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 Land Labor Capitol Entrepreneurship

The Big Problem!!! Scarcity The problem of unlimited human needs and wants, in a world of limited resources.

Type of Economic Systems Determines: What will be produced? How will it be produced? 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 What to Produce? How to Produce? By custom What ever was produced before What to Produce? How ever it was produced in the past How to Produce? Based on sharing For 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 What to Produce? How to Produce? For Whom to Produce? Government Decides Government owns means of production What to Produce? How to Produce? 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 What to Produce? How to Produce? For Whom to Produce? Consumer choices What to Produce? Business chooses most efficient means How 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

Economic Freedom Economic Equity Economic Security Price Stability Our Economic Goals Economic Freedom Economic Equity Economic Security 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

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