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

2. Understanding Economic Systems
Section 1.3
Understanding Economic Systems

3. Economic Systems
Economic System-the way an economy (nation, business, etc.) uses resources to produce goods and services.
Production-the creation of goods and services
Resources- used to create other goods or services.

4. Include:
Human Resources-skills, training, and abilities people have
Nonhuman Resources-raw materials, tools, and manufacturer products

5. Economics-the study of how we make use of our resources.
Macroeconomics
Microeconomics

6. Types of Economics Systems
Traditional economy (subsistence)-ways to produce products are passed from one generation to the next.
Command (controlled economy)- government owns most resources and makes most economic decisions

7. 3. Market (capitalist)- people owns the resources and run the businesses. Based on profit motive
Profit-the difference between the money received from sale and cost
4. Mixed Economy

8. Demand and Supply
Scarcity-consumers’ wants are greater than the resources available.
Demand-quantity of a particular good or service that consumers are willing and able to buy at a particular price.
Law of Demand-when the price of a product goes down, demand will generally go up.

9. Supply-the quantity of a product that producers are willing and able to make available for sale at a particular price
Law of Supply-producers are willing to offer more of a product at a higher price.

10. Equilibrium
Equilibrium price-the price at which the quality supplied exactly equals the quantity demanded
Surplus-excess quantity supplied
Shortage-insufficient quantity supplied

11. Supply and Demand Curves

12. Consumer’s Role in the Economy
1.4
Consumer’s Role in the Economy

13. Making Decision in a Market Economy
Both buyer and seller get what they want
Information for the Economy
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

14. If one company charges more than another, they can….
Price
If one company charges more than another, they can….
Lower the price
Convince customers to pay the higher price
Stop offering the product for sale

15. The Profit Motive
Way to increase profits:
Reduce costs-less expensive materials, increase efficiency
Change price
Increase quantity of products sold- advertising

16. Consumer Economics
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.

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

18. Government and the Economy
Section17.3
Government and the Economy

19. Measuring Economic Performance
Economic Indicators
Gross Domestic Product (GDP)-The current value of all goods and services produced in a country in a year.
Inflation-sustained increase in the average level of prices
Real GDP is adjusted for inflation
Consumer Price Index (CPI)- Measures the monthly change in the price of about 400 goods and services (market basket) as a %.
Unemployment Rate-% of people who are able to work and looking for work. 5.5% is considered full employment
Personal income-the income people receive through wages, profits, dividends, interest, etc.

20. 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.
Trough - if things get worse - economy may slide into a depression. The farthest the economy falls is the trough.
Expansion-economy recovering. Increasing demand, lowering unemployment
Depression-not a normal part of business cycle

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

22. The Business Cycle

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

24. Government Efforts to Stabilize the Economy
Goal-minimize swings in the economy and promote economic growth, high employment, and low inflation
Tools to accomplish:
Fiscal policy-decisions on taxing and spending
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
Bank bailout of 2008