Economics
Basic economic concepts:
Economics – the study of the ways that individuals and societies choose to use their limited resourcesin order to better satisfy their unlimited wants.
Scarcity – Goods and services are not available in unlimited amounts. Supply is limited. Wants go on and on. We can’t have everything we want.
OpportunityCost – We must decide to give up something in order to get what we want.
BarterSystem – (the old way) exchanging goods and services for other goods and services.
Money – A medium of exchange. Used to purchase goods and services and pay debts.
Supply and Demand
Supply = What is available for sale.
Demand = What is wanted by the consumers.
Supply and Demand directly affects the price of goods.
High supply = Surplus, which creates lower prices.
Low supply = Scarcity, which creates higher prices
Consumer – A person who uses goods and services.
Consumption – As consumers, we use goods and services to satisfy our wants and needs.
Producer – A person who makes a product.
Production – We use resources (natural, human, capital) to produce something of value that will be consumed.
Distributors – Those who transport or deliver goods.
Incentives – What makes you pick one choice over another. Encouragement to buy one product over a different one. Examples: sales, discounts, coupons, rebates.
Competition – Businesses trying to get consumers to purchase THEIR goods and services, not someone else’s. This causes businesses to provide incentives, variety of choices, better prices, better quality, better service.
Interdependence – We rely on others to buy goods and services from when we do not produce those items ourselves.
Three things necessary to produce goods:
1. Natural resources – gifts of nature
2. Human resources – people, workers
3. Capital resources – $$$, buildings, equipment, machinery, and other stuff necessary to make the products.
GDP
Gross Domestic Product (GDP) – total value of all the goods and services produced within that country in one year.
per capita (per means for every, capita means person) for every person
**GDP per capita – Divide the GDP by the country’s population. This is a more fair representation of the country’s situation.
GDP = $1,000,000
Population = 25 people
GDP/c = ______for every person
GDP = $1,000,000
Population = 500,000 people
GDP/c = ______for every person
4 different Types of Industries:
1.) Primary Industries– They gather natural resources and provide them to others.
- agriculture (farmers)
- forestry (cutting down trees)
- mining (taking coal, gold, ore, salt, out of the ground)
2.) Secondary Industries – They takeresources from primary industries and turn them into useful products.
- manufacturing (making cars, computers, clothing, toys, any product a consumer might want.)
3.) Tertiary Industries - (tertiary simply means third in a series)
They provide a service to consumers and to other industries.
- stores (Macys, The Gap, AF, Krogers)
- restaurants / hotels
- banks / insurance
- transportation (bus, plane, taxi, train)
- craftsmen (plumber, carpenter, roofer)
-doctors, teachers, actors, mechanics
4.) Quaternary Industries - (quaternary means fourth in a series)
Involves the research and distribution of information. They deal with information instead of goods.
- Information research
- management / administration
- computer programmer
- telecommunications
-scientists
Economic Systems
Traditional Economy – Grow their own food and make their own goods. Usually found in underdeveloped or poor countries.
Market Economy – Based on private ownership, free trade, and competition. Prices are determined through supply and demand.
Also called Capitalism.
The USA is a Market Economy.
Key elements of a Market Economy:
People can buy and sell what they want for whatever price they want.
People can own property.
People can earn profits.
People can choose their own careers.
Competition is allowed and encouraged.
Command Economy – A strong, central government makes all the economic decisions. The government decides what is produced, how much is produced, and what prices will be.
The History of Money
Barter: Trading surplus items for needed items. Example: Trading eggs for sugar.
Advantages
-Everyone has something to trade.
Problems
-Supply gets used up quickly.
-What if the person selling sugar does not want eggs?
PreciousMetals: Using gold and silver to purchase items.
Advantages
-Gold and silver are rare so they has more value.
-Gold and silver have many uses.
-People want it.
Problems
-Hard to carry around.
-Hard to make change.
-Gets used up.
RepresentativeMoney: Using coins, paper money, or checks that REPRESENT certain amounts of precious metals.
Advantages
-Don’t have to carry around precious metals.
-Can make change.
Problems
-Value of money tied to the value of precious metals.
-Value changes often.
FiatMoney: (Fiat means “let it be done” or “it shall be”) Money that looks like Representative Money but it DOES NOT represent precious metals. It is not backed by precious metals.
Advantages
-It counts as money because the government says it does.
-Its value does not change with the price of precious metals.
Problems
-Money is backed just by trust.
-Value of money changes with the health of the economy.
Money
List the 4 stages of money:
1. Barter
2. Precious Metals
3. Representative
4. Fiat
There are three functions of money. List them and write a sentence about each:
Function 1: Medium of exchange
People are willing to accept it as payment. It is easily exchanged (traded) for goods and services and easily divisible.
Function 2: Measure of Value
We know what it is worth. $5 bill is worth $5. We can count how much we have.
Function 3: Store of value
$5 today is worth $5 tomorrow. We can put it in the bank and get it out a month later and it has not spoiled.