ECONOMICS

ECONOMIC SYSTEMS

The way people produce and exchange goods and services is called an economic system.

Four types of economic systems: traditional, command, market and mixed.

TRADITIONAL ECONOMY

Goods and Services are traded withoutexchanging money. Also called “barter”.

MARKET ECONOMY

Production of goods and services isdetermined by the demand from

consumers.Also called a Free Market Economy.

COMMAND ECONOMY

Production of goods and services isdetermined by a central government,

whichusually owns the means of production.

MIXED ECONOMY

A combination of command and marketeconomies provides goods and services

sothat all people will benefit.

ECONOMIC SYSTEMS:SATISFY OUR WANTS AND NEEDS

Goods – Things we can touch or see that satisfy our wants or needs.

Services – Actions people undertake in order to satisfy their wants and needs.

TYPES OF RESOURCES: PRODUCTION RESOURCES

Businesses use three types of productionresources to produce goods and services.

Natural HumanCapital

NATURAL RESOURCES

Resources that are present without human interference

“gifts of nature” Examples are land, timber and mineral

deposits

HUMAN RESOURCES

Any human effort used to produce goods and services

Examples include workers and their skills, training and education

CAPITAL RESOURCES

Tools of production Goods used to produce other goods or

services Examples include tools, machinery and

buildings. Money used to purchase these

resources is called capital.

IDENTIFYING RESOURCES: WRITE EACH RESOURCE LISTED BELOW IN THE CORRECT CATEGORY ON YOUR PAPER.

cotton tractor marketing degree table saw computers

water driver’s license crude oil employees

factory building aluminum electrician’s license land

NATURAL

HUMAN CAPITAL

LEVELS OF ECONOMIC ACTIVITY

Primary – First level Secondary – Second

level Tertiary – Third level

PRIMARY ACTIVITIES

Businesses involved in gathering raw materials.

Examples include mining and timber companies.

SECONDARY ACTIVITIES

Businesses that add value to materials by changing their form.

Examples include automobile manufacturers and textile factories.

TERTIARY ACTIVITIES

Companies that provide business or professional services.

Examples include salespeople, teachers and doctors.

IDENTIFYING LEVELS OF ACTIVITY

_____ Hershey Chocolate _____ Pilot Gas

Station

_____ Luck Stone Corp. _____ NTelos

_____ Law Well Drilling Inc. _____ Fry Appraisal Co.

_____Oak Lawn Cemetery _____ Walmart

_____Augusta Medical Center _____ Hollister

IMPORTANT NOTE:

The more developed an economy is, thegreater the number and variety of

activitiesyou will find.

WORLD TRADE: WHY DO COUNTRIES TRADE WITH EACH OTHER?

Trade maintains and improves relations between countries.

Trade allows countries to acquire goods and services, often natural resources or raw materials, that it does not have available to them.

Trade allows countries to obtain products that other countries may produce more efficiently and therefore are less costly.

INTERNATIONAL TRADE SOME BASIC TERMS:

Imports – goods or services that a nation buys from other nations

Q: What type of goods does the U.S. import the most?A: crude oil, refined petroleum, automobiles, food and

beverages, raw materials, and consumer goods

Exports – the goods or services that a nation produces and then sells to another nation

Q: What type of goods does the U.S. export the most?A: capital goods, industrial supplies, raw materials,

agriculture products, and automobiles

…MORE TERMS

Specialization – the idea of countries only making those products that they produce the most efficiently

Absolute Advantage – a country’s ability to produce more of a given product than can another country

Comparative Advantage – a country’s ability to produce a given product relatively more efficiently than another country – or – production at a lower opportunity cost

SPECIALIZATION

The key to international trade is specialization. Even though one country may have an absolute advantage over another country in producing all concerned products it can still be beneficial for both countries to specialize and trade.

Take some time to complete the Enrichment Activity and you will see for yourself.