Economics 101

What is Economics?

The study of how a society uses it’s resources to produce and distribute goods and services, satisfying wants and needs.

Economic Resources

1. Land

2. Labor

3. Capitol

4. Entrepreneurship

The Big Problem!!!

Scarcity The problem of unlimited human needs and wants, in

a world of limited resources.

Type of Economic Systems

Determines: 1. What will be produced?2. How will it be produced? 3. Who will share in what is produced?

Traditional Economy

Economic system that relies on habit, custom, or ritual to decide questions of production and consumption of good and services

Traditional Economy

Means of the Production is basically owned by the whole economic group

Decisions are based on custom and tradition – like the ancestors did

There is no competition, only custom and tradition is followed

There is no profit, only enough to survive is produced

Traditional System

• By custom• What ever was produced before

What to Produce?

• By custom• How ever it was produced in the past

How to Produce?

• Based on sharingFor Whom to Produce?

Traditional Economy

The main factor for making decisions for the economy is that tradition must be maintained

Traditional Economy

Pros:

Life is stable and predictable

Cons:

Lack of progress leads to a lower standard of living

Command Economy

Economic system in which the central government makes all decisions on the production and consumption of goods and services

Command Economy

Means of Production is owned by the government

The government makes all of the decisions for the economy

The government prevents competition from existing

All of the profits go to the government, no profit for the people

Command System

• Government Decides• Government owns means of production

What to Produce?

• Government DecidesHow to Produce?

• Government Decides• Everyone is treated equally

For Whom to Produce?

Command Economy

The main factor in decision making is what ever the government wants the government gets

Command Economy

Pros:

Full employment because the government gives everyone a job.

Everyone's basic needs are met

Cons:

Consumer wants are not fully met

Less control over your own life

Market Economy

Economic system in which decisions on production and consumption of good and services are based on voluntary exchange in markets

The First Economist – Adam Smith

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” – Wealth of Nations, 1776

Market Economy

The Means of Production is owned individually by the people

The people make the decisions by deciding what they want to do or make

Because of the way the economy is set up, there is a lot of competition

Every business is set up to make profits

Market System

• Consumer choices What to Produce?

• Business chooses most efficient meansHow to Produce?

• Consumers’ income For Whom to Produce?

Market Economy

The main factors in decision making are: What resources are available? What does the consumer want? What do I want to do?

Market Economy

Pros:

Economy can adjust to change over time

High degree of individual freedom

Cons:

Not all basic needs are guaranteed

High degree of uncertainly

Mixed Economy

Economic system that combines the free market with limited government involvement

Mixed Economy

The Means of Production is both public and private

Decisions are made by government and individuals

Most current economies are mixed

The US Economic System

Mixed Economy

Capitalism

Based on 4 important principles Private Property Freedom of choice Profit Competition

Our Economic Goals

1. Economic Freedom

2. Economic Equity

3. Economic Security

4. Price Stability

Economic Freedom

Individuals have freedom to choose their own occupations, employers, and spending habits.

Businesses have freedom to choose how and where to produce goods/services.

Are we meeting this goal?

Economic Equity

People should receive equal pay for equal work.

People should receive adequate pay for the work they perform.

People should all have the same opportunities to get ahead.

Are we meeting this goal?

Economic Security

We should have protection from negative economic events such as layoffs and injuries. Social Security – federal program that provides

disability and retirement benefits.

Everyone should have their basic needs met.

Are we meeting this goal?

Price Stability

We should have stable prices that protect against inflation. Inflation – a rise in the general level of prices.

Are we meeting this goal?

When economic goals are not met…

…People get mad!!!!!!!

Cool-Down

As you listen, list the economic goals not being met according

to artist

Opportunity Cost

What must be given up as a result of a decision…

"What you would have done if you didn't make the choice that you did".

Opportunity Cost

What is the opportunity cost of… Being on a Sports Team Buying a car Going to College Sitting in class right now

What’s wrong here…

What’s wrong here…

http://www.youtube.com/watch?v=tk-5E8aVlgM