Download Sections_1.3_1.4_and_17.3

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 Systems
 Economic
System-the way an economy
(nation, business, etc.) uses resources to
produce goods and services.
Production-the
creation of goods and
services
 Resources-
services.
used to create other goods or
Include:
Human
Resources-skills, training, and
abilities people have
Nonhuman
Resources-raw materials,
tools, and manufacturer products
 Economics-the
study of how we make use
of our resources.
Macroeconomics
Microeconomics
Types of Economics Systems
1. Traditional
economy (subsistence)-ways to
produce products are passed from one
generation to the next.
2. Command
(controlled economy)government owns most resources and
makes most economic decisions
3. Market (capitalist)- people owns the
resources and run the businesses. Based on
profit motive
Profit-the
difference between the money
received from sale and cost
4. Mixed Economy
Demand and Supply
 Scarcity-consumers’
wants are greater than
the resources available.
 Demand-quantity
of a particular good or
service that consumers are willing and able
to buy at a particular price.
 Law
of Demand-when the price of a product
goes down, demand will generally go up.
 Supply-the
quantity of a product that
producers are willing and able to make
available for sale at a particular price
 Law
of Supply-producers are willing to offer
more of a product at a higher price.
Equilibrium
 Equilibrium
price-the price at which
the quality supplied exactly 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 Decision in a Market Economy
 Both buyer and seller get what they
want
Information for the Economy
 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 than
another, they can….
Lower
the price
Convince customers to pay the higher
price
Stop offering the product for sale
The Profit Motive
 Way
to increase profits:
1. Reduce costs-less expensive materials,
increase efficiency
2. Change price
3. Increase quantity of products soldadvertising
Consumer Economics
 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.
 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.
Section17.3
Government and the Economy
Measuring Economic Performance
Economic Indicators
Gross Domestic Product
(GDP)-The current value of
all goods and services
produced in a country in a
year.
 Inflation-sustained increase
in the average level of prices
 Real GDP is adjusted for
inflation

Consumer Price Index (CPI)Measures the monthly
change in the price of about
400 goods and services
(market basket) as a %.
 Unemployment Rate-% of
people who are able to work
and looking for work. 5.5% is
considered full employment
 Personal income-the income
people receive through
wages, profits, dividends,
interest, etc.

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.

Trough - if things get worse - economy may slide into a depression.
The farthest the economy falls is the trough.

Expansion-economy recovering. Increasing demand, lowering
unemployment

Depression-not a normal part of business cycle
Effects of Inflation

Hurts those on fixed income
 Less

Hurts those who save
 APY

purchasing power
doesn’t keep up with inflation
Helps those who borrow
 Borrow
money at the lower APR
The Business Cycle
Factors Affecting Ups and Downs
 Consumer
confidence
 Technological
 Government
 War
innovation
policies
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
Bank bailout of 2008