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1. Write a sentence or two defining the following terms in your own words. Give examples of each.

a. Allocate

b. Absolute Advantage

c. Capital

d. Cyclical

e. Demand Curve

f. Discouraged Workers

g. Planned System

h. Public Goods

i. Recession

j. Dishonest workers

k. Elastic Demand

l. Entrepreneurship

m. Federal Reserve

n. Frictional

o. Resources

p. Scarcity

q. Substitute Goods

r. Monopoly

s. Oligopoly

t. Induced

u. Inelastic Demand

v. Inflation

w. Law of Comparative Advantage

x. Law of Diminishing Demand

y. Market Equilibrium Point

z. Market System

2. Compare and contrast Macroeconomics and Microeconomics. Give specific details and examples.

3. Describe the economic cycle. Give specific details and examples.

PLEASE HELP ANYONE ILL GIVE POINTs please 

Introduction: Inflation and recession are recurring phases, of a continuous economic cycle. Government economists work hard to predict the timing of these phases and also to help control their effects.

INFLATION occurs when prices rise because there is too much money in circulation and not enough goods and services to spend it on.

RECESSION occurs when prices go so high that people either cannot or will not pay the high prices. Demand goes down, and the economy declines as well.

DEPRESSION occurs when a recession fails to recover after an extended period of time.

The Economic Cycle

Step 1: If the demand for products (like computers) went up, but there were not enough products available, then manufacturers and retailers would probably increase prices. This is because some people would pay more to get what they want.

Step 2: People (including the workers making computers) will soon demand higher wages so that they can afford the products they desire at the new higher prices. The cost of producing products rises because of increased wages, and producers pass the increased production costs on to the customers in the form of increased selling prices.

Step 3: When the selling prices of computers and other products rise so high that people either are not willing or cannot pay, then they stop buying. As fewer products are needed, manufacturers start to layoff workers.

Step 4: Unemployed people buy less of everything, and the economy continues to slow down. This is known as a recession. But now computer dealers and others get desperate to sell their inventory, so they reduce the prices and offer special sales.

Step 5: As prices decrease, more people want to buy, especially since they have done without for a period of time. Therefore, demand increases sharply, manufacturers and retailers increase their selling prices, workers demand more money, and the cycle repeats itself once again.

Controlling the Economic Cycle

Most countries today do not let their economic cycles run unchecked, because it could lead to a major worldwide depression like the one that followed the 1929 stock market crash in the United States.

Instead, governments and central banks change their monetary policies to affect what is happening in the economy. In the United States, the government body charged with the responsibility of controlling monetary policy is the Federal Reserve (often referred to as "the Fed"). The Fed's most effective tool for dealing with inflation and recession is its power to adjust the interest rates at which banks can borrow money. This then affects the rates at which businesses and consumers can borrow money.

Inflation is often fueled by political pressures. A growing economy creates jobs and reduces unemployment. Politicians are almost always in favor of reducing unemployment for their voters. Consequently, politicians urge the Federal Reserve to adopt an easy monetary policy that stimulates the economy. In other words, the Fed is urged to reduce interest rates. Once inflation really starts to take off, the most effective method for ending the inflation is for the Fed to induce an economic downturn or a recession. The Federal Reserve does this by reducing the money supply via increasing interest rates.

To keep inflation from getting out of control or keep recession from cutting too deeply, the Federal Reserve makes small, periodic adjustments in interest rates.

Who Wins and Who Loses During Inflationary Times?

During periods of inflation, big debtors make out well. Many times the money they pay back is only worth half as much as it was worth when they borrowed it. Inflation also prompts investors to buy things they can resell at huge profits, like artwork and real estate, rather than putting their money into companies that can create new products and jobs.

The people who are hit the hardest during periods of inflation are those living on fixed incomes. These are often retired people whose retirement incomes are determined by salaries or wages earned in less inflationary times. Their standards of living can be swiftly eroded by high inflation, sometimes even forcing them to sell their homes or to take other drastic economic measures.

Supplemental Assignments (These are optional. Please do not submit with your work, as they will not be graded.)

1. The current economy is quite tough. Draw a graph of the economic cycle relating to our current economy, including the years.

Review

Directions: For each question, write your answer in complete sentences. Use supporting details from the lesson to justify your answers. Do not copy and paste text but use your own words to demonstrate understanding of the lesson concepts. Remember to cite your resources. Citation examples are provided below the Review.

The "Rule of 72" is a reliable guide to the impact of inflation. It is based on dividing 72 by the annual inflation rate to find out the number of years it will take the price of something to double. For example, if you bought an antique chair for $100, and the annual inflation rate is 5 percent, how long would it take for the chair to be worth $200? Using the Rule of 72, divide 72 by 5 and get 14.4. It would take about 14 years for the chair's worth to double.

