UNITS OF ECONOMICS

1-Basic Economic Concepts.
2-The World Economy.
3-Economic Systems.
4-The Free Entreprise Economy.
5-The Role of Businesses in the Economy.
6-The Role of Labor in the Economy.
7-The Role of Government in the Economy.
8-Money, Credit, and Banking.
9-Economic Performance.
10-Personal Economics.
11-Today's Economy & Trade.

1-Explain how the central problem of scarcity is related to opportunity costs, making choices, and trade-offs (I A).

2-Describe the factors of production and the interrelationship among them : natural resources, human resources, capital, technology, etc. (I A, IV B).

3-Identify the three basic economic questions that all societies must answer and describe how different economic systems answer them: what, how, for whom. (II A, IV A).

4-Explain how economics relates to social issues and problems (IV A).

5-Define and explain the term economic market (IV A).

6-Describe how the laws of supply and demand interact to determine price (IV A).

7-Explain the meaning of “opportunity cost” (IV A).

8-Distinguish between consumer goods and capital goods (IV B)

VOCABULARY

1-ECONOMICS: SOCIAL SCIENCE CONCERNED WITH THE PRODUCTION, DISTRIBUTION, EXCHANGE, AND CONSUMPTION OF GOODS AND SERVICES.
(Macro & Micro)

2-ECONOMY: MANAGEMENT OF A HOUSEHOLD. EFFICIENT USE OF RESOURCES. STRUCTURE OF THE ECONOMIC LIFE OF A NATION.

3-CAPITAL: BODY OF GOODS AND MONIES FROM WHICH FUTURE INCOME CAN BE DERIVED.

4-CREDIT: TRANSFER OF MONEY OR OTHER PROPERTY ON PROMISE OF REPAYMENT. CREDITOR / DEBTOR. INTEREST.

5-INTEREST: PAYMENT FOR THE USE OF SOMEONE ELSE MONEY.

6-PRODUCTION COST: SUM /ADDITION OF THE COSTS OF RAW MATERIALS, LABOR FORCE, FUEL, UTILITIES, AND EQUIPMENTS’ WEAR

7-PRICE: GOODS AND SERVICES’ VALUE ACCORDING TO THE PRODUCTION COST AND THE MARKET COMPETITION.

8-COMPETITION: INTERACTION BETWEEN BUYERS AND SELLERS IN THE MARKET.

9-PROFIT: DIFFERENCE PRODUCTION COST AND PRICE.

10-ENTREPRENEUR: PERSON WHO ASSUME THE RESPONSIBILITY AND RISKS FOR A BUSINESS OPERATION WITH THE EXPECTATION OF MAKING A PROFIT.

11-C.E.O.: CHIEF EXECUTIVE OFFICER IN A CORPORATION.

12-MANAGER: PERSON WHO RECEIVE FROM THE OWNER THE RESPONSIBILITY OF LEADING THE DAY-TO-DAY OPERATIONS OF A BUSINESS.

13-CORPORATION: LEGAL ORGANIZATION THAT ALLOW PEOPLE TO ASSOCIATE TOGETHER FOR A COMMON PURPOSE AND UNDER A COMMON NAME IN A JOINT-STOCK COMPANY. IT NEEDS TO RECEIVE A CHARTER FROM THE GOVERNMENT. KEY ECONOMIC INSTITUTION.

14-STOCKS: CERTIFICATES REPRESENTING SHARES OF OWNERSHIP IN A CORPORATION. WALL STREET / THE STOCK MARKET.

15-INCOME / REVENUE: MONEY OR OTHER GAIN OR RETURN RESULTING FROM GOODS OR SERVICES. Revenue - Expenses = Income or Profit.

16-WAGE / SALARY: PRICE PAID FOR LABOR.

17-SUPPLY & DEMAND: BASIC FACTORS DETERMINING PRICE.

18-POVERTY: ECONOMIC CONDITION IN WHICH PEOPLE LACK SUFFICIENT INCOME TO COVER THE BASIC NEEDS (FOOD, HOUSE, CLOTHES, EDUCATION, HEALTH, TRANSPORT).

19-FRANCHISE: SPECIAL RIGHT OR PRIVILEGE GRANTED TO AN INDIVIDUAL OR GROUP TO CARRY ON A PARTICULAR ACTIVITY (AUTO DEALERS, MC DONALD.)

20-RECESSION / DEPRESSION: PERIOD OF LOW PRODUCTION, BUSINESS FAILURE, UNEMPLOYMENT, ETC.

21-BUDGET: FORECAST OF EXPENDITURES AND REVENUES.

22-CARTEL / TRUST: AGREEMENT AMONG BUSINESSES DESIGNED TO REDUCE COMPETITION, FIX PRICES, AND DIVIDE THE MARKET AMONG THEM. A CARTEL CONTROL PRODUCTION AND DISTRIBUTION.

23-OLIGOPOLY / MONOPOLY: ECONOMIC SITUATION IN WHICH ONLY A SINGLE SELLER OR PRODUCER SUPPLIES A GOOD OR SERVICE. NO COMPETITION. CONTROL OF THE MARKET / PRICES.

24-MERGER: THE COMBINING OF TWO OR MORE COMPANIES INTO A SINGLE CORPORATION.

25-MARKET: PLACE WHERE BUYERS AND SELLERS MET. PLACE TO TRADE GOODS AND SERVICES.

26-INFLATION / DEFLATION / STAGFLATION: DECLINE / INCREASE IN THE VALUE OF MONEY IN RELATION TO THE GOODS / SERVICES THAT IT CAN BUY. HIGH / LOW PRICES.

27-MERCANTILISM: ECONOMIC POLICY (16th.-18th. CENTURIES): TAKE OUT AS MUCH RESOURCES AND WEALTH AS POSSIBLE FROM THE COLONIES TO THE METROPOLIS. GOVERNMENT CONTROLS THE TRADE TO ACHIEVE NATIONAL STRENGTH. POSSESSION OF GOLD AND SILVER.

28-CAPITALISM / FREE ENTERPRISE / MARKET SYSTEM: PRIVATE INDIVIDUALS/GROUPS DECIDE WHAT, WHEN, HOW TO PRODUCE AND DISTRIBUTE GOODS AND SERVICES, PRICES, ETC. OBTAIN PROFITS IS THE OBJECTIVE. THE MARKET RULES THE PROCESS. GOVERNMENT INTERFERES THE LESS THE BETTER.

29-COMMUNISM / COMMAND SYSTEM: “SOCIAL OWNERSHIP”, GOVERNMENT CENTRALIZES EVERYTHING.

30-TAXATION: SYTEM OF COMPULSORY CONTRIBUTIONS LEVIED BY THE GOVERNMENT ON PERSONS, CORPORATIONS, AND PROPERTY AS A SOURCE OF REVENUE FOR GOV. EXPENSES.

31-TARIFF: CUSTOMS DUTIES IMPOSED BY THE GOVERNMENT ON IMPORTS. SOURCE OF REVENUES AND PROTECT NATIONAL INDUSTRY. GATT (GENERAL AGREEMENT ON TARIFFS AND TRADE).

32-MORTGAGE: LOAN TO BUY A PROPERTY. INTEREST + SECURITIES.

33-CONSUMER: PERSON WHO BUYS GOODS AND SERVICES FOR PERSONAL USE, NOT FOR RESALE.

34-PRODUCER: PERSON OR COMPANY THAT MAKES / PROVIDE THE GOODS OR SERVICES THAT CONSUMERS USE.

35-RESOURCES: MATERIALS FROM WHICH GOODS ARE MADE.

