Download Chapter 1 – The Economic Environment

LESSON 1.1
MARKET ECONOMIES
GOALS
 Compare three types of economies
 Describe and explain the characteristics of
a market economy
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Scarcity
 The conflict between unlimited
wants and limited resources.
 Scarcity is the most basic problem
facing economic systems.
 In order to decide how to use its
scarce resources, a country must
answer 3 economic questions…
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Key Economic Questions
1. What to produce? Should resources be used
to provide consumer goods, industrial goods,
or military goods?
2. How should things be produced? What kinds
of industries and equipment should be used?
3. For whom should they be produced? Which
of its citizens should benefit most from what
is produced?
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Types of Economic Systems
 Traditional Economy
 Things are done according to tradition and
progress is slow
 Developing or third-world countries
 Command Economy
 The government owns the businesses and
controls the economy.
 Officials make decisions on what /how goods are
produced and how they will be shared.
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Types of Economic Systems
 Market Economy
 Businesses and individuals are free to make
their own decisions as they buy and sell in the
marketplace (where sellers and buyers do
business).
 Generally found in countries that have a
democratic form of government.
 Capitalism,, or free enterprise, means that
economic resources are privately owned by
individuals rather than by the government.
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Characteristics of Market Economies
 Private Enterprise
 An individual's right to own a business, select a
market to enter, and produce with limited
government direction.
 Yare free to succeed or fail
 Private Property
 You can own, use, sell, and dispose of things of
value or things you create.
 Business properties can include land, buildings,
tools, and the goods the business produces.
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Characteristics of Market Economies
 Profit
 The amount of money left over from sales after
subtracting all of the expenses of operating the
business.
 The desire to work hard, to be creative, and to
satisfy customers in order to earn a profit is
called the profit motive.
 Profit motive helped market economies
outperform the other types of economies.
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Characteristics of Market Economies
 Competition
 The rivalry among businesses to sell their
products and services to consumers.
 Gives consumers the opportunity to choose
from a variety of products and services by
comparing the quality, prices, appearance,
usefulness, and general appeal of products and
services..
 Encourages businesses to improve their
products, services, and customer satisfaction.
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LESSON 1.2
MAKE DECISIONS
GOALS
 Explain how an economy meets needs
and wants
 Describe the six-step decision-making
process
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Needs and Wants
 Needs are things that are necessary for
our survival.
 Ex: Food, clothing, housing, etc.
 Wants are things that are not necessary
for survival, but add comfort and pleasure
to our lives.
 Ex: Blueray disc player, Xbox 360, Nike shoes, etc.
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Goods and Services
 Goods are things you can see and touch.
 Ex: Cell phones, I-Pods, Sporting Equipment, etc.
 Goods are generally referred to as products.
 Services satisfy needs and wants
through the efforts of people or equipment.
 Ex: Vehicle repair, cable company, hair stylist, etc.
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Economic Resources
 The means through which goods
and services are produced.
 Also referred to as factors of
production.
 3 types…
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Economic Resources
 Natural Resources
 The raw materials supplied by nature.
 Come from the earth, water, or air.
 Human Resources (Labor)
 The people who work to produce goods and services.
 Capital Resources
 The tools, equipment, supplies, and buildings that are
used to supply goods and service.
 Capital is used to start, operate, or expand a business.
 Money is a type of Capital.
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Economic Decision Making
 The process of deciding among
several alternative wants the one
that you most desire.
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The Decision-Making Process
GOOD
DECISION
6. Review Your Decision
5. Act on Your Choice
4. Choose One
3. Evaluate Choices
2. Identify Choices
1. Define Problem
PROBLEM
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LESSON 1.3
HEALTHY ECONOMIES
GOALS
 Discuss three measurements of an
economy's health
 Name and describe the four phases of a
business cycle
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Economic Measurements
 Gross domestic product (GDP)
 The total dollar value of all goods and services
produced in a country in one year.
 Includes three major categories
 What consumer spend for food, clothing, and
housing.
 What businesses spend for buildings,
equipment, and supplies.
 What government agencies spend to pay
employees and buy supplies.
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Gross Domestic Product
 Base year – prices in any year are
compared with this year.
 Constant Dollar (real GDP) –
dollar amount when the effect of
price increases is taken out.
 GDP Per Capita – the total GDP
divided by the total population.
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Economic Measurements
 Labor productivity
 The number of item produced per
worker.
 Productivity = Number of units produced (output)
Number of hours worked (input)
 Ex: Productivity = 10,000 units = 125
80 hours
 Worker Productivity – the productivity of one
worker.
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Economic Measurements
 Inflation
 A sustained increase in the general
level of prices for goods and
services.
 Deflation
 A sustained decrease in the general
level of prices.
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The Business Cycle
 Prosperity
 The phase where most people who want to
work are employed and businesses produce
goods and services in record numbers.
 Recession
 A phase of the business cycle where demand
for goods and services begins to decrease,
production decreases, unemployment begins to
increase, and GDP growth slows down.
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The Business Cycle
 Depression
 A phase of the business cycle marked by a
prolonged period of unemployment, weak sales
of goods and services, and business failures.
 Recovery
 The phase in which unemployment begins to
decrease, demand for goods and services
begins to increase, and GDP begins to rise
again.
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LESSON 1.4
PARTICIPATE IN AN ECONOMY
GOALS
 Define three economic roles
performed by people in an economy
 Discuss standard of living and quality
of life
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Economic Roles
 Consumer
 Worker
 Citizen
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Demand and Supply
 Demand is the relationship between the
amount of a good or service that
consumers are willing and able to buy
and the price of the good or service.
 Supply is the relationship between the
amount of a good or service that
businesses are willing and able to provide
and the price of the good or service.
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Your Economic Well-Being
 Standard of living refers to the
way you live as measured by the
kind and quantity of goods and
services you can afford.
 Quality of life is the satisfaction
and enjoyment that you get from
your life.
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