What is an economy?

Need- Basic requirement for survival Want- Means of expressing a need Needs vs. Wants Need- Basic requirement for survival Want- Means of expressing a need Influenced by society Influenced by culture Change over time Many only satisfy for short period of time Depending on situation, can be labeled reasonable or unreasonable By examining this picture, what needs or wants do these people have? What would be unreasonable wants? http://www.hra.org/~library/greatdepression.html

The Fundamental Problem in Economics is SCARCITY Scarcity- Resources are always limited compared with the number and variety of wants people have Scarcity is not caused by a shortage of money.

What is scarce in each of these scenarios? Brownouts in Los Angeles? People carpooling to work everyday? Turning off the faucet while you brush your teeth? Mandatory newspaper recycling Electricity Gasoline Water Trees

Scarcity is caused by a lack of productive resources or a lack in one of the four factors of production. The Four Factors of Production: Resources people have for producing goods and services to satisfy their wants 1. Land-Natural Resources used to make the final product 2. Capital-Machines, tools, money used to make the final product 3. Labor-Workers used to make the final product 4. Entrepreneur-Risk taker

Four Factors of Production Brainstorm: What does it take to produce a pair of blue jeans? Land Cotton Dyes Copper/metal Labor Sewers Capital Sewing machine Scissors Entrepreneur Levi Wrangler

Is water scarce today? Will water be scarce in the future? What are some factors that are leading to this scarcity? Population Growth Climate Food Production Land Use Dams http://school.discovery.com/lessonplans/activities/watereverywhere/module.html

Production to Consumption Production is followed by Distribution Distribution- Process by which goods and services are made available to the people who want them Distribution is followed by Consumption Consumption- Act of buying or using goods or services Want-Satisfaction Chain http://www.curriculumlink.org/econ/images/chain.3.jpg

Place in order using the Want-Satisfaction Chain __ Computer __ George uses his computer __ George wants a computer game __ Computer shipped to store __ Programmer, silicon, factory __ George wants a computer __ George buys a computer __ Computer is assembled in factory

Making Choices Economy is all about making choices You have to make choices because of scarcity Which of your wants will you satisfy? You must examine the trade-offs- An exchange of one thing in return for another, especially relinquishment of one benefit or advantage for another regarded as more desirable http://www.ruralwellbeing.org.uk/images/choice.gif

For Example Future Costs Can Reuse Parents Approval Concert Tickets New Computer IPOD Future Costs Can Reuse Parents Approval Very Little No Maybe Yes Most Likely Very Little Yes Most Likely

Making Choices Opportunity Cost- Highest valued benefit given up when a choice is made For example, if you chose the concert tickets the opportunity cost would be the 2nd option that you would of chosen Businesses must make similar decisions everyday For Example: Should Ford Motor Co spend money on building a new car plant? http://www.dailypress.com/extras/solutions/images/SOL120602.gif

What tradeoffs did you make?

What tradeoffs did you make in order to balance the budget? What is the opportunity cost of your budget recommendation? Summarize the likely future consequences of your budget recommendation.

3 Basic Economic Decisions There are 3 basic economic decisions: Which goods and services should be produced and in what amounts? How should these good and services be produced? Who will get the goods and services that are produced? http://cache.consumerist.com/assets/resources/2006/08/question_marks.jpg

3 Basic Economic Decisions Questions 1: Which goods and services should be produced and in what amounts? Factors which influence this decision Factors of Production availability Natural Resources Capital Labor How much they (entrepreneurs) think they can sell http://www.business2000.ie/images/case_studies/enterprise_ireland/diagram1.gif

3 Basic Economic Decisions Question 2: How will land, labor, and capital be combined? Primary goal: Least costly Technology- Practical application of science to commerce or industry http://online.wsj.com/public/resources/images/MK-AG360_TWOPLA_20060523223742.jpg http://www.autolife.umd.umich.edu/Design/Gartman/D_Casestudy/P833_365_MachineShop2.gif http://imagecache2.allposters.com/images/pic/FIP/MI-00394-C~Assembly-Line-Ford-Factory-Michigan-Posters.jpg