1. Calculate the values below using the Rule of 72.

a. If you bought a house for $150,000 and the annual inflation rate was 4 percent, how long would it take before the house, under good maintenance, would be worth $300,000?

b. If you bought a Picasso painting at last week's auction for $200,000 and the annual inflation rate is 10 percent, how long would it take to double your money?

c. If you went to the car show and bought a 1965 Mustang in mint condition for $25,000 and the annual inflation rate was 8 percent, when would your investment double?

d. If your grandmother gave you her wedding ring, it was appraised at $1,200, and the annual inflation rate was 6 percent, how many years would it be before it was worth $2,400?

e. If you bought an antique lamp for $3,000 and the inflation rate was 3 percent, how many years would it be before your investment doubled in value?

2. Reflect on how inflation, recession and depression affects you? Your family? The general population? Explain your thoughts in a short paragraph (5-7 sentences).

3. Who are the winners in times of high inflation? In times of recession? In times of depression? Provide specific examples to support your answer.

4. Who are the losers in times of high inflation? In times of recession? In times of depression? Provide specific examples to support your answer.

5. What can be done to minimize effects of difficult times due to high inflation, recession and/or depression? Provide specific examples to support your answer.

PLEASE SOMEONE HELP ASAP PLEASEE

Introduction: In our market-directed economy, producers provide goods and services that consumers demand as long as they can collect the selling price and can make a profit. However, there are some products and services that are desired by consumers but that are not profitable for producers to offer. With other products and services, it is not easy or possible to collect the selling price. When either of these factors exists, sometimes the government will provide the product or service or subsidize a company to provide the product or service. The government might also provide goods or services that are not feasible for individual consumers to own.

Public Goods
Goods and services produced by the government are referred to as public goods. One reason for public goods is that it is not feasible or efficient to recover the full costs by charging the people who use the products or services directly. Roads and highways would be a good example of this situation. Another reason for public goods is that the goods or services cannot be sold for a high enough prices to cover production and distribution costs, but they are of sufficient importance to society. Libraries and public schools would be a good example of this situation. Our founding fathers realized that some products and services must clearly be public goods. National defense is an obvious example. It is just not feasible for individuals to purchase missiles to protect their homes against attacks from foreign enemies.

Other Benefactors
Goods and services sometimes benefit people other than the purchasers. The Internet and e-mail not only benefit the subscriber but also provide benefits to everyone who e-mails that person. The subscriber pays for the monthly connection, but all e-mailers receive benefits from their connections, even though they do not pay for them. Of course, most of them have Internet and e-mail connections of their own, which they do pay for, but the more people who have Internet and e-mail, the more use one's own connection is.

Consequently, the Internet and e-mail provide benefits not only to the purchaser but to other people as well. If goods and services are supplied by private enterprises, the price must cover their costs. Buyers must pay for the total costs of production and distribution. If people are unwilling to pay the price, the goods and services are not produced. However, there are some products for which the benefits are so significant 'that their production is justified, even if buyers are unwilling to pay the price.

If our country did not have a literate population, it could not operate industries efficiently or provide the professional services needed by people. This is the justification for the government to pay for education. Because of the benefits resulting from education, families are not required to pay the full costs of their children's schooling. The government pays most of the costs for public education from the collection of taxes from everyone. Public health services, medical research, and postal services are other examples where services benefit people other than those directly receiving the services.

Public Goods and Equality
Sometimes public goods are provided in order to meet the goal of greater equality. Public transportation, for example, is most heavily used by lower-income groups, including young people and the elderly. This is one of the justifications for government subsidies to public transit systems. It helps to achieve the socio-economic goal of greater economic equality.

An alternate way to achieve the goal of greater equality would be to give direct subsidies to low-income people. In some ways, this might satisfy the goal of equality more efficiently. Income supplements might help low-income people more than subsidized bus fares because such supplements permit them to choose the best transportation means for their particular needs.

The argument over which is the best approach-income supplements or public services-will go on forever. On the surface, income supplements and choices seem to be the fairest ways of achieving economic equality, but there may be many other costs involved. For example, if a low-income person decided he or she would like an automobile of his or her own for maximum flexibility, he or she would also incur other expenses, such as gas, insurance, and maintenance costs, just to name a few. In order for supplements to be large enough to cover all the associated costs, the tax burden on the rest of society would have to increase.

Supplemental Assignments (These are optional. Please do not submit with your work, as they will not be graded.)

1. How might public goods differ in 4 main regions of the United States?

2. Research the debate of people paying for public goods. Write a paper, stating your opinion.

Review

Directions: For each question, write your answer in complete sentences. Use supporting details from the lesson to justify your answers. Do not copy and paste text but use your own words to demonstrate understanding of the lesson concepts. Remember to cite your resources. Citation examples are provided below the Review.

