Chapter 2 1 Basic Economics ChapterSkills for Success 2

Essential Question 2 How can you make positive economic choices? ChapterSkills for Success 2

Objectives 3 Student will be able to:  Define Economics  Describe Supply and Demand  Explain how Supply and Demand work together to define price  Explain how the United States fits into the global economy ChapterSkills for Success 2

Vocabulary 2.1  Capital  Consumer  Economics  Extra time  Factors of Production  Human Capital  Indicators  Inflation 4 ChapterBasic Economics 22  Inflation  Labor  Land  Opportunity  Physical Capital  Recession  Producers  Scarcity  Utility  Consumer Price Index (CPI)  Gross Domestic Product (GDP)  Unemployment Rate

What is Economics? 5 Economics is the study of how people produce, distribute, and use goods and services. ChapterBasic Economics 22

Scarcity! 6 ChapterBasic Economics 22 Scarcity

7 ChapterBasic Economics 22 The condition that results because people have limited resources but unlimited wants

Scarcity! 8  How many of you want candy? ChapterBasic Economics 22  Are you willing to pay for this candy?  What if I do not have enough candy for everyone?

What is Economics?  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. 9 ChapterBasic Economics 22

Extra Credit!! Select a well-known economist and research their theory / approach to economics. Prepare a one + page paper that describes their economic theory. 10 ChapterSkills for Success 2

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. 11 ChapterBasic Economics 22

Teen Market Basket 12

Measuring the Economy  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. 13 ChapterBasic Economics 22

Measuring the Economy  Gross Domestic Product (GDP) Q2 $14.99T +1.7%  Unemployment Rate 8.1% VA 6.0% PWC 5.3% –Unemployed = 12.5 Million –Participation Rate = 63.5% –Part-Time (not by choice) =8 Million –Jobs Required per Month = 90,000 to 185,000  Consumer Price Index (CPI) -- Up 0.6% for July  Inflation Rate % (negative for 8 months in 2009) 14 ChapterBasic Economics 22

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. 15 ChapterBasic Economics 22

Analyzing Supply and Demand  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. 16 ChapterBasic Economics 22

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.  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. 17 ChapterBasic Economics 22

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). 18 Equilibrium Price ChapterBasic Economics 22

Supply and Demand Curve 19 Equilibrium Price ChapterBasic Economics 22  What is an example of a item that was a high price and is now a low price? Why?  Discuss your examples at your table.

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 20 ChapterBasic Economics 22  Economic incentive  Competition

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. 21 ChapterBasic Economics 22

The Free Enterprise System  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.  If a few business have no competition, than they control all of the supply and demand and are called an oligopoly. (Barriers to entry are high)  A business makes a profit when the amount of money coming in from sales is greater than the business’s expenses. 22 ChapterBasic Economics 22

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:  Increased interdependence  Loss of jobs  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. 23 ChapterBasic Economics 22

Taking Part in a Global Economy Globalization requires some perspective to understand the whole picture…  Wage vs. cost of living around the world  What does it cost to live in each of the following countries?  US  China  India  Mexico 24 ChapterBasic Economics 22

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. 25 ChapterBasic Economics 22

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. 26 ChapterBasic Economics 22

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. 27 ChapterBasic Economics 22

Vocabulary  Capital  Consumer  Economics  Extra time  Factors of Production  Human Capital  Indicators  Inflation 28 ChapterBasic Economics 22  Labor  Land  Opportunity  Physical Capital  Recession  Producers  Scarcity  Utility  Consumer Price Index (CPI)  Gross Domestic Product (GDP)  Unemployment Rate

Homework 1.Case Study (3 questions)p 38 2.Put It Together (10 questions)p 39 3.Answer It (10 questions)p 40 4.True or False (5 questions) next slide 29

Homework – True or False 1.Resources that make you happy or bring you satisfaction have low utility. 2.Sustainable economic development does not harm society or the environment. 3.Business that make or provide goods or services are considered consumers. 4.When the unemployment rate is high, more people are working. 5.Typically, prices of products and services go down when the supply is greater than the demand. 30