Assumptions

Scarcity is the basic fact of economic life. Human needs and wants are always greater than the resources available to satisfy them. Thus, choices must ben made concerning how to best use the limited resources available. To make these choices, an economic system or society must answer three basic economic questions. Once an economic system has answered these questions, production must be carried out as effectively as possible. To reach the highest possible levels of productivity, producers may rely on division of labor and specialization. VIDEO OBJECTIVES - Determine why scarcity exists - Identify the issues that producers must address to distribute resources - Explain why producers study productivity

The price system's limitations sometimes lead governments to intervene in the market. Governments may set prices by establishing price ceilings and price floors that are intended to protect producers and consumers from dramatic price swings. Managing prices interferes with the normal interaction between supply and demand, however, and can maintain or even worsen market imbalances. VIDEO OBJECTIVES - Explain why governments sometimes set prices - Explain what governments try to accomplish through price floors, price ceilings, and rationing - Explain what happens when governments manage prices

In the United States, the government has established economic goals which are shared by the federal, state, and local levels. Government involvement in the U.S. economy has increased dramatically since the 1930s to reach the economic goals it has set through fiscal policy. VIDEO OBJECTIVES - Explain why the government regulates business - Describe how the government works to provide public goods - Explain how the government promotes individuals' well-being - Describe how the government works to stabilize the economy

Business cycles are fluctuations in economic activity that occur in a market system as measured by increases or decreases in real Gross Domestic Product. Most economists agree that the level of economic activity have an impact on the business cycle. By analyzing key indicators, economists are able to determine the occurrence or duration of each phase of the business cycle and to predict where the economy is headed. VIDEO OBJECTIVES - Examine the four phases of the business cycle - Identify the three leading indicators used to determine the current phase of the business cycle, and predict where the economy is headed

Economists analyze price fluctuations by examining the price level, inflation, and deflation. They use both the consumer price index (CPI) and the producer price index (PPI) to measure the amount of fluctuation, estimating the pace at which the price level increases. These fluctuations can affect the purchasing power of the dollar, the value of real wages, interest rates, saving and investing, and production costs. VIDEO OBJECTIVES - Explain how economists evaluate price changes over time - Describe what causes inflation - Identify the main two price indexes that economists use to measure inflation - Explain how inflation affects the economy

In the free-enterprise economy of the United States, individuals and groups can influence government economic policies. At times, the government's attempts to introduce programs that aim to serve the public interest may conflict with the desires of individual citizens. Economic policy and regulations can influence all aspects of production and consumption, so citizens and interest groups try to influence these policies through various means. VIDEO OBJECTIVES - Explain how the government determines the public interest - Identify the consequences that may result from government promotion of the public interest - Describe how individuals and interest groups can affect government policies

Production decisions are affected by the need of maximize productivity and by the costs of production. When setting production levels, business owners must consider several factors regarding output, as well as the various costs associated with producing goods. VIDEO OBJECTIVES - Explain why producers look at productivity when making supply decisions - Describe how varying the levels of input affects the levels of output - Explain how changes in production costs affect producers' supply decisions

Business cycles are fluctuations in economic activity that occur in a market system as measured by increases or decreases in real Gross Domestic Product. Most economists agree that the level of economic activity have an impact on the business cycle. By analyzing key indicators, economists are able to determine the occurrence or duration of each phase of the business cycle and to predict where the economy is headed. VIDEO OBJECTIVES - Examine the four phases of the business cycle - Identify the three leading indicators used to determine the current phase of the business cycle, and predict where the economy is headed

Scarcity requires choice. Economists call the sacrifices of one choice for a trade-off and the next best choice an opportunity cost. The production possibilities curve can be used to analyze the trade-offs and opportunity costs involved in producing specific combinations of goods and services. VIDEO OBJECTIVES - Understand why sacrifice is an important element of economic choice - Identify the assumptions involved in creating a production possibilities curve - Determine why future production possibilities might differ from current production possibilities