STARTER

• How do societies know what to do with the resources they have available?• How do societies determine who controls the

resources and the distribution of the resources?

CHAPTER1.4, 2.1

ECONOMISTS TOOLBOX AND ECONOMIC SYSTEMS

WORKING WITH DATA

• Economic models• Words• Graphs• Equations

• Understand which “Lens” you need to look through• Micro vs. Macro• Positive vs. Normative

MICRO VS. MACRO

• Microeconomics• The study of individuals, families, and

businesses • Topics: prices, costs, profits, competition, and

behavior of consumers and producers

• Macroeconomics• The study of the economy as a whole and is

concerned with large-scale economic activity• Topics: Inflation, unemployment, aggregate demand,

and aggregate supply

• Figure 1.11 (P. 28)

POSITIVE VS. NORMATIVE

• Positive• Studies economic behavior as it is• Verifiable facts, not judgments• Uses scientific method (observe, hypothesize,

test, refine, and continue testing)

• Normative• Involves judgments of what economic behavior

ought to be• Based on value judgments• Beyond facts to ask if actions are good

WHAT IS AN ECONOMIC SYSTEM?

• Economics is the study of how individuals and societies satisfy their unlimited wants with limited resources. • An economic system is the way a society

uses resources to satisfy peoples wants• There are 3 main economic systems:• Traditional• Command• Market

TRADITIONAL ECONOMY

• An economic system in which people produce and distribute goods according to customs handed down from generation to generation (Ex. “The way its always been done”)• More common among families, clans, and tribes• The ONE goal of these societies is survival• Set roles and tasks• Men: hunt and herd• Women: crops and children• Children: chores and learning skills

• No chance of deviation for own personal desires

COMMAND ECONOMY

• An economic system in which the government makes all economic decisions • Government officials consider the resources

available and allocate those resources according to their judgment of what the country needs• Individual consumers are rarely considered• Government owns all resources and factories

(means of production)

MARKET ECONOMY

• An economic system in which individual choice and voluntary exchange direct economic decisions• Based on individual choice, not government

directives• Consumers and producers drive this economy• Freedom to act in your own self-interest