Unit 5 Foundations of Economics Chapter 13 Section 1: Why Societies Have Economies Factors of Production- Resources people have for producing goods and services to satisfy their wants Capital- Anything produced in an economy that is used to produce other goods and services. (tools, machines, buildings) Money is financial capital Consumption- the act of buying or using goods and services Opportunity Cost- highest value benefit given up when a choice is made Scarcity- Resources are always limited compared with the number and variety of wants people have Chapter 13 Section 3: Three Types of Economies Traditional Economy- the basic economic decisions are made according to long-established patterns of behavior that are unlikely to change. Members of a society work together to support each other. Ex) All people in a village sow each others fields Command Economy- the government or central authority owns or controls the factors of production and makes basic economic decisions Market Economy- System in which private individuals own the factors of production and are free to make their own choices about production, distribution and consumption Profit- difference between the total cost of production and the total revenues (money made) received from buyers Nike Air Jordan’s Cost of Production $.50 Cambodian Laborer $10.00 Materials $1.00 Shipping $2.50 Store and sales associate $13.00 Total Cost Sale Price Average: Total Cost to Produce $120 - $13 Total Profit +$107 Invest- means to use your money to help a business get started or grow, with the hope that the business will earn a profit in which you can share Free Enterprise- system in which individuals in a market economy are free to undertake economic activities with little or no control by the government Capitalism- system in which people make their own decisions about how to save resources as capital and how to use their capital to produce goods and provide services Mixed Economy- most economies today are a mixture of command, market, and traditional Ch. 14 Section 1: Principals of Our Market Economy Demand- the amount of a product or service that buyers are willing and able to buy at different prices Supply- the amount of a product that producers are willing and able to offer at different prices Market Price (equilibrium)- the price at which buyers and sellers agree to trade Chapter 14 Section 3: Labor in the American Economy Labor Unions- organizations of workers that seek to improve wages and working conditions and to protect members’ rights Collective Bargaining- process by which representatives of the unions and business try to reach agreement about wages and working conditions Boycott- when people refuse to buy a product from a company or country for various reasons usually out of protest for the companies/countries actions Strike- workers refuse to work unless employers meet certain demands. (one of several tactics both sides use see p.391) Note: You will learn a lot more about unions in high school U.S. history.