1. List five public goods you have utilized in the past month. Put a "yes" or "no" next to each, indicating if this public good could have been obtained through the private sector. Do you think it is better for the public if these goods are provided by the government or by private companies? Why or why not?

2. Why does government subsidize public transportation when most people do not use it? Is there public transportation in your community? If so, what type? Why should a person use public transportation if he or she does not have to?

3. What are some government provided goods or services that you have benefited from but that you or your family have not directly paid for?

4. What are some goods or services provided or subsidized by the government that help give equal access to all citizens' of the United States?

5. Do you think it helps or hurts the economy when government subsidizes a product? Give an example of a situation when it both helps some people and hurts other people when a product is subsidized.

PLEASE SOMEONE HELP ASAP PELASEEEE

Introduction: In our market-directed economy, producers provide goods and services that consumers demand as long as they can collect the selling price and can make a profit. However, there are some products and services that are desired by consumers but that are not profitable for producers to offer. With other products and services, it is not easy or possible to collect the selling price. When either of these factors exists, sometimes the government will provide the product or service or subsidize a company to provide the product or service. The government might also provide goods or services that are not feasible for individual consumers to own.

Public Goods
Goods and services produced by the government are referred to as public goods. One reason for public goods is that it is not feasible or efficient to recover the full costs by charging the people who use the products or services directly. Roads and highways would be a good example of this situation. Another reason for public goods is that the goods or services cannot be sold for a high enough prices to cover production and distribution costs, but they are of sufficient importance to society. Libraries and public schools would be a good example of this situation. Our founding fathers realized that some products and services must clearly be public goods. National defense is an obvious example. It is just not feasible for individuals to purchase missiles to protect their homes against attacks from foreign enemies.

Other Benefactors
Goods and services sometimes benefit people other than the purchasers. The Internet and e-mail not only benefit the subscriber but also provide benefits to everyone who e-mails that person. The subscriber pays for the monthly connection, but all e-mailers receive benefits from their connections, even though they do not pay for them. Of course, most of them have Internet and e-mail connections of their own, which they do pay for, but the more people who have Internet and e-mail, the more use one's own connection is.

Consequently, the Internet and e-mail provide benefits not only to the purchaser but to other people as well. If goods and services are supplied by private enterprises, the price must cover their costs. Buyers must pay for the total costs of production and distribution. If people are unwilling to pay the price, the goods and services are not produced. However, there are some products for which the benefits are so significant 'that their production is justified, even if buyers are unwilling to pay the price.

If our country did not have a literate population, it could not operate industries efficiently or provide the professional services needed by people. This is the justification for the government to pay for education. Because of the benefits resulting from education, families are not required to pay the full costs of their children's schooling. The government pays most of the costs for public education from the collection of taxes from everyone. Public health services, medical research, and postal services are other examples where services benefit people other than those directly receiving the services.

Public Goods and Equality
Sometimes public goods are provided in order to meet the goal of greater equality. Public transportation, for example, is most heavily used by lower-income groups, including young people and the elderly. This is one of the justifications for government subsidies to public transit systems. It helps to achieve the socio-economic goal of greater economic equality.

An alternate way to achieve the goal of greater equality would be to give direct subsidies to low-income people. In some ways, this might satisfy the goal of equality more efficiently. Income supplements might help low-income people more than subsidized bus fares because such supplements permit them to choose the best transportation means for their particular needs.

The argument over which is the best approach-income supplements or public services-will go on forever. On the surface, income supplements and choices seem to be the fairest ways of achieving economic equality, but there may be many other costs involved. For example, if a low-income person decided he or she would like an automobile of his or her own for maximum flexibility, he or she would also incur other expenses, such as gas, insurance, and maintenance costs, just to name a few. In order for supplements to be large enough to cover all the associated costs, the tax burden on the rest of society would have to increase.

Supplemental Assignments (These are optional. Please do not submit with your work, as they will not be graded.)

1. How might public goods differ in 4 main regions of the United States?

2. Research the debate of people paying for public goods. Write a paper, stating your opinion.

Review

Directions: For each question, write your answer in complete sentences. Use supporting details from the lesson to justify your answers. Do not copy and paste text but use your own words to demonstrate understanding of the lesson concepts. Remember to cite your resources. Citation examples are provided below the Review.

1. List five public goods you have utilized in the past month. Put a "yes" or "no" next to each, indicating if this public good could have been obtained through the private sector. Do you think it is better for the public if these goods are provided by the government or by private companies? Why or why not?

2. Why does government subsidize public transportation when most people do not use it? Is there public transportation in your community? If so, what type? Why should a person use public transportation if he or she does not have to?

