MARKET ECONOMIES

LESSON 1.1 MARKET ECONOMIES Compare three types of economies Describe and explain the characteristics of a market economy

1.1 Economic Systems • Our businesses operate in a global marketplace and deal with a variety of economic systems that influence each other • Countries take different approaches in how their economies operate, but each must provide answers to the same basic economic questions

1.1 Economic Problem • Scarcityis the conflict between unlimited wants and limited resources. • In order to decide how to use its scarce resources, a country must answer three key economic questions. • The answers to these questions depend in large part on the society’s economic system.

1.1 Key Economic Questions 1. What to produce? • Should resources be used to provide consumer goods, industrial goods, or military goods? 2. How should things be produced? • What kinds of industries and equipment should be used? 3. For whom should they be produced? • Which of its citizens should benefit most from what is produced?

1.1 Types of Economic Systems • Traditional Economy • Command Economy • Market Economy • In a market economy, businesses and individuals are free to make their own decisions as they buy and sell in the marketplace. • Capitalismmeans that economic resources are privately owned by individuals rather than by the government.

1.1 Characteristics of Market Economies • Private enterprise • Private property • Profit • Competition

1.1 Private Enterprise • An individual’s right to own a business, select a market to enter, and produce with limited government direction is called private enterprise.

1.1 Private Property • Your right to private property means that you can own, use, and dispose of things of value.

1.1 Profit • Profit is the amount of money left over when subtracting the expenses of operating a business from its income—it is a reward for taking risks.

1.1 Competition • Competitionis the rivalry among businesses to sell their products and services to consumers.

LESSON 1.2 MAKE DECISIONS Explain how an economy meets its needs and wants Describe the six-step decision-making process

1.2 Providing Needs and Wants • The needs and wants of a society are met through the production of goods and services. • This production requires the use of economic resources.

1.2 Needs and Wants • Needs are things that are required in order to live. • Wants are things that are not necessary for survival, but add comfort and pleasure to our lives.

1.2 Goods and Services • Goods are things you can see and touch. • Services are activities that are consumed at the same time they are produced.

1.2 Economic Resources • The means through which goods and services are produced are called economic resourcesor factors of production. • There are three kinds of economic resources: • Natural resources • Human resources • Capital resources

1.2 Economic Decision Making • Economic decision making is the process of deciding among several alternative wants to determine the one most desired.

GOOD DECISION Review Your Decision 1 2 3 4 5 6 Act on Your Choice Choose One Evaluate Choices Identify Choices Define Problem PROBLEM 1.2 The Decision-Making Process

LESSON 1.3 HEALTHY ECONOMIES Discuss three measurements of an economy's health Name and describe the four phases of a business cycle

1.3 Economic Measurements • Three measurements used in looking at the health of an economy are: • Gross domestic product (GDP) • Labor productivity • Inflation and deflation

1.3 Gross Domestic Product (GDP) • Gross domestic product(GDP)is the total dollar value of all goods and services produced in an economy in one year. • It is a basic measurement of how an economy is doing.

1.3 GDP Includes Four Major Categories 1. Consumer spending for food, clothing, and housing 2. Business spending for buildings, equipment, and supplies 3. Government spending to pay employees and to buy supplies and other goods and services 4. The exports of a country less the imports of the country

Number of units produced (output) Productivity = Number of hours worked (input) 1.3 Labor Productivity • The measurement of the number of items produced per worker is called productivity. • In a simple model, productivity is computed by dividing the output (the number of units produced) by the input (the number of hours worked).

1.3 Inflation and Deflation • A sustained increase in the general level of prices for goods and services is called inflation. • Deflation is a sustained decrease in the general level of prices for goods and services.

1.3 The Business Cycle • The movement of the economy from one condition to another and back again is called a business cycle. • Business cycles have four phases: • Prosperity • Recession • Depression • Recovery

1.3 Prosperity • Prosperity is the phase where most people who want to work are employed and businesses produce goods and services in record numbers. • Wages are good. • The demand for goods and services is high. • Prosperity does not go on forever.

1.3 Recession • Recession is a phase of the business cycle where demand for goods and services begins to decrease, production decreases, unemployment begins to increase, and GDP growth slows down. • A decrease in the use of economic resources and a lower demand for goods and services signal this phase of the business cycle.

1.3 Depression • Depression is a phase of the business cycle marked by a prolonged period of unemployment, weak sales of goods and services, and business failures. • GDP falls rapidly during a depression. • During the Great Depression of the early 1930s, the unemployment rate reached 25 percent.

1.