Download ECONOMICS

ECONOMICS
What to produce?
How to produce?
For whom to produce?
Resources are things people use.
MONEY is a resource!
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Oil is a resource
Timber, machines, and many other things…
Resources are limited – not enough to meet
every need
It is all about the money – honey!
ECONOMICS
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Is the study of how people, businesses, and
countries use limited resources.
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There are different types of economic systems.
TRADITIONAL
COMMAND
MARKET
MIXED
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TRADITIONAL ECONOMIES
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People usually produce just what they need to survive.
Land is usually owned by a wealthy ruling class.
People in a traditional economy inherit their position from
their parents. They are not expected to advance.
Farmers remain farmers, herders remain herders, etc.
People are motivated to produce by the need to
survive.
In rural parts of Latin America, communities still
depend to a certain degree on traditional economies.
COMMAND ECONOMIES
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GOVERNMENT OWNS THE MEANS OF
PRODUCTION!
Most businesses and property belong to the
state rather than private businesses.
The GOVERNMENT decides what will be
produced and how much will be produced.
President Hugo Chavez of Venezuela
controlling the economy.
Command Economies
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The goal of command economies is
economic equality – designed to keep people
from being too rich or too poor.
BUT – this rarely works!
Command economies are inefficient.
There is often not enough of the products
people want (SHORTAGE) or too much of
things people don’t want (SURPLUS)
Command Economy
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Command economies often limit the amount
of money people can make.
Workers do not have the motivation of
becoming wealthy or getting promoted if they
work hard.
Govt limits how much money a business can
make. There is no financial reward for
producing better products.
MARKET ECONOMIES
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Allow for PRIVATE OWNERSHIP of businesses and
property
Often called “CAPITALIST” because they encourage
capitalism.
CAPITALISM supports private ownership and the
pursuit of profit in business.
Profit is the amount of money businesses make after
they pay the cost of producing their product.
MARKET Economies
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Market economies have very little gov’t
regulation.
Market demand (what people want to buy)
determines what will be produced rather than
the gov’t.
MARKET
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A MARKET is wherever buyers and sellers
exchange money and goods.
When you buy a new shirt or DVD, you are
exchanging money in an economic market!
In market economies – BUSINESSES are
free to produce what they want. BUYERS are
free to buy what they want.
Market Economies vs. Command
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Market economies operate more efficiently
than command economies.
Since, businesses want to make money – they
produce only what the market demands.
If people want shirts, then producers will make
shirts. Shortages and surpluses usually don’t
last very long in market economies.
Market Economies produce
INNOVATION!
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Innovation – new and better ways of doing things
Businesses are COMPETING with each other. They
have to find ways to make products better or invent
new things!
They have to hire the most-qualified people to do
this…they pay more $ to skilled workers.
Workers have an incentive to work hard and get
more training.
ECONOMIC DEVELOPMENT occurs faster in
market economies.
?? Downside to Market Economies ??
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They often produce “haves” and “have nots”
Financial success depends on the ability to
respond to market demands – market
economies produce a few rich people, a
large middle class, and a poor lower class.
There is no guarantee of equality in a market
economy.
MIXED ECONOMIES
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In reality, most economies are MIXED
economies!
They are not totally command or totally
market. They are partly both.
UNITED STATES
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United States – not totally market.
The gov’t places some regulations on the
economy. But overall, the gov’t is
supposed to let the market operate as
freely as possible.
CANADA
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Canada’s economy is MIXED.
Much of the economy is a free market.
The government controls some areas, like
healthcare.
Canada’s main economic industries include,
agriculture, energy resources, foresting,
manufacturing and service industries.
Canada is one of the world’s wealthiest and
most-developed nations.
RAUL CASTRO
CUBA
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Mostly COMMAND ECONOMY
The govt owns most property and controls
production.
The govt employs most of Cuba’s workers.
Like in most command economies, Cuba’s is
inefficient and less developed than freemarket nations.
Much of Cuba’s population is very poor.
BRAZIL
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Economy is mixed – leans towards free market
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It is very developed.
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Its GDP is second-highest in the world.
Only the US is higher.
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Brazil’s key industries – agriculture, technology,
automobile and aircraft production, chemicals, and
steel
It also has many businesses and financial institutions.
It also exports many goods.
TRADE
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International trade occurs when nations
choose to exchange goods.
Nations engage in trade because it is either
impossible or inefficient to produce all that
they need themselves.
SPECIALIZATION
Specialization encourages trade!
 Nations specialize in producing certain
things.
 Venezuela & Mexico produce large amounts
of oil. Other countries produce other
products.
 Trade allows countries to acquire
the things they need and sell the
things they produce.
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IMPORTS and EXPORTS
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IMPORTS – goods that a country buys from
producers in another country
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EXPORTS – goods that producers in one
country ship to another country
President John F. Kennedy
Signed an EMBARGO against
Cuba in early 1960
TRADE BARRIERS
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Obstacles to trade
Can be natural or human-produced
NATURAL – mountains, deserts, rainforests
POLITICAL – rules passed by a govt to
regulate trade
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Often intended to help a country’s own producers
be more competitive in the market place
May be aimed at punishing or putting economic
pressure on another country
Tariffs and Quotas
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TARIFF – tax on imported goods – Tariffs
raise prices on foreign goods. This makes it
less profitable for countries to sell their goods
in foreign markets.
QUOTA – limit on trade – Quotas restrict the
amount of a foreign good that may be
imported in a given amount of time.
SANCTIONS & EMBARGOES
POLITICAL BARRIERS to trade.
 Sanctions are policies that restrict a country’s trade
with another country – usually meant to force a
country to change some policy
 EMBARGOES – more drastic – nations refuse to
trade with a certain country at all –
The United States has had an embargo against Cuba
in place for almost fifty years.
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ENCOURAGING TRADE - NAFTA
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North American Free Trade Agreement
It is an agreement between
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United States
Canada
Mexico
NAFTA removed tariffs and increased trade
between these countries.
CURRENCY
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Currency is something that is assigned value.
It is used to buy goods and services in a
market.
EXCHANGE RATE – What the currency of
one nation in worth in another nation
One goal of the European Union was to
establish a common currency – the EURO
CAPITAL GOODS
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Goods used to produce things
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Factories
Machinery
Computers
Technology & Advanced Equipment
The value of all the goods a nation
produces in a year is called the GROSS
DOMESTIC PRODUCT (GDP).
NATURAL RESOURCES
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Affect economic development!
Nations rich in natural resources can
produce revenue (money).
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Oil is a valuable resource
Precious metals
Others (timber, gas. …)
HUMAN CAPITAL
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Refers to the investments in the welfare and
training of human workers.
Providing health care, education, programs
to improve people’s job skills – These are
investments in human capital.
Investment in human capital usually
produces a healthier, more satisfied, more
productive workforce. More productivity
results in higher GDP
ENTREPRENEURS
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People who start and own private
businesses.
Nations with free-market economies
encourage entrepreneurship.
Nations with socialist policies, like Cuba and
Venezuela, limit what type of businesses
may be privately owned.
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