3. What are some government provided goods or services that you have benefited from but that you or your family have not directly paid for?

4. What are some goods or services provided or subsidized by the government that help give equal access to all citizens' of the United States?

5. Do you think it helps or hurts the economy when government subsidizes a product? Give an example of a situation when it both helps some people and hurts other people when a product is subsidized.

WILL GIVE POINTTS 

Introduction: Inflation and recession are recurring phases, of a continuous economic cycle. Government economists work hard to predict the timing of these phases and also to help control their effects.

INFLATION occurs when prices rise because there is too much money in circulation and not enough goods and services to spend it on.

RECESSION occurs when prices go so high that people either cannot or will not pay the high prices. Demand goes down, and the economy declines as well.

DEPRESSION occurs when a recession fails to recover after an extended period of time.

The Economic Cycle

Step 1: If the demand for products (like computers) went up, but there were not enough products available, then manufacturers and retailers would probably increase prices. This is because some people would pay more to get what they want.

Step 2: People (including the workers making computers) will soon demand higher wages so that they can afford the products they desire at the new higher prices. The cost of producing products rises because of increased wages, and producers pass the increased production costs on to the customers in the form of increased selling prices.

Step 3: When the selling prices of computers and other products rise so high that people either are not willing or cannot pay, then they stop buying. As fewer products are needed, manufacturers start to layoff workers.

Step 4: Unemployed people buy less of everything, and the economy continues to slow down. This is known as a recession. But now computer dealers and others get desperate to sell their inventory, so they reduce the prices and offer special sales.

Step 5: As prices decrease, more people want to buy, especially since they have done without for a period of time. Therefore, demand increases sharply, manufacturers and retailers increase their selling prices, workers demand more money, and the cycle repeats itself once again.

Controlling the Economic Cycle

Most countries today do not let their economic cycles run unchecked, because it could lead to a major worldwide depression like the one that followed the 1929 stock market crash in the United States.

Instead, governments and central banks change their monetary policies to affect what is happening in the economy. In the United States, the government body charged with the responsibility of controlling monetary policy is the Federal Reserve (often referred to as "the Fed"). The Fed's most effective tool for dealing with inflation and recession is its power to adjust the interest rates at which banks can borrow money. This then affects the rates at which businesses and consumers can borrow money.

Inflation is often fueled by political pressures. A growing economy creates jobs and reduces unemployment. Politicians are almost always in favor of reducing unemployment for their voters. Consequently, politicians urge the Federal Reserve to adopt an easy monetary policy that stimulates the economy. In other words, the Fed is urged to reduce interest rates. Once inflation really starts to take off, the most effective method for ending the inflation is for the Fed to induce an economic downturn or a recession. The Federal Reserve does this by reducing the money supply via increasing interest rates.

To keep inflation from getting out of control or keep recession from cutting too deeply, the Federal Reserve makes small, periodic adjustments in interest rates.

Who Wins and Who Loses During Inflationary Times?

During periods of inflation, big debtors make out well. Many times the money they pay back is only worth half as much as it was worth when they borrowed it. Inflation also prompts investors to buy things they can resell at huge profits, like artwork and real estate, rather than putting their money into companies that can create new products and jobs.

The people who are hit the hardest during periods of inflation are those living on fixed incomes. These are often retired people whose retirement incomes are determined by salaries or wages earned in less inflationary times. Their standards of living can be swiftly eroded by high inflation, sometimes even forcing them to sell their homes or to take other drastic economic measures.

Supplemental Assignments (These are optional. Please do not submit with your work, as they will not be graded.)

1. The current economy is quite tough. Draw a graph of the economic cycle relating to our current economy, including the years.

Review

Directions: For each question, write your answer in complete sentences. Use supporting details from the lesson to justify your answers. Do not copy and paste text but use your own words to demonstrate understanding of the lesson concepts. Remember to cite your resources. Citation examples are provided below the Review.

The "Rule of 72" is a reliable guide to the impact of inflation. It is based on dividing 72 by the annual inflation rate to find out the number of years it will take the price of something to double. For example, if you bought an antique chair for $100, and the annual inflation rate is 5 percent, how long would it take for the chair to be worth $200? Using the Rule of 72, divide 72 by 5 and get 14.4. It would take about 14 years for the chair's worth to double.

1. Calculate the values below using the Rule of 72.

a. If you bought a house for $150,000 and the annual inflation rate was 4 percent, how long would it take before the house, under good maintenance, would be worth $300,000?

b. If you bought a Picasso painting at last week's auction for $200,000 and the annual inflation rate is 10 percent, how long would it take to double your money?

c. If you went to the car show and bought a 1965 Mustang in mint condition for $25,000 and the annual inflation rate was 8 percent, when would your investment double?

d. If your grandmother gave you her wedding ring, it was appraised at $1,200, and the annual inflation rate was 6 percent, how many years would it be before it was worth $2,400?  

