Economics Essay Review
1. Making Comparisons: What is the difference between a factor market and a product market? Explain how these markets are dependent on each other. (pg 14)
Austin Lambert & Joanna Bauer
The wealth that the economy generates is shown in the circular flow of economic activity. The two markets, factor and product, are big points in the circular flow chart and are the locations or other mechanisms that allow buyers and sellers to exchange certain economic products. Individuals earn their incomes in factor markets. Factor markets are the markets where productive resources are bought and sold. This is where entrepreneurs hire labor (the individuals) for wages and salaries, acquire land in return for rent, and borrow money for interest. People participate in the factor market when they work and sell their labor to and employer. After individuals receive their income from selling their services and labor in the factor market, they spend it in the product market. The product market is where producers sell their goods and services to consumers.
The factor market and the product market are dependent upon each other. The factor market gives income from resources to individuals in return for land, capital, labor and entrepreneurs. Individuals spend money in the product market in return for goods and services. The product market gets these goods and services sold to the individuals from businesses in exchange for income. The businesses produce these goods that are sold to the product market using the resources received from the factor market in exchange for payment. These two rely on each other to sustain the economic flow. Without the two of them there would be a disturbance in the circular flow of the economy.
Making Generalizations:
2. Why is the study of economics important even for people who are not going to be business owners or investors.
Economics is the study of human efforts to satisfy what appear to be unlimited and competing wants through the careful use of relatively scarce resources. Economics deals with human behavior in the economy and for whom, what, and how to produce goods from limited resources to the economy. The study of economics shows you where your money comes from and how it is passed around.
Eleon and Kaylan
3. Making Comparisons: Compare a command economy to a market economy by listing a strength and a weakness of each. State how each type of economy satisfies the wants and needs of individuals. (pg35-39)
Command Economy- is run by the government and the people have little input
Strength: it can change directions drastically in a short amount of time, many public services are available at little or no cost
Weakness: is it is not designed to meet the wants of consumers, lacks incentives to get people to work, has little flexibility
Market Economy- is an arrangement that allows buyers and consumers to come together to exchange goods and services
Strength: over time it can adjust to change and has a high degree of individual freedom, high degree of consumer satisfaction, incredible variety of goods and service, decentralized decision making
Weakness: it does not provide for the basic needs of everyone in the society, does not produce enough public goods, workers and businesses face uncertainty as a result of competition and change, must guard against market failures
Analyzing Information
4. List and explain four characteristics of a free enterprise economy.
1.Economic Freedom: People have the freedom to choose their occupation and their employer. Business are free to hire the best workers and have the freedom to produce the goods and services they feel will be profitable.
2. Voluntary Exchange: the act of buyers and sellers freely and willingly engaging in market transactions.
3. Private Property Rights: privilege that entitles people to own and control their possessions as they wish.
4. Profit Motive: freedom to risk savings or any part of wealth in a business venture.
5. Competition: The struggle among sellers to attract consumers while lowering cost.
5. Analyzing Information: Explain how the government plays both a direct and an indirect role in the economy? (pg78-79)
#Anthony #Ethan
A Direct role of the Government is distributing goods and services to consumers. The government supplies goods and services that compete with private businesses. State and local governments provide police, fire protection, rescue services, schools, court systems, maintain roads, libraries, and parks. An example of a Direct role of the government is the U.S. Postal Service. When the government acts as an umpire it plays an indirect role. For example the regulation of public utilities, investor- or municipal owned companies provide important products to the public like electricity or water. Since the Government offers these products to the public there are a few to no competitors.
6. Name three forms of businesses in the United States. Then compare their structures and list one advantage and one main disadvantage of each.
ew and illy
Sole Proprietorship, cuh
A business owned and run by one person. An advantage is the proprietorship does not have to pay separate business income taxes. The owner must pay income taxes on the profit taken from the business, but the business itself is exempt. A disadvantage is that the owner has unlimited liability. This means the owner is fully responsible for all losses and debts of the business.
Partnership
In a partnership two or more people come together and create a business. The business is thought of in the same way as a proprietorship. It isn’t recognized as an individual, nor is it taxed. Its benefits include that there is more capital from the multiple owners, and also less liability as it is divided among the owners. The downside is that the profits are divided, and decision have to be made as a group.There are two types, general and limited. In a general partnership in which all partners are equally responsible, liable, and the profits are equally divided between them. In limited at least one partner is not active in daily business and is usually given less profit and liability.
Corporation, bo
A business organization recognized by law as a separate legal entity having all the rights of an individual. They can buy and sell property, enter into legal contracts and sue and be sued. People can incorporate by buying shares, and if the corporation is profitable they issue a dividend to each shareholder. An advantage is the corporation provides limited liability for owners. This means the corporation, not the owners, is fully responsible for debts. A disadvantage is double taxation. The corporate profit and the personal income is taxed.
7.Making Comparisons: What are the differences in how an oligopoly and a monopoly conduct business?
1. Oligopoly
- market structure in which a few individuals dominate the industry
- One firm acts, and the others usually follow
ex. Airline Prices
- Collusion/Pricing Behavior (Illegal) - formal agreement for businesses to set prices and behave in a cooperative manner
- Firms may agree to divide the market to where each market receives the same amount of profits; instead of competition
- Products’ final price is likely to be higher than in a monopoly or a pure competition
- A fair amount of product differentiation; there is some product advertising
2. Monopoly
- a single individual sets the price
- market with a single seller for a particular product
- no product differentiation. As a result there is no advertising
- very few, if none, of pure monopolies
ex. Cable Companies, Telephone Companies
Cassie and Joseph
Understanding Cause and Effect
8. What positive and negative externalities might be the consequence of the building of a new interstate highway in your community
Taylor and Jule
- Negative externality is the harm, cost, or inconvenience suffered by a third party because of actions by others.
- Positive externality is a benefit received by someone who had nothing to do with the activity that generated the benefit.
From building a new interstate highway, a positive externality would be that it would benefit truck drivers and other bigger vehicles. It would be an advantage for them because they wouldn’t have to take time off their travel by going through a community; they will have a straight shot for their destination. A negative externality would be for the people living in the community, because it would cause more traffic for them.
9. Synthesizing Information: List and explain three advantages of the allocation of goods through prices (pg 139)
Carly and JonAllen
Prices serve as a link between consumers and producers. Without prices, the economy wouldn’t run as smoothly and decisions about allocating goods and services would have to be made some other way. First, prices in a competitive market are neutral because they favor neither the producer nor the consumer. This is because prices are the result of competition; in other words, the price represents a compromise between the buyers and sellers in the market. Next, prices are flexible. This allows the market to bounce back quickly and accommodate change after unforeseen events such as a natural disaster. Lastly, prices have no cost of administration; this means that competitive markets find their own prices without outside interference.