ECONOMICS What to produce? How to produce? For whom to produce?

ECONOMICS

What to produce?

How to produce?

For whom to produce?

Resources are things people use.MONEY is a resource!

Oil is a resource Timber, machines, and many other things… Resources are limited – not enough to meet

every need It is all about the money – honey!

ECONOMICS

Is the study of how people, businesses, and countries use limited resources.

There are different types of economic systems. TRADITIONAL COMMAND MARKET MIXED

TRADITIONAL ECONOMIES

People usually produce just what they need to survive. Land is usually owned by a wealthy ruling class. People in a traditional economy inherit their position from

their parents. They are not expected to advance. Farmers remain farmers, herders remain herders, etc. People are motivated to produce by the need to

survive. In rural parts of Latin America, communities still

depend to a certain degree on traditional economies.

COMMAND ECONOMIES

GOVERNMENT OWNS THE MEANS OF PRODUCTION!

Most businesses and property belong to the state rather than private businesses.

The GOVERNMENT decides what will be produced and how much will be produced.

Command Economies

The goal of command economies is economic equality – designed to keep people from being too rich or too poor.

BUT – this rarely works! Command economies are inefficient. There is often not enough of the products

people want (SHORTAGE) or too much of things people don’t want (SURPLUS)

President Hugo Chavez of Venezuela controlling the economy.

Command Economy

Command economies often limit the amount of money people can make.

Workers do not have the motivation of becoming wealthy or getting promoted if they work hard.

Govt limits how much money a business can make. There is no financial reward for producing better products.

MARKET ECONOMIES

Allow for PRIVATE OWNERSHIP of businesses and property

Often called “CAPITALIST” because they encourage capitalism.

CAPITALISM supports private ownership and the pursuit of profit in business.

Profit is the amount of money businesses make after they pay the cost of producing their product.

MARKET Economies

Market economies have very little gov’t regulation.

Market demand (what people want to buy) determines what will be produced rather than the gov’t.

MARKET

A MARKET is wherever buyers and sellers exchange money and goods.

When you buy a new shirt or DVD, you are exchanging money in an economic market!

In market economies – BUSINESSES are free to produce what they want. BUYERS are free to buy what they want.

Market Economies vs. Command

Market economies operate more efficiently than command economies.

Since, businesses want to make money – they produce only what the market demands.

If people want shirts, then producers will make shirts. Shortages and surpluses usually don’t last very long in market economies.

Market Economies produce INNOVATION!

Innovation – new and better ways of doing things Businesses are COMPETING with each other. They

have to find ways to make products better or invent new things!

They have to hire the most-qualified people to do this…they pay more $ to skilled workers.

Workers have an incentive to work hard and get more training.

ECONOMIC DEVELOPMENT occurs faster in market economies.

?? Downside to Market Economies ??

They often produce “haves” and “have nots” Financial success depends on the ability to

respond to market demands – market economies produce a few rich people, a large middle class, and a poor lower class.

There is no guarantee of equality in a market economy.

MIXED ECONOMIES

In reality, most economies are MIXED economies!

They are not totally command or totally market. They are partly both.

UNITED STATES

United States – not totally market. The gov’t places some regulations on the

economy. But overall, the gov’t is supposed to let the market operate as freely as possible.

CANADA

Canada’s economy is MIXED. Much of the economy is a free market. The government controls some areas, like

healthcare. Canada’s main economic industries include,

agriculture, energy resources, foresting, manufacturing and service industries.

Canada is one of the world’s wealthiest and most-developed nations.

CUBA

Mostly COMMAND ECONOMY The govt owns most property and controls

production. The govt employs most of Cuba’s workers. Like in most command economies, Cuba’s is

inefficient and less developed than free-market nations.

Much of Cuba’s population is very poor.

RAUL CASTRO

BRAZIL

Economy is mixed – leans towards free market It is very developed.

Its GDP is second-highest in the world. Only the US is higher.

Brazil’s key industries – agriculture, technology, automobile and aircraft production, chemicals, and steel

It also has many businesses and financial institutions. It also exports many goods.

TRADE

International trade occurs when nations choose to exchange goods.

Nations engage in trade because it is either impossible or inefficient to produce all that they need themselves.

