1. Unit 2: Economics 1.3 Understanding Economic Systems 1.4 Consumer’s Role in the Economy 17.3 Government and the Economy

2. Section 1.3 Understanding Economic Systems

3.  Economic System - the way an economy (nation, business, etc.) uses scarce resources to produce goods and services  Production - the creation of goods and services  Resources - used to create other goods or services  Human Resources - skills, training, and abilities people have  Nonhuman Resources - raw materials, tools, and manufactured products

4. Economics  Economics - the study of how we make use of our resources  People’s wants are unlimited but resources are limited  Macroeconomics - on a national and global scale  Microeconomics - focuses on people and businesses

5. 4 Types of Economic Systems

6. Types of Economic Systems  Traditional Economy  Decisions about what and how to produce products are based on traditional customs and beliefs  Passed from one generation to the next  Also known as a Subsistence Economy

7. Types of Economic Systems  Command Economy  Decisions about what and how to produce products are decided by a central government  Also known as a Controlled Economy  Current example: North Korea and Cuba

8. Types of Economic Systems  Market (or Capitalist) Economy  Decisions about what and how to produce products are made by individuals acting in their own self-interest  Government does not intervene  “Free Markets”  Market – brings potential buyers and sellers together to exchange goods and services  Profit - the difference between the money received from sale and cost

9. Types of Economic Systems  Mixed Economy  Combination of the command and market systems  Most countries have a mixed economy with varying degrees of influence - USA – more prominent market - China – more prominent command

10. Foundations of Supply and Demand  Scarcity  Consumer’s wants are greater than the resources available  Economic systems must be developed to determine how to use these scarce resources.

11. Demand  The quantity of a particular good or service that consumers are willing and able to buy at a given price over time  Demand Curve (also known as the Law of Demand)  When the price of a product goes down, demand for that product will generally go up  (Price ↓, Demand ↑ Price ↑, Demand ↓ )

13. Supply  The quantity of a particular product that producers are able and willing to make available for sale  Supply Curve (also known as the Law of Supply)  when the price of a product goes up, the supply will generally go up  (Price ↑, Supply ↑ Price ↓, Supply ↓ )

16. Equilibrium  Equilibrium price - the price at which the quantity supplied equals the quantity demanded  Surplus - excess quantity supplied  Shortage - insufficient quantity supplied

17. Supply and Demand Curves

18. 1.4 Consumer’s Role in the Economy

19. Making Decisions in a Market Economy  Transactions benefit both buyers and sellers  Transactions provide information that helps the economic system work  For the merchant: info about buying habits (what to order)  For the manufacturer: what to make and offer to sell  Price  If one company charges more that another, they can….  Lower the price  Convince customers to pay the higher price  Stop offering the product for sale

20. The Profit Motive  Businesses must make profit to survive  Ways to increase profits: 1. Reduce costs - less expensive materials, increased efficiency 2. Change price 3. Increase quantity of products sold - advertising

21. Consumer Economics - terms  Consumer - anyone who buys or uses products or services  Consumer economics - the study of the role consumers play in an economic system  Consumer sovereignty - consumers are in charge in a market economy. They decide what goods and services are produced  In our economy, who chiefly determines what products and services will be provided? CONSUMERS

22.  Benefits of Competition - good quality, fair price  Efficiency and Profits - Profitable companies are: 1. Selling products consumers want to buy 2. Selling at prices consumers are willing to pay 3. Making a profit

23. Economic Indicators Measures of the Economy

24.  Economic Indicators  measurements used to monitor the “health” of the economy  The National Debt  also known as the public debt  the total amount of money that the federal government owes – Do you own a saving’s bond?  In 2002, the National Debt was $6 trillion. What is it today?What is it today?  Gross Domestic Product (GDP) - the current value of all goods and services produced within a country in a year  Real GDP – the GDP adjusted for inflation  How much do you think the U.S. produces each year? How much do you think the U.S. produces each year? Measuring the Economy’s Performance

25.  Exchange Rates  the cost of one currency expressed in terms of another currency  Unemployment Rate  the percentage of the civilian labor force that is without a job but actively looking for work  “Full Employment” – below 5.5%  Consumer Price Index  a measure of inflation  sustained increase in the average level of prices  Calculated using the price of over 200 categories of goods and services that the average household uses (market base)  The index is a percentage (%) Measuring the Economy

26. 1.What is the US National Debt? http://www.brillig.com/debt_clock/ http://www.usdebtclock.org/ 2.What is each citizen’s share of the debt? 3.How much each day does the national debt increase? Internet Assignment

27.  Find these exchange rates using the following web site: http://www.xe.com/ucc/ http://www.xe.com/ucc/  Convert $1 US Dollar into the following currencies 4. Euro 5. Mexican peso 6. Canadian Dollar 7. Country of your choice 8. What is the U.S. unemployment rate as of January 2012? www.bls.gov www.bls.gov 9. What is the current Consumer Price Index (CPI) as of December 2011?  Write all answers on a separate sheet of paper Internet Assignment (Con’t)

28. Section 17.3 Government and the Economy

29. Consumer Income  Personal income - the income people receive through wages, profits, dividends, interest, etc.  Used as a measure of economic growth  Indication of how much people are able to spend and save

30. The BUSINESS CYCLE Business Cycle - The pattern of ups and downs in a nation’s business activity.  Peak or Boom - period of prosperity  Contraction - period of prosperity wears off - business activity slows down.  If that lasts long enough, the economy can find itself going into a recession.  Recession – economy is generally falling  Depression - not a normal part of business cycle  Trough – (lowest point of the cycle) business activity levels off  Expansion - economy recovering. Increasing demand, lowering unemployment

31. The Business Cycle

32. Effects of Inflation  Hurts those on fixed income  Less purchasing power  Hurts those who save  APY doesn’t keep up with inflation  Helps those who borrow  Borrow money at the lower APR

33. Factors Affecting Ups and Downs  Consumer confidence  Technological innovation  Government policies  War

34. Government Efforts to Stabilize the Economy  Goal - minimize swings in the economy and promote economic growth, high employment, and low inflation  Tools to accomplish: 1. Fiscal policy - decisions on taxing and spending 2. Monetary policy - managing interest rates, the availability of loans, and the supply of money  Control by the Federal Reserve System  Chairperson of the Fed-Janet Yellen  Example: Bank bailout of 2008