1. Political & Economic Analysis
Chapter #3

2. 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

3. 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.

4. 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.

5. 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…

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

7. 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!!!

8. 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!

9. 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

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

11. 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.

12. 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)

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

14. 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!

15. 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.

16. 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…

17. 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!

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

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

20. 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

21. 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.

22. 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.

23. 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.

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

25. Political Philosophies
Capitalism
Communism
Socialism

26. 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.

27. 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

28. 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

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

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

31. 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.

32. Unemployment rate – Number of people out of work.

33. 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)

34. Countries of the World Gross National Product (GNP) distribution GNP (billion dollars) United States billion $Japan billion $Germany billion $China billion $Great Britain billion $France billion $Italy billion $Spain billion $Canada billion $India billion $Korea (N + S) billion $Mexico billion $Australia billion $Brazil billion $Russia billion $Netherlands billion $Switzerland billion $Taiwan billion $Belgium billion $Sweden billion $

35. 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,  Russia 1,676,586 9  Spain 1,611,  Brazil 1,572,  Canada 1,510,  India 1,209,  Mexico 1,088,  Australia 1,010,  South Korea 947,  Netherlands 868,  Turkey 729,  Poland 525,  Indonesia 511,  Belgium 506,392

36. The Business Cycle
Expansion
Recession
Trough (Depression)
Recovery

37. 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

38. 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

39. 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

40. 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

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

42. 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