36-SCARCITY OF RESOURCES: WHEN THE DEMAND FOR A RESOURCE OR SERVICE IS GREATER THAN THE SUPPLY = MOST OF THE TIMES. RESOURCES ARE LIMITED WHILE HUMAN WANTS ARE UNLIMITED.

37-RECYCLING: THE PROCESS OF USING MATERIALS MORE THAN ONCE.

38-OPPORTUNITY COST: THE TIME AND/OR MONEY A PERSON OR SOCIETY HAS TO GIVE UP WHEN SHE/HE CHOOSES TO BUY SOME GOOD AND/OR SERVICE.

39-TRADEOFF: WHEN PEOPLE MAKE A CHOICE BETWEEN TWO POSSIBLE USES OF THEIR RESOURCES. WILDERNESS vs. ECONOMIC EXPLOITATION OF RESOURCES

40-ECONOMIC MODEL: SIMPLE PLAN TO ANALYZE PROBLEMS, SEEK SOLUTIONS, AND COMPARE POSSIBILITIES.

41-PRODUCTION POSSIBILITIES MODEL: AN ECONOMIC MODEL USEFUL IN UNDERSTANDING OPPORTUNITY COSTS.

42-PRODUCTION CAPACITY: LESS THAN FULL vs. FULL CAPACITY

FACTORS OF PRODUCTION: LAND, LABOR, MANAGEMENT, CAPITAL.

TYPES OF CAPITAL: INDUSTRIAL , PRODUCTIVE, OR FIXED (LAND, BUILDINGS, MACHINERY), FINANCIAL OR CIRCULATING (BANK ACCOUNTS, BONDS, STOCKS), AND HUMAN CAPITAL.

TYPES OF INCOME: WAGES (RETURN FOR LABOR), RENT (RETURN FOR THE USE OF LAND), INTEREST (RENT FOR THE USE OF CAPITAL), PROFIT (RETURN TO THE BUSINESS OWNER)

TYPES OF BUSINESS ORGANIZATION: INDIVIDUAL PROPRIETORSHIP, PARTNERSHIP, CORPORATION

TYPES OF RESOURCES: HUMAN RESOURCES, NATURAL RESOURCES (RAW MATERIALS), CAPITAL RESOURCES (MONEY & PROPERTY, USED TO PRODUCE GOODS & SERVICES)

CAUSES OF SCARCITY:

-POOR DISTRIBUTION OF RESOURCES (WATER)

-PERSONAL PERSPECTIVE (RELATIVE SITUATION)

-RAPID INCREASE IN DEMAND

WAYS TO DEAL WITH SCARCITY:

-GIVE UP SOME WANTS

-CREATE MORE RESOURCES. TECHNOLOGY

-MAKE BETTER USE OF RESOURCES: RECYCLING, REASONABLE CONSUMPTION, ETC.

-REDISTRIBUTE GOODS / SERVICES SO EVERYONE RECEIVE ENOUGH

KEY ECONOMIC QUESTIONS:

1-WHAT GOODS AND SERVICES WILL BE PRODUCED?

-AVAILABLE RESOURCES

-POLICIES AND PRIORITIES (WAR, INFLUENCE OF SOME CORP.)

2-HOW WILL GOODS AND SERVICES BE PRODUCED?

-EACH COUNTRY ECONOMIC SYSTEM

-QUALITY OF THE WORK FORCE

3-WHO WILL GET THEM?

-SOCIAL PROGRAMS

-POLICY ON REDISTRIBUTION OF THE WEALTH

-HELP TO CERTAIN GROUPS

-NEED vs. CONTRIBUTION TO PRODUCTION

4-HOW MUCH WILL BE PRODUCED FOR NOW AND HOW MUCH FOR LATER?

-USE OF NATURAL RESOURCES / ENVIRONMENTAL DECISIONS

-CONSUMERISM

-SATISFY IMMEDIATE NEEDS (CONSUMER GOODS) vs. INVEST IN CAPITAL GOODS (SATISFY FUTURE NEEDS)

DEMAND:

-THE DESIRE TO PURCHASE SOMETHING AT A SPECIFIED PRICE AND TIME, ACCOMPANIED BY THE ABILITY AND WILLINGNESS TO PAY.

-THE QUANTITY DEMANDED VARIES WITH THE PRICE OF AN ITEM (DEMAND SCHEDULE / DEMAND CURVE). THE LAW OF DEMAND SAYS THAT THE QUANTITY DEMANDED VARIES INVERSELY WITH CHANGES IN PRICE.

-ELASTICITY OF DEMAND DESCRIBES THE PERCENTAGE CHANGE IN DEMAND THAT FOLLOW A PRICE CHANGE. THE MORE DEMAND EXPANDS OR CONTRACTS AFTER A PRICE CHANGE, THE GREATER THE ELASTICITY.

-FACTORS THAT MAKE DEMAND LESS ELASTIC:

IF THE ITEM IS A LUXURY.

IF THE PRICE REPRESENT A LARGE PORTION OF THE FAMILY INCOME.

IF THE PRODUCT CAN EASILY BE REPLACED FOR A SUBSTITUTE.

IF THE ITEM IS DURABLE AND THE NEW PURCHASE CAN WAIT.

-THE DEMAND CAN ALSO BE ALTERED BY PSYCHOLOGICAL OR EXTERNAL FACTORS (GOOD OR BAD NEWS, STATISTICS, NATURAL DISASTERS, ADVERTISING.)

SUPPLY:

-THE AMOUNT OF GOODS OR SERVICES OFFERED FOR SALE AT A PARTICULAR PRICE. THE LAW OF SUPPLY SAYS THAT THE QUANTITY OF A COMMODITY SUPPLIED VARIES DIRECTLY WITH THE PRICE.

-MANUFACTURED GOODS (FURNITURE) ARE SUBJECT TO GREATER SUPPLY ELASTICITY THAN GOODS PROVIDED BY NATURE (MILK). THE AMOUNT OF NATURAL RESOURCES AVAILABLE IS USUALLY LIMITED.

-THE PRODUCTIVE CAPACITY AND AVAILABILITY OF CAPITAL CAN LIMIT THE POSSIBILITY OF INCREASE THE SUPPLY IN A SHORT PERIOD OF TIME (RESPONSE CAPABILITY).

SUPPLY / DEMAND / PRICE

-AS THE DEMAND INCREASES, THE PRICE INCREASES, THE SUPPLY INCREASES, BUT THEN THE DEMAND DECREASES AND THE PRICE DECREASES WHICH CAUSES THE DEMAND INCREASES AGAIN AND SO ON.

-THERE IS ONE PRICE AT WHICH DEMAND AND SUPPLY ARE EQUAL: THE EQUILIBRIUM PRICE OR THE MARKET PRICE.

UTILITY:

-THE MEASURE OF SATISFACTION ONE GETS FROM THE USE OF A GOOD OR SERVICE. MARGINAL (ADDITIONAL) UTILITY IS THE DEGREE OF SATISFACTION A CONSUMER GETS FROM EACH ADDITIONAL PURCHASE OF A PRODUCT OR SERVICE. PEOPLE BUY SOMETHING WHEN THEY THINK THAT A PRODUCT WILL GIVE THEM MORE SATISFACTION (UTILITY) THAN OTHER.

-THE PRINCIPLE OF DIMINISHING MARGINAL UTILITY STATES THAT EACH ADDITIONAL PURCHASE OF A PRODUCT BY A GIVEN CONSUMER WILL BE LESS SATISFYING THAN THE PREVIOUS PURCHASE.

2-THE WORLD ECONOMY

Objectives

1-Analyze per capita GNP or GDP as a measure of standard of living (I A).

