expertise in the assigned tasks.

This focus on one activity is known as specialization. Introducing division of labor would enable a company to increase production, using the smallest amount of resources to produce the greatest amount of output. 12. 9. 13 explain how producers allocate their expenditures to minimize production costs. Manufacturers must look at their costs of production when deciding how much to supply to the market. A businesss costs of production include any goods and services used to make a product. Manufacturers are particularly interested in their costs of production because these costs directly affect the amount of profit their business makes.

Manufacturers another suppliers deal with complicated production costs and must consider many factors. To make analyzing costs easier, most producers divide them into several categories: fixed, variable, total, and marginal. Analyzing these various production costs helps producers determine production goals and potential profits. 12. 9. 14 People make economic decisions in traditional, command, market and mixed-market economies. Nations-as well as individuals respond to scarcity and answer the three basic economic questions of what to produce, how to produce, and for whom to produce.

A nations answers to these questions are determined by its economic system. An economic system is the way that a nation or society is organized to produce and distribute goods and services. Economists have identified four types of economic systems: traditional, command, market and mixed. In the modern would all economies are mixed; pure traditional, command, and market economies are models that no longer exist. Traditional economies depend on long-established patterns of behavior and belief. Command economies rely on government decision-making and control of resource.

Market economies allow individuals to control and allocate resources. Market economies also rely on self-interest and incentives. Mixed economies have elements of traditional, command, and market models. Because mixed economies vary in their characteristics, economists classify them by their degree of government control. Nations whose economies are closest to the pure command model are said to practice authoritarian socialism, or communism. Nations whose economies are closest to the pure market model are said to practice capitalism. Nations with systems between theses two extremes are said to practice democratic socialism. 2. 10 Markets and the role of demand and supply in determining price and resources allocation. 12. 10. 1 Conditions that make industries either more or less competitive: Competitive markets provide consumers with a range of products that are priced fairly and that reflect costs accurately. The forces of supply and demand promote competition by encouraging producers to supply consumers with a wide selection of goods and services. Perfect competition is an ideal market structure in which buyers and sellers compete directly and fully under the laws of supply and demand.

In general, perfect competition exist when four conditions are present: there are many buyers and sellers acting independently, sellers offer identical products, buyers are well informed about products, and sellers can enter or exit the market easily. Monopolistic competition is much more common than perfect competition and differs from it in one important respect-sellers offer slightly different, rather than identical, products. In monopolistic competition, sellers exert some control over prices by differentiating their products through nonprice competition. 2. 10. 2 Describe the nature and roles of competition in a market economy. Free enterprise gives businesspeople the right to choose what, how and for whom to produce. Sometimes two or more businesspeople make the same production choices.

Theses choices lead the businesspeople and their companies into competition. Competition is the economic rivalry that exits among businesses selling the same or similar products. Competition is important because it encourages producers to improve existing products and develop new ones in order to attract customers. 2. 10. 3 Explain the law of demand and the law of supply: In a free enter price system; price is the key factor affecting not only the quantity demanded but also the quantity supplied. The quantity supplied is directly related to the prices that producers can charge for their goods and services. The law of supply describes this relationship. The law of Supply states that producers supply more goods and services when thy can sell them at higher prices and fewer goods and services when they must sell them at lower prices.

Demand is the quantity of a good or service that a consumer is willing and able to buy at various prices during a given time period. Price is one of the most important factors affecting demand. The law of demand states that an increase in price decreases the quantity demanded and that a decrease in price increases the quantity demanded, other things remaining the same. 12. 10. 4 identify the nonprice determinants of demand and those of supply. Factors other than price can affect demand for a product over time, causing a shift in its demand curve.

Theses shifts illustrate a change in demand at each and every price. The determinants of demand are consumer tastes and preferences, market size, income, prices of related goods (substitute goods and complementary goods), and consumer expectations. Changes in market size can be caused by private business decisions such as new advertisements, government policy decisions, and new technology. Changes in any to the determinants of demand can produce an entirely new demand curve for a product. Factors other than price can affect supply of a product over time as well, shifting the supply curve to the left or right.

