-What to produce?-For Whom to produce?-How to produce?

The condition from unlimited wants but limited resources

Choices people make to satisfy their wants and needs

Bellringer

What do economists study?

What is scarcity?

The Three economic questions are:

In a mixed market the government passes rules to safe guard workers and consumers

It is easy to go into debt AND interest increases the cost

Command Economy

BellringerWhich type of economic

system has industry but no freedom of choice?

Explain a danger of using credit to buy goods and services?

What is the difference between Free Market and Mixed Market economies?

Economics

Welcome to EconomicsThe study of Economics is far more than just money, debt and goods.

Economics is the study of choices people make to satisfy their wants and needs.

Economics is complicated because people have unlimited wants, but limited resources

This is scarcity, the condition that results from limited resources and unlimited wants.

Economists study the production of goods and services using scarce resources. They are looking to see efficiency, or whether we are best using our scarce resources.

ScarcityEconomics is complicated because people have unlimited wants, but limited resources

This is scarcity, the condition that results from limited resources and unlimited wants.

Economists study the production of goods and services using scarce resources. They are looking to see efficiency, or whether we are best using our scarce resources.

Resources

When we talk about resources we mean a variety of things:

-Capital (machines, land)-natural resources-human -labor-transportation

Economic SystemsThe economies of today have been developing over thousands of years, from our earliest ancestors. There are four main economic forms today:

-Traditional-Command-Free Market-Mixed Economy

Regardless of the system, there are 3 basic economic questions that MUST be answered:1) What to produce?2) For whom to produce?3) How to produce?

Traditional EconomiesTraditional: what is produced and how is determined by tradition. Often

based on bartering exchange, trading goods and services for other goods and services. Self sufficient- take care of themselves

Traditional economies exist mostly in tribal areas of South America and Africa, but do exist around the world.

Command EconomiesCommand: The government determines what is produced. They COMMAND the means of production, the use of resources and prices

Command economies are mostly found in Communist and totalitarian countries such as North Korea and Cuba.

Free Market EconomiesFree Market: Production is determined by the buyers and sellers through supply and demand. If the individuals demand a supply it will be made. A Free market system promotes Laissez Faire, or complete freedom from government intervention.

Originally developed by Adam Smith, a Free Market system leaves all economic decisions up to consumers and businesses, and restricts the government from getting involved.

Types of EconomiesEconomic systems

WHAT to produce

HOW to produce FOR WHOM to produce

Modern Examples

Traditional

Determined by tradition, passed on generation to generation

Determined by custom

Usually centered around traditional family and social units

Inuit of Canada

Aborigines of Australia

Command

Determined by Government officials

Determined by government officials

Determined by government officials

North Korea

Free Market

Determined by individuals

Determined by individuals

Determined by individuals

United States

England

Mixed Market EconomiesMixed Market: Truly Laissez Faire economies can cause massive problems when businesses exploit workers. When industry first began companies paid low wages for long hours, they hired children and did not maintain any safety standards.

Mixed markets exist around the world. Many capitalist nations are mixed markets, where the government imposes some regulation and taxes, but businesses are still free to answer most of the economic questions by themselves.

Bartering vs Money SystemsThe barter system eventually led to the money system. The Barter system is complicated because the goods that are wanted, are not always available for trade.

The Money system sets up a standardized means of exchange. Money is readily accepted by people in return for goods and services.

MoneyMoney is ANY standard form of exchange. It can be bills, coins, gems, gold, salt, beads, etc.

Money has three functions:-standardized item traded for goods and services-a measure of value that allows producers and consumers to determine and

express worth-can be stored and saved to purchase items later

At Case Middle School they currently have Case Cash. This is a form of money as it

holds value and can be exchanged for goods or services.

Installment Buying/ CreditCredit allows consumers to use items before they have completely paid for them. Credit allows consumers to pay for an item over a specified period. This includes credit cards, store finance plans and bank loans.

Most credit charges interest, a charge for borrowing money.

The US EconomyThe US economy is a mixed economy, which means it blends elements of Command, Traditional and Market economies.

The US economy is based on capitalism. Individuals own the factors of production and answer the basic economic questions (what to produce, how to produce, and for whom to produce)

The four factors of production are:LandLaborCapitalEntrepreneurs

Factors of Production

LandThe natural resources

needed

LaborThe workers and their skills used to produce

goods or perform services

CapitalThe machines, tools,

factories and warehouses

EntrepreneursThe business owners who take all the risks in hopes

of making profit

Freedom in America’s EconomyIn the United States individuals are free to exchange their goods and services, seek jobs of their own choosing, use their resources as they wish and own and operate businesses.

There are 5 main features. Individuals have the right to:-own private property and enter contracts-make individual choices-engage in economic competition-make decisions based on self interest-limited government involvement

However, being a mixed economy means there is some government regulation and welfare programs ‘mixed’ in as well.

Private PropertyIndividual Business

-clothes-computer-ipod-xbox-books

-factory-office building-machinery-land

Property owners are free to use or dispose of their private property as they choose. They can enter into contracts to exchange (buy or sell)

property.