2-Explain how economics relates to social issues and problems (IV A).

3-Explain how internationalization / globalization of economy has blended elements of

various economic systems (VI B).

INDUSTRIAL DEVELOPMENT & POPULATION

STAGE 1 (BEFORE 1750): PRE-INDUSTRIAL, HIGH DEATH RATE, HIGH BIRTH RATE, LITTLE POPULATION GROWTH

STAGE 2 (1750-1900): EARLY INDUSTRIAL SOCIETY, DEATH RATE DECREASING, HIGH BIRTH RATE, HIGH POPULATION GROWTH

STAGE 3 (1900-1980’s): DEVELOPED INDUSTRIAL SOCIETY, LOW DEATH RATE, BIRTH RATE DECREASING, HIGH POPULATION GROWTH

STAGE 4 (1980’s-TODAY): SUSTAINED INDUSTRIAL DEVELOPMENT, INFORMATION REVOLUTION. COMPUTERS / INTERNET, LOW DEATH RATE, LOW BIRTH RATE, STABLE POPULATION

ECONOMIC SECTORS

PRIMARY: EXTRACTIVE INDUSTRY. ECONOMY BASED ON NATURAL RESOURCES. RAW GOODS. (MINING, OIL EXTRACTION, FISHING, AGRICULTURE, FORESTRY, LIVESTOCK).

SECONDARY: MANUFACTURING INDUSTRY. FINISHED GOODS. (METALLURGY, OIL REFINERY, CHEMICAL PLANTS, CANNED FOOD INDUSTRY, FURNITURE INDUSTRY, PAPER INDUSTRY, MECHANICAL INDUSTRY).

TERCIARY: DISTRIBUTION AND CONSUMPTION. THE SERVICE SECTOR. (WHOLESALE & RETAIL COMMERCE, TRANSPORT, TOURISM, ENTERTAIMENT INDUSTRY)

QUATERNARY: INFORMATION. (COMPUTERS, FINANCE, COMMUNICATION, MEDIA).

ECONOMIC SYSTEMS

1-SUBSISTENCE OR TRADITIONAL: TRIBAL / PRIMITIVE SOCIETY (NO SURPLUS OR PRIVATE PROPERTY).

2-SLAVERY (4000 BC-500 AD): EGYPT - ROME (PROPERTY OF LABOR).

3-FEUDAL (500 AD-1400): MIDDLE AGES (LAND, DEBTS, “PROTECTION”, SERVITUDE)

4-CAPITALISM:

MERCANTILE CAPITALISM (1400-1750): EXPLORATION & CONQUEST.

INDUSTRIAL REVOLUTION (1750-1980’s):

a)-IMPERIALISM (1870-1960): POLITICAL & ECONOMIC COLONIALISM. NEED OF RAW RESOURCES AND MARKETS.

b)-MULTINATIONAL CORPORATIONS (1960-TODAY): FREE MARKET: BUY CHEAP RAW RESOURCES, MARKETS TO SELL MANUFACTURED PRODUCTS, INEXPENSIVE LABOR TO PRODUCE INDUSTRIAL GOODS. NO DIRECT POLITICAL CONTROL.

INFORMATION REVOLUTION (1980’s -TODAY).

5-COMMUNISM (1917-1990): STATE CONTROLLED ECONOMY, “COLLECTIVE” PROPERTY, THE BUREAUCRACY OF THE PARTY, POLITICAL TOTALITARIANISM.

ECONOMIC FLUCTUATIONS OF CAPITALISM. THE CYCLES.

EXPANSION = RECESSION = DEPRESSION = EXPANSION

1-EXPANSION: NEW TECHNOLOGIES, INDUSTRIAL REVOLUTION, PRODUCTION GROWTH, CITIES EXPAND, MORE FACTORIES.

2-RECESSION: SLOWING OF SALES & PRODUCTION, SURPLUSES OF LABOR AND PRODUCTIVE CAPACITY.

3-DEPRESSION: THE ECONOMY IS DOWN, HIGH UNEMPLOYMENT, BANKRUPTCY OF BUSINESS.

GLOBAL ECONOMY

1-GLOBAL ECONOMIC AGENCIES (UN): WORLD BANK, FAO, GATT, INTERNATIONAL MONETARY FUND.

2-MULTINATIONAL CORPORATIONS.

3-COMMUNICATIONS & INFORMATION (SATELLITE, FAX, INTERNET)

4-INTERNATIONAL ECONOMIC ALLIANCES (OPEC, NAFTA, EUROPEAN COMMON MARKET, MERCOSUR, CARICOM).

5-GLOBAL ENVIRONMENTAL ISSUES.

6-EMIGRATION / IMMIGRATION.

DEVELOPMENT: ECONOMIC AND HUMAN

CORE vs. PERIPHERY

NORTH vs. SOUTH

FIRST, SECOND, & THIRD WORLDS

DEVELOPED vs. DEVELOPING COUNTRIES

Map of World Exporters 1993

World Top Leading Exporters & Importers 2004

MEASURES OF ECONOMIC & SOCIAL DEVELOPMENT:

WHAT IS DEVELOPMENT?

1-OWNERSHIP OF CONSUMER GOODS: CAR, TV, PHONE, COMPUTER.

2-GROSS DOMESTIC PRODUCT (GDP): TOTAL VALUE OF GOODS AND SERVICES PRODUCED IN A COUNTRY IN A YEAR.

3-GROSS NATIONAL PRODUCT (GNP): GDP + INCOME FROM INVESTMENTS ABROAD.

4-GDP or GNP per capita: AVERAGE ANNUAL INCOME. THE AMOUNT OF THE GDP or GNP DIVIDED BY THE NUMBER OF TOTAL POPULATION.

5-PURSHASING POWER PARITY (PPP): GDP or GNP per capita CONVERTED TO US DOLLARS.

6-HUMAN DEVELOPMENT INDEX (HDI): LIFE EXPECTANCY + ADULT LITERACY + INFANT MORTALITY + GNP.

7-GENDER DEVELOPMENT INDEX (GDI): SAME AS GNP MEN / WOMEN

HUMAN DEVELOPMENT MAP

UNITED NATIONS’ ECONOMIC & SOCIAL ORGANIZATIONS

-Economic and Social Council

-General Agreement on Tariffs and Trade (GATT)

-World Bank

-International Monetary Fund (I.M.F.)

-International Fund for Agricultural Development

-International Labor Organization

-International Maritime Organization

-United Nations Educational, Scientific and Cultural Organization (UNESCO)

-World Health Organization (WHO)

-United Nations Industrial Development Organization (U.N.I.D.O)

SOME ECONOMIC INTERNATIONAL INSTITUTIONS / ALLIANCES

1-NORTH AMERICA FREE TRADE ASSOCIATION (NAFTA)

2-OPEC

3-CARICOM

4-CENTRAL AMERICA COMMON MARKET (CACM)

5-LATIN AMERICA FREE TRADE ASSOCIATION (LAFTA)

4-MERCOSUR

5-EUROPEAN COMMON MARKET / EUROPEAN ECONOMIC COMMUNITY

6-BRITISH COMMONWEALTH

WEALTH vs. POVERTY: THE GROWING GAP

The wealthiest nations of the world agreed to donate 0.5% of their GDP, annually, to relieve the hunger and suffering in the poorest nations, but not all of them are complying with that.

A big part of the money dedicated to help poor nations goes to Military Aid. The United States is the world's largest contributor of military aid. The U.S. Budget for Foreign Aid for the year 2007 is the $21.3 billon, from which $2.5 billion is for Israel.

3-ECONOMIC SYSTEMS

Objectives

1-Classify countries according to their economic systems (I A).

