Download Lesson 3.1 WHAT IS AN ECONOMY?

Lesson 3.1
WHAT IS AN ECONOMY?
GOALS
• Describe market and command
economies.
• Define the concept of supply
and demand.
• Explain the effects of market
structure on price.
• Describe the functions of
business in a market economy.
SCARCITY
• Scarcity occurs when people’s needs and
wants are unlimited and the resources to
produce the goods and services to meet
those needs and wants are limited.
• Scarcity occurs in every economy.
COMMAND ECONOMY
• In a command economy, the government
determines what, how, and for whom
products and services are produced.
MARKET ECONOMY
• In a market economy, individuals decide
what, how, and for whom goods and
services are produced.
PRODUCTIVITY
• The level of output that an industry or
company gets from each worker or each
unit of input into its products and services
is called productivity.
SUPPLY
Price
$40
$30
$20
$15
Supply Curve
$50
Price
• Supply is how much of a
good or service a
producer is willing to
produce at different
prices.
• Suppliers are willing to
supply more of a product
or service at a higher
price.
Quantity
40
30
20
10
40
30
20
10
10 20 30 40 50
Quantity
DEMAND
Price
$20
$30
$40
$50
Demand Curve
$50
Price
• Demand is an
individual’s need or
desire for a product or
service at a given price.
• Individuals are willing to
consume more of a
product or service at a
lower price.
Quantity
40
30
20
10
40
30
20
10
10 20 30 40 50
Quantity
WHEN SUPPLY AND
DEMAND MEETSupply and
Equilibrium Price
$50
Price
• The point at which the
supply and demand
curves meet is what is
known as the
equilibrium price and
quantity.
• This is the price at which
supply equals demand.
Demand Curves
40
30
20
10
10 20 30 40 50
Quantity
MARKET STRUCTURE AND
PRICES
• When a company controls all of a market,
it has a monopoly.
BUSINESS ACTIVITIES IN
A MARKET ECONOMY
• Production
• Marketing
– Product
– Distribution
– Price
– Promotion
• Management
• Finance
Lesson 3.2
THE CONCEPT OF COST
GOALS
• Identify various types of
costs.
• Discover how different types
of costs affect the prices
entrepreneurs charge.
FIXED AND VARIABLE COSTS
• Fixed costs are costs that must be paid
regardless of how much of a good or
service is produced.
• Fixed costs are also called sunk costs.
• Variable costs are costs that go up and
down depending on the quantity of the
good or service produced.
MARGINAL BENEFIT AND
MARGINAL COST
• Marginal benefit measures the
advantages of producing one additional
unit of a good or service.
• Marginal cost measures the
disadvantages of producing one additional
unit of a good or service.
OPPORTUNITY COST
• Opportunity cost is the cost of choosing
one opportunity or investment over
another.
Lesson 3.3
GOVERNMENT IN
A MARKET ECONOMY
GOALS
• Explain the government’s
effect on what is produced.
• Recognize the different
roles the government plays
in a market economy.
GOVERNMENT’S EFFECT ON
WHAT IS PRODUCED
• Purchases
• Taxes
• Subsidies
ROLES OF THE
GOVERNMENT
• Regulator
– Inspection
– Licenses
• Provider of public good
• Provider of social programs
• Redistributors of income