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Transcript
Unit 2: Economics
1.3 Understanding Economic Systems
1.4 Consumer’s Role in the Economy
17.3 Government and the Economy
Section 1.3
Understanding Economic Systems
 Economic
System - the way an economy (nation,
business, etc.) uses scarce resources to produce
goods and services

Production - the creation of goods and
services

Resources - used to create other goods or
services
Human Resources - skills, training, and
abilities people have

Nonhuman Resources - raw materials,
tools, and manufactured products

Economics

Economics - the study of how we
make use of our resources
 People’s wants are unlimited but
resources are limited
Macroeconomics - on a national and
global scale
 Microeconomics - focuses on people
and businesses

4 Types of Economic Systems
EconomicSystems
Traditional
Command(Controled) Capitalist(Market)
Mixed
Types of Economic Systems
Traditional
Economy
Decisions
about what and how to produce
products are based on traditional customs
and beliefs
Passed
Also
from one generation to the next
known as a Subsistence Economy
Types of Economic Systems
Command
Economy
Decisions
about what and how to produce
products are decided by a central government
Also
known as a Controlled Economy
Current
example: North Korea and Cuba
Types of Economic Systems

Market (or Capitalist) Economy

Decisions about what and how to produce
products are made by individuals acting in their
own self-interest

Government does not intervene

“Free Markets”
Market – brings potential buyers and sellers
together to exchange goods and services

Profit - the difference between the money
received from sale and cost

Types of Economic Systems
Mixed
Economy
Combination
of the command and market
systems
Most
countries have a mixed economy with
varying degrees of influence
- USA – more prominent market
- China – more prominent command
Foundations of Supply and Demand
 Scarcity

Consumer’s wants are greater than the
resources available

Economic systems must be developed to
determine how to use these scarce resources.
Demand


The quantity of a particular good or service that
consumers are willing and able to buy at a given
price over time
Demand Curve (also known as the Law of Demand)
 When the price of a product goes down, demand
for that product will generally go up
 (Price ↓, Demand ↑
Price ↑, Demand ↓)
Supply
 The
quantity of a particular product that
producers are able and willing to make available
for sale
 Supply
Curve (also known as the Law of Supply)
when the price of a product goes up, the supply
will generally go up
 (Price ↑, Supply ↑
Price ↓, Supply ↓)
Equilibrium
 Equilibrium
price - the price at which the
quantity supplied equals the quantity
demanded
Surplus
- excess quantity supplied
Shortage
- insufficient quantity supplied
Supply and Demand Curves
1.4
Consumer’s Role in the Economy
Making Decisions in a Market Economy



Transactions benefit both buyers and sellers
Transactions provide information that helps the economic
system work
 For
the merchant: info about buying habits (what to order)
 For
the manufacturer: what to make and offer to sell
Price
 If
one company charges more that another, they can….

Lower the price

Convince customers to pay the higher price

Stop offering the product for sale
The Profit Motive

Businesses must make profit to survive

Ways to increase profits:
1.
Reduce costs
- less expensive materials, increased efficiency
2.
Change price
3.
Increase quantity of products sold
- Advertising
Consumer Economics - terms

Consumer - anyone who buys or uses products or
services

Consumer economics - the study of the role
consumers play in an economic system

Consumer sovereignty - consumers are in charge
in a market economy. They decide what goods and
services are produced

In our economy, who chiefly determines what products and
services will be provided? CONSUMERS
Benefits of Competition - good quality, fair price
 Efficiency
and Profits - Profitable companies are:
1.
Selling products consumers want to buy
2.
Selling at prices consumers are willing to pay
3.
Making a profit
Measures of the Economy
Economic Indicators
Measuring the Economy’s Performance

Economic Indicators


measurements used to monitor the “health” of the economy
The National Debt

also known as the public debt

the total amount of money that the federal government owes – Do you own
a saving’s bond?



In 2002, the National Debt was $6 trillion. What is it today?
Gross Domestic Product (GDP) - the current value of all
goods and services produced within a country in a year
Real GDP – the GDP adjusted for inflation

How much do you think the U.S. produces each year?
Measuring the Economy

Exchange Rates



the cost of one currency expressed in terms of another currency
Unemployment Rate

the percentage of the civilian labor force that is without a job but actively looking
for work

“Full Employment” – below 5.5%
Consumer Price Index

a measure of inflation
 sustained

increase in the average level of prices
Calculated using the price of over 200 categories of goods and services
that the average household uses (market base)

The index is a percentage (%)
Internet Assignment
1. What is the US National Debt?
• http://www.brillig.com/debt_clock/
• http://www.usdebtclock.org/
2. What is each citizen’s share of the debt?
3. How much each day does the national debt
increase?
Internet Assignment (Con’t)

Find these exchange rates using the following web site:
http://www.xe.com/ucc/

Convert $1 US Dollar into the following currencies
4.
Euro
5.
Mexican peso
6.
Canadian Dollar
7.
Country of your choice
8. What is the U.S. unemployment rate as of January 2012?
www.bls.gov
9. What is the current Consumer Price Index (CPI) as of
December 2011?
 Write all answers on a separate sheet of paper
Section 17.3
Government and the Economy
Consumer Income

Personal income – the income people
receive through wages, profits, dividends,
interest, etc.
Used as a measure of economic growth
 Indication of how much people are able to
spend and save

The BUSINESS CYCLE
Business Cycle - The pattern of ups and downs in a
nation’s business activity.
 Peak or Boom - period of prosperity
 Contraction - period of prosperity wears off - business
activity slows down.

If that lasts long enough, the economy can find itself going
into a recession.
Recession – economy is generally falling
 Depression - not a normal part of business cycle
 Trough – (lowest point of the cycle) business activity
levels off
 Expansion - economy recovering. Increasing demand,
lowering unemployment

The Business Cycle
Effects of Inflation

Hurts those on fixed income


Hurts those who save


Less purchasing power
APY doesn’t keep up with inflation
Helps those who borrow

Borrow money at the lower APR
Factors Affecting Ups and Downs
Consumer confidence
 Technological innovation
 Government policies
 War

Government Efforts to Stabilize the
Economy

Goal - minimize swings in the economy and promote
economic growth, high employment, and low inflation

Tools to accomplish:
1.
Fiscal policy - decisions on taxing and spending
2.
Monetary policy - managing interest rates, the
availability of loans, and the supply of money


Control by the Federal Reserve System

Chairperson of the Fed-Janet Yellen
Example: Bank bailout of 2008