2-Describe the theories of Adam Smith and Karl Marx as the foundations of Capitalism and Communism (II A).

3-Describe how different economic systems answer the three basic economic questions (II A).

4-Describe the major characteristics of the three economic systems (VI B).

5-Analyze some effects of government regulations on economic activities (II B).

6-Explain how economics relates to social issues and problems (IV A).

7-Describe how the laws of supply and demand interact to determine price (IV A).

8-Identify the major factors influencing supply and demand (IV A).

9-Analyze the role of profit as an incentive in a market economy (IV A).

VOCABULARY

1-CULTURE: A SOCIETY’S ENTIRE WAY OF LIFE: LANGUAGE, RELIGION, HISTORY, TRADITIONS, FOOD, CLOTHING, MORAL, POLITICAL SYSTEM, AND ECONOMIC SYSTEM.

2-TRADITIONAL / SUBSISTENCE SYSTEM: ECONOMIC DECISIONS ARE BASED ON WHAT ALWAYS HAS BEEN DONE IN THE PAST.

3-COMMAND SYSTEM: SOME LEADERS, THE GOVERNMENT, OR CENTRAL AUTHORITY, DECIDE WHAT, HOW, AND HOW MUCH SHOULD BE PRODUCED AS WELL AS WHO WILL GET WHAT. CENTRAL PLANNING IS A KEY ISSUE.

4-MARKET SYSTEM OR CAPITALISM: IT IS BASED ON PRIVATE PROPERTY, EXCHANGE, COMPETITION, AND THE FREE RELATIONSHIP BETWEEN SELLERS AND BUYERS TO OBTAIN A PROFIT. THE DECISIONS ABOUT PRODUCTION AND DISTRIBUTION ARE MADE BY MERCHANTS, CONSUMERS, AND BUSINESSMEN THAT ALL TRY TO GET THE BEST PRODUCTS FOR THE BEST PRICES.

5-PLANNED ECONOMY: THE CENTRAL GOVERNMENT ESTABLISHES A PLAN OR SCHEDULE AS WELL AS SPECIFIC RULES AND METHODS DEFINING WHAT, HOW, AND HOW MUCH SHOULD BE PRODUCED BY EACH PROVINCE / STATE, CITY, FACTORY, AND WORKER.

6-DEMAND: THE QUANTITY OF A PRODUCT CONSUMERS WANT AND CAN BUY. IT MIGHT OR NOT COINCIDE WITH THE REAL NEEDS.

7-SUPPLY: THE QUANTITY OF A GOOD OR SERVICE THAT A PRODUCER PROVIDES.

8-“THE INVISIBLE HAND”: THE BELIEF THAT THE BEST INTERESTS OF SOCIETY ARE MET WHEN PEOPLE COMPETE TO ACHIEVE INDIVIDUAL INTERESTS: PROFITS. THE MARKET REGULATES ITSELF.

9-PROFIT: THE DIFFERENCE BETWEEN COST AND PRICE.

10-PROFIT MOTIVE: THE DESIRE TO MAKE MONEY. THE “ENGINE” OF CAPITALISM.

11-PRIVATE PROPERTY: RESOURCES OWNED BY INDIVIDUALS AND COMPANIES.

12-FREEDOM OF EXCHANGE: BUYERS AND SELLERS ARE ALLOWED TO TRADE OR SELL THEIR GOODS OR SERVICES AT WHATEVER TERMS THEY CAN AGREE ON.

13-SUBSIDIZE: WHEN THE GOVERNMENT PAYS FOR PART OF THE PRICE OF SOME GOODS OR SERVICES TO MAKE THEM ATTAINABLE TO SOME PEOPLE OR GIVES MONEY, SPECIAL TREATMENT, OR ECONOMIC SUPPORT IN ANY OTHER WAY TO SOME COMPANY / INDUSTRY TO AVOID ITS BANKRUPTCY.

14-LAISSEZ-FAIRE: CLASSIC ECONOMIC PHILOSOPHY WHICH HOLDS THAT OWNERS OF BUSINESSES SHOULD BE ALLOWED TO MAKE THEIR OWN PRODUCTION AND DISTRIBUTION DECISIONS WITHOUT GOVERNMENT REGULATION.

ECONOMIC SYSTEMS

EVERY ECONOMY TODAY IS A MIXTURE OF THE THREE MAJOR SYSTEMS. HOWEVER, THE MARKET SYSTEM IS PREDOMINANT IN MOST OF THE WORLD SINCE 1990. EVEN THE FEW COMMUNIST COUNTRIES STILL PRESENT IN THE WORLD STAGE ARE INTRODUCING MORE AND MORE MARKET ELEMENTS AND RULES IN THEIR ECONOMIES.

TRADITIONAL ECONOMY

PEOPLE PRODUCE THE SAME GOODS AND USE THE SAME METHODS AS THEY ANCESTORS DID.

JOBS AND PRODUCTIVE SKILLS ARE HANDED DOWN FROM PARENTS TO CHILDREN.

PEOPLE SHARE EXPENSIVE / HARD TO GET TOOLS AND OTHER MEANS OF PRODUCTION, WORK TOGETHER WHEN NEEDED, SHARE THE RISKS AS WELL AS THE RESULTS OF THE PRODUCTIVE PROCESS.

KEY DECISIONS ARE MADE IN A COLLECTIVE WAY. THE ADVICE OF THE ELDERS IS TAKEN IN CONSIDERATION.

CHANGES OCCUR SLOWLY AND MANY TIMES ARE OPPOSED AT THE BEGINNING.

PEOPLE LIVE AND ACT LIKE FAMILY. HONOR, TRUST, RESPECT, AND MUTUAL HELP ARE KEY ELEMENTS FOR THE SURVIVAL OF THE GROUP.

TAKING CARE OF THE ENVIRONMENT IS A VITAL ISSUE.

ESKIMOS, NATIVE AMERICANS IN SOME RESERVATIONS, AMAZON’S TRIBES, SOME AFRICAN GROUPS, NATIVE AUSTRALIAN TRIBES, ETC.

COMMAND ECONOMY

SLAVERY: EGYPT, ROME AND OTHER ANCIENT EMPIRES.

COMMUNISM (1917-90): SOVIET UNION, CHINA, EASTERN EUROPEAN BLOC, VIETNAM, NORTH KOREA, CUBA.

DEMOCRACY (PARTIAL USE: TAXES, INTEREST RATES, MINIMUM WAGE, WELFARE POLICY, ENVIRONMENTAL LAWS, INTERNATIONAL TRADE, ETC.)

IN THIS SYSTEM, THE GOVERNMENT OR THE “SOCIETY AS A WHOLE” OWNS MOST OF THE RESOURCES AND MEANS OF PRODUCTION.

THE GOVERNMENT ALSO DECIDES ON: WHO IS ASSIGNED TO DO EACH JOB, PRODUCTION GOALS, DISTRIBUTION OF TOOLS AND MACHINERY TO THE FACTORIES, WAGES AND PRICES, DISTRIBUTION OF GOODS AND SERVICES THAT RESULTED FROM THE PROCESS OF PRODUCTION.

THE SYSTEM OF PUNISHMENT AND REWARDS TO ENCOURAGE THE FACTORIES AND INDIVIDUALS TO COMPLY WITH THE RULES AND PLANS. LEADERS APPEAL TO MORAL / COMMON WELFARE / POLITICAL / RELIGIOUS MOTIVATIONS TO PUT PRESSURE ON PRODUCERS AND MAKE THEM OBEY THE ORDERS.

FREQUENT PROBLEMS

SHORTAGES OR SURPLUSES OF GOODS BECAUSE OF THE CENTRAL PLANNING.

