Political & Economic Analysis Chapter #3

What is an Economy Objectives Define the concept of an economy List the factors of production Explain the concept of scarcity Discuss how traditional, market, command, and mixed economies answer the three basic questions Cite examples of various economic systems

Economic System Is the organized way a national provides for the needs and wants of its people. A nation chooses how to use its resources to produce and distribute goods and services.

Establish your priorities, decide what you want, What it’s really about Establish your priorities, decide what you want, determine what you will exchange for that.

How? We are always deciding things based on what we want. More than anything else, economics has a part in everything you do. Everything! How? We are always deciding things based on what we want. Therefore…

The two foundational ideas of economics: 1. We are always assigning value to things. 2. We are making choices based on those values.

Remember these?… But each person values each one DIFFERENTLY!!! They’re each the same thing to all people… Remember these?… But each person values each one DIFFERENTLY!!!

Looking to have and to use stuff in order to make life better. What is Economics, then? It is: Looking to have and to use stuff in order to make life better. I’d be a little better off with a few nice, new bandages, thank you!

Resources Are all the things used in producing goods and services. Economists use the term Factor of Production when they talk about resources. Factors of Production comprise four categories Land Labor Capital Entrepreneurship

Land Includes everything contained in the earth or found in the seas Coal Oil Trees Snow

Labor Refers to all the people who work Full and part time workers Private and public sectors Managers and line workers Economies with well- educated and well-trained labor have an advantage over other nations in attracting business.

Capital Includes money to start and operate a business Also includes the goods used in the production process Factories Computers Tools Steel Capital includes Infrastructure the physical development of a country ( road, building, sanitation)

Entrepreneurship Refers to the skills of people who are willing to invest their time and money to run a business.

Can each of us have anything and everything we want? What?! We can’t?!! “Waaaaaaaa!” Why can’t we? Easy: There’s not enough of the stuff we want to go around!

Scarcity What is this? Stuff we like to have is limited. This is the first major principle of economics: Scarcity What is this? Stuff we like to have is limited.

Scarcity We must decide WHAT resources to use for WHAT things. This also involves resources being scarce. Resources are stuff used to make things. So then… We must decide WHAT resources to use for WHAT things. Hmm…

Economics, then, could be defined simply as… Limited resources Unlimited wants versus But I still want it!!! Get ready ‘cuz I’m gonna limit your resources, pal!

So then, really, when you think about it… All that Economics is, really, is the science of decision-making. Everything has some alternate use!

Scarcity The difference between wants and needs and available resource. Scarcity forces nations to make choices. Name some items that are scarce

How Does an Economy Work? Nations answer these questions 1.Which goods and services should be produced? 2. How should the goods and services be produce? 3. For whom should the goods and services be produced? Types of Economies Traditional Market Command Mixed

Traditional Traditions and rituals answer the basic questions of what, how and for whom. Answers are often based on culture or religious practices and ideas that have been passed down from one generation to the next. WHAT? – Little choice as to what to produce – if they live in a framing community they farm How? – Bound by traditions. Potters make pot just like generations before them. For Whom? – Tradition regulated who buys and sells and where and how the exchange takes place.

Market In a pure Market Economy these is no government involvement in economic decisions. Individuals and companies own the means of production and business compete for consumers. What? –Consumers decide what should be produced through the purchases that they make. How? – Businesses in a market economy decide how to produce goods and services. Whom? – In a market economy the people who have more money are able to buy more goods so they are motivated to work and invest.

Command A system in which a country’s government makes economic decisions and decides what, when, and how much will be produced and distributed. What? – One person (dictator) or group (government) decides what they produce. How?- Since the government owns all mean of production is runs all business. It controls all employees opportunities Whom? – Government decided who will receive what items.

Mixed No economy is purely a tradition, market or command. Every economy has influences that make it at least somewhat mixed

Political Philosophies Capitalism Communism Socialism

Capitalism A political and economic philosophy characterized by marketplace competition and private ownership of business. FREE ENTERPRISE Democracy – people elect government US and Japan Government cares for whose who can’t care for themselves but not to match socialist.

