1. Economic Systems

2. Different Kinds of Economies
An economy is a system in which people make, exchange, and use things that have value.

3. Different Kinds of Economies 2
Owners and workers are producers.
The things they sell or make are called products.

4. 3 Basic Economic Questions
What will be produced?
How will it be produced?
For whom will it be produced? (Who will buy it, or want it?)

5. Capitalism
Capitalism is an economic system in which private individuals own most businesses.
Capitalism is also called a free market system.
In this system producers compete freely for consumers business.
The price of goods is determined by supply and demand.

6. Supply and Demand Supply is how much of something there is.
The demand is how many people want that item.
I want M&M’s
Me too!

7. Supply and Demand 2 The four basic laws of supply and demand are
If demand increases and supply remains the same then the price of a good will rise.
If demand decreases and supply remains the same then the price of a good will drop.
If supply increases and demand remains the same the price will drop.
If supply decreases and demand remains the same the price will increase.

8. Example of Supply and Demand
The XBOX 360 came out around Christmas in 2005.
When it first came out no one had one and a lot of people wanted one. (Demand was high).
The company did not make enough. (Supply was low)
Xboxes were selling for $600 on eBay.

9. Capitalism 2 In capitalist systems people save money in banks.
Banks lend money to people and businesses in return for interest (or fees for the use of money).
Banks pay interest to people who keep their money there.

10. How a Bank Makes Money
The bank lends out 1,000 at a 10% interest rate. To find the bank’s profit you must follow the following steps.
Take the interest rate and move the decimal place to the left two places. EX: 10% becomes .10
Multiply the amount of money borrowed by the decimal you just found. EX: 1000 X .10 = $100
Your answer ($100) is the profit the bank made off of that loan.
The person who borrowed the money must pay the bank back the amount of money they borrowed plus the interest rate. EX: $1,100

11. Try one yourself!
If you borrow $100 at 10% interest how much money do you need to pay back the bank?

12. Answer
$110

13. Capitalism 3
In a capitalist system, people may invest money in a business.
EX: Stock Market/ Wall Street

14. The Stock Market
People buy stocks in a company at a set price. They wait for the value of the stocks to increase and then sell the stocks for a profit (hopefully).

15. Government Ownership
Communism is an economic system in which the central government owns most farms, factories, and offices.
The government controls the prices of goods and services, how much of a product is produced, and how much workers are paid.

16. Government Ownership The government decides where to invest resources.
Only a few countries today practice communism.
China, Cuba, Laos, Vietnam, and North Korea are all communist countries.

17. Mixed Ownership Hardly any nation has a pure economic system.
EX: The US has a capitalist system, but the government runs schools, builds and maintains roads, and provides other services.

18. Levels of Economic Development
300 years ago people made the stuff they used by hand.
Then people made machines.
This was known as the Industrial Revolution.

19. Developed Nations
The Industrial Revolution created a new economic pattern.
Countries with more industries and advanced technologies are considered developed nations.

20. Developed Nations 2
Only 1/5th of the world lives in developed nations.
The US, Japan, Canada, and most European nations are developed nations.

21. Developed Nations 3
People in developed nations use goods made in factories.
Most people live in towns and cities.
They work in offices and factories.
Machines do most of the work.
Most people have enough food and water.
Most citizens get an education and have healthcare.

22. Developed Nations: Challenges
Unemployment
Pollution

23. Developing Countries
Nations with fewer industries and simpler technology are considered developing nations.
Developing nations are mostly in Africa, Asia, and Latin America.

24. Developing Nations 2 Developing nations do not have a lot of money.
The people are mostly subsistence farmers who grow food for their own family.
They have little or no machines.
They do most of the work by hand, or with animals.

25. Developing Nations: Challenges
Disease
Food shortages
Unsafe water
Poor education and healthcare
Political unrest

26. World Trade Pattern
Every countries economy is different because they have different levels of technology and different resources.
Saudi Arabia has a lot of oil.
The Swiss make nice watches.

27. Different Specialties
Countries want to take advantage of one another's strengths.
For example, the US makes some of the best computers in the world, but we need oil.
Saudi Arabia has plenty of oil, but needs computers… so we trade.

28. Interdependence
As trade between countries has grown, countries have become more dependent on one another to get what they need.
Developed nations tend to sell products with advanced technologies to developing nations.
Developing nations tend to sell food and natural resources (oil, wood, etc) to developed nations.

29. Trade Alliances
Some counties have formed trade alliances to reduce the cost of goods.
EX: NAFTA (North America Free Trade Agreement)
EX: European Union