Chapter 1 Flashcards
How do businesses make profit?
Producing/selling products
Profit equation
Profit = revenues - expenses
What is an NPO? + ex.
Organization providing goods/services and not seeking profit; school, hospital, etc
List the 5 factors of production
- Natural resources 2. Capital ($) 3. Human Resources (labour) 4. Entrepreneurs5. Info. Resources
List the 4 economic systems worldwide, grouped by economy type
Capitalism + mixed economy (market type); socialism + communism (command type)
Define communism (economy)
Industries all operated/ owned by gov,t; makes resource distribution decisions; command type
Define socialism (economy)
Critical industries (utilities, major institutions) owned and operated by government; individuals own non-critical businesses; command type
Define market type economies
Economic basis = supply and demand; political basis = capitalism; anyone can own factors of production; buyers and sellers have freedom of choice: market serves as mechanism for exchange of foods and services
Input vs output market
Input =firm buys resources from households; output = households buy goods/services from companies
Define capitalism (economy)
Encourages entrepreneurship, private ownership of factors of production; profit used as incentive; operates under supply and demand
Define a mixed market economy
Combines command and market economies; no country can be pure everything
Define privatization
Converting govt firm into privately-owned company
Define nationalization
Converting private firm into gov t owned firm
Define deregulation
Reducing laws, govt intervention
List 6 people involved in interactions between businesses and govt
- Customer 2. Competitor 3. Regulator 4. Taxation agent 5. Incentive provider 6. Essential service provider
How does the gov’t work as a regulator?
- Regulates through admin. boards, tribunals, commissions
- Promotes healthy comp. between businesses
- Protects consumers
- Achieves social goals
- Protects environment
How does the gov’t work as a taxation agent?
- Revenue tax
- Progression revenue tax
- Regressive revenue tax
- Restrictive tax
How does the gov’t work as a provider of incentives?
- Provides aid and financial assistance
- Provides incentives to stimulate growth (revenues and employment)
How does the gov’t (all three levels) work as a provider of essential services (8)?
Highways, postal service, money, military, education, health services, sewer and sanitation, emergency services
Explain demand and supply
low price = high demand = low supply bc low investment $$ (supply curve up)
high price = low demand = high supply (supply curve down)
supply = demand (equilibrium, supply curves meet), profit-maximizing
How does shortage affect price?
Drives price up because more people demand a product that has less supply
How does a surplus affect price?
Drives price down because less people demand a product that has too much supply
Define a private enterprise
Possible in market economy with little gov’t restriction, individuals can
- own property
- have freedom of choice
- have freedom to earn profits
- have freedom to compete
Define competition
Occurs when businesses compete for the same resources for customers in a particular market/industry, motivates business to operate efficiently, forces them to make products better/cheaper
What are the degrees of competition?
- Perfect
- Monopolistic
- Oligopoly
- Monopoly
Define perfect competition
- Many sellers (product is basically identical)
- Relatively easy to enter the industry
- Individual firms have no control over price
Define a monopolistic competition
- Few to many sellers, product is seen as unique by some
- Differentiated brands have some (minor) control over pricing
Define an oligopoly
- Few large suppliers dominate
- High barriers to entry
- Products are seen as similar
- Prices gravitate towards a common market price
Define a monopoly
- One producer, one supply source
- Unique product
- Complete control over price
- No competitors