PPOINTS WILL GIVE

e. If you bought an antique lamp for $3,000 and the inflation rate was 3 percent, how many years would it be before your investment doubled in value?

2. Reflect on how inflation, recession and depression affects you? Your family? The general population? Explain your thoughts in a short paragraph (5-7 sentences).

3. Who are the winners in times of high inflation? In times of recession? In times of depression? Provide specific examples to support your answer.

4. Who are the losers in times of high inflation? In times of recession? In times of depression? Provide specific examples to support your answer.

5. What can be done to minimize effects of difficult times due to high inflation, recession and/or depression? Provide specific examples to support your answer.

Directions: For each question, write your answer in complete sentences. Use supporting details from the lesson to justify your answers. Do not copy and paste text but use your own words to demonstrate understanding of the lesson concepts. Remember to cite your resources. Citation examples are provided below the Review.

List and explain two household chores you do that relate to the Law of Comparative Advantage.

Hints:

Think of 'responsibilities' instead of chores? From this point of view you might be able to relate a task you do that relates to the Law of Comparative Advantage. Maybe turn it around. Is there something you do for your family that another member could do more efficiently than you do? Do you take care of the responsibility anyway (even though you don't do it as quickly or as well) because the other family member spends their time doing something that earns more money?

Here is an example from my life: I clean the two family cars. My husband can clean them much better (he really shines the hubcaps), but he is better off teaching a class. Why? Because he earns more money teaching the class while cleaning the cars does not produce income. Compared to him, it is more productive for me to clean the cars.

1. Your household chore:

Explanation:

2. Your household chore:

Explanation:

3. Explain absolute advantage. Give an example.

4. Do you have an absolute or comparative advantage in doing something over someone else? Explain.

5. Explain why countries engage in commercial trade. Provide an example.

PELASEEEE SOMEONE  HELP ILL GIVE POINTSSSSS

Introduction: Our economy does not take place in a vacuum. It is important to realize this. Our trade policies affect employment and unemployment, monetary policies, government spending, budget-making, and peace-keeping policies.

Why Countries Trade With Each Other
There are many benefits that citizens enjoy because of trading with other countries. Americans drink coffee from Brazil and tea from China, and many Americans wear Swiss made watches and watch Japanese-made televisions. Many Americans drive cars made in Japan and Germany. Furthermore, these cars and others made in America are powered by gasoline from Arab countries. The people of the United States are very fortunate that we have almost all of the resources we need to produce everything we desire. Other countries may not be as lucky. Some countries cannot grow certain crops because of the weather, or they cannot produce everything because they simply do not have enough people to do so. It should be easy to understand why some countries need and want to trade, but why would the United States want to trade? The answer lays in the economic concepts of "The Principle of Absolute Advantage" and"The Law of Comparative Advantage."

The Principle of Absolute Advantage
The concept of ABSOLUTE ADVANTAGEcomes from the fact that some individuals (or countries) can produce more of a good from given resources than can others. For example, a Kansas farmer can grow more corn per acre than a farmer in Colombia, South America. However, the Colombian farmer can grow more coffee beans per acre than the Kansas farmer can grow. In this example, the Kansas farmer has an absolute advantage in corn production, and the Colombian farmer has an absolute advantage in coffee bean production. In the above example, if Kansas farmers specialized in corn production, Colombian farmers specialized in coffee bean production, and the two countries traded their excess production with one another, then the citizens of both countries would be better off. The theory of specializing in what we can do fastest and cheapest is called absolute advantage.

The Law of Comparative Advantage
It is relatively easy to see that countries that have an absolute advantage in the production of a certain product can benefit from trading with one another, but what if one country has the absolute advantage in the production of all goods? Does it still make sense to trade with a country that does not have an absolute advantage in anything? The answer is probably yes, and this is explained by the LAW OF COMPARATIVE ADVANTAGE.

For example, suppose there is a highly-paid executive who is also very good at word processing. Suppose this executive were to hire a secretary to do the word processing for him, only to find out later that the secretary was only half as fast at word processing as the executive. Was it a good idea to hire a secretary who was less efficient in word processing than the boss? The executive can obviously make more money by devoting his time to managing and decision-making than he can doing word processing. Consequently, even though the executive has an absolute advantage in both managing and word processing, he has a larger comparative advantage with respect to managing. Likewise, in global trade, one nation might have an absolute advantage in the production of two commodities but choose to import the item in which it has the lesser absolute advantage (or comparative advantage) and to export the item in which it has the greater absolute advantage.

Supplemental Assignments (These are optional. Please do not submit with your work, as they will not be graded.)

