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What is Economics?
Economics is the study of how people produce, distribute, and use
goods and services.
 An economic system is a country’s way of using limited
resources to provide goods and services.
 Scarcity means that there is never enough of everything to
satisfy everyone completely.
 Opportunity cost is the next best choice that you give up
in order to do something else.
 Economics classifies resources as land, labor, and capital.
 Producers are the companies or individuals who make or
provide goods and services. The people who purchase and
use goods and services are consumers.
Chapter
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Basic Economics
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Measuring the Economy
 Economists use many mathematical tools and equations, or
indicators, to measure the health of the economy.
 The total value of all goods and services produced in a country is
called the gross domestic product (GDP).
 The consumer price index (CPI) is used to measure changes
in the prices of goods and services.
 When the average price of goods goes up sharply, it’s called
inflation.
 When the unemployment rate is high, people cut back
their spending, which can lead to a slower economy.
 When statistics show unemployment to be rising, investments
falling, and GDP decreasing over a long period of time, it
often indicates an economic downturn, or recession.
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Analyzing Supply
and Demand
 Supply is the quantity of goods and services a business is
willing to sell at a specific price and a specific time. Demand
is the quantity of goods and services consumers are willing to
buy at a specific price and a specific time.
 Supply and demand have a direct impact on the price of
goods and services.
 When the supply is greater than the demand, the price goes down.
 When the demand is greater than the supply, the price goes up.
 In a market economy, the price of a particular good or service
is determined by supply and demand.
 A surplus exists when the quantity supplied is greater than the
demand.
 A shortage exists when the quantity supplied can’t meet demand.
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Visualizing Supply
and Demand
 A supply curve shows
the quantity of a product
or service a supplier is
willing to sell across a
range of prices. Here the
supplier is willing to
provide more product as
the price increases.
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Basic Economics
 A demand curve shows
the quantity that
consumers are willing to
buy across a range of
prices. Here the
consumer is willing to buy
more as the price
decreases.
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Supply and Demand Curve
 A supply and demand curve
shows the relationship between
price and quantity.
 The equilibrium point is where the
supply curve and the demand curve
meet and supply and demand are
balanced. It also represents the
quantity that a business should
produce of a given item (the
equilibrium quantity) and how
much the business should charge
for it (the equilibrium price).
Chapter
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Basic Economics
Equilibrium
Price
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Analyzing Economic Systems
 In a command economy, the government owns or
manages the nation’s resources and businesses.
 In a market economy, suppliers produce whatever
goods and services they wish and set prices based on
what consumers are willing to pay.
 In a free enterprise system, individuals or businesses
operate with little government interference.
 Free enterprise systems share the same five
characteristics.
 Private property
 Freedom of choice
 Voluntary exchange
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Basic Economics
 Economic incentive
 Competition
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The Free Enterprise System
 In a free enterprise economy, competition is a driving force.
 Competition has many benefits.
 Competition between businesses results in bigger and better
selection, lower prices, and better service.
 Competition between businesses encourages innovation.
 Competition between individuals can lead to higher earnings as
businesses compete for talented workers.
 If a business has no competition, then it controls all of the
supply and demand for the product or service it sells it is
called a monopoly.
 A business makes a profit when the amount of money
coming in from sales is greater than the business’s expenses.
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Taking Part in a
Global Economy
Globalization refers to the growing integration of the world’s
economies.
 Some of the benefits of
globalization include:
 Increased trade
 Increased prosperity
 Increased cultural
exchange
 Globalization presents the
following problems:
 Exports are goods or
services that are sent from
one country and sold to
foreign consumers.
 Imports are goods and
services that are brought
into a country from foreign
suppliers.
 Increased interdependence
 Loss of jobs
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International Trade
 A trade barrier is a governmental restriction on
international trade.
 A tariff is a fee, similar to a tax, that importers must pay on
goods they import.
 A quota is a limit on the quantity of a product that can be
imported into a country.
 Advances in technology provide much of the driving force
behind globalization
 Culture includes a people’s language, beliefs, attitudes,
customs, manners, and habits.
 Businesspeople in most societies follow particular social
rules and customs called etiquette.
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Chapter Review
 Economics is the study of how people produce,
distribute, and use goods and services.
 Supply is the quantity of goods and services a business
is willing to sell at a specific price and a specific time.
 Demand is the quantity of goods and services
consumers are willing to buy at a specific price and a
specific time.
 A supply curve shows the quantity of a product or service
a supplier is willing to sell across a range of prices.
 A demand curve shows the quantity that consumers are
willing to buy across a range of prices.
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Chapter Review (continued)
 In a command economy, the government owns or
manages the nation’s resources and businesses.
 In a market economy, suppliers produce whatever goods
and services they wish and set prices based on what
consumers are willing to pay.
 In a free enterprise system, individuals or businesses
operate with little government interference.
 Globalization refers to the growing integration of the
world’s economies.
 Culture includes a people’s language, beliefs, attitudes,
customs, manners, and habits.
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2
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