economic interdependence. economics the study of how to meet the unlimited wants of a society with...
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Economic Interdependence
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ECONOMICS The study of how to meet the
unlimited wants of a society with its limited resources.
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RESOURCES
All things used in producing goods and services.
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ECONOMIC RESOURCES
Land Labor Capital
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LAND
Natural Resources Includes everything contained in
the earth or found in the sea.
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LABOR
Human resources All the people who work in the
economy, including full and part-time workers, managers, public employees, and professional people.
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CAPITAL
The money needed to start and operate a business.
Includes goods used in the production of other goods.
Can be limited because they break or are of poor quality.
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SCARCITY
A condition in which more goods and services are desired than are available.
Scarcity forces people, businesses and nations to make choices.
Unlimited wants-Limited resources = SCARCITY
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ECONOMIC GOODS
A tangible item. Examples: CD player or sports
equipment
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ECONOMIC SERVICE
Intangible Example: going to the circus
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ENTREPRENEURSHIP
Skills of people who are willing to take the risk of starting their own business.
Entrepreneurs organize the other economic resources in order to create goods and/or services needed and desired in an economy.
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FIVE ECONOMIC UTILITIES
Form Place Time
Possession Information
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UTILITY
Economic term referring to the added value or “usefulness”
of a product.
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FORM UTILITY
Value added by changing raw materials or putting parts together to make them more useful.
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PLACE UTILITY
Value added by having a product where customers can buy it.
Playing a football game at a stadium.
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TIME UTILITY
Value added by having a product at a certain time of year or a convenient time of day.
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POSSESSION UTILITY
Value added by exchanging a product for some monetary value.
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INFORMATION UTILITY
Value added by communicating with the consumer.
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The Three Basic Economic Questions
What goods and services should be produced?
How should the goods and services be produced?
For whom should the goods and services be produced?
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The Role of Government in:
Market Economy Command Economy Mixed Economies
Capitalism Socialism Communism
Traditionalism
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Promote Econ Freedom The freedom of
consumers to decide how to spend or save
their income, the freedom of workers to
change jobs
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Promote Econ Security protecting consumers,
producers, and resource owners from risks that exist in
society. Each society must decide from which
“uncertainties” individual can and should be protected, and
whether individuals, employers, or the government should provide for this protection.
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government regulation and deregulation and
their effects on consumers and
producers.
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Regulation
When the government puts
policies in place to try to fix a problem
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DeregulationWhen the
government retracts policies to let the
market decide itself
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Effects of Regulation and De-Regulation
Both Regulation and deregulation have benefits and costs to producers and
consumers
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Market Economy
No government involvement in answering the three basic economic questions. (What? How? For whom?)
Market (or the people) answers the three basic economic questions.
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Market economy continued:
Consumers decide what should be produced.
Businesses decide how products should be produced.
People who have the money to purchase the products determine for whom the products are produced.
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Command Economy Government answers the three
basic economic questions Officials or leaders decide what
should be produced. Government runs the businesses
and employs the workers. (How) Government decides who will
receive the produces. (For whom)
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Traditionalism
An economic system based on the way things have always been done
Examples:Amish community Indian reservation
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Mixed Economies A blend of a market economy and
government. All economies are presently
mixed. Mixed economies include:
Capitalism Socialism Communism
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Capitalism
People elect the government officials who are concerned about the people
Examples: United States and Japan.
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Socialism
Increased government involvement
Government tries to reduce the differences between the rich and poor.
Based on the welfare of people. Examples: France, Germany,
Great Britain.
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Communism
Government is run by one political party and that party controls everything.
People are assigned jobs. Students are told what type of
schooling they will receive. Examples: Cuba and North Korea
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What is supply and demand?
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Supply
The amount of goods producers are willing and able to produce and sell at a given price during a certain period of time.
Producers prefer to supply when the price is high – known as a seller’s market.
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Demand
A consumer’s willingness and ability to buy products at a given price during a certain period of time.
Consumers prefer to buy when the price is low – known as a buyer’s market.
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Law of Supply and Demand
The economic principle which states that the supply of a good or service will increase when demand is great and decrease when demand is low.
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Elasticity
The degree to which demand is affected by its
price.
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Elastic Demand
Refers to how changes in the price of a product affect demand for that product.
Example: When the price is reduced on a CD, the demand for the CD may increase.
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Inelastic Demand
Changes in the price of a product have little affect on the demand for that product.
Example: People will pay any price for Super Bowl tickets.
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Factors affecting elasticity of demand
Availability of substitutes If a substitute is easily obtainable,
demand becomes more elastic. Example:Disney World, EPCOT, Sea
World, Universal Studios, Bush Gardens, etc.
Brand loyalty Many customers will only purchase a
certain brand of products. Demand becomes more inelastic.
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Factors affecting elasticity of demand
continued . . . Price relative to income
When an increase in the price of a good or service does not have a major impact on a customer’s budget, the demand is usually inelastic.
When an increase in the price of a good or service has a major impact on a customer’s budget, the customer most likely will no longer buy the product. In this case, the demand is elastic.
Example: Luxury suite versus general admission.
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Factors affecting elasticity of demand
continued . . . Luxury versus necessity (want vs. need) When a product is a necessity, demand is
inelastic. When a product is a luxury, demand is
most likely elastic. Urgency of purchase
If a purchase must be made immediately, demand tends to be inelastic.
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Business Cycle
Movement of an economy through four recurring phasesProsperityRecessionDepressionRecovery
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Prosperity (Peak)
1. Highest period of economic growth2. Low unemployment3. High output of goods and services4. High consumer spending5. Increased attendance and
purchasing of related merchandise
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Recession
1. Economic slowdown2. Rise in unemployment3. Production slows down4. Decrease in consumer spending5. Decrease in attendance and
purchasing of related merchandise
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Depression (Trough)1. Prolonged recession2. Extremely low consumer spending3. High unemployment4. Drastic decrease in production of
products5. Poverty can result6. Lowest point of attendance and
few related items are purchased
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Recovery1. Renewed economic growth and an
increase in output of goods and services
2. Reduced unemployment3. Increased consumer spending4. Moderate business expansion5. Gradual increase in leisure time
activities and purchase of related merchandise.
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QUESTIONSQUESTIONS