1. Research 5 countries that the United States trades with, including what we trade, with whom, and why.

2. Are there any current news stories regarding international trade? If so, write an article about one.

Review

Directions: For each question, write your answer in complete sentences. Use supporting details from the lesson to justify your answers. Do not copy and paste text but use your own words to demonstrate understanding of the lesson concepts. Remember to cite your resources. Citation examples are provided below the Review.

List and explain two household chores you do that relate to the Law of Comparative Advantage.

Hints:

Think of 'responsibilities' instead of chores? From this point of view you might be able to relate a task you do that relates to the Law of Comparative Advantage. Maybe turn it around. Is there something you do for your family that another member could do more efficiently than you do? Do you take care of the responsibility anyway (even though you don't do it as quickly or as well) because the other family member spends their time doing something that earns more money?

Here is an example from my life: I clean the two family cars. My husband can clean them much better (he really shines the hubcaps), but he is better off teaching a class. Why? Because he earns more money teaching the class while cleaning the cars does not produce income. Compared to him, it is more productive for me to clean the cars.

1. Your household chore:

Explanation:

2. Your household chore:

Explanation:

3. Explain absolute advantage. Give an example.

4. Do you have an absolute or comparative advantage in doing something over someone else? Explain.

5. Explain why countries engage in commercial trade. Provide an example.

Introduction: The competitive situation refers to the number and type of competitors that a particular firm must deal with, along with some predictions on how the competitors are likely to behave. There are four basic competitive situations.

Four Basic Competitive Situations
There are four basic competitive situations: pure competition, monopolistic competition, oligopoly competition, and monopoly. Let's identify a few basic characteristics that help us determine the competitive situation.

PURE COMPETITION
Pure competition is a market situation that typically has the following characteristics:

a. There are many buyers and sellers.

b. The products are very similar; many times the products are identical.

c. It is easy for buyers and sellers to get into and out of the market.

A good example of a pure competitive market situation would be farmers who raise carrots. There are many farmers and consumers of carrots. Unless it is a special variety of carrot, the consumers do not know or care if they are buying Farmer Brown's or Farmer Smith's carrots at the grocery store. It is "relatively" easy to become a carrot farmer.

NOTE: Because there are so many producers of similar products, no one producer has control over price. If Farmer Brown raised his price of carrots, no one would buy them because there are thousands of other producers willing to sell their carrots at a lower price. If Farmer Brown lowered his price, he would easily sell his carrots, but his total revenue would probably remain the same or he might even lose money by selling at a lower price. In pure competitive market situations, individual producers have no control over price, so it is said that they sell at "the going market rate."

MONOPOLISTIC COMPETITION
Monopolistic competition is a market situation that typically has the following characteristics:

a. Sellers who offer different products (sometimes the products are not really very different, but buyers believe they are).

b. Sellers believe they have competition (the number can vary greatly).

A good example of monopolistic competition would be laundry soap manufacturers. Most consumers believe laundry soaps are different. If you asked your mother or grandmother which laundry soap was the best, almost all of them would have a very definite answer. However, Consumer's Report did a study on the leading laundry soaps and came to the conclusion that there were not any significant differences among them. To further make consumers believe the laundry soaps are different, manufacturers add bleach to some and fabric softeners to others. There are several manufacturers of laundry soap.

NOTE: Because laundry soap manufacturers have done a good job of convincing consumers that some laundry soaps work better than others, those manufacturers can charge more for their soaps. Thus, it is said that in monopolistic competition, firms have some control over price because the consumers see a difference in product offerings. Further, the demand curve tends to be elastic, as described earlier.

OLIGOPOLY COMPETITION
Oligopoly competition is a market situation that typically has the following characteristics:

a. The products offered by the sellers are very similar.

b. There are only a few sellers or just a few big competitors who dominate the market.

c. A good example of oligopoly competition would be long distance telephone companies.

d. The long distance telephone service is basically the same, no matter which long distance telephone company you use.

NOTE: When it comes to pricing, the different oligopoly competitors have little control over price. If one long distance company charges too high of a price, then individuals will change to a different long distance company. Further, if one company lowers their prices and starts to take away market share from the others, then typically the other firms will lower their prices also. This is when a "price war" starts, and all the sellers lose. Consequently, oligopoly competitors watch the market carefully and only make slight price adjustments. Further, the demand curve tends to be inelastic, as described earlier.

MONOPOLY
A monopoly market situation is truly different than the other three market situations. In order to have a true monopoly, you must be the only provider and there must be NO good substitutes for your product. In the United States, one would be very hard pressed to think of an industry that consisted of only one producer and no substitutes.

A good hypothetical example of a monopoly would be a person or firm that controlled all the fresh water on a desert island. In this example, you have one provider and NO good substitutes. One provider. No good substitutes.