PRODUCTS AND SERVICES’ LACK OF QUALITY (ABSENCE OF REAL COMPETITION).

LACK OF INDIVIDUAL MOTIVATION TO DO A BETTER JOB, TO TAKE CARE OF THE “COLLECTIVE PROPERTY”, TO CREATE AND INNOVATE, TO IMPROVE THE SYSTEM. BUREAUCRATIC BARRIERS SLOW THE CHANGES.

MANY PRODUCTS ARE SUBSIDIZED BY THE GOVERNMENT AS WELL AS FACTORIES THAT ARE NOT PROFITABLE.

POLITICS DECIDES OVER ECONOMICS. MANY TIMES, THE WHIMS AND NON-SCIENTIFIC THEORIES OF THE INDIVIDUALS WHO LEAD THE GOVERNMENT CAUSE ECONOMIC DISASTERS.

ADVANTAGES

THE GOVERNMENT IS ABLE TO RESPOND FASTER THAN IN OTHER SYSTEMS TO SOLVE NATURAL DISASTERS, EPIDEMICS, AND OTHER EMERGENCY SITUATIONS (IT CONTROLS ALL THE RESOURCES).

ONCE APPROVED BY THE CENTRAL POWER, CHANGES IN THE PRODUCTIVE PROCESS CAN BE DONE IN LESS TIME AND WITHOUT LEGAL OPPOSITION.

MARKET ECONOMY

ADAM SMITH, THE “FATHER OF CAPITALISM”. The Wealth of Nations (1774): THE LAISSEZ-FAIRE DOCTRINE.

THE DESIRE FOR PROFIT IS THE “INVISIBLE HAND” THAT GUIDES THE SYSTEM OF DEMAND AND SUPPLY. COMPETITION GUARANTEES QUALITY AND GOOD PRICES.

THE GUIDING PRINCIPLE IS THE SELF-INTEREST.

PRIVATE INDIVIDUALS AND BUSINESSMEN OWN MOST OF THE RESOURCES AND MEANS OF PRODUCTION.

PRODUCERS COMPETE ONE TO EACH OTHER TO GAIN CONSUMERS’ PREFERENCE AND MAKE A PROFIT.

CONSUMERS’ PURCHASES DECIDE WHAT SHOULD BE PRODUCED IN THE FUTURE.

PEOPLE SELL THEIR LABOR FOR THE HIGHEST WAGES THEY CAN OBTAIN. PRODUCERS SEEK THE HIGHEST PRICES FOR THEIR PRODUCTS.

SUCCESSFUL WAYS FOR MAKING AND SELLING PRODUCTS SPREAD VERY QUICKLY (INNOVATIONS & NEW TECHNOLOGIES OR REVOLUTIONARY IDEAS). THIS IS A VITAL NEED FOR BUSINESSMEN TO STAY IN THE MARKET.

MAJOR COMPONENTS OF THE MARKET SYSTEM

1-PRIVATE PROPERTY

2-FREEDOM OF EXCHANGE

3-COMPETITION

4-PROFIT MOTIVE

DISADVANTAGES OR PROBLEMS

1-INCREASING ECONOMIC AND SOCIAL INEQUALITIES AMONG PEOPLE. THE GAP BETWEEN THE RICH AND THE POOR IS EACH DAY LARGER.

2-HUGE ECONOMIC AND SOCIAL DIFFERENCES BETWEEN CORE AND PERIPHERAL COUNTRIES. NEOCOLONIALISM AND IMPERIALISM.

3-CYCLICAL ECONOMIC DEPRESSIONS OR CRISES.

4-PEOPLE TEND TO BE MORE SELFISH, MONEY FOCUSED, AND AMBITIOUS THAN IN OTHER ECONOMIC SYSTEMS. THE SURVIVAL OF THE FITTEST AND THE LAW OF THE JUNGLE. THESE ELEMENTS PROMOTE MANY SOCIAL PROBLEMS.

5-CONSUMERISM.

4-THE FREE ENTERPRISE SYSTEM

Objectives

1-Determine how the costs of production affect the distribution and consumption of goods and services and the allocation of resources. (I A)

2-Describe the relationship between economics and environmental issues. (I A)

3-Describe the interrelationship among the factors of production. (I A)

4-Describe the theories of noted economic philosophers (Adam Smith, Thomas Malthus, etc.). (II A)

5-Analyze the process of production decision-making in a mixed market economy. (II A)

6-Analyze the effect of government regulations on economic activities. (II B)

7-Analyze the role of profit as an incentive in a market economy. (IV A)

8-Analyze the result of the current market price being above or below the market clearing price (IV A).

9-Explain the effect of government price floors or ceilings on market equilibrium (IV A)

10-Explain how an economic model can be used to understand economic concepts. (IV A)

11-Distinguish between private goods and public goods (IV C)

VOCABULARY

1-CAPITALISM: THE FREE ENTERPRISE SYSTEM.

2-EMINENT DOMAIN: THE RIGHT OF THE GOVERNMENT TO FORCE PEOPLE TO SELL THEIR PRIVATE PROPERTY TO PUBLIC PURPOSE.

3-FREEDOM OF CONTRACT: THE RIGHT OF INDIVIDUALS TO MAKE BUSINESS AGREEMENTS OR CONTRACTS.

4-CONSUMER SOVEREIGNTY: THE FACT THAT CONSUMERS DECIDE WHAT SHOULD BE PRODUCED. “DOLLARS ARE VOTES”.

5- MIXED ECONOMY: AN ECONOMY THAT IS A MIX OF BOTH PRIVATE AND GOVERNMENT ENTERPRISE / CONTROL.

6-SPECIALIZATION OR DIVISION OF LABOR: THE SITUATION IN MODERN LIFE IN WHICH WORKERS PERFORM JUST ONE SPECIALIZED TASK AND DEPEND ON OTHER WORKERS FOR THE OTHER TASKS.

7-INNOVATION: NEW WAYS / TECHNOLOGIES TO DO THINGS FASTER, BETTER, AND/OR CHEAPER.

8-CIRCULAR FLOW: THE STREAM OF FUNDS, RESOURCES, GOODS AND SERVICES THAT ARE CONSTANTLY PASSING BACK AND FORTH BETWEEN THE PUBLIC, BUSINESS, AND GOVERNMENT. THE SPENDING / INVESTMENTS MADE BY ANY PART OF THIS SYSTEMIC FLOW (COSTUMERS, BUSINESSES, AND/OR GOVERNMENT) WILL AFFECT THE OTHER PARTS AND THE SYSTEM AS A WHOLE.

9-GROSS NATIONAL PRODUCT (GNP): THE TOTAL VALUE OF GOODS AND SERVICES PRODUCED IN A SINGLE YEAR BY A COUNTRY. GNP = C + B + G

10-MACROECONOMICS: THE BRANCH OF ECONOMICS THAT REFERS TO THE ECONOMY AS A WHOLE.

11-MICROECONOMICS: THE BRANCH OF ECONOMICS THAT REFERS TO THE ECONOMIC BEHAVIOR OF INDIVIDUAL UNITS IN THE ECONOMY (HOUSEHOLDS, CORPORATIONS, ETC.)

12-EXTERNALITY OR EXTERNAL COST: SIDE EFFECTS OF DOING BUSINESS THAT ARE PAID BY THE SOCIETY AS A WHOLE.

13-PRIVATE GOODS / SERVICES: PEOPLE PAY FOR THEM FOR THEIR EXCLUSIVE USE (FOOD, CLOTHES, HOUSES, CARS, ETC).

