2.  Economics – explains the choices we make and how those choices change as we cope with scarcity  Scarcity – the idea that there is a short supply or limited amount of all things  Microeconomics – the study of decisions made by individuals and businesses  Macroeconomics – the study of the national economy and the global economy

3.  Economic Systems must make three basic decisions: 1) What and how many goods and services should be produced? 2) How should they be produced? 3) Who gets the goods and services that are produced?

4.  In a market economy individuals and private groups make decisions about what to produce  Based on free enterprise – private individuals or groups have the right to own property or businesses and make a profit with little to no government interference  People are free to buy what they want, work where they want, and make what they want  A.K.A. capitalism

5.  No country in the world has a pure market economy  A mixed economy occurs when government supports and regulates free enterprise.  The government works to keep competition free and fair by supporting the public interests.

6.  The United States has a mixed economy Free markets, private property, and ability to make a profit like capitalism Government regulation and limits like command economy  The US government does several things to regulate business and protect consumers Transfer payments – welfare, unemployment, and other ways the government redistributes income Patents – give a person the ability to protect their ideas and inventions

7.  In the United States mixed economy, there are several economic institutions. Some of these institutions are private, while others are put in place by the federal government. Corporations – companies owned by shareholders through stock Labor unions – organizations designed to protect workers Banks – store and lend money Credit union – same roles as a bank, but act as a non- profit Entrepreneurs – people who take risks by starting businesses

8.  The federal government plays other roles in the nation’s economy Protects property rights for individuals Federal Reserve – the central bank of the U.S. Food and Drug Administration – protects consumers from foods that may be harmful Environmental Protection Agency – works to pass laws that protect the environment Federal Deposit Insurance Commission – ensures that banks do not fail during economic crises

9.  In a command economy government owns or directs land, labor, capital (supplies) and controls the management of business  Countries with command economies believe that these rules will benefit all individuals, not just the wealthy.  Public taxes are used to provide housing and health care for all citizens, but citizens have no say in how the tax money is spent.

10.  Natural resources – occur in nature and are used in a variety of ways Renewable resources – sources that cannot be used up, such as sunlight, wind, forests, animals, etc. Nonrenewable resources – cannot be replaced such as minerals and fossil fuels  It is important to conserve nonrenewable resources and find more ways to use renewable resources

11.  There are four types of economic activities  1) Taking or using natural resources (coal mining, farming, fishing, etc.)  2) Use raw materials to create something new (assembling computers, making pottery, etc.)  3) Provide services (teachers, lawyers, truckers, fast food workers)  4) Process, manage, and distribute information (accountants, government workers, researchers)

12.  The type of economic activities a country completes impacts its overall status in the world.  The U.S. and other developed nations focus more on technology and manufacturing.  Developing nations typically focus on using natural resources and on light manufacturing.  Industrialization has taken some countries, like China, from developing to developed.

13.  Countries trade with each other all the time. Example: Apple buys products from Chinese companies, then uses Chinese workers to assemble their products  Some nations try to protect their own goods by placing a tariff on foreign goods.  In recent years many nations have pushed for free trade between nations so that goods can flow freely among countries.  NAFTA – North American Free Trade Agreement allows for free trade between the U.S., Canada, and Mexico  The EU (European Union) is a partnership between several European nations that has free trade and a common currency.

14.  Illicit: The Dark Trade Illicit: The Dark Trade  Where did my stuff come from?  Globalization Decision Matrix Activity  Globalization Part 1 Globalization Part 1  Globalization Part 2 Globalization Part 2

15.  Opportunity cost - the value of the next best alternative given up when a choice is made Example: when you have a choice between going to the movies and going to the dance, and you choose the dance, your opportunity cost is going to the movies. Opportunity cost is NOT the list of ALL the things you give up, just your next best choice.

16.  Comparative advantage - describes when a country is able to produce a product at a lower price than other countries  Comparative advantage is affected by scarcity and opportunity cost. Example: In Japan there is very little land (scarcity) for farming, but the US has lots of land, so it has a comparative advantage in corn production over Japan.

17.  Supply - the number of goods or services that manufacturers will sell at a certain price  Demand - the amount that a person is willing to spend at a particular price  Supply can affect demand Example: if the supply of cars decreases, the demand would increase, and vice versa.  Equilibrium – when the demand and the supply are equal

18.  Elasticity – the idea that the price of something may change the demand Example: if Mr. Easley starts charging $5 for candy bars what will happen? Example: if the price of gas goes up to $5 per gallon, what will happen?