The determinants of supply are prices of resources, government tools, technology, competition, prices of related goods, and producer expectations. Resources include raw materials and labor. A decrease in the price of resource causes an increase in supply. The opposite is true when an increase in the price of resources occurs. A tax hike causes a decrease in supply, while government subsidies increase supply. Loose government regulations tend to increase supply, while strict regulations tend to decrease supply. New technology and competition both usually increase supply.

A change in the price of related goods can cause an increase or decrease in supply. Producer expectations also can cause an increase or decrease in supply. 12. 10. 5 Examine how changes in the nonprice determinants of demand cause demand to change. Factors other than price can affect demand for a product over time, causing a shift in its demand curve. Theses shifts illustrate a change in demand at each and every price. The determinants of demand are consumer tastes and preferences, market size, income, prices of related goods (substitute goods and complementary goods), and consumer expectations.

Changes in market size can be caused by private business decisions such as new advertisements, government policy decisions, and new technology. Changes in any to the determinants of demand can produce an entirely new demand curve for a product 12. 10. 6 Examine how changes in the nonprice determinants of supply cause supply to change. Factors other than price can affect supply of a product over time, shifting the supply curve to the left or right. The determinants of supply are prices of resources, government tools, technology, competition, prices of related goods, and producer expectations.

Resources include raw materials and labor. A decrease in the price of resource causes an increase in supply. The opposite is true when an increase in the price of resources occurs. A tax hike causes a decrease in supply, while government subsidies increase supply. Loose government regulations tend to increase supply, while strict regulations tend to decrease supply. New technology and competition both usually increase supply. A change in the price of related goods can cause an increase or decrease in supply. Producer expectations also can cause an increase or decrease in supply. 2. 10. 7 Analyze how change in market price and quantity result from changes in demand and supply.

Changes in demand and supply cause a change in market price and quantity. Demand is the quantity of a good or service that a consumer is willing and able to buy at various prices during a given time period. Price is one of the most important factors affecting demand. The law of demand states that an increase in price decreases the quantity demanded and that a decrease in prices increases the quantity demanded, other things reaming the same.

The law of demand is explained by the income effect, the substitution effect refers to consumers tendency to substitute a similar, lower-priced product for a more expensive one. Diminishing marginal utility reflects the decreasing satisfaction experienced as increasing amounts of a product are consumed. Demand schedules and demand curves can chart how changes in price affect quantity demanded for a specific period of time. A demand curve slopes downward, reflecting the greater quantity that consumers will buy at lower prices.

A change in price results in movement along the products demand curve. Supply is the quantity of goods and services and services that producers offer at various possible prices during a given time period. Quantity supplied is the amount of a good or service that a producer is willing to offer at each particular price. The law of supply states that producers supply more goods and serves when they can sell them at higher prices and fewer goods and services when they must sell them at lower prices. The supply of goods can be either elastic or inelastic. 12. 10. explain economic incentives that lead to the efficient use of resources

The price system provides producers and consumers with incentives to participate in the market. An incentive is something that encourages a person to behave in a particular way. High prices, when combined with low costs, generally encourage producers to supply more goods and services. This reflects the law of supply-that high prices encourage increases in the quantity supplied, while low prices encourage reductions in the quantity supplied, Low prices, meanwhile, give consumers an incentive to buy more goods and services.

This, in turn , reflects the law of demand which states that high prices generally encourage reductions in the quantity demanded while low prices tend to encourage increases in the quantity demanded. If there were no price incentives, producers and consumers would have a much more difficult time exchanging goods and services. 12. 10. 9 explain market equilibrium and the mechanism for eliminating shortages and surpluses The price system helps producers and consumers reach market equilibrium, a situation that occurs when the quantity supplied and the quantity demanded for a product are equal at the same price.

