Ch. 2 What is Economics?

Name: Hannah Godbehere Period: 3rd Date: 8/26/20

In your own words, define the 8 terms below. Also, give examples of each one.
1. Free enterprise:
- private business operates in competition & free of state control.
- Starting your own business

2. Private property:
- Owned personally by someone.
- Your house.

3. Public property:
- Property the public owns.
- The park.

4. Specialization:
- What someone is good at and is more efficient for them.
- Teaching Spanish to kids if you’re fluent in it.

5. Price system:
- Organizing economic activities.

6. Money:
- What we use to buy any and everything that is worth money.
- Coins, card, cash.

7. Barter:
- Exchanging or trading something to someone else.
- Giving clothes to a confinement store in exchange for money.

8. Efficiency:
- Being able to do stuff in the easiest way for a person possible.
- A typewriter was very efficient when they were first invented.

In the space below, write a short paragraph that includes the terms command economy,
traditional economy, and mixed economy. Provide an example.

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You were introduced to Sandi Beech in the previous chapter. Sandi is the proud owner and
operator of “Tee-rific”. She sells T-shirts in Olathe, Kansas.
Now fill in the blanks, using the answers below in bold print, to further describe Sandi’s story.
1. Sandi has the right to sell shirts because of this pillar of free enterprise
- Private property

2. By making and selling shirts, Sandi has become an

- entrepreneur

3. When people buy Sandi’s shirts, they are engaging in

- voluntary exchange.

4. If another T-shirt producer starts a busines in Olathe, we now have more competition.

5. Sandi conducts her business daily. She charges her customers a price for her shirts. She
collects money for her shirts and uses it to pay her expenses.

a. When people see the price of the shirts, money is functioning as a

- Measure of value
b. When Sandi puts her receipts in savings, money is functioning as a
- Store of value

c. When people pay Sandi for a shirt, money is functioning as a

- Medium of exchange
medium of exchange private property store of value
voluntary exchange competition entrepreneur measure of value

If the town of Olathe decides to tell Sandi how to run her business, the town is in violation of a
goal of our economic system (see page 29 of JA green textbook). What goal is being violated?
Describe how this could be the case. How should Sandi respond?
- Her economic freedom is being violated. It’s being violated because it’s her business
and people cannot tell her how to run her own business. Sandi should

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The free enterprise system, sometimes called market system or capitalism, is often very
successful in producing the goods and services consumers demand in an efficient way. Voluntary
exchange takes place between consumers and entrepreneurs. It’s amazing how little the
government is involved in the process. They set the ground rules, then retreat, only to return
when violators are punished. There are numerous examples of success stories. Examine below
how Life Savers candy was able to use the principles (pillars) of free enterprise and create a
highly successful business that is still strong today.
During the hot summers of the early 1900s, stores and customers did not buy much chocolate.
After all, this was before the days of air conditioning, and chocolate candies melted. Still, candy
producer Clarence Crane needed something to fill his empty sales months. So, he produced a
hard, round candy with a hole in the middle. The candies reminded him of rescue rings used at
sea, so he called them Life Savers.
Crane preferred selling chocolates, however, so he sold his idea for Life Savers to a salesman
named Edward J. Noble for about $300. Noble soon noticed that merchants did not want to buy
the Life Savers because the candy became stale almost overnight. Refusing to give up, Noble
wrapped the candies in tinfoil and urged merchants to display them by the cash register where
customers would see them more easily. Sales of Life Savers soared, and so did the use of point-
of-purchase counter displays, located near cash registers, selling a multitude of products, that we
see today.
1. Three of the pillars of free enterprise are private property, the price system, and market
competition. Which of them does this story illustrate best? Explain.
- This story best illustrates

2. Explain how this story illustrates entrepreneurship.

- It illustrates entrepreneurship because it has to do w/ business & economics as well as
the ‘Life Savers’ creator selling his idea + product for profit.

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The circular flow chart located on the top of the JA Study Guide page 16 and the JA green
textbook page 23, is often used the examine the free enterprise system with the use of a chart. It
shows how consumers and business interact voluntarily on two occasions to create and sell the
goods and services we demand. Firstly, a market for resources takes place followed by a market
for goods and services.
1. Use the circular flow models in the books to explain how the money you
spend in the Market for Goods and Services becomes income for members of another
household in the Household circle. In other words, how does the money you spend pass
through the Business and Market for Resources circles first?
- We buy the goods/ services which were produced by another person in another
household and the cycle continues.
 2. Use the models again to explain how money spent by businesses in the Market for
Resources on such items as wages becomes income for another household. In other
words, how do business expenditures pass through the Household and Market for Goods
and Services circles, ending up in the Businesses circle?
- Households/people purchase goods, which businesses provide through the product
market. Businesses need resources so they can produce goods. Members of
households provide labor to businesses through the resource market & then
businesses turn those resources into goods and services.

3. What would happen to the circular flow if the total value of goods and services expands?
Start with the Market for Resources first then explain what will happened to the other
circles accordingly.
- If the total value of goods & services expands the market for resources would get less
money, some people could lose jobs because they wouldn’t be producing as much.
Everything affects everything so the rest of the circular flow would be disrupted.

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U.S. Economic Goals – see page 29 of green JA Textbook

In our economic system we have goals. They are excellent in nature, but how well are we at
achieving them?
Goal: define in your own words Example:
Full employment: Access to jobs for anyone of age, disability,
Everyone should be able to find a job if etc.
they’re able, ready, and willing to work.

Economic growth: GDP- Gross domestic product.

 An increase in goods being produced
over a year span.

Price stability: CPI- Consumer price index.

Prices for goods shouldn’t rise or drop
significantly in a short period of time.

Economic freedom: The ability to choose your own occupation

The freedom we have with our career and what you use your money for.
choice, money, and any other economic
decision.

Economic security: Transportation, food security, shelter, etc.

The necessary needs of a person should be
met, including people who cannot pay their
way through life.

Economic equity: The legal system isn’t very equitable, whereas

Means every person should have fair and the school system is.
equal opportunities.

Efficiency: Doing well in school, business, etc.

Where nothing can be improved without
something else being messed up.

There are actually said to be 4 types of economic systems in the world today (see page 22 of the
green JA Textbook). Describe how each one allocates its scarce resources - the factors of
production; land, labor, capital and entrepreneurship. How do they address the 3 basic economic
questions: what are we going to produce, how are we going to produce it, and who is going to
receive it when it is produced?
1. Free enterprise/market system/capitalism
- Govn. Is less involved compared to the other systems.
- The U.S. has more of a free enterprise system.
 2. Command/communism
- Govn. Controls and runs pretty much everything.
- Russia, China, and other Eastern European nations.

3. Traditional
- Rely on traditions or customs. Less common in today’s society.
- Found in more rural, remote places.

4. Mixed
- A mixture of all 3 systems.

Which system do think is the best and why?

- I think mixed is the best system because it includes a variation of all of the other
systems so it’s kind of balanced.