14-PUBLIC GOODS / SERVICES: STREETS, POLICE PROTECTION, AIR, RIVERS, BEACHES, BASIC EDUCATION, PUBLIC PARKS. TAXES AND LAWS MAKE POSSIBLE THEIR FREE USE / ACCESS FOR EVERYONE.

15-ENTITLEMENT PROGRAMS: PROGRAMS CREATED AS A RESULT OF THE POPULAR BELIEF THAT ANY NEEDY PEOPLE DESERVE TO RECEIVE SOME TYPE OF PUBLIC AID.

16-PRODUCTIVITY: THE PRODUCTIVE CAPACITY OF LABOR, THE NUMBER OF UNITS AN EMPLOYEE CAN PRODUCE IN AN HOUR OR THE OUTPUT PER EMPLOYEE.

MAJOR PRINCIPLES OF THE FREE ENTERPRISE SYSTEM

1-PRIVATE PROPERTY: INDIVIDUALS HAVE THE RIGHT TO OWN NOT ONLY PERSONAL PROPERTY, BUT ALSO LAND, FACTORIES, BUSINESS. THERE ARE CERTAIN LIMITATIONS TO PROTECT THE RIGHTS OF OTHERS (EMINENT DOMAIN). “JUST COMPENSATION”.

2-FREEDOM OF ENTERPRISE: INDIVIDUALS CAN ENTER AND CONDUCT ANY LEGAL BUSINESS IN ANY WAY THEY CONSIDER BETTER FOR THEIR INTERESTS.

3-FREEDOM OF CONTRACT:

4-THE PROFIT MOTIVE: THE DESIRE TO MAXIMIZE PROFITS IS THE PRINCIPAL FORCE BEHIND BUSINESS.

5-COMPETITION: THE RIVALRY AMONG BUYERS AND SELLERS FOR GOODS AND SERVICES. (KEEP PRICES LOW, KEEP COSTS LOW / MORE EFFICIENCY, STIMULATE INNOVATIONS, PROVIDE A HIGHER QUALITY).

6-CONSUMER SOVEREIGNTY:

THE ROLE OF GOVERNMENT ACCORDING TO ADAM SMITH:

PROVIDE FOR THE NATIONAL DEFENSE.

PROTECT ITS CITIZENS AND PROVIDE FOR A SYSTEM OF JUSTICE.

PROVIDE FOR PUBLIC WORKS THAT ARE NOT PROFITABLE.

COLLECT TAXES TO PAY FOR THE COST OF GOVERNMENT.

TODAY, GOVERNMENT MUST PLAY A LARGER ROLE IN CAPITALIST ECONOMIES. THE REASONS WHY THIS IS SO ARE:

HELP TO SOLVE / AVOID SOME ECONOMIC PROBLEMS (INFLATION, UNEMPLOYMENT, ECONOMIC CRISIS).

REGULATE PUBLIC UTILITIES (ELECTRICITY, WATER) TO ENSURE THAT THEY PROVIDE A SATISFACTORY SERVICE AT FAIR PRICES.

TAKE CARE OF THE ENVIRONMENT (CHEMICAL WASTES, POLLUTION, RADIATIONS).

KEEP THE COMPETITION AMONG BUSINESSES (NO MONOPOLIES). GUARANTEE THAT BUSINESSES “PLAY BY THE RULES”.

HELP THE NEEDY (ENTITLEMENT PROGRAMS: SOCIAL SECURITY, MEDICARE, MEDICAID, UNIVERSITY GRANTS, UNEMPLOYMENT BENEFITS).

SPECIALIZATION

ADVANTAGES:

WORKERS PRODUCE MORE BECAUSE THEY BECOME HIGHLY SKILLFUL.

IT ENCOURAGES THE EFFICIENT USE OF CAPITAL (DELIVERY TRUCK).

IT PROMOTES INNOVATIONS.

NOTE: THE DEGREE OF SPECIALIZATION IS LIMITED BY THE EXTENT OF THE MARKET / POTENTIAL CUSTOMERS (THE PIANO SHOP).

EVALUATION OF THE MARKET SYSTEM

ADVANTAGES:

IT IS THE MOST EFFICIENT ECONOMIC SYSTEM EVER.

IT IS MORE SENSITIVE TO CONSUMER DEMAND.

IT PROVIDES THE MOST INDIVIDUAL FREEDOM AND LEAST CONTROL BY GOVERNMENT.

IT GIVES THE BEST REWARDS TO THOSE WHO CONTRIBUTE THE MOST TO IT.

LIMITATIONS THAT MAKE NECESSARY THE INTERVENTION OF GOVERNMENT:

IT DOES NOT PROVIDE SOME NOT PROFITABLE SERVICES.

IT DOES NOT INSURE THE PRESERVATION OF NATURAL RESOURCES / THE ENVIRONMENT (EXTERNAL COSTS).

IT DOES NOT ADEQUATELY PROVIDE FOR THE NEEDS OF ALL PEOPLE.

IT EXPERIENCES PERIODS OF ECONOMIC EXPANSION AND CONTRACTION (CRISIS).

IT CREATES SOCIAL AND ECONOMIC INEQUALITIES. THE DISTRIBUTION OF WEALTH IS EACH YEAR MORE DISPROPORTIONED:

a)-RICH PEOPLE / NATIONS ARE RICHER. MOGULS & CORPORATE EMPIRES OR MULTINATIONAL CORPORATIONS.

b)- MIDDLE CLASS PEOPLE / SEMI-PERIPHERAL NATIONS ARE SMALLER IN NUMBERS.

c)- POOR PEOPLE / NATIONS ARE POORER. REGRESS IONAL PROCESS / INVOLUTION.

FACTORS THAT DETERMINE THE POTENTIAL AND SCOPE OF NATIONAL PRODUCTION OF GOODS AND SERVICES (GNP)

1-THE AMOUNT AND QUALITY OF AVAILABLE RESOURCES.

a)-NATURAL RESOURCES (LAND, WATER, MINERALS AND OTHER RAW MATERIALS, ETC).

b)-HUMAN RESOURCES (QUANTITY & QUALITY).

c)-CAPITAL RESOURCES.

2-THE ABILITY TO USE THOSE RESOURCES:

TECHNOLOGY & PRODUCTIVITY (PRODUCE MORE IN LESS TIME WITH LESS COSTS AND WITH HIGHER QUALITY). HOW TO INCREASE PRODUCTIVITY:

-WORKERS’ SKILLS: THE CAPABILITY TO APPLY NEW TECHNIQUES.

-MANAGEMENT’S SKILLS: PROPER DECISIONS, METHODS, POLICIES.

-CAPITAL INVESTMENT: PROVIDE THE NECESSARY MACHINERY, TOOLS, BUILDINGS.

-TECHNOLOGY: INVESTMENTS IN RESEARCH AND INTRODUCE ITS RESULTS (INNOVATIONS).

LAW OF DIMINISHING RETURNS

AS ADDITIONAL UNITS OF A RESOURCE ARE APPLIED TO SOME FIXED RESOURCES, OUTPUT MAY AT FIRST INCREASE, BUT AT SOME POINT - THE POINT OF DIMINISHING RETURN - THE EXTRA OUTPUT RESULTING FROM MORE ADDITIONAL RESOURCES WILL BECOME LESS AND LESS: SUPERFLUOUS RESOURCES WILL DECREASE PRODUCTIVITY.

ADVANTAGES OF GROWING LARGER. (BIG vs. SMALL BUSINESSES).

1-DIVISION OF LABOR OR SPECIALIZATION.

2-QUANTITY DISCOUNTS / WHOLESALE PRICES.

3-ACCESS TO EXPENSIVE SPECIALIZED MACHINERY.

