Economic Basics and the U.S. Economy
The study of economics is far more than just money, debt and goods.
Economics is the study of ______people make to satisfy their ______and ______.
Economics is complicated because people have unlimited wants, but limited ______
This is scarcity, the condition that results from limited resources and unlimited wants.
Economists study the production of goods and services using ______resources. They are looking to see efficiency, or whether we are best using our scarce resources.
Scarcity
Economics is complicated because people have unlimited wants, but limited resources
This is ______, the condition that results from limited resources and unlimited wants.
Economists study the production of goods and services using scarce resources. They are looking to see
______, or whether we are best using our scarce resources.
Scarcity is not the same as a shortage
Shortages occur when a producer ______or ______offer goods/services at the current prices
Scarcity always exists because our needs and wants are always ______than our resources.
A good is scarce if:
· It would make someone ______
· If the good were free, people would want ______of it than what is available
Resources
When we talk about resources we mean a variety of things:
-Capital (______, land) -natural resources
-human -______
-transportation
Economic Systems
The economies of today have been developing over thousands of years, from our earliest ancestors. There are four main economic forms today:
-Traditional -Command -Free Market -Mixed Economy
Regardless of the system, there are 3 basic economic questions that MUST be answered:
1) ______?
2) ______?
3) ______?
Traditional Economies
What is produced and how is determined by tradition. Often based on ______exchange, trading goods and services for other goods and services.
______- take care of themselves
Traditional economies exist mostly in tribal areas of South America and ______, but do exist around the world.
Command Economy
The ______determines what is produced. They ______the means of production, the use of resources and prices
Command economies are mostly found in ______and totalitarian countries such as North Korea and ______.
Free Market Economies
Production is determined by the buyers and sellers through ______and ______. If the individuals demand a supply it will be made. A Free market system promotes ______, or complete freedom from government intervention.
Originally developed by Adam Smith, a Free Market system leaves all economic decisions up to ______and businesses, and restricts the government from getting involved.
Types of Economies
Traditional
Command
Free Market
Mixed Market Economies
Truly Laissez Faire economies can cause massive problems when businesses ______workers. When industry first began companies paid ______wages for long hours, they hired children and did not maintain any ______standards.
Mixed markets exist around the world. Many capitalist nations are mixed markets, where the government imposes some ______and taxes, but businesses are still free to answer most of the ______by themselves.
Bartering vs. Money Systems
The barter system eventually led to the money system. The ______system is complicated because the goods that are wanted are not always available for trade.
The Money system sets up a ______ means of exchange. Money is readily accepted by people in return for ______and ______.
Money
Money is ANY standard form of exchange. It can be ______, coins, gems, gold, salt, beads, etc.
Money has three functions:
-______item traded for goods and services
-a measure of value that allows producers and consumers to determine and express worth
-can be ______and ______to purchase items later
Installment Buying/ Credit
Credit allows ______to use items before they have completely paid for them. Credit allows consumers to pay for an item over a specified period. This includes credit cards, store finance plans and bank ______.
Most credit charges ______, a charge for borrowing money.
The US Economy
The US economy is a ______economy, which means it blends elements of Command, Traditional and Market economies.
The US economy is based on ______.
Individuals own the factors of production and answer the basic economic questions (what to produce, how to produce, and for whom to produce)
The four factors of production are:
Land Labor
Capital Entrepreneurs
Freedom in America’s economy
In the United States individuals are free to exchange their ______and ______, seek jobs of their own choosing, use their resources as they wish and own and operate businesses.
There are 5 main features. Individuals have the right to:
-______private property and enter contracts
-make individual choices
-engage in economic ______
-make decisions based on self-interest
-______government involvement
However, being a mixed economy means there is some government regulation and ______programs ‘mixed’ in as well.
Private Property
Property owners are free to use or dispose of their private property as they choose. They can enter into ______to exchange (______or ______) property.
Individual Choices
For the most part Americans have the ______to make their own economic choices. For instance, if you want a soda you can pick between a number of brands such as ______or ______. You have the choice of what product you will purchase.
Competition
Competition is the economic ______that exists among businesses selling the same or similar products. Competition is important because it encourages producers to ______existing products and develop new ones in order to ______customers
Competition is very important in the United States. When we have two or more businesses making similar products we get competition. This encourages producers to improve their products, develop new ones and keep the prices ______.
