Basic Economic Understandings
Ø Production is the making of goods for you to buy or sell. (What to produce?)
Ø Distribution is making goods and services available for you to buy. (How to produce it?)
Ø Consumption is the use or purchase of goods and services. (For whom to produce it?)
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Basic Economic Systems
*Traditional economies: traditions or beliefs are use to decide what to produce, how to produce it, and who to produce it for.
o Traditional economies usually use bartering to exchange goods and services.
*Command economies: the government answers all of the economic questions. They decide what to produce, how to produce it, and who to produce it for.
*In market economies, private citizens answer all of the economic questions.
The people decide what to produce, how to produce it, and who to produce it for. Supply and demand drive the economy.
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Trade Barriers
Trade barriers are any law or practice that a government uses to limit free trade between countries.
This includes: tariffs, embargos, and quotas
o A tariff is tax on goods or services brought into a country from another country.
o An embargo is a restriction on trade between countries.
o A quota is a limit on imports.
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Specialization
o The division of labor; work is divided into parts for workers, factories, or countries to become expert at producing certain goods.
o Specialization increases trade because a country can get what it needs at the lowest cost when produced by someone who specializes in producing that item.
Currency Exchange
o Currency is money. Country’s have different types and values (rates) of currency. Money from one country must be converted (changed) into the currency of another country to pay for goods in that country.
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Factors of Production
These are anything required for production to take place.
Human resources are the people who work to make the goods and provide services.
o Examples: workers, labor, or employees (servers, teachers, lawyers, doctors, bus drivers, salesmen, etc.)
Capital resources are the machines, factories, supplies, and technology that are needed to produce goods and services.
o Examples: tractors, computers, buildings (factories, schools, etc.), tools, cars/transportation
Natural resources are those resources found in nature (raw materials).
o Examples: water, fertile soil, good harbors, oil, diamonds, gold, etc.
Entrepreneurs are people who take risks by starting new companies and inventing new products or ideas.
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Gross Domestic Product
(GDP) is the total value of the goods and services produced within a country in a year. It is like a “report card” for a country’s economic health.
o GDP is used to compare and measure economies.