SPECIALIZATION

Specialization encourages trade! Nations specialize in producing certain things. Venezuela & Mexico produce large amounts of

oil. Other countries produce other products. Trade allows countries to acquire the things they need and sell thethings they produce.

IMPORTS and EXPORTS

IMPORTS – goods that a country buys from producers in another country

EXPORTS – goods that producers in one country ship to another country

TRADE BARRIERS

Obstacles to trade Can be natural or human-produced NATURAL – mountains, deserts, rainforests POLITICAL – rules passed by a govt to

regulate trade– Often intended to help a country’s own producers

be more competitive in the market place– May be aimed at punishing or putting economic

pressure on another country

President John F. KennedySigned an EMBARGO againstCuba in early 1960

Tariffs and Quotas

TARIFF – tax on imported goods – Tariffs raise prices on foreign goods. This makes it less profitable for countries to sell their goods in foreign markets.

QUOTA – limit on trade – Quotas restrict the amount of a foreign good that may be imported in a given amount of time.

SANCTIONS & EMBARGOES

POLITICAL BARRIERS to trade. Sanctions are policies that restrict a country’s trade

with another country – usually meant to force a country to change some policy

EMBARGOES – more drastic – nations refuse to trade with a certain country at all –

The United States has had an embargo against Cuba in place for almost fifty years.

ENCOURAGING TRADE - NAFTA

North American Free Trade Agreement It is an agreement between

– United States– Canada– Mexico

NAFTA removed tariffs and increased trade between these countries.

CURRENCY

Currency is something that is assigned value. It is used to buy goods and services in a market.

EXCHANGE RATE – What the currency of one nation in worth in another nation

One goal of the European Union was to establish a common currency – the EURO

CAPITAL GOODS

Goods used to produce things– Factories– Machinery– Computers– Technology & Advanced Equipment

The value of all the goods a nation produces in a year is called the GROSS DOMESTIC

PRODUCT (GDP).

NATURAL RESOURCES

Affect economic development! Nations rich in natural resources can

produce revenue (money).– Oil is a valuable resource– Precious metals– Others (timber, gas. …)

HUMAN CAPITAL

Refers to the investments in the welfare and training of human workers.

Providing health care, education, programs to improve people’s job skills – These are investments in human capital.

Investment in human capital usually produces a healthier, more satisfied, more productive workforce. More productivity results in higher GDP

ENTREPRENEURS

People who start and own private businesses.

Nations with free-market economies encourage entrepreneurship.

Nations with socialist policies, like Cuba and Venezuela, limit what type of businesses may be privately owned.

TEST PREP #1

When Canada sells goods in Mexico and the United States without having to pay tariffs, it is benefiting from

A. Natural trade barriers

B. Political trade barriers

C. Canadian imports

D. NAFTA

TEST PREP #2

Venezuela’s president, Hugo Chavez, has supported more state control of major industries. Such state control would exist in a

A. traditional economy B. market economy C. command economy D. free-trade economy

TEST PREP #3

Which of the following describes a nation with high GDP?

A. Command economy

B. Socialist state

C. Entrepreneurship discouraged

D. Large investments in capital goods

TEST PREP #4

What answers the economic question “What to Produce” in a market economy?

A. The state B. The government C. Buyer demand D. Democracy

TEST PREP #5

Which of the following is closest to a command economy?

A. Brazil B. Cuba C. Mexico D. Canada

TEST PREP #6

For almost fifty years, the United States has refused to trade with Cuba. Such a policy is best described as a/an

A. Sanction B. Embargo C. Tariff D. Natural trade barrier

TEST PREP #7

One look at the map reveals that Bolivia faces

A. the threat of war from Venezuela B. the challenges of a constitutional

monarchy C. the natural trade barrier of being

landlocked D. embargoes from Brazil

TEST PREP #8

The shaded countries on the map belong to A. GDP B. NAFTA C. North American Trading Partnership NCAA

TEST PREP #9

When nations exchange goods, it is called A. international trade B. international tariff C. international capital D. entrepreneurship

TEST PREP # 10

What is GDP? A. the value of all the goods a nation

produces in a year B. great domestic product C. the value of all the good imported in a

year D. gross domestic producers