Limited Governance
America’s mixed economy tries to limit government ______. However, the government makes several economic decisions:
-Mandatory ______laws
-Taxes
-Welfare programs
-______
US Economic Actors
Actors / Role / InteractionProducers
Consumers
Government
US Economic Goals
The US Economy has 6 goals:
-freedom
-efficiency
-equity
-security
-stability
-growth
Economic Freedom
Maintaining choice in the ______is a major goal of the US Economy. This is what allows consumers freedom to decide how to spend their income. The workers are free to choose their job or join a ______. Businesses decide whom to ______. Savers decide when and how to spend their savings.
Economists like Adam Smith believe in Laissez Faire, or ______. They believe the government should not ______business concerns, and instead, let the “invisible hand” dictate what, for whom and how to ______.
Economic Efficiency
The goal of efficiency is to make the ______use of ______resources.
This can be measured by how many goods and services a nation’s workers produce and the more efficient the ______will be.
*Remember, economics is the study of choices made to meet our ______and ______*
Economic Equity
Equity deals with questions of ______and right or wrong. By studying the costs and benefits of a proposed course of actions, the policymakers try to judge whether a particular choice is ______.
The US government attempts to ensure that members of ______share in the ______and ______of free enterprise.
Economic Security
A nation’s efforts to protect its members from ______, business and bank failures, medical ______and other situations that harm the economic well-being of individual citizens and the nation as a whole.
Public Goods
Public goods are goods/services that one individual can consume without reducing its availability to another individual and from which no one is excluded. They are ______and ______.
The US government supplies a number of public goods, including public works, education, Social Security, national ______, Medicaid/Medicare, unemployment and ______benefits, police and fire, disaster relief, roads, and public transportation.
The Free-Rider Problem
A free rider is someone who does not ______for a service, but receives the ______of it.
The best example of the free-rider problem is the military. National defense is both non-rivalrous and non-excludable. In order to have such a public good, everyone pays ______which are then used by the government to finance the military. However, there are undoubtedly people who have not paid their taxes. These people, without having paid their ______of the cost of having a military, still benefit from the protection the military provides. They are free-riders.
Economic Stability
There are two parts to economic stability: achieving full ______and price ______.
Full Employment: the lowest possible level of ______in an economy. This is not ______as there is always some unemployment as workers move and change ______, businesses open and close, etc.
Price Stability: the goal is to keep the overall price level of the goods and services available relatively ______.
Economic Growth
Efforts to increase the amount of goods and services ______by each worker in the economy.
The goal is to ______the standard of living, or people’s ______well being.
Goals and Trade Offs
Nations and individuals cannot work on all of their personal goals at the same time, as a result they must ______their goals. Scarcity forces individuals, businesses and governments to make choices among their needs and wants. They must decide which are most important and arrange them.
In America, for example, national defense and security became a high priority during ______. In times of ______, national defense is not as much of a priority.
Production Possibilities Frontier
To help economists figure out what to ______, they rely on Production Possibilities Frontier Curves, or PPF.
The PPF represent the trade-off of an economy based on ______and ______resources.
In other words, we have 500 gallons of milk and can choose to make either ______or ______. If we choose to make more ice cream then we will make less cheese, and vice versa. The curve allows economists to study this tradeoff.
PPF show all of the possible combinations of two goods and services that can be produced, assuming the amount of resources doesn’t change and are working to full ______.
Points with in the curve represent ______use of resources
Points on the curve represent working to ______
Points outside the curve are ______
Look at the Production Possibilities Frontier graph below. Then determine and label each point as either inefficient, efficient and unobtainable. (points A, B, C, X and Y)
Production Possibilities Frontier
The PPF shows a ______visual of the choices producers make with ______resources.
Growth
PPF curves are rarely straight lines, instead they ______. This Curve indicates the tradeoff between making one product over another. If the curve moves outward, it means the economy is ______. If the curve gets smaller, it means the economy is ______.
Opportunity Cost
Production Possibilities Frontier (PPF) curves are used to determine the best use of our ______resources. These graphs also help us determine the “______” of every choice. When we choose to make more cheese instead of ice cream, the cost is the ice cream.
Law of Increasing Costs
As we continue trading the ______of one item for another, the costs ______. This is why the Production Possibilities Frontier is curved.
No Efficiency
The PPF curve shows the ______economic situation, but true efficiency is nearly impossible. There are several factors that prevent true efficiency:
-______laborers or unemployment
-lack of ______
-poor management
Economic Growth
______points on the curve can in fact be reached. If the economy grows, ______is developed, better management or better workers are hired, and then production can increase.
Straight PPFs
Not all PPFs are curved. A straight ______PPF exists if the compared goods can be interchanged. For example, if a factory has ______for making ______, it can easily shift to producing ______.