2 What is an Economy?The way in which the nation makes economic choices.The choice is how do we use our resources to produce and distribute goods and services.
3 Resources/Factors of Production These are the things used in producing goods and servicesConsist of land, labor, capital and entrepreneurship.
4 Factors of Production Land Labor Everything on the earth that is in its natural stateIncludes everything contained in the earth and found in the seaLaborRefers to the people that workFull-time and part-time workers
5 Factors of Production Capital Money needed to start and operate the businessGoods used in the production processFactories, office building, and toolsRaw materialsInfrastructure (roads, ports, sanitation facilities and utilities)
6 Factors of Production Entrepreneurship People who are willing to risk their time and money to run a business.Organize factors of production to create the goods and services desired in our economy
7 ScarcityDifference between wants and needs on one hand and the available resources on the other hand.Forces everyone to make CHOICES
8 Basic Economic Questions What goods and services should be produced?How should we produce those goods and services?For whom should the goods and services be produced?
9 Three Economic Systems Market Economy (Captialist)Command Economy (Planned)Mixed Economy
10 Market Economics No government involvement in economic decisions The market answers the three economic questionsConsumers decide what to produce, how to produce it, and those with more money buy more goods and services.
11 Command Economy The government answers the three economic questions. Dictator decides what will be producedGovernment runs all businessGovernment decides who will get what product.Nation shares equally
12 Mixed Economy Combination of both market and command economic systems All economies in the world today are mixedClassification now is based on how much the government is involvedCapitalismSocialismCommunist
13 Capitalism Practice democracy Characterized by private ownership of businesses and marketplace competitionExamples are US and Japan
14 Socialism Most countries today What makes it different is the amount of government involvementGovernment tries to reduce the difference between the rich and the poorKey industries are run by the governmentIdea is to keep prices low and provide employment for everyone
15 Socialism Country tends to have more social services Medical care is free along with educationPaid for by the businesses and individuals pay taxesPeople tend to pay higher taxesExamples: Germany, Great Britain, Sweden, Austria, and France
16 Communist Countries have totalitarian form of government Government runs everything in one partyEveryone shares common economic and political goalsThose able to work are assigned jobsExamples are: Cuba and North Korea
17 PrivatizationProcess of selling government-owned business to private individualsWhy do the governments sell the businesses?
18 When is an economy successful? Nations look to see how they are doingThey look at economic measurementsThey look at the business cycleStandard of Living
19 Economic Measurements ProductivityIs the output per worker hoursMeasured over a period of time (week, month, year)Ways in which to increase productivityInvest in new equipment or facilitiesAllows workers to work more efficientlyProvide additional training or financial incentiveReduce the work force and increase responsibility
20 Economic Measurements Gross Domestic Product (GDP)Keeping track of an entire nations production outputIt is a measurement of the goods and services produced using labor and property located in the countryGross National Product (GNP)Looks at what's produced in this country and abroad by our companies
21 Economic Measurement Standard of Living Is a measurement of the goods and services that a nation's people haveReflects the quality of lifeInflationRising pricesWhen prices rise, the money people have does not get them as muchGovernment raises interest rates which reduces everyone’s ability to buyOpposite would be deflation
22 Economic Measurement Standard of Living Consumer Price Index (CPI) Measures the change in price over a time of goods and services used by the average householdUnemploymentCharts the number of people will and able not working
23 The Business Cycle Prosperity Period of economic growth Low unemploymentIncrease in output of goods and servicesHigh consumer spending
24 The Business Cycle Recession Period of economic slowdown Unemployment begins to riseFewer goods and services are producedConsumer spending decreases
25 The Business Cycle Recovery Period of renewed economic growth following a recession or depressionReduced unemploymentIncreased consumer spendingModerate expansion by businesses
26 The Business Cycle Depression Period of prolonged and deep recession Consumer spending is very lowUnemployment is very highProduction of goods and services are down significantlyPoverty results because people are out of work
27 Government Influences Taxation has a strong bearing on what happens in an economyInterest rate control spending