Even though it is difficult to come up with real examples of true monopolies, our economy does have two other types of monopolies.

a. The first is a government-granted monopoly. Most utility companies are government-granted monopolies. Many of us only have one local telephone provider or one electric company to choose from. There are substitutes for these products, but the substitutes are not very practical given today's lifestyle.

b. The second type of monopoly would be a geographic monopoly. A geographic monopoly is when you only have one provider within a certain geographic area. People from small towns can easily relate to this type of market situation. In many small towns, there is only one grocery store, one dry cleaner, or one theater. These firms TEND to have monopoly characteristics because they are the only provider and because there do not seem to be any good substitutes.

Review

Directions: For each question, write your answer in complete sentences. Use supporting details from the lesson to justify your answers. Do not copy and paste text but use your own words to demonstrate understanding of the lesson concepts. Remember to cite your resources. Citation examples are provided below the Review.

1. Sam's Gas and Snacks is the only station located at the crossroads of a major highway and Interstate 17 going north and south. The closest town is located on the major highway five miles east. Their main target is travelers.

Competitive Situation:

Explanation:

2. Tender Care is a licensed day care center located in a city of 300,000 people. Tender Care has three centers operating in this city. There are about 15 similar day care centers operating in this city also. Some businesses have their own on-site day care centers for their employees. In addition, there are many individuals who conduct day care activities out of their own homes. Due to the number of day care operations, they all charge approximately the same price.

Competitive Situation:

Explanation:

3. Mr. Jones has approximately 300 dairy cattle that he milks twice a day. Every morning at 9 a.m., the wholesaler stops on his route with his tanker truck and picks up Mr. Jones' milk. The milk is then taken to the processing plant, where it is combined with hundreds of other dairy farmers' milk from around the area. Most of the milk is processed and put into bottles or cartons and shipped to local stores. Some of the milk is used to produce other dairy products.

Competitive Situation:

Explanation:

4. Elvira College has an enrollment of 1,000 students and is located in a small Midwestern town named Johnsonville. Johnsonville has a total population of 2,500 people. The nearest town is 20 miles away. Most of the residents shop locally, but they travel about once a month to the larger city and pick up the large-ticket items. Johnsonville has one fairly good-size supply store named Jameson's Grocery. The only other place in town where you might buy supplies is at the gas station/convenience store located on the edge of town. What competitive situation is Jameson's Grocery experiencing?

Competitive Situation:

Explanation:

5. Iowa farmers can choose from five different manufacturers of farm implement equipment. Two of these manufacturers account for more than 80 percent of all the farm equipment sold in Iowa. These two manufacturers produce very similar equipment. Whenever one manufacturer has a sale, offers rebates, or offers special financing, the other manufacturer quickly follows with a similar program.

Competitive Situation:

Explanation:

Introduction: Did you ever wonder why the founders of the United States formed our government and what its major economic responsibilities are? The answer is really quite simple. The government was formed to address the weaknesses of our market-directed economic system. In our market-directed system, individuals and businesses experience a high degree of choice. Humans tend to be very self-centered. Consequently, many make sure they are taken care of first before helping the less fortunate. Further, there are some things that government can collectively take care of more efficiently than people or businesses can individually. Let's examine three of the major economic responsibilities of our government.

Setting the Rules of the Game
Through its legislative authority, the government sets rules establishing the legal relationships between parties. Further, the government sets monetary standards, insures bank deposits, and pursues a variety of other activities to protect public confidence. Perhaps the government's greatest economic responsibility is to maintain competition. The government has established many anti-trust (anti-monopoly) laws that govern competition. Where competition is impractical, government regulation is used to protect society from the abuses of monopoly power.

Income Redistribution
Nobody wants to see others suffer, go without shelter, or go without food. Some people freely give time and money to help the less fortunate. But, in most cases, it is not enough to service all those in need. So, through government programs such as Aid to Families with Dependent Children, food stamps, social security, and disaster relief, just to name a few, the taxed income of the population is redistributed to those in need.

Stabilization of Income, Prices, and Employment
There are natural "business cycles" that cause fluctuations in employment, income, and prices. Many times business cycles will cause inflation, dislocate workers, and cause prices to rise. The government tries to stabilize these factors by setting interest rates, controlling monetary growth, setting tax rates and depreciation rates, and through government spending.

Supplemental Assignments (These are optional. Please do not submit with your work, as they will not be graded.)

1. Has the government had any effect on your economic behavior? What about your friends or family?

2. What are some historical examples of how the government has had effect on economic behavior?

Review

Directions: For each question, write your answer in complete sentences. Use supporting details from the lesson to justify your answers. Do not copy and paste text but use your own words to demonstrate understanding of the lesson concepts. Remember to cite your resources. Citation examples are provided below the Review.