At this equilibrium point the needs of both producers and consumers are satisfied, and the forces of supply and demand are in balance. When a market reaches its equilibrium point, producers and consumers have communicated effectively. The price system steers producers and consumers toward the equilibrium point through a process of trial and error as producers change prices and quantities of the goods and services supplied.

This adjustment process works to eliminate surpluses and shortages-situations in which the forces of supply and demand are not in balance and the market has not reached equilibrium. 2. 10. 10 identify the components of market research and its impact on products. In order to know what products to make and how to present these products, companies need to find out what consumers like and dislike. Market researchers help companies answer these types of questions by doing things such as conducting surveys. They rely on information collected by governments and businesses.

They provide companies with valuable insight into consumer habits and demand. With this information companies are able to produce an item that is not only wonderful but also catches the eye of the consumer. 2. 11 The learner will demonstrate an understanding of the sources of income and growth in a free enterprise economy. 12. 11. 1 Illustrate how entrepreneurial decisions are influenced by changes in taxation and government regulations. The organizational abilities and risk taking involved in starting a new business or introducing a new product are called entrepreneurship. The gal of entrepreneurship is to develop a new combination of the other factors of production, creating something of value. Taxes affect entrepreneurial decisions.

A tax is a required payment of money to the government to help fund government services. Entrepreneurs may have to pay taxes on the materials they use, the property they own, and the profits they make. Taxes add to their cost of production. Higher taxes mean that they are faced with higher costs and the prospect of making less profit and will supply less of their product to the market. To protect the public, the government passes many kinds of regulations, or rules, about how companies conduct business.

Regulations are designed to prevent pollution, discrimination, and other problems that affect citizens. Loose government regulations tend to increase supply. Strict regulations, on the other hand, tend to decrease supply. Entrepreneurs have to worry about following strict government regulations which adds to the frustration of creating a business. 12. 11. 2 define interest and explain how interest rates and investment are related As a moneylender, the bondholder is repaid the principal of the loan, plus interest. The principal is the actual amount of money that was borrowed.

Interest is the amount that the borrower must pay for the use of those funds. The longer amount of time that passes from the time of the loan the more interest the borrower will owe. Similar to an interest rate, is an investment. An investment occurs when people exchange their money for something of value with the expectation of earning a profit on it in the future. As time passes the value to the item invested upon will increase. Time affects the price rise of both investments and interest rates. 12. 11. 3 explain the importance of profits and losses in a free enterprise economy

The amount of money remaining after producers have paid all of their costs is called profit. A business makes profit when revenues are greater than costs of production. Theses costs include wages and salaries, rent, interest on loans, bills for electricity, raw materials, and any other goods and services used to manufacture a product. To make a profit, producers must provide the goods and services that consumers want-at prices that consumers are willing and able to pay. The profit motive has a far-reaching effect in free-enterprise markets.

It not only governs how individual companies make decisions, it also helps direct the use of resources in the entire market. 12. 11. 4 describe the relationships among technology, productivity, and capital When estimating and determining ways to increase a nations capacity to produce goods and services, economists often focus on labor productivity. Labor productivity is a measure of how much each worker produces in a given period of time, usually one hour. Economists define productivity growth as an increase in the output of each worker per hour of work.

Two factors that have a significant impact on productivity growth are Level of available technology, and quantity of capital goods available per worker. Invention and innovation-new knowledge and new ways of applying this kowlede-are the leading sources of productivity growth. New ideas, methods, and tools increase efficiency and output and often lower costs. Another measure of productivity is the capital-to-labor ratio, or the amount of capital stock available per worker. This ratio is calculated by dividing the total amount of capital stock by the size of the workforce.