4-EASIER ACCESS TO CREDIT / CAPITAL.

5-MORE RESOURCES / INVESTMENTS FOR RESEARCH AND DEVELOPMENT.

See Neoliberalism

5-THE ROLE OF BUSINESSES

Objectives

1-Determine how the costs of production affect the distribution and consumption of goods and services and the allocation of resources. (I A)

2-Describe the relationship between economics and environmental issues (I A).

3-Describe the theories of Adam Smith and Karl Marx. (II A).

4-Analyze the effect of government regulations on economic activities and institutions (II B).

5-Analyze the role of profit as an incentive in a market economy (IV A).

VOCABULARY

1-LIABILITY: ECONOMIC RESPONSIBILITY OR OBLIGATION / DEBT. PERSONAL FUNDS AND OTHER ASSETS CAN BE SEIZED FOR PAYMENT.

2-SHARE / STOCK: PIECE OR PART OF A PUBLIC CORPORATION.

3-SHAREHOLDERS: OWNERS OF SHARES. THEREFORE, OWNERS OF PART / PIECES OF A CORPORATION.

4-PUBLIC CORPORATION: BUSINESS THAT HAS THE RIGHT TO ISSUE SHARES.

5-DIVIDENDS: ANNUAL SHARE OF PROFITS PAID TO SHAREHOLDERS BY CORPORATIONS. FOR DIFFERENT REASONS, CORPORATIONS MAY DECIDE TO NOT PAY DIVIDENDS SOME YEAR (S).

6-BONDS: LEGAL PROMISE TO REPAY SOME AMOUNT OF MONEY WITH INTERESTS. LONG TERM (5 TO 30 YEARS) IOU (“I OWE YOU”) NOTE ISSUED BY CORPORATIONS OR GOVERNMENTS TO OBTAIN FUNDS. CORPORATIONS / GOVERNMENTS ARE LEGALLY OBLIGED TO PAY THE INTERESTS ON THEIR BONDS.

7-CREDITOR: INDIVIDUALS OR ORGANIZATIONS THAT LEND FUNDS OR BUY BONDS.

8-PROXY: A WRITTEN AUTHORIZATION FORM THAT A STOCKHOLDER GIVES TO ANOTHER PERSON (USUALLY TO CEO AND VPs) TO VOTE IN HIS/HER NAME IN THE CORPORATION’S STOCKHOLDERS MEETING.

9-RECEIPT: INCOME, MONEY TAKEN IN (SALES + INTERESTS, ETC).

10-DEPRECIATION FUNDS: MONEY THAT IS SET ASIDE BY A CORPORATION TO REPLACE FIXED CAPITAL: WORN-OUT OR OBSOLETE BUILDINGS, EQUIPMENT, FURNITURE, ETC.

11-RETAINED EARNINGS: UNDISTRIBUTED PROFITS OR THE EARNINGS THAT WERE NOT PAID TO THE STOCKHOLDERS AS DIVIDENDS, BUT THAT WERE USED TO INVEST IN THE DEVELOPMENT OF THE COMPANY.

12-EQUITY FUNDS: FUNDS OBTAINED BY CORPORATIONS THROUGH THE SALE OF STOCKS.

13-SECURITIES: STOCKS AND BONDS.

14-MORTGAGE BONDS: PROPERTY (LAND, BUILDINGS) THAT IS PLEDGED AS SECURITY FOR BONDS BY CORPORATIONS.

15-DEBENTURE BONDS: BONDS THAT RELY ONLY ON THE GOOD NAME OR CREDIT OF THE CORPORATION.

16-UNDERWRITER: INSURER. BANK THAT BUY THE ENTIRE ISSUE OF STOCKS OR BONDS (OR PROPERTY) TO SELL THEM TO THE PUBLIC FOR A PROFIT.

17-N.A.S.D.A.Q.: NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATIONS. A COMPUTER SYSTEM THAT PROVIDES INFORMATION ABOUT THE AVAILABILITY AND SELLING PRICE OF SECURITIES.

18-BROKERAGE FIRM: COMPANY OF SECURITIES - SALES SPECIALISTS OR BROKERS.

19-BROKER: LICENSED PERSON WHO BUYS AND SELLS SECURITIES IN BEHALF OF THEIR CLIENTS AND RECEIVES A COMMISSION.

20-SPECULATOR: PERSON WHO SEEKS TO PROFIT IN THE SHORT RUN FROM THE CHANGES IN THE STOCKS’ VALUE. BUY-LOW & SELL-HIGH IN THE RIGHT MOMENT.

21-“BULLS”: SPECULATORS WHO BELIEVE THAT THE VALUE OF A PARTICULAR STOCK WILL RISE AND BUY IT IMMEDIATELY TO SELL IT LATER AT A PROFIT.

22-“BEARS”: SPECULATORS WHO EXPECT THAT THE PRICE OF A PARTICULAR STOCK WILL DECLINE AND SELL IT IMMEDIATELY TO BUY IT BACK LATER AT A LOWER PRICE, OBTAINING PROFITS IN THE PROCESS.

23-MARGIN: PERCENTAGE THAT A BUYER HAS TO PUT UP IN CASH TO BUY STOCKS (40%). STOCKS CAN BE PURCHASED ON CREDIT, THROUGH INTERNET, ETC..

24-S.E.C. : THE SECURITIES AND EXCHANGE COMMISSION. FEDERAL AGENCY THAT COLLECTS FINANCIAL INFORMATION ABOUT CORPORATIONS THAT WANT TO SELL SECURITIES TO THE PUBLIC TO AVOID DECEPTION OR FRAUD TO POTENTIAL BUYERS.

25-ASSETS: PROPERTIES, FUNDS, AND ANYTHING OF VALUE THAT ARE OWNED BY A BUSINESS OR INDIVIDUAL.

26-NET WORTH = ASSETS - LIABILITIES.

27-NET INCOME = SALES - COSTS AND OTHER EXPENSES.

28-MUTUAL FUNDS:

29-HEDGE FUNDS:

DIFFERENT TYPES OF ORGANIZATION OF BUSINESS

PROPRIETORSHIP: BUSINESS OWNED BY ONE PERSON. THIS IS THE MOST COMMON FORM OF BUSINESS IN THE U.S. (80% OF ALL ENTERPRISES IN THE NATION).

ADVANTAGES:

1-SIMPLICITY: NO LAWYERS, NO AGREEMENTS WITH OTHERS.

2-THE APPEAL OF WORKING FOR ONESELF AND MAKE ALL THE DECISIONS.

3-THE OPPORTUNITY TO MAKE A PROFIT.

4-NO SPECIAL FEDERAL TAXATION.

DISADVANTAGES:

1-THE ONLY OWNER ASSUMES ALL THE RESPONSIBILITIES.

2-THE SIZE OF THE BUSINESS IS LIMITED BY THE OWNER’S AVAILABLE FUNDS.

3-UNLIMITED LIABILITY.

PARTNERSHIP: BUSINESS ASSOCIATION OF TWO OR MORE OWNERS THAT SHARE RESPONSIBILITIES AND PROFITS.

ADVANTAGES:

1-THE AVAILABLE CAPITAL IS INCREASED.

2-PARTNERS BRING SPECIAL SKILLS INTO THE BUSINESS.

3-PARTNERS SHARE THE PROBLEMS AND CAN SOLVE THEM MORE EFFECTIVELY.

4-IT PROVIDES FOR COVERAGE WHEN ONE PARTNER IS ILL OR ON VACATIONS.

5-NO SPECIAL FEDERAL TAXATION.

DISADVANTAGES:

1-UNLIMITED LIABILITY.