Individual ChoicesFor the most part Americans have the freedom to make their own economic choices. For instance, if you want a soda you can pick between a number of brands such as Coke or Pepsi. You have the choice of what product you will purchase.

Competition Competition is the economic rivalry that exists among businesses selling the same or similar products. Competition is important because it encourages producers to improve existing products and develop new ones in order to attract customers.

Competition is very important in the United States. When we have two or more businesses making similar products we get competition. This encourages producers to improve their products, develop new ones and keep the prices fair.

Limited Governance America’s mixed economy tries to limit government involvement. However, the government makes several economic decisions:

-Mandatory insurance laws-Taxes-Welfare programs-labor laws

US Economic ActorsActors Role Interaction

Producers

Provide goods and services in the market

These entrepreneurs take economic risks looking for PROFIT

Combine human resources, natural resources and capital resources

Consumers Influence production by purchasing goods and services

Consumers tell producers who, what and for how to produce their goods

GovernmentLimited role in regulation to ensure safety and fair business practices

Ensures consumers and producers are safe and that the market is working as freely as possible

US economic Goals

The US Economy has 6 goals:-Freedom-efficiency

-equity-security-stability-growth

Economic FreedomMaintaining choice in the marketplace is a major goal of the US Economy. This is what allows consumers freedom to decide how to spend their income. The workers are free to choose their job or join a union. Savers decide when and how to spend their savings.

Economists like Adam Smith believe in Laissez Faire, or hands off. They believe the government should not regulate business concerns, and instead, let the “invisible hand” dictate what, for whom and how to produce.

Watch this video for an explanation of invisible hand:Invisible hand

Economic Efficiency

The goals of efficiency it to make the BEST use of SCARCE resources.

This can be measured by how many goods and services a nation’s workers produces and the more efficient the economy will be.

*Remember, Economics is the study of choices made to meet our wants and needs*

Economic EquityEquity deals with questions of fairness and right or wrong. By studying the costs and benefits of a proposed course of actions, the policymakers try to judge whether a particular choice is fair.

The US government attempts to ensure that members of society share in the costs and benefits of free enterprise.

Economic Security

A nation’s efforts to protect its members from poverty, business and bank failures, medical emergencies and other situations that harm the economic well being of individual citizens and the nation as a whole.

Economic StabilityHas two parts: achieving full employment and price stability.

Full Employment: the lowest possible level of unemployment in an economy. This is not 0% as there is always some unemployment as workers move and change jobs, businesses open and close, etc.

Price Stability: the goal is to keep the overall price level of the goods and services available is relatively constant.

Economic Growth

Efforts to increase the amount of goods and services produced by each worker in the economy.

The goal is to increase the standard of living, or people’s economic well being.

Standard of living: how much the average person in that country is able to consume in a given time (usually a year)

Goals and Trade OffsNations and individuals cannot work on all of their personal goals at the same time, as a result they must prioritize their goals. Scarcity forces individuals, businesses and governments to make choices among their needs and wants. They must decide which are most important and arrange them.

In America, for example, national defense and security became a high priority during World War II. In times of peace, national defense is not as much of a priority.

Production Possibilities FrontierTo help economists figure out what to produce, they rely on Production Possibilities Frontier Curves, or PPF.

The PPF represent the trade off of an economy based on fixed, and scarce resources.

In other words, we have 500 gallons of milk and can choose to make either ice cream or cheese. If we choose to make more ice cream then we will make less cheese, and vice versa. The curve allows economists to study this tradeoff.

1) Production Possibilities pt.12) Production Possibilities pt. 2

Production Possibilities FrontierPPF show all of the possible combinations of two goods and services that can be produced, assuming the amount of resources doesn’t change and are working to full efficiency.

Points with in the curve represent inefficient use of resources

Points on the curve represent working to capacity

Points outside the curve are unobtainable.

Production Possibilities Frontier

Task1) Complete the following chart by explaining how the questions on the side are

answered in each economic system(can re-make in word document to submit)

2) Analyze the goals of the United States economy. Prioritize the goals according to your own beliefs. Should we put Economic growth before Economic Stability? What about Economic Equity?

Create your list then explain your decision.

3) What are the four factors of production?

4) Why is competition important for a capitalist society?

5) Look at the Production Possibilities Frontier on the following page. Then determine and label each point as either inefficient, efficient and unobtainable. (points A, B, C, X and Y)

Command Market Traditional

What to produce

How to produce it

How much to produce

Who gets what is produced

DiscussionYou also need to watch the following videos and post in the discussion board. You must post your own thoughts AND respond to at least 2 others.

Topic: In America today, there is increasing inequality between the wealthiest and the poorest. The Government could regulate the distribution of wealth, but that would infringe on Economic Freedom. After watching the videos, write an argument for keeping the status quo, and allowing the inequality to keep growing, or for the Government to begin regulation. Defend your position.

Video 1: Wealth inequality in America

Video 2: What Wasn’t said in the ‘Wealth Inequality video’