When the amount of a nations capital goods increases faster than the size of that nations workforce, capital deepening-an increase in the amount of capital goods available per worker-result. Workers who have access to more and better capital goods-machines, tools, equipment, and work facilities-usually will produce more in less time. Thus, capital-deepening results in increased labor productivity. 12. 11. 5 explain the relationship of an educated workforce to economic growth and prosperity An important influence on productivity is the education and skill level of the labor force.

As trade becomes more global and people become more mobile, workers entering the labor force face greater and stiffer competition for jobs. In addition, as the level of skill required to perform certain jobs increases, employees must continue to learn and to improve their skills to keep their jobs. 12. 11. 6 analyze how profits affect investment and hence productivity and living standards Investing allows consumers to exchange their money for something of value, with the expectation of future profits.

To meet their goals, investors develop financial plans that include spending and savings plans, investment plans, retirement plans, and estate plans. Investors who hope only that the value of their investments will grow with time are practicing financial investment, while investors who hope to increase their investment while creating new capital goods are practicing real investment. Real investment contributes to economic growth by creating new products and indirectly new jobs. 12. 11. 7 explain and compare personal income distribution and functional income distribution

To determine the total income paid to the owners of a nations factors of production, economists use the measure national income. National income refers to the sum of employees and proprietors income, real and estimated rental income, corporate profits, and net interest. To calculate national income, economists subtract subsidies and indirect taxes from net national product. Indirect taxes-as opposed to direct taxes on income-are taxes included in the final price of goods and services. Sometimes economists are interested in the total amount of income earned by people in a given nation.

To estimate this measure, economists subtract from national income all income that does not go to people, such as profits that firms retain and reinvest and money that firms spend on corporate income taxes and employees social security. Economists then add to this amount the money that individual receive from government transfer payments, such as social security checks, The result is personal income, the total amount of income paid to individuals living in a given nation.

12. 12 The learner will demonstrate an understanding of the various economic institutions vital to a market economy. 12. 2. 1 describe examples of the basic institutions of capitalism: private property, free enterprise, competition, and the profit motive. Mixed economies have elements of traditional, command, and market models. Because mixed economies vary in their characteristics, economists classify them by their degree of government control. Nations whose economies are closest to the pure market model are said to practice capitalism (the U. S. ). The economic system of the U. S. leans toward the market model. The fact that there is some government involvement and regulation, however, means that the U.

S. economy is not a pure market model. Because the economic system of the U. S. is based on the freedom to make choices it is often referred to as a free-enterprise system. In the U. S. , individuals have the right to own private property, and enter into contracts, make individual choices; engage in competition, and make decisions based on self-interest. Only a limited amount of government regulation and intervention exists in the U. S. economy. 12. 12. 2 examine the interaction of banks and business firms to crate and expand business enterprise through savings and investments

Business enterprises customarily take one of three forms: individual proprietorships, partnerships, or limited-liability companies (or corporations). In the first form, a single person holds the entire operation as his personal property, usually managing it on a day-to-day basis. Most businesses are of this type. The second form, the partnership, may have from two to 50 or more members, as in the case of large law and accounting firms, brokerage houses, and advertising agencies. This form of business is owned by the partners themselves; they may receive varying shares of the profits depending on their investment or contribution.

Whenever a member leaves or a new member is added, the firm must be reconstituted as a new partnership. The third form, the limited-liability company, or corporation, denotes incorporated groups of personsthat is, a number of persons considered as a legal entity (or fictive person) with property, powers, and liabilities separate from those of its members. This type of company is also legally separate from the individuals who work for it, whether they be shareholders or employees or both; it can enter into legal relations with them, make contracts with them, and sue and be sued by them.

Most large industrial and commercial organizations are limited-liability companies. 12. 12. 3 explain positive and negative impacts on market-driven economies when dominated by a strong authoritarian government. Mixed economies that are closest to the pure command model are said to practice authoritarian socialism, which is also know as communism. In these economies the government owns or controls nearly all the factors of production. In An authoritarian government The individual has no say so in factors of production.

Cite This Work

To export a reference to this article please select a referencing style below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.