2-AVAILABLE FUNDS ARE LIMITED TO THE WEALTH / CREDIT OF THE PARTNERS.

3-PARTNERSHIP IS RISKY BECAUSE OF THE CHANCES OF CONFLICT BETWEEN THE PARTNERS.

CORPORATION: BUSINESS MADE UP OF A NUMBER OF OWNERS (STOCKHOLDERS) WHICH IS AUTHORIZED BY LAW (CHARTER) TO ACT AS A SINGLE PERSON AND ISSUE STOCKS. IT IS LEGALLY SEPARATE AND DISTINCT FROM THE PEOPLE WHO OWN IT. THEY REPRESENT THE 88% OF ALL RECEIPTS AND 77% OF ALL PROFITS OF THE AMERICAN INDUSTRY. THEY EMPLOY OVER 60% OF THE LABOR FORCE.

ADVANTAGES:

1-LIMITED LIABILITY. STOCKHOLDERS CAN NOT BE HELD LIABLE FOR ITS DEBTS (Ltd. or Inc.).

2-TRANSFERABILITY OF SHARES.

3-EASE OF OBTAINING CAPITAL: SALE OF STOCKS, ISSUE BONDS, LARGER LOANS.

4-S CORPORATIONS / SMALL BUSINESS (25 0R FEWER STOCKHOLDERS): NO SPECIAL FEDERAL TAX.

DISADVANTAGES:

1-SUBJECT TO DOUBLE TAXATION: SPECIAL FEDERAL TAXES AND PERSONAL INCOME TAXES (DIVIDENDS).

2-DIFFICULT TO ORGANIZE.

3-REGULAR ACCOUNTABILITY

STRUCTURE OF BIG CORPORATIONS

1-STOCKHOLDERS: ELECT THE BOARD. A FEW LARGE STOCKHOLDERS (THOSE WHO OWN 15% OF ALL THE STOCKS) DECIDE ABOUT THE RESULTS OF THE ELECTIONS OF THE BOARD (THEY OBTAIN PROXIES). THE PERSON WHO OWNS 51% OF ALL THE STOCKS HAS ABSOLUTE POWER.

2-BOARD OF DIRECTORS: THE FINANCING OF THE CORPORATION: DISTRIBUTE THE PROFITS (DIVIDENDS vs. RETAINED EARNINGS), SEEK ADDITIONAL FUNDS FROM OUTSIDE, PRESENT PERIODICAL REPORTS TO THE SHAREHOLDERS, SELECT THE OFFICERS.

3-THE OFFICERS: RUN THE CORPORATION AT THE HIGHER LEVEL, HIRE THE PERSONNEL UNDER THEM, TAKE THE KEY DECISIONS. THEY RECEIVE HUGE SALARIES AND BONUSES IN PREFERRED STOCKS. TODAY, LONG-TIME CEO’s IN BIG CORP. ARE BILLIONAIRES AND TEND TO BECOME KEY STOCKHOLDERS, CONTROL THE BOARD, AND ASSURE THEIR RE-SELECTION AS CEOs.

4-MANAGERS AND SUPERVISORS. DIVISIONS AND DEPARTMENTS CHAIR PERSONS.

5-EMPLOYEES / WORKERS.

CORPORATE FUNDS

1-INTERNAL (RETAINED EARNINGS AND DEPRECIATION FUNDS).

2-LONG-TERM & SHORT-TERM LOANS.

a)-CREDIT FROM FIRMS WITH WHICH THEY TRADE (SHORT-TERM).

b)-CORPORATE LOANS (FROM BANKS) (BOTH SHORT & LONG)

c)-CORPORATE BONDS (LONG-TERM)

3-EQUITY FINANCING (SALE OF STOCKS).

                                                         Year 2007

CORPORATE SECURITIES

1-STOCKS:

-COMMON STOCKS: REGULAR & FLEXIBLE DIVIDENDS.

-PREFERRED STOCKS: FIXED DIVIDENDS. THEY ARE PAID FIRST.

-CUMULATIVE PREFERRED STOCKS: IF THE COMPANY DOES NOT DISTRIBUTE DIVIDENDS ONE YEAR, THE OWNERS OF THESE STOCKS RECEIVE DOUBLE DIVIDENDS NEXT YEAR.

2-BONDS:

a)-CORPORATE BONDS

-MORTGAGE BONDS

-DEBENTURE BONDS

b)-GOVERNMENT BONDS

-SAVING BONDS: BONDS ISSUED BY THE FEDERAL GOVERNMENT.

-STATE / LOCAL GOVERNMENT BONDS

3-THE MARKET OF SECURITIES

Stock Exchanges

Arizona Stock Exchange American Stock Exchange (AMEX)

Boston Stock Exchange Chicago Stock Exchange

NASDAQ National Stock Exchange Philadelphia Stock Exchange

New York Stock Exchange (NYSE) Pacific Exchange

The New York Stock Exchange (NYSE) is one of the largest stock exchanges in the world. The NYSE is operated by the not-for-profit corporation New York Stock Exchange, Inc, with its main building located at 18 Broad Street, at the corner of Wall Street, in New York City, New York, U.S.A. NYSE is home to some 2,800 companies valued at nearly $15 trillion in global market capitalization.

Companies have to meet the requirements of the exchange in order to have their stocks and shares listed and traded there. To be listed on the NYSE (New York Stock Exchange), for example, a company must have issued at least a million shares of stock worth $16 million and must have more than $2.5 million net income (1998 requirements).

NASDAQ, originally an acronym for National Association of Securities Dealers Automated Quotations, is a stock exchange run by the National Association of Securities Dealers. When it began trading on February 8, 1971, it was the world's first electronic stock market. Since 1999, it is the largest American stock exchange with over half the companies traded in the United States listed.

The most regularly quoted market indices are those including the stocks of the largest listed companies on a nation's largest stock exchange. Examples include the American Dow Jones Industrial Average, the S&P 500, the Wilshire 5000, the British FTSE 100, and the Japanese Nikkei 225.

The Dow Jones Industrial Average (DJIA) is one of several stock market indices created by Wall Street Journal editor and Dow Jones & Company founder Charles Dow. Dow compiled the index as a way to gauge the performance of the industrial component of America's stock markets. It is the oldest continuing U.S. market index, and today it consists of 30 of the largest and most widely-held public companies in the United States

The S&P 500 : A market index or list owned and maintained by Standard & Poor's Corporation. The 500 companies in the list are among the largest in the US. The companies are carefully selected to ensure that they are representative of various industries in the US economy.

CORPORATE FINANCIAL STATEMENTS

-BALANCE SHEET (ASSETS, LIABILITIES, NET WORTH)

-INCOME STATEMENT (INCOME & SOURCES, EXPENSES, PROFIT)

BUSINESS COMPETITION

1-PURE COMPETITION (HARDLY EVER OCCUR): BUYERS AND SELLERS ACT INDEPENDENTLY. NO ONE IS BIG ENOUGH TO INFLUENCE THE MARKET PRICE. PRODUCTS COMPETING ARE PRACTICALLY THE SAME IN QUALITY. BUYERS AND SELLERS HAVE FULL KNOWLEDGE OF ALL PRICES IN THE MARKET. BUYERS AND SELLERS CAN ENTER / LEAVE THE MARKET AT WILL.

2-IMPERFECT COMPETITION (REAL COMPETITION. IN THE MIDDLE):

-MONOPOLISTIC COMPETITION (MANY BIG COMPANIES)

a)-STRONG COMPETITION: PRICE & QUALITY (ADVERTISING).

-OLIGOPOLY (FEW HUGE COMPANIES)