1. What does our government do with tax money? How does government affect the business cycle? Income distribution?

2. Who set the rules for our economic system? Identify the different types of laws that are in place to protect our economic system

3. Explain the purpose of anti-monopoly laws. You may need to refer to your additional resources or conduct an internet search. Give specific examples.

4. What is income redistribution? Be specific and provide at least three examples.

5. Through your own experience, by watching the national news, or by reading a newspaper, identify at least 10 ways our government spends our tax money. Identify at least three ways that you benefit from this spending. Be specific.

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Introduction: The principles of economics do not take place in a vacuum. In this section, we will discuss the major institutions that shape and are shaped by economic behavior. The three major institutions are: households, businesses, and the government's impact on economics.

Households
Households provide some of the resources needed by businesses. Households consume many of the goods produced by businesses, and the members of households are the ultimate owners of wealth.

Households provide labor, land, capital, and entrepreneurial skills to businesses. Households consume automobiles, food, clothing, and a host of other products produced by businesses. Businesses and all the assets they use are owned ultimately by individual households. Thus, businesses ultimately do not receive profits; they are only the middlemen who channel profits to the owners of the businesses, who are the individuals of households.

Types of Business Ownership
There are three legal forms of businesses that can be established in the United States. Businesses may be operated as sole proprietorships, partnerships, or corporations.

A SOLE PROPRIETORSHIP is the easiest type of business to establish. Registering with the state and getting a federal tax number is about all it takes in most cases. As the proprietor, you are the owner and boss. The amount of profit you make depends on your skill, hard work, and luck.

The basic advantages associated with a sole proprietorship are

(1) it is easy to start up,

(2) it is simple to manage, and

(3) it is relatively free from government regulation.

But on the other side of the coin there are some distinct disadvantages, which are

(1) getting financed is limited by the wealth and credit standing of the proprietor,

(2) the business dies when the proprietor dies or quits, and

(3) unlimited liability of the proprietor (both business and personal assets may be lost if the business fails or becomes a losing party in a lawsuit).

In a PARTNERSHIP, two or more individuals combine to form a business so they can overcome some of the financial and managerial disadvantages of sole proprietorships.

The advantages associated with partnerships would include

(1) it is easy to start up,

(2) it is relatively simple to manage, and

(3) it is subject to relatively few government regulations.

Disadvantages of a partnership include;

(1) unlimited liability of partners (if your partner makes a mistake or is dishonest, your personal assets may be in jeopardy),

(2) division of ownership often leads to disagreements in operations and management of the business, and

(3) the death or withdrawal of one partner dissolves the partnership, although a new organization may be formed.

CORPORATIONS are organizations sanctioned by state laws and are considered "legal entities" separate and distinct from the owners. To start a corporation, you are required to submit a "charter" to the state government outlining the type of business intended. The charter should also specify how the corporation will be financed and governed.

The advantages of a corporation over other types of businesses would include

(1) it is easier to finance because a corporation can sell stocks and bonds,

(2) limited owner liability (the stockholders can only lose their investment),

(3) unlimited life (the death of a stockholder does not mean the end of a corporation), and

(4) highly specialized management.

The disadvantages of a corporation are

(1) it is more difficult to start up, and

(2) it is subject to extensive government regulation and taxation.

Each type of business (sole proprietorship, partnership, and corporation) uses different methods for distributing the profits to the owners.

Sole proprietorship-All profits are distributed to the sole owner, as he or she has taken all the risks.

Partnership-Typically profits are distributed based on the percentage of capital invested. If one partner invested more than the others, then this partner has more at risk.

Corporation-Profits are distributed to the stockholders. Preferred stock is paid first, and then any remaining profits are distributed to the common stock.

Supplemental Assignments (These are optional. Please do not submit with your work, as they will not be graded.)

1. If you could start any kind of institution, what kind would it be, and why?

Review

Directions: For each question, write your answer in complete sentences. Use supporting details from the lesson to justify your answers. Do not copy and paste text but use your own words to demonstrate understanding of the lesson concepts. Remember to cite your resources. Citation examples are provided below the Review.

1. Identify and describe the various types of business ownership. Provide examples of each. Explain the advantages and disadvantages of each.

2. What three institutions influence economics the most? Explain how each influences economics and provide examples of each.

3. If you were a sole proprietor and had annual profits of $100,000, how would the profits be distributed?

4. You are partners with Alice and Mark. You contributed 50% of the capital, Alice contributed 30%, and Mark contributed 20%.

(a) How would the annual profits of $100,000 be distributed among all three of you?

(b) Using these same numbers, how would an annual loss of $80,000 be distributed between the three of you?

5. Conduct internet research to discover the three biggest threats to each type of business institutions today. Report your findings in short essay form.

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