Social Science: Economics (Review)

Effects Economy Can Have on Purchasing Decisions of Consumers
The economy plays an important role in how careful consumers are when using their resources. It also affects what they perceive as needs as opposed to what they perceive as wants. When the economy is doing well, unemployment figures are low, which means that people can easily attain their basic necessities. As a result, consumers are typically more willing to spend their financial resources. Consumers will also be more willing to spend their resources on products and services that are not necessary to their survival, but are instead products and services that they enjoy having and believe increase their quality of life. On the other hand, when the economy is in a slump, consumers are much more likely to cut back on their spending because they perceive a significantly higher risk of being unable to acquire basic necessities due to a lack of financial resources.

Common Terminology in Economics
Supply is the amount of a product or service available to consumers.

Demand is how much consumers are willing to pay for the product or service. These two facets of the market determine the price of goods and services. The higher the demand, the higher the price the supplier will charge; the lower the demand, the lower the price.
Scarcity is a measure of supply. Demand is high when there is a scarcity, or low supply, of an item.
Choice is related to scarcity and demand in that when an item in demand is scarce, consumers have to make difficult choices. They can pay more for an item, go without it, or go elsewhere for the item.
Money is the cash or currency available for payment.
Resources are the items one can barter in exchange for goods. Money is the cash reserves of a nation, while resources are the minerals, labor force, armaments, and other raw materials or assets a nation has available for trade.

Effects of Economic Downturn or Recession
When a recession happens, people at all levels of society feel the economic effects. For example:
High unemployment results because businesses have to cut back to keep costs low, and may no longer have the work for the labor force they once did.
Mortgage rates go up on variable-rate loans as banks try to increase their revenues, but the higher rates cause some people who cannot afford increased housing costs to sell or suffer foreclosure.
Credit becomes less available as banks try to lessen their risk. This decreased lending affects business operations, home and auto loans, Stock market prices drop, and the lower dividends paid to stockholders reduce their income. This is especially hard on retired people who rely on stock dividends.
Psychological depression and trauma may occur in those who suffer bankruptcy, unemployment, or foreclosure during a depression.

Economic Effects of Abundant Natural Resources
The positive economic aspects of abundant natural resources are an increase in revenue and new jobs where those resources have not been previously accessed. For example, the growing demand for oil, gas, and minerals has led companies to venture into new regions.
The negative economic aspects of abundant natural resources are:
Environmental degradation, if sufficient regulations are not in place to counter strip mining, deforestation, and contamination.
Corruption, if sufficient regulations are not in place to counter bribery, political favoritism, and exploitation of workers as greedy companies try to maximize their profits.
Social tension, if the resources are privately owned such that the rich become richer and the poor do not reap the benefits of their national resources. Class divisions become wider, resulting in social unrest.
Dependence, if income from the natural resources is not used to develop other industries as well. In this situation, the economy becomes dependent on one source, and faces potential crises if natural disasters or depletion take away that income source.

Economics and Kinds of Economies
Economics is the study of the buying choices that people make, the production of goods and services, and how our market system works. The two kinds of economies are command and market. In a command economy, the government controls what and how much is produced, the methods used for production, and the distribution of goods and services. In a market economy, producers make decisions about methods and distribution on their own. These choices are based on what will sell and bring a profit in the marketplace. In a market economy, consumers ultimately affect these decisions by choosing whether or not to buy certain goods and services. The United States has a market economy.

Market Economy
The five characteristics of a market economy are:
Economic freedom – There is freedom of choice with respect to jobs, salaries, production, and price.
Economic incentives – A positive incentive is to make a profit. However, if the producer tries to make too high a profit, the consequences might be that no one will purchase the item at that price. A negative incentive would be a drop in profits, causing the producer to decrease or discontinue production. A boycott, which might cause the producer to change business practices or policies, is also a negative economic incentive.
Competition – There is more than one producer for any given product. Consumers thereby have choices about what to buy, which are usually made based on quality and price. Competition is an incentive for a producer to make the best product at the best price. Otherwise, producers will lose business to the competition.
Private ownership – Production and profits belong to an individual or to a private company, not to the government.
Limited government – Government plays no role in the economic decisions of its individual citizens.

Factors of Production and Types of Markets That Create Economic Flow

The factors of production are:
Land – This includes not only actual land, but also forests, minerals, water, etc.
Labor – This is the work force required to produce goods and services, including factors such as talent, skills, and physical labor.
Capital – This is the cash and material equipment needed to produce goods and services, including buildings, property, tools, office equipment, roads, etc.
Entrepreneurship – Persons with initiative can capitalize on the free market system by producing goods and services.
The two types of markets are factor and product markets. The factor market consists of the people who exchange their services for wages. The people are sellers and companies are buyers. The product market is the selling of products to the people who want to buy them. The people are the buyers and the companies are the sellers. This exchange creates a circular economic flow in which money goes from the producers to workers as wages, and then flows back to producers in the form of payment for products.

Economic Impact of Technology

At the start of the 21st century, the role of information and communications technologies (ICT) grew rapidly as the economy shifted to a knowledge-based one. Output is increasing in areas where ICT is used intensively, which are service areas and knowledge-intensive industries such as finance; insurance; real estate; business services; health care; environmental goods and services; and community, social, and personal services. Meanwhile, the economic share for manufacturers is declining in medium- and low-technology industries such as chemicals, food products, textiles, gas, water, electricity, construction, and transport and communication services. Industries that have traditionally been high-tech, such as aerospace, computers, electronics, and pharmaceuticals are remaining steady in terms of their economic share. Technology has become the strongest factor in determining per capita income for many countries. The ease of technology investments as compared to industries that involve factories and large labor forces has resulted in more foreign investments in countries that do not have natural resources to call upon.