economics

EconomicsMr. Marchand

I. Introduction

•Needs•Wants•Scarcity

•Economics is the study of how we satisfy unlimited wants and needs using limited resources.

A. Economic Assumptions

•Rational Behavior▫Respond to incentives▫Do what benefits, avoid what harms

•Voluntary Exchange▫Free trade of goods and services

•Opportunity Cost▫More of one thing means less of another.▫Cost of doing the next best thing with time

and resources.

B. Three Basic Economic Questions• WHAT to produce?

▫Decide between options.• HOW to produce it?

▫What effects will different methods have?

• FOR WHOM shall it be produced?▫Who will benefit?

• Every society needs to answer these three questions.

C. Different Economic Systems•Traditional economy

▫Questions answered according to tradition, customs, and religious practices.

▫Village and family based.

▫Bartering Paul the carpenter

makes furniture for John the farmer in exchange for corn.

C. Different Economic Systems

•Command Economy▫Individuals have little control▫Government owns & controls economy

and makes all decisions. One person, small group, or central

planners. No private ownership

▫Government answers each question (What, How and For Whom)

▫North Korea; Cuba

C. Different Economic Systems•Market Economy

▫Individuals decide each question (What, How, Form Whom)

▫Government does not interfere in economy

▫Let the market decide▫Underground

economy, 19th Century Britain

C. Different Economic Systems

•Mixed Economy▫Elements of Traditional, Command, and

Market economies▫Most nations have mixed economies

▫Federal, state, and local governments make laws to regulate some areas of business.

▫Public and private sectors contribute to economy. Ex: Defense spending can boost economy.

▫Government intervenes from time to time.

II. Supply and Demand

Market Graph

Demand

•The desire, willingness, and ability to buy a good or service.▫All three must be present.

•Law of Demand:▫Price and Quantity Demanded move in

opposite directions.▫As price increases, quantity demanded

decreases.

Demand Curve

Supply

•Quantities of a good or service that producers are willing to sell at all possible market prices.

•Law of Supply▫Price and quantity supplied move in the

same direction.▫As price increases, quantity supplied

increases.

Supply Curve

The Market

III. What Makes the US earn Money?

How is change introduced?

•Entrepreneurs▫Person who has possession of a new

enterprise, venture, or idea and assumes responsibility for its success or failure.

•Three Types▫Inventors▫Innovators▫Marketing

Famous Entrepreneurs

•Sam Walton▫Walmart, Sam’s Club

•Steve Jobs▫Apple Computer

•Madame CJ Walker▫Beauty and Hair

Products•Beulah Louise Henry

▫Variety of Inventions

IV. Banking & Financial Institutions

• Money▫Three Functions

Medium of Exchange Store of Value Measure of Value

• Types▫Salt, animal hides,

gems, tobacco▫Coins and currency

• Money has value because we have confidence in it.

Financial Institutions•Banks

▫Safe place to deposit, save, and borrow money.

•Federal Deposit Insurance Corporation (FDIC)▫Insures money▫If a bank closes, you

still get your money

Federal Reserve•The banker’s bank•Holds the U.S. Government’s money•When banks need to borrow money, they

borrow from “The Fed”.

Budgeting• Blueprint of how to raise and spend money.

▫Done by individuals, groups, governments.▫Federal, State, and Local

• Questions to Consider▫Income▫Supplement▫Needs and costs▫Wants and costs

The President and Congress work together to create the federal budget each year.

Government Income & Expenses•Taxes

▫Income tax▫Payroll tax (Social Security and Medicare)▫Excise tax (gas, tobacco, alcohol)▫Estate tax (when a wealthy person dies

their inheritance is taxed)•Expenditures

▫Social Security, Medicare, Medicaid▫National Defense▫Interest on Debt