Things to Know by 02/24/10...

You should be able to:
  • Explain the fundamental economic problem.
Limited sources (scarcity), and unlimited demand
  • Explain the three basic economic questions every society must decide.

  1. What to produce,
  2. How to produce it.
  3. Who to produce it for.

  • Explain the relationship among scarcity, value, utility, and wealth.
All of these terms effect each other in an economic system-
    1. Scarcity is how available a product is.
    2. Value is based on the availability of these products. The more scarce a product it, the more value it has.
    3. Utility is how much the value pleases the consumer, and how useful a product is. The more uses there are for one product, the more valuable it is.
    4. Wealth is an accumulation of all the things you own that have value. In some circumstances, one's wealth is meaningless if the owner of a product is unwilling to sell.
  • Understand the circular flow of economic activity.
The circular flow of economic activity is based on "What goes around comes around" It begins with the spending habits of consumers, how much and how fast consumers spend then drives the amount of investments that businesses make in resources to produce goods. These investments then affect the number of jobs that are available and the general economic health of the region. As more jobs become available, consumers have more money to spend. Conversely, as employment levels drop, consumers have less money to spend on goods and services.
  • Understand trade offs and opportunity cost.
When you gain something, you have to let go of something- the thing you gain is the opportunity cost, and the thing you let go is the trade off.
  • Understand the PPF (Production Possibility Frontier).
The maximum obtainable amount of one commodity, for any given amount of other commodities.
  • Describe the characteristics of the traditional, command, and market economies (also the advantages/disadvantages of each).
    1. Traditional Economy: Resources are allocated by inheritance, has a strong social network, and is based on indigenous technology and advances (examples being bartering and trading goods instead of currency). Advantages: easier for everyone to get what you want if they have what other people want. Disadvantages: Aren't very flexable, and makes it difficult to determine value.
    2. Command Economy: State or worker's councils manage the economy- central government makes all the decisions on the production and consumption of goods and services, as well as controlling all major sectors of the economy and formulating all major decisions about the use of resources and the distribution of output. Advantages: Incredibly stable Disadvantages: Can't always tell what the consumer wants, lack of innovation because there's no reward for it.
    3. Market Economy: Based on the division of labor in which the process of goods and services are determined by the free price system set by supply and demand. Advantages: Individuals have influence on value as consumers (suply/demand), innovation because of the pursuit of money and competition. Disadvantages: Prone to rebellions and strike, unstable due to larger production of wealth with small distribution of wealth.

Things to Know by 03/03/10...

You should be able to: define the following and know the advantages and disadvantages-
Sole Proprietorship
Business owned and run by one person, usually small and easy to run, with an easy start up requirement.

  • Advantages:
    • Ease of management
    • Keep all profits.
    • No separate business taxes.
  • Disadvantages:
    • Risk (unlimited liability).
    • Difficult to get starting money/capital.
    • Small and inefficient.
    • Limited life.

Businesses owned by two or more people

  • Two types of partnerships:
    • General Partnership: All partners are involved in every day decisions
    • Limited Partnership: At least one partner is not involved in every day decisions, most often they are providing financial support.
  • Advantages: Easy to establish.
    • No special taxes.
    • Easier to get starting capital.
  • Disadvantages:
    • Shared responsibility.
    • Risk (unlimited liability).


Form of business recognized by law as a separate legal entity having all the rights of the individual, including the right to buy/sell, enter into contracts, and to sue and be sued.
  • To form a corporation, you must apply to the government for a charter, which specifies how many shares of stock to be sold to investors called stock holders or share holders who receive a share of the profits (called dividends) if the company is profitable.
  • Advantages:-
    • Easy to raise capital-may borrow money by issuing bonds.
    • Amount borrowed is principle-cost of borrowing is the interest.
  • Disadvantages:-
    • Expensive to start-
    • Shareholders have little influence-double taxation as corporate profit and as personal income

Corporation Structure:
  • Stockholders become partial owners with some ownership rights based on the type of stock they own
  • Two types of stock:
    • Common Stock: Basic ownership gives voting rights for electing board members, ect.
    • Preferred Stock: Voting stockholders are given preferential treatment when dividends are paid

SS.D.1.4. The student can identify the three major forms of business organization: sole proprietorship, partnership, and corporation, and can explain the advantages and disadvantages of business organizations.