1. Economics

2. Economic Systems
The way people produce and exchange goods and services is called an economic system.
Four types of economic systems: traditional, command, market and mixed.

3. Traditional Economy Goods and Services are traded without
exchanging money. Also called “barter”.

4. Market Economy
Production of goods and services is determined by the demand from consumers. Also called a Free Market Economy.

5. Command Economy Production of goods and services is
determined by a central government, which
usually owns the means of production.

6. Mixed Economy
A combination of command and market economies provides goods and services so that all people will benefit.

7. Economic systems: Satisfy our Wants and Needs
Goods – Things we can touch or see that satisfy our wants or needs.
Services – Actions people undertake in order to satisfy their wants and needs.

8. Types of resources: Production Resources
Businesses use three types of production resources to produce goods and services. Natural Human Capital

9. Natural Resources
Resources that are present without human interference
“gifts of nature”
Examples are land, timber and mineral deposits

10. Human Resources Any human effort used to produce goods and services
Examples include workers and their skills, training and education

11. Capital Resources Tools of production
Goods used to produce other goods or services
Examples include tools, machinery and buildings.
Money used to purchase these resources is called capital.

12. Identifying Resources:
NATURAL
HUMAN
CAPITAL
cotton tractor marketing degree table saw computers water driver’s license crude oil employees factory building aluminum electrician’s license land

13. Identifying Resources:
NATURAL
HUMAN
CAPITAL
cotton
water
crude oil
land
Marketing degree
Driver’s license
Employees
Electrician’s License
Tractor
Table saw
Computers
Factory building
Land
cotton tractor marketing degree table saw computers water driver’s license crude oil employees factory building aluminum electrician’s license land

14. Levels of Economic Activity
Primary – First level
Secondary – Second level
Tertiary – Third level

15. Primary Activities Businesses involved in gathering raw materials.
Examples include mining and timber companies.

16. Secondary Activities
Businesses that add value to materials by changing their form.
Examples include automobile manufacturers and textile factories.

17. Tertiary Activities
Companies that provide business or professional services.
Examples include salespeople, teachers and doctors.

18. Identifying Levels of Activity
_____ Hershey Chocolate _____ Pilot Gas Station _____ Luck Stone Corp. _____ NTelos _____ Law Well Drilling Inc. _____ Fry Appraisal Co. _____Oak Lawn Mausoleum _____ Walmart _____Augusta Medical Center _____ Hollister

19. Identifying Levels of Activity
_____ Hershey Chocolate _____ Pilot Gas Station _____ Luck Stone Corp. _____ NTelos _____ Law Well Drilling Inc. _____ Augusta Lumber _____Oak Lawn Mausoleum _____ Walmart _____Augusta Medical Center _____ Hollister
_____ Hershey Chocolate _____ Pilot Gas Station
_____ Luck Stone Corp _____ NTelos
_____ Law Well Drilling Inc _____
_____Oak Lawn Mausoleum _____ Walmart
_____Augusta Medical Center _____ Hollister P T P P T T T S

20. Important Note: The more developed an economy is, the
greater the number and variety of activities
you will find.

21. World trade: Why Do Countries Trade With Each Other?
Trade maintains and improves relations between countries.
Trade allows countries to acquire goods and services, often natural resources or raw materials, that they do not have available to them.
Trade allows countries to obtain products that other countries may produce more efficiently and therefore are less costly.

22. International Trade Some Basic Terms:
Imports – goods or services that a nation buys from other nations
Q: What type of goods does the U.S. import the most?
A: crude oil, refined petroleum, automobiles, food and beverages, raw materials, and consumer goods
Exports – the goods or services that a nation produces and then sells to another nation
Q: What type of goods does the U.S. export the most?
A: capital goods, industrial supplies, raw materials, agriculture products, and automobiles

23. …MORE TERMS
Specialization – the idea of countries only making those products that they produce the most efficiently
Absolute Advantage – a country’s ability to produce more of a given product than can another country
Comparative Advantage – a country’s ability to produce a given product relatively more efficiently than another country – or – production at a lower opportunity cost

24. SPECIALIZATION
The key to international trade is specialization. Even though one country may have an absolute advantage over another country in producing all concerned products it can still be beneficial for both countries to specialize and trade.
Take some time to complete the Enrichment Activity and you will see for yourself.

25. Meet Betsy and bert

26. Their bedrooms…

27. Their predicament:
Betsy and Bert must help with the household chores before they can go out with their friends. Their job is twofold:
They must wash and dry one sink full of dirty dishes that accumulated for 3 days.
They must sweep up and take out 3 loads of trash from the garage, which hasn’t been cleaned since the summer of 2000.

28. They must wash and dry one sink full of dirty dishes that accumulated for 3 days.

29. They must sweep up and take out 3 loads of trash from the garage, which hasn’t been cleaned since the summer of 2000.

30. Dishwashing (Number of sink loads)
Sweeping
(Number of trash loads)
Betsy 2 3
Bert 1

31. Option #4
Option #4 allows both Bert and Betsy to finish in one hour; the shortest time of the four options and the shortest possible time for this example.

32. Opportunity cost
When Betsy and Bert specialize where each has the comparative advantage and work together, both are better off. Opportunity Cost is the value of the next-best alternative that must be given up when scarce resources are used for one purpose instead of another.