Principles of Economics

Unit 1 - Understanding the Role of Economics in the Global Economy

Explain the three basic economic questions answered by any economy (035)

Identify characteristics of free enterprise (aka Market Economy) (039)

Explain supply, law of Supply, demand, Law of Demand, and economic equilibrium (040)

Objectives & Competencies

DECA Updates Bell Ringer Question

◦ How do economic decisions and policies affect your daily life?

Direct Instruction – Types of Economies, Supply vs. Demand

Activity – M&Ms (Yum! ) Review – Multiple Choice Questions Closure – TNT, Test in 2-3 classes

Agenda

How do economic decisions and policies affect your daily life?

An economy is a nation’s method for making economic choices that involve how it will use its resources to produce and distribute goods and services to meet the needs of its production.

Scarcity of economic resources forces every country to develop an economic system that determines how resources will be used. Each economic system has its advantages and disadvantages.

What is an Economy?

What Is an Economy?What Creates an Economy?

factors of production

Resources that are comprised of land, labor, capital, and entrepreneurship.

Economists use the term factors of production when they talk about economic resources.

resourcesAll the things used in producing goods and services; a source of aid or support that may be drawn upon when needed.

What Is an Economy?What Creates an Economy?

economy

The organized way a nation provides for the needs and wants of its population.

Economy

Manufacturing

Buying

SellingTransporting

Investing

What Is an Economy?What Creates an Economy?

infrastructureThe physical development of a country,such as roads, ports, and utilities.

Land Labor Capital Entrepreneurship

Provides raw materials

Full- and part-time workers, managers, and professional people

Money, buildings, infrastructure

entrepreneurshipThe skills of people who are willing to invest their time and money to run a business; the process of starting and operating your own business.

Organizing factors of production to create goods and services

3 Basic Economic Questions

What should beproduced?

How should it be produced?

Who should share in what is

produced?Deciding to use a resource for one purpose means giving up the opportunity to use it for something else.

This is called opportunity cost.

The methods and labor used as well as the quality of items produced are important factors.

In most societies, people can have as many goods and services as they can afford to buy.

What Is an Economy?Types of Economic Systems

The Three Economic Questions

What Is an Economy?Types of Economic Systems

The Three Economic Questions

Different Types of Economies

Different economic systems answer the three basic economic questions in different ways.

Economic systems the methods societies use to distribute

resources

What Is an Economy?Types of Economic Systems

TraditionalEconomy

MarketEconomy

CommandEconomy

MixedEconomy

traditional economyAn economic system in which habits, traditions, and rituals answer the basic questions of what, how, and for whom.

market economyAn economic system in which there is no government involvement in economic decisions.

command economyA system in which a country’s government makes all economic decisions regardingwhat, how, and for whom.

Market Economies

A market economy can also be called a private enterprise system, the free enterprise system, or capitalism.

market economyan economic system in which economic decisions are made in the marketplace

Market Economies

Characteristics of a Market EconomyResources are privately owned

Citizens can own their own homes, land, and businesses

Business owners decide how their businesses will be run

Business owners decide what to produce and sell

Business owners decide what to charge

Government works to promote free trade and prevent unfair trade practices

Consumers choose their occupations and where to live

There is an uneven distribution of income

Market Economies

The higher the price for goods or services, the less consumers will buy.The lower the price, the more consumers will buy.

pricethe amount of money given or asked for when goods and services are bought or sold

Market Economies

There is a relationship between price, supply, and demand.

supplythe amount of goods and services that producers will provide at various prices

demandthe amount or quantity of goods and services that consumers are willing to buy at various prices

Market Economies

Supply and demand interact with each other to form the equilibrium price.

equilibrium pricethe point at which the quantity demanded and the quantity supplied meet

Supply, Demand, and Equilibrium

Supply, Demand, and Equilibrium

Supply, Demand, and Equilibrium

Market Economies

Competition among similar businesses is one of the basic characteristics of a free enterprise system.

Profit motive is the desire to make a profit.

Command Economies

In a command economy, the government owns and controls all the resources and businesses.

command economyan economic system in which a central authority makes the key economic decisions

Command Economies

Characteristics of a Command EconomyThe government dictates what will be produced, how it will be produced, and who will get the goods

There is little choice of what to buy

Goods are not considered necessities

Prices are controlled by the state

There is no competition and little incentive to produce a better product

Highly skilled workers may earn the same as low-skilled workers

Command Economies

A moderate command economy is also known as socialism.

In a moderate command economy, there is some form of private enterprise, but the state owns major resources.

Mixed Economies

Most nations have a mixed economy, which combines elements of capitalism and socialism.

mixed economyan economy that contains both private and public enterprises.

1. How does a market system decide what will be produced?

A market system decides what is to be produced through supply and demand in the marketplace.

2. In a market system, what determines how many goods and services an individual can buy?

It is through one’s income—mostly generated by working.

3. Some nations can produce more goods with fewer workers than other countries that have more workers. How can that be true?

More technology is used in the country with fewer workers, increasing worker productivity.

M&Ms – Yum!

a. twob. three

1. How many basic economic questions are there?

What should be produced? How should it be produced? Who should share in what is produced?

2. In a market economy, economic decisions are primarily made:

A market economy can also be called a private enterprise system, the free enterprise system, or capitalism.

a. by the governmentb. in the marketplace

3. In a market economy, citizens are responsible for:

a. being informedb. making careful

decisionsc. all of the above

In a market economy, citizens can own their own homes, land, and businesses.

4. The amount or quantity of goods and services that consumers are willing to buy at various prices is:

The higher the price, the less consumers will buy

a. supplyb. demandc. equilibriumd. capacity

5. The contest between businesses to attract customers is:

a. profitb. competition

Profit is the reward for taking a risk and starting a business.

6. Most nations have a:

a. market economyb. command economyc. mixed economy

In a mixed economy, the market makes more decisions regarding the allocation of resources than the government.

◦ How does a market system decide what will be produced? A market system decides what is to be

produced through supply and demand in the marketplace.

◦ In a market system, what determines how many goods and services an individual can buy? It is through one’s income—mostly generated

by working. ◦ Some nations can produce more goods with

fewer workers than other countries that have more workers. How can that be true? More technology is used in the country with fewer

workers, increasing worker productivity.

Closure – Today We Learned

Economic Activity Indicators◦ Alphabet Soup!

GDP, GNP, CPI, etc

The Business Cycle

Looking Ahead◦ Test after next

lesson – 2 blocks out We will review for

the test You will have a

study guide

Closure – Next Time