BASICS OF ECONOMICS

Show me the MONEY!!!

WHAT IS ECONOMICS?

The study of how a society uses

its resources to satisfy its wants

and needs.

3 BASIC QUESTIONS OF ECONOMICS

1. What will be produced?

2. How will it be produced?

3. For whom will it be produced?

SCARCITY

DEFINITION: all resources are limited and

therefore are scarce.

Everyone cannot have everything they

want.

There is not enough stuff to go around.

NEEDS & WANTS

Needs (DEFINITION): basic needs to survive, food,

clothes, and shelter

Wants (DEFINITION): everything else and they are

unlimited

EXAMPLE: I need to eat I am hungry

EXAMPLE: I want a new car, a new iPod, a new pair of

shoes, a new computer, a new video game, a new…

What are the resources we have to use

to satisfy our wants and needs?

Land- natural resources we have to produce goods and services

Good- a physical thing you can hold

Service- some thing that gets used up right after it is purchased

Labor- the effort that individual people put into making a good or service

EXAMPLE: factory workers, medical personnel, and teachers.

Get paid a wage

Capital- anything that is used to produce other goods and services.

EXAMPLE: If you make cars you need machines to make the metal that is used in the cars.

Consumers- people in an economy that purchase goods and services

TRADITIONAL ECONOMY

Resources are allocated by inheritance

A strong social network and is based on primitive

methods and tools

Most countries that have historically had a traditional

economy have replaced it with a command

economy, market economy, or mixed economy

Found today in underdeveloped, agricultural parts

of South America, Asia, and Africa.

COMMAND ECONOMY

An economic system in which the state or government

manages the economy.

Government controls all major sectors of the economy

and formulates all decisions about their use and about

the distribution of income

Government planners decide what should be produced

and direct companies to produce those goods.

May consist of state-owned enterprises, private

enterprises directed by the state, or a combination of

both.

MARKET ECONOMY

Based on the division of labor in which the prices of

goods and services are determined by supply and

demand.

Opposite of a command economy in which a central

government determines the price of goods and

services using a fixed price system.

In the real world, market economies are regulated

by society.

MIXED ECONOMY

Incorporates aspects of more than one economic system

Usually means an economy that contains both privately-owned and state-owned enterprises or that combines elements of capitalism and socialism, or a mix of market economy and planned economy characteristics

There is not one single definition for a mixed economy,

but relevant aspects include: a degree of private economic freedom, with centralized economic planning

Economies ranging from the United States to Cuba

have been termed mixed economies

GROSS DOMESTIC PRODUCT (GDP)

Measures the national income and output for

a given country's economy

Measures the market value of all the goods and

services produced in the economy in a year

Economists use GDP data to measure the economy’s

growth