What do these things have in common?

1. What do these things have in common?

2. Economic Systems

3. Economic Systems Economics- is the study of how people make choices to satisfy needs and wants. An economist is someone who study economics.

4. People have to make decisions about how to meet their needs. • Need – something people must have to survive. • Want – is something that people would like to have but is not necessary for survival.

5. CHOICES MUST BE MADE DUE TO SCARCITY • Scarcity is the limited amounts of resources to meet unlimited desires. • People usually have unlimited wants. • A society can only produce a limited number of things at one time. There is only a certain amount of available goods and services.

6. GOODS v. SERVICES • Goods are objects like cars and clothes.

7. GOODS v. SERVICES • Services are actions people do for others such as teaching

8. ANSWERING THE THREE ECONOMIC QUESTIONS • What goods and services should be produced? • How should these goods and services be produced? • Who consumes these goods and service? • Every society must answer these three questions when considering their economic goals.

9. Economic Systems • Traditional • Command • Market (Free Enterprise) • Mixed

10. TRADITIONAL ECONOMY • Relies on rituals and custom to answer economic decisions. • People tend to do what their parents did • Little innovation or change

11. Traditional Economies • Goods and services are traded without exchanging money – also called “barter”. • Set by tradition and custom; people do things much as their ancestors did. • A farmer’s son in India will be a farmer. • Provides member of society with stability and security but at cost of individual freedom and economic growth. • characterized by high poverty rate, low urbanization, large agricultural workforce, low GDP per capita, high unemployment rate, high fertility rate, low literacy and life expectancy.

12. Traditional – Bushmen of the Kalahari Desert

13. Farming in South Asia

14. MARKET ECONOMY • an economic system in which production and distribution decisions are determined through voluntary exchange in markets • Goods and services are allocated on the basis of price. • a free market system has no government intervention. • Free market economic systems are characterized by • a large urban work force in industry and services, • high GDP per capita, high literacy and life expectancy rates, • low poverty rate, low fertility rate,

15. Market Economies • Determined by the interaction of producers and consumers (supply and demand) • Able to respond to consumer’s needs and allow free exchange of information but at cost of economic inequalities.

17. COMMAND ECONOMY • an economic system in which production and distribution decisions are determined by a central government • a command economy has complete government intervention in every aspect of production and distribution decisions. • Centrally planned economic systems are characterized by state-owned firms, large shortages and surpluses of consumer goods,

18. COMMAND ECONOMIES • The ruler or government tells everyone what to do. • Able to modernize and change quickly but at cost of freedom and lack of consumer goods. • average to high poverty rate, relatively high military spending, price fixing of goods and services

19. Mixed Economies • A mixed economy is a blend of free market and command. • Nearly every country in the world has a mixed economy. Some are closer to capitalism, others communism. • Ex. In the United States government makes laws about wages (minimum wage), working conditions, etc., and it owns some institutions such as public schools.

20. Wayne is a fisherman. The government tells him where he can fish. Wayne decides how much fish to catch. • Ed works on a farm. The government tells him to plant soybeans. The government tells him what price to charge for his beans. • Vanessa makes cheese. She decides to make cheddar cheese. The government buys her cheese. • Mike has a pet-sitting business. He decides how many pets to sit. He decides what price to charge. • Natalie cuts hair. The government tells her what hours she can work. The government tells her how much she can charge to cut hair. • Keisha owns an ice cream stand. She decides how much ice cream to sell. She decides what price to charge for her ice cream.

21. Check your answers. 1. Below your Venn Diagram, answer this question: Would you rather live in a Market Economy or a Command Economy? Why? NOTE: Mixed Economy is NOT an option.

22. Ways of Meeting Economic Needs • Subsistence Agriculture – Families grow food for themselves. • Cottage Industries – production of goods by hand at home or in small shops • Market-Oriented Agriculture – farmers grow cash crops to sell on market for profit. • Commercial Industries – Producers manufacture goods, usually in factories to sell at market.

23. Types of Economic Activity • Economists have found that a nation’s level of economic development is often closely tied to the types of economic activities its people engage in. • Four main groups • Primary • Secondary • Tertiary • Quaternary

24. Primary Economic Activities • Most basic or primary activities involve the production of foods and the extraction of resources (mining). • Growing crops • Raising livestock • Grazing/herding cattle/sheep/goats • Fishing • Logging • Mining • The smaller the portion of people involved in this activity the likelihood the country’s economy is more developed.

25. Primary Economic Activities

26. Secondary Economic Activities • Secondary economic activities add value to raw materials by processing them or changing their form. • Manufacture and production of goods such as the making of textiles and furniture • Example – • Logs cut into wooden planks and then assembled into furniture. • Iron ore is changed into steel and shaped into railroad tracks.

27. Secondary Economic Activities

28. Tertiary Economic Activities • Third-level activities deal with services • This sector is identified by services performed by people and businesses. • Teachers • Doctors • Accountants • Retailers • Truck Drivers • Musicians • In the United States 80% of the labor force are tertiary workers.

29. Tertiary Activities

30. Quaternary Economic Activities • Consist of those involving information processing and management. • Computer programmers • General manager of companies

31. Quaternary Activites

32. Economic Connection with Development • In a “less developed” country most people engage in primary economic activities. • In a “newly industrialized” country like China or Thailand, large number of people are engaged in secondary economic activities. • In “more developed country” like the United States or France, the majority of workers are engaged in tertiary or quaternary economic activities.

33. Which economic activities are most clearly associated with different levels of development?

34. Government Relation to Economic Development • Some economists believe that a nation’s economic system can even help transform its political system. • Economic development leads to the creation of a strong middle class, the basis for democracy. • Strong economic system promotes a strong sense of independence and personal freedom. • Greater wealth allows individuals and businesses to strengthen their independence from government. • China may gradually become more democratic if its economic prosperity continues.

35. Government Relation to Economic Development • There is no direct relationship between economic development and a nation’s system of government. • However, since the end of the Cold War in 1991, most advanced economies have adopted free enterprise system along with democratic government. • Exception is China which does not have a democratic government.