1. Lesson 3.1 WHAT IS AN ECONOMY?
GOALS
Describe market and command economies.
Define the concept of supply and demand.
Explain the effects of market structure on price.
Describe the functions of business in a market economy.

2. SCARCITY
Scarcity occurs when people’s needs and wants are unlimited and the resources to produce the goods and services to meet those needs and wants are limited.
Scarcity occurs in every economy.

3. COMMAND ECONOMY
In a command economy, the government determines what, how, and for whom products and services are produced.

4. MARKET ECONOMY
In a market economy, individuals decide what, how, and for whom goods and services are produced.

5. PRODUCTIVITY
The level of output that an industry or company gets from each worker or each unit of input into its products and services is called productivity.

6. SUPPLY
Quantity Price
40 $40
30 $30
20 $20
10 $15
Supply is how much of a good or service a producer is willing to produce at different prices.
Suppliers are willing to supply more of a product or service at a higher price.
Supply Curve
$50 40 30 20 10
Price
Quantity

7. DEMAND
Quantity Price
40 $20
30 $30
20 $40
10 $50
Demand is an individual’s need or desire for a product or service at a given price.
Individuals are willing to consume more of a product or service at a lower price.
Demand Curve
$50 40 30 20 10
Price
Quantity

8. WHEN SUPPLY AND DEMAND MEET
Supply and Demand Curves
The point at which the supply and demand curves meet is what is known as the equilibrium price and quantity.
This is the price at which supply equals demand.
Equilibrium Price
$50 40 30 20 10
Price
Quantity

9. MARKET STRUCTURE AND PRICES
When a company controls all of a market, it has a monopoly.

10. BUSINESS ACTIVITIES IN A MARKET ECONOMY
Production
Marketing
Product
Distribution
Price
Promotion
Management
Finance

11. Lesson 3.2 THE CONCEPT OF COST
GOALS
Identify various types of costs.
Discover how different types of costs affect the prices entrepreneurs charge.

12. FIXED AND VARIABLE COSTS
Fixed costs are costs that must be paid regardless of how much of a good or service is produced.
Fixed costs are also called sunk costs.
Variable costs are costs that go up and down depending on the quantity of the good or service produced.

13. MARGINAL BENEFIT AND MARGINAL COST
Marginal benefit measures the advantages of producing one additional unit of a good or service.
Marginal cost measures the disadvantages of producing one additional unit of a good or service.

14. OPPORTUNITY COST
Opportunity cost is the cost of choosing one opportunity or investment over another.

15. Lesson 3.3 GOVERNMENT IN A MARKET ECONOMY
GOALS
Explain the government’s effect on what is produced.
Recognize the different roles the government plays in a market economy.

16. GOVERNMENT’S EFFECT ON WHAT IS PRODUCED
Purchases
Taxes
Subsidies

17. ROLES OF THE GOVERNMENT
Regulator
Inspection
Licenses
Provider of public good
Provider of social programs
Redistributors of income