Test

Labor is a crucial resource in an economy. The way people acquire skills and put them to use has a direct impact on the quality, quantity, and speed of what an economy can produce.

Amassing capital and using it effectively are crucial components of a successful business. Workers with access to better tools, materials, and facilities should be able to produce goods and services more efficiently and effectively.

Scarcity is the driving force behind most economic choices. Because resources are, by their very nature, limited, both governments and individuals are forced to make choices about which priorities are worth investing time and resources into addressing. These decisions are, ultimately, what end up shaping economies, large or small.

Market economies hinge on the ability of sellers to set prices for goods and services that consumers are willing to pay while still returning a profit on the labor and resources that went into producing the good or service. Businesses and individuals succeed or fail within a market economy based upon the strength of their buying and selling decisions.

A command economy is tightly regulated by its government. Things like prices, resources, what to produce, and production rates are all set by government officials.

While American capitalism is rooted heavily in the free market economic model, the government still provides some essential services as well as some market oversight. This government involvement is designed to help protect people from unfair trade practices and unfit working conditions while, at the same time, ensuring people have access to crucial services like education and military protection.

Opportunity cost plays a key part in economic decision-making. Weighing the value of lost opportunities forces businesses, governments, and consumers to grapple with the trade-offs that come with their economic choices.

Fixed costs do not change, regardless of how many hours a business stays open or how much of a good or service they produce. A monthly rent payment on a storefront does not change whether the store is open for 24 hours a day or only for an hour a week; once the rent is paid, it covers a month’s occupancy of the structure regardless of how it is used for that particular month.

Variable costs are costs that can change depending on how much a business is producing. In this case, by cutting back on hours, a business decreases its variable costs like payroll and energy usage.

When production increases, variable costs go up while fixed costs remain the same. Marginal cost is the determination of what this increase would be for a single extra unit of production. Using this information to calculate marginal profit (the income from an extra unit minus its cost) helps pinpoint the optimal production level for a business.

A business’s total costs represent the combination of their fixed costs and their variable costs.

While Larry is only turning a $20 profit from his business, his benefit-cost ratio of 3:1 is higher than Stacy’s 2:1, Tori’s 1:1, and Steve’s 4:5 (which is actually a loss!).

Evaluating the demand for a good or service involves analyzing the consumers in a particular market. Knowing how much buyers are willing to purchase, how much they are able to actually purchase, and the price at which they are willing and able to do so all factor into demand calculations.

Scarcity in the marketplace can allow producers to raise prices on goods or services that are in particularly low supply. Of course, demand also factors in; if a good is in low supply and its demand is also low, a high price will likely further deter consumers from purchasing it.

On a supply and demand curve, the equilibrium price is where the rising supply curve intersects with the falling demand curve. At this optimal price point, the amount consumers would be willing to purchase and the amount a producer would be willing to sell are balanced.

As more buyers enter a market, demand for goods in that market increases. In this case, more car owners means there are more consumers in the market for car components like tires.

An event like a recall can affect consumers’ preferences. If a good or service falls out of favor with the buying public, demand can fall off sharply.

The Gross Domestic Product is a popular way to evaluate a nation’s economy. The figure can be used to compare nations to each other as well as to evaluate a nation’s economic growth or decline over a time period

The GDP can be a way to assess a nation’s income. When GDP increases, it signifies an uptick in production. Increased production means an increase in labor costs, which, in turn, means an increase in both people’s incomes and their overall purchasing power.

Services and finished products that are bought and sold inside the country are used to calculate GDP. On the other hand, GDP excludes certain economic activities that do not lead to a final, consumer purchased good or service. For example, the sale of used goods is excluded because the goods were already included in the GDP calculation when they were originally sold as a new product. The purchase of intermediate goods that go into creating a final product (building materials, food ingredients, machine parts, etc.) is also excluded since the parts will eventually be calculated as part of a finished product. Services that take place outside of the country do not count towards GDP either, even if a domestic company carries them out.

Entrepreneurs are crucial to growing economies. They take risks by investing capital, time, and energy to create companies with no guarantee of success. Without entrepreneurs, economies would have a difficult time increasing both production and innovation.

The factor market deals with all of the facets of production are bought and sold. This includes the cost of hiring a workforce as well as purchasing equipment and materials.

Business have a variety of ways to increase production. By specializing, businesses focus on specific goods and/or services that they can produce reliably and efficiently. Investing in workers’ education, skills, and health leads to a more efficient and effective labor force that can produce at a higher rate. Dividing larger tasks into smaller ones also makes it easier for businesses to be more efficient in achieving production goals.

The free enterprise system thrives because of the motivation to earn money and property. In such a system, businesses and individuals have the ability to trade, save, and compete with others in order to accumulate property and capital. The end result is an economy that thrives due to the predictability of consumers and producers working for their own self-interests.