2 What is Economics? Lesson 1 Essential Questions:Why and how do people make economic choices?How do economic systems influence societies?It Matters Because:As someone who uses goods and services and will someday be a worker, you are part of the American economic system.Guiding QuestionWhat is scarcity, and how does it affect economic choices?
3 Our Wants and Resources Wants- desires individuals and nations have that can be met by getting a good or serviceWants fall into 2 groupsGoods- includes things that we can touch or holdServices- work that is done for usHealthcare, lawyer services, accounting services
4 EconomicsLimited Resources- unlimited wants and limited resources forces us to make choicesEconomics- the study of how individuals and nations make choices about ways to use scarce resources to fulfill their needs and wantsResources – a thing that can be used in making products and services people want
5 3 Types of ResourcesNatural Resources- nation’s land, soil, trees, oil, iron and moreLabor- includes workers and their abilities (knowledge and skills)The more workers you have the more you can produceCapital- Buildings, tools, factories, computers, trucks, trains and more
7 The Basic Economic Problem Scarcity- occurs when we do not have enough resources to produce all the things we want to haveEconomics looks at how we go about dealing with this basic economic problem
8 Societies and Economic Choices Guiding Question – What determines how societies make economic choices?Scarcity is an economic problem in every nationNations have to make choices alsoThree Basic Economic QuestionsWhat goods and services will be produced?How will they be produced?Who will they be produces for
9 Economic SystemsEconomic System- a nation’s way of producing things its people want and needEach country has its own economic system
10 Traditional EconomyTraditional Economy- decisions of what, how, and for whom to produce is based on custom or habitFollow family traditions of productionNot very productiveDoes not adopt new and better ways to produce
11 Market EconomyMarket Economy- individuals and businesses own all resources and make economic decisions on the basis of price.It answers the three economic questions based on profit and price.
12 Command EconomyCommand Economy- economic system in which the government makes the major economic decisions.Government decides what, how, and for whom to produceIndividuals and businesses don’t have much say
13 The American EconomyThe United States economy is based on a market economyBusinesses compete for profit with little interference from the governmentElements of a command economyGovernment makes rules on how workers are treatedProvides services such as education, defense, and disaster reliefElements of traditional EconomyMany people decide to work in the same traditional jobsThe United states is a mixed market economy-Our economy has elements of traditional, market, and command economies
14 Economic Decisions Lesson 2 Essential Questions:Why and how do people make economic choices?How do economic systems influence societies?It Matters Because:You make economic decisions everyday, and you will do so for the rest of your lifeGuiding QuestionWhy are trade offs important in making economic decisions?
15 Trade OffTrade off- the alternative you face when you decide to do one thing rather than anotherPeople make trade offs all the timeBusinesses also make trade-offsInvest in research for new products or spend money on advertising to increase sales of old productsGovernments also face trade-offsSpend money to build new schools or build new roads
16 Opportunity CostOpportunity Cost- the cost of the next-best use of your money or time when you choose to do one thing rather than anotherOnly the next-most-attractive alternative
17 Measuring Costs and Revenues Guiding Questions – How do costs and revenues influence economic decision making?Assessing Costs- “Joe’s Seafood Depot”Joe’s Seafood Depot has been making and selling seafood for 10 years. Joe wonders if his business would be better off if it were open longer every day.
18 Different Types of Costs Fixed costs- an expense that does not change no matter how much a business producesRent, insuranceVariable costs- an expense that changes depending on how much a business producesTotal cost- the combination of all fixed and variable costsMarginal cost- the additional or extra opportunity cost associated with each increase of one unit of salesMarginal cost means that variable costs increased
19 Different Types of Revenues Revenue- the money a business receives from selling its goods and servicesThe sum of money Joe receives from his customersMarginal Revenue- the additional income received from each increase of one unit of sales
20 Marginal AnalysisMarginal analysis- compares the additional benefit of doing something with the additional cost of doing itIf benefit is greater than additional cost, the rule is to do itIf the cost is greater than the benefit, the rule is don’t do itDo it until marginal cost is equal to marginal revenueBenefit-Cost Analysis- economic model that compares the marginal costs and marginal benefits of a decisionHelps businesses choose among two, three, or more projectsBenefit/cost ratio= RevenueCost
21 Demand and Supply in a Market Economy Lesson 3 Essential Questions:Why and how do people make economic choices?How do economic systems influence societies?It Matters Because:Demand and supply work together to set the prices of the goods and services you buy and use.Guiding QuestionHow do demand and supply affect prices?
22 Demand and Supply Make Markets Where do prices come from?What do they tell us?Why do they change?Are prices important?Command economy- government set the pricesMarket economy- prices are set by the interaction between demand and supplyDemand and supply- are a result of two groupsConsumer- a person who buys goods and servicesProducers- a person or business that provides goods and service
23 Demand and SupplyDemand- the amount of a good or service that consumers are willing and able to buy over a range of pricesSupply- the amount of a good or service that producers are willing and able to sell over a range of pricesWhen prices go up producers increase supplyWhen prices go down producers decrease supply
24 Markets and Competition Representing information on a schedule as a line on a graph. (Page 470)Demand curve- shows the amount demanded at a particular priceSlopes down to the rightSupply curve- shows the quantity supplied at a particular priceSlopes up to the right
25 Demand and Supply curve together show a Market Market- a location or an arrangement that allows buyers and sellers to get together and buy or sell a certain productCompetition- efforts by different businesses to sell the same good or serviceTo be efficient markets must have many competing buyers and sellers
26 How Prices Are Set Market Economy Equilibrium price Surplus Shortages People buy and sell what they want, its like a democratic vote for a product or serviceMarkets help prevent too much or too little production of goods and servicesEquilibrium priceThe price set for a good or service in the market place, where demand and supply are perfectly balancedSurplusamount of a good or service supplied by producers is greater than the amount demanded by consumersShortagesthe supply of the good or service available is less than the demand for itForces applied by surplusesand shortages, keep a priceat its equilibrium level
27 Factors Affecting Demand Number of ConsumersIf more consumers enter the market the demand curve shifts to the rightIf more consumers leave the market the demand curve shifts to the leftChange in Customer IncomeIf consumers earn more, they tend to buy more, the demand curve shifts to the rightLess income, consumers buy less, the demand curve shift to the leftChange in Customer PreferenceChange in like or dislike of a product will shift the demand curve left or rightFinding out a product is harmful will make people want to buy less of it
28 Factors Affecting Supply Number of suppliers increasesAs the number of suppliers increases, the availability of a good or service increasesMore is produced, the supply curve moves to rightSuppliers leave the marketSupply curve moves to the leftFewer suppliers, prices go upFewer choices, producers charge moreCost of productionAs cost of production goes down, producers increase supplyAs cost of production goes up producers decrease supply
29 The Economic Role of Prices Prices and the Economic QuestionsWhat to produce?How to produce?For whom to produce?Prices as Measures of ValueConsumers and producers use the prices to value goods and servicesPrices as SignalsIf consumers think an item is priced too high, they will not buy it.Lack of demand sends a signal to the producer that the price is too high.The reverse is also true for consumers