Communism Philosophy in which the government usually authoritarian controls the factors of production. No private ownership Keeps society classless. (governments keeps all equal) Government decided what you do for a living and what schooling you get. Medical care is free, no unemployment, no homeless No incentive to work hard for extra money Cuba, North Korea, China

Socialism Between capitalist and communist. They have large about of government involvement in economy. They have more social services Medical Care is free Education is free Pensions and elderly care Government runs key industries and makes economy decisions

Economies in Transition Soviet Union is in transition Government selling business to private individuals Starting more of a market place

When is a Economy Successful? Increase production Decrease unemployment Maintain stable prices

Measurement to use Productivity – is output per worker hour that is measured over a defined period of time. Ways to increase New equipment Training of workers Benefits to workers Specialization or workers Gross Domestic Product – output of goods and services produced by labor and property located with the country. Gross National Product – Output of goods and services produced included those outside the country by us companies. Standard of Living – divide GDP or GNP by population. Inflation Rate - low inflation good show stability. Consumer Price Index (CPI)- Change in price of 400 consumer goods over time. Producer Price Index (PPI) – wholesale price changes.

Unemployment rate – Number of people out of work.

Assignment Pick a country not the US. Using the internet learn about their Economy China japan Italy russia Type of Economy (Market) Market, Market Economic Philosophy (Capt)(Communism GDP (4.4 Trillion)4.272 (1.72) GNP (1,329)(4.8tri (1513bill) Standard of Living (Poor)(Middle Class)(very high) Inflation (4.9%)(2.2) (1.8 CPI and PPI (1.2)7.9) Interest rates (4.14).1%(0) Unemployment Rate (4.3)(4)(6.2)

Countries of the World Gross National Product (GNP) distribution - 2005 GNP (billion dollars) United States1 12 970 billion $Japan2 4 988 billion $Germany3 2 852 billion $China4 2 264 billion $Great Britain5 2 264 billion $France6 2 178 billion $Italy7 1 725 billion $Spain8 1 100 billion $Canada9 1 052 billion $India10 793 billion $Korea (N + S)11 777 billion $Mexico12 753 billion $Australia13 655 billion $Brazil14 644 billion $Russia15 639 billion $Netherlands16 598 billion $Switzerland17 409 billion $Taiwan18 386 billion $Belgium19 374 billion $Sweden20 371 billion $

Stats on GDP 2008 List by the International Monetary Fund[1]] 1  United States 14,264,600 2  Japan 4,923,761 3  People's Republic of China 4,401,614h 4  Germany 3,667,513 5  France 2,865,737 6  United Kingdom 2,674,085 7  Italy 2,313,893 8  Russia 1,676,586 9  Spain 1,611,767 10  Brazil 1,572,839 11  Canada 1,510,957 12  India 1,209,686 13  Mexico 1,088,128 14  Australia 1,010,699 15  South Korea 947,010 16  Netherlands 868,940 17  Turkey 729,443 18  Poland 525,735 19  Indonesia 511,765 20  Belgium 506,392

The Business Cycle Expansion Recession Trough (Depression) Recovery

Expansion Is a time when the economy is flourishing, something referred to as a period of prosperity. Low unemployment Increase in output of goods and services High consumer spending Great time for business to expand

Recession A period of economic slow down that lasts for at least two quarters or six months. Reduce workforce Consumer spending down Less good produced

Trough or Depression Is a period of prolonged recessions Hard to find jobs High unemployment Business shut down Consumer spending very low Production very low

Recovery Term used to signify a period of renewed economic growth following a recession or depression. Business pick up People find jobs Demand increases for goods and services Increase in consumer spending

Assignment on Business Cycle Economic Condition Jobs or Unemployment GNP Wages Spending Expansion Recession Trough or Depression Recovery

Factors that Affect Business Cycle Actions of Business Expand and cutback their business size and production Higher and layoff employees Actions of Consumers Spending increases and decreases Fear controls them 2/3 of GDP is consumer spending Actions of Government Taxes Interest Rates Mortgage Rate