Economics • Economics is the study of how individuals, businesses, and nations

make things, buy things, spend money and save money.

Term Definition

Producer A person or group that makes or provides a good or service.

Consumer

A person that buys or uses a good or service.

Goods

physical (tangible) objects that can satisfy people’s wants

Services

actions (intangibles) that one person performs for another to satisfy wants

Scarcity

Having “unlimited wants” (I want to drive across the United States) and “limited resources” (I only have $30 dollars for gas )

DO FIRST

• Using the vocabulary terms, read the 5 definitions and complete the nine practice problems by yourself to assess your understanding of the vocab terms.

Economics

Economic Question 1

Economic Question 2

Economic Question 3

What should be produced?

How should it be produced?

Who gets what is produced?

Economics is the study of how people meet their basic needs. All societies must answer 3 fundamental economic questions. How a society answers these three fundamental economic questions determines its type of economic system.

A Traditional Economy is…

• determined by custom and tradition. Generally people do what their ancestors did.

• Examples: – Bangladesh– Burma– Malawi

Economic Decisions

• Custom and Tradition determine what should be produced, how it should be produced and for whom.

Production

• The production of goods is based on custom and time-honored methods.

• New ideas are discouraged.• Change and growth proceed very slowly

Private Property

• Often there is no private property: things are owned by the family or village in common

Trade

• Goods and services are produced to meet the needs of the members of the family or tribe.

• Since they are produced and consumed locally, there is very little trade with outsiders.

2 Important Vocab Words

• Subsistence Agriculture – land produces only enough crops to feed family or village.

• Cottage Industries - goods made in the home. They help traditional societies meet needs of their family and the village.

Traditional Economy

• Read the passage and complete the chart that answers the three questions.

• What to produce?– Production based on

custom and time-honored methods

Traditional Economy

Traditional Economy

• How is it produced?– Children will do what their parents did– Resources/tools are primitive (basic)– Major jobs are:• Hunting• Farming• Herding cattle

Traditional Economy

• Who gets it?– Only enough is produced to meet the needs of the

family or tribe– Everything is shared

A Free Enterprise is…

• Determined by interactions between buyers and sellers – AKA: Capitalism

• Examples:– They do not exist in the real world. Countries that are

close to having a Free Enterprise are:• The United States• Japan• Germany

Private Property

• People have a right to own private property (personal possessions, factories, farms, businesses) and to use this property as they see fit with limited governmental interference.

Free Enterprise

• People are free to take part in any business, buy any product, or sell any legal product.

• Businesses are also free to do anything they wish in order to attract customers (lower prices, advertise, etc.)

Profit Motive

• The ability to make profits is what drives people to risk their money in starting new businesses.

• Sellers want to make a profit

Supply and Demand

• The interaction of supply and demand determines prices in a free market economy.

• When demand is high, the price goes up. If the supply is high but demand is low, the price goes down.

Important Vocab Terms

• Commercial Agriculture: crop production is intended for distribution to wholesalers and retailers, such as supermarkets and grocery stores. This makes production cheaper.

• Commercial Industries: goods are manufactured in factories for sale throughout the country or overseas.

Free Enterprise Economy

• Read the passage and complete the chart that answers the three questions.

Free Enterprise

• What to produce?– People are free to produce what they want– Based on profit motive (people want to make

money)

Free Enterprise• How is it produced?– Commercial Industries

(goods are manufactured in factories, large scale)

– Commercial Agriculture (farmers grow food to feed many ppl and sell it for $$$)

– Commercial = large scale & $$$$$

Free Enterprise

• Who gets it?– You can buy anything you

can afford– Price is determined by

supply (how much) and demand (how badly ppl want it)• If demand is high = price goes

up• If supply is high but demand

is low = price goes down

Role of Government

• Limited gov’t interference• Gov’t acts as:– Umpire (makes sure business play fair)– Enforces common rules– Maintains monetary ($$) system

Guided Practice – Short Answer• Annotate the question• How does a Free Enterprise economy determine

what is produced, how is it produced, and who gets it? Contrast a free market economy with a traditional economy, specifically mentioning subsistence agriculture and commercial agriculture.

• Brainstorm with elbow partner• Write down notes in 1st set of lines

• Expectations:• Quiet voices

A Command (Communist) Economy is…

• Where all decisions made by the GOVERNMENT

• Examples:– Vietnam– Cuba– North Korea– China

Command = Communism

• Developed in 1800’s by Karl Marx• Good in theory, bad in practice– Equality for everyone

• What can go wrong with everyone working hard and sharing all resources equally?

Role of Government

• All major decisions on production, distribution and the use of resources are made by government planners

Private Property

• Private property ownership is abolished and replaced by national ownership of all land, factories, farms and major resources

Cooperation

• Communism is based on cooperation, in which all workers should labor together and share equally.

• The economy is supposed to be run for the benefit of all members.

Major Goal

• The goal is to achieve a classless society – equality among all workers.

Command Economy

• Read the passage and complete the chart that answers the three questions.

Command Economy

• What to produce?– Determined by the government– Government leaders develop “national plans” (5

year periods) that specify which goods a factory will make

Command Economy• How is it produced?– Government decides– Cooperation – all workers

labor together and share equally

– Large Scale Industry– Large Scale Agriculture

“Workers of the world, unite!” - From The Communist Manifesto

Command Economy

• Who decides who gets is?– Government determines who

gets it (equality is key)– Goal is to achieve a classless

society (equality for everyone)

– No private property, replaced by national ownership of everything

A Socialist (Mixed) Economy is…

• Where most important business is owned by the government

• Most countries have elements of both free enterprise and command, and are somewhere in the middle of the spectrum

• Examples:– Sweden– Norway

Role of Government

• Government should use its power to bring an end to poverty by taking control of the major resources of the nation (railroads, airlines, radio stations) and by providing public service.

Economic Decisions

• Many decisions about production, distribution and the use of resources are made by the government. Other decisions are made privately.

Private Property

• Major industries are owned by the government. Other property is held privately.

Major Goal

• Socialism seeks a fairer distribution of income among all members of society. People’s basic needs (health care, transportation, education, housing) are met for free or at very low cost.

Socialist Economy

• Read the passage and complete the chart that answers the three questions.

Socialist Economy

• What to produce?– Major industries (railroads, airlines, hospitals,

banks) owned by gov’t– Everything else owned by people (small

businesses/shops, etc…)

Socialist Economy

• How is it produced?– Gov’t decides on big industries– People decide everything else

Socialist Economy

• Who gets it?– Fair distribution of goods

and income– Gov’t goal is to end

poverty