3 Basic Economic Decisions Question 3: Who will get the goods and services that are available? Should they be divided equally? Should citizens determine who gets what How much government intervention is there to answer this question How much economic freedom is there? A lot of government intervention equals no economic freedom People would receive the same even some may work harder People have no say in the economy No government intervention equal a lot of economic freedom People compete freely and some may get more than others People have all the say in the economy

Types of Economies There are 4 different types of economies Traditional Economy Command Economy Market Economy Mixed Economy

Types of Economies Traditional Economy: Basic economic decisions are made according to long established patterns of behavior that are unlikely to change Customs and traditions are passed from elders to youth Family is the basic unit, however all members work together to support society, not just family Works better with a smaller society Fewer resources are needed Fewer goods and services needed to be produced Very few left in today’s world Central and South America, Asia, Africa

Types of Economies Traditional Economy: Answering the basic questions: What and How much to produce? Answered by tradition and custom Very little freedom No Technology Very little change over a period of time Who gets what is produced? May be based on role in society May be divided according to number is family Who owns resources? Usually own their own land, tools and labor

Types of Economies Command Economy: Government or a central authority owns or controls the factor of production and makes the basic economic decisions Egyptians, Medieval lords, USSR, Cuba and North Korea Answering the 3 basic questions: What and how much is produced Consumers have very little or no power in determining what or how much gets produced Who gets what is produced Depends on the goals and values of central government Greedy Dictator-keeps more for himself OR Satisfy the citizens, regardless how much they produce Who owns resources? Central authority

Types of Economies Market Economy: System in which private individuals own the factors of production and are free to make their own choices about production, distribution and consumption Market Economy is also known as Free Enterprise System- No government control Capitalism- Capital is privately owned Market- Place or situation in which buyers and sellers agree to exchange goods and services. This can be the local farmers market, Walmart or Ebay No one person or group can run the market Competition plays an important role in the market economy Producers compete for the wants of people Labor competes for jobs http://www.favoritethingz.com/images/UserImages/90279-ebay-logo.jpg

Types of Economies Market Economy: Answering the 3 Basic Questions: What and how much is produced? Driven by two factors Profit- Difference between the total cost of production and the total revenues from buyers Invest- To use your money to help a business get started or grow, with hope that the business will earn a profit in which you can share Who gets what is produced? Those who earn high wages, own land or capital will get more Who owns the resources? Private people and companies http://www.maced.org/images/dollar-sign.jpg

Types of Economies Modern day economy: Mixed Economy- Mixture of the 3 other systems Example: China Predominately a command economy but have introduced more of a market economy as private industries are steadily growing and competing for the wants of the Chinese population. http://www.jzphotos.com/images/china/nanjing/nanjing04/china_mcdonalds_s.jpg http://www.cnn.com/SPECIALS/1999/china.50/dispatches/09.24.americanization/coke.jpg http://www.neatorama.com/images/2006-10/pepsi-china.jpg

Types of Economies United States Economy: NOT a 100% pure market economy Aspects on non-market economy Minimum wage US Government controls education, mail, military Several regulations on businesses http://www.zeenews.com/pics/BUS/nyse-013107.jpg http://images.amazon.com/images/P/B0002423YK.01._SCLZZZZZZZ_V1111746544_.jpg

Economic Spectrum Economic Spectrum- A way to compare economic systems, based upon government involvement in a country’s economy Command Mixed Market United States Canada Mexico China North Korea

http://www. rainer-rilling http://www.rainer-rilling.de/texte/Kartographien%20der%20Macht/LinkedDocuments/economic%20freedom%202006.jpg

Developing Economies Developing Economy- Any 3rd world nation that does not have a self-sustaining economy or relies on outside assistance from other nations or organizations. A developing economy will improve their economy by: 1. Improving Infrastructure A. Transportation B. Communication 2. Improve Human Development A. Education B. Healthcare 3. Creating Jobs/Industries