ECONOMICS

ECONOMICS

• What is economics? – The study of how we manage our resources in

the production and distribution of goods and services

• What is an economy?– The way a region uses its resources to

provide goods and services to satisfy people’s wants and needs

Economic Systems• System for

producing, distributing, & consuming goods & services

• All countries ask:– What will be

produced?– How will it be

produced?– For whom will it be

produced?

Economic Systems

• Barter: – People trade a good for a good– Example: Farmer A grows corn, and Farmer B

has a diary farm. Farmer A trades some corn to Farmer B for some milk.

Economic Systems

• Traditional System: – social roles & culture determine how

goods are made, sold, and bought – Based on customs that have been

handed down for generations– Children will often be doing the same

jobs as their parents– Very few still around

Economic Systems

• Command System: – government answers the 3 questions– Communism, socialism– No incentives for workers; equal pay– Production is low and quality of products

is poor

Economic Systems• Market System:

-- based on individual

choices & voluntary trade

– Businesses all owned by the people

– Role of government is very limited

– People determine what will & will not be produced by buying or not buying products

Economic Systems

• Mixed System: – has features of traditional, command, and

market systems– Uses the best part of every system

Economic Terms…• Exports:

– goods we sell to other countries (corn)

• Imports: – goods we buy from other countries (oil)

• Balance of trade: – Difference in value between exports & imports– Why is it important? Exporting (selling) more

goods than importing (buying) means you make a profit, which is good

Economic Terms…

• Trade barrier: – laws that governments use to limit trade

between countries– Most common are tariffs and embargoes

• Tariff: – taxes or fees on imports

• Embargo: – government restrictions on imports or exports

Economic Terms…

• Currency: – anything accepted as a medium of exchange

(money)

• Currency exchange: – the rate at which one currency can be

converted into another currency– Example: 1 US Dollar = .72 Euros

Economic Patterns of Nations

• Developing Nations: countries with few industries; very little technology; poor– Most people are subsistence farmers, raising

enough food only to feed their families– Face many challenges: hunger & starvation,

disease, unsafe water, poor education & medical services, unstable governments, war

– Examples: most nations of Africa, Asia, and Latin America

Economic Patterns of Nations

• Developed Nations:

• countries that have many industries and are technologically advanced– Commercial farms: owned by companies; use

modern technology– About ¼ of world’s pop. live in developed

nations– Examples: U.S., Britain, Canada, Australia

Factors of Production

• The elements needed for production of goods and services

• What are they?– Human capital (people to work, their

knowledge & skills)– Capital goods (money, machines, factories,

equipment)– Natural resources (raw materials)– Entrepreneurs (people who start the

businesses)

EconomicsPersonal Money Management

Economics• What is a good?

– Something that is made to be bought– Examples: cars, clothes, food

• What is a service?– Something someone is paid to do for

someone else– Examples: cutting hair, mowing grass, driving

a bus

Economics• What is a consumer?

– Someone who buys a good or service

• What is a producer?– Someone who makes a good or

performs a service

• What is distribution?– The process of moving products to their

market

Economics• What is competition?

– Rivalry between businesses to sell the most and make the biggest profit

• What is scarcity?– Lack of a particular resource (oil)

• What is abundance?– having more than enough of a particular

resource (wheat)

Economics• What is the law of supply & demand?

– States that the price of a good rises or falls depending on how many people want it (demand) and on how much of the good is available (supply)

– If demand is high (a lot of people want it), prices will be high because people will pay it

– If demand is low, prices will be lower and more of the product will be available

Economics• What is an entrepreneur?

– Someone who brings together resources to produce goods and services

– Example: someone who starts their own business

• What is profit?– Money that is left over after costs of producing

a product are paid

Economics• What is income?

– Money a person receives in exchange for work or from the use of property

• What is spending?– Using money to buy goods and services

• What is saving?– Putting money aside for later use– Where? Piggy banks, banks, jars, under the

mattress, etc.

Economics• What is investing?

– Using money to earn money– Examples: stock market, property, etc.

• What is interest?– Money paid to a lender in exchange for borrowing

money

• What is credit?– Borrowing money to buy something now and paying

for it at a later date– Examples: cars, houses, large purchases, etc.

Economics• What is a budget?

– Planning out how much money is to be spent, saved, and invested

• What is inflation?– A continual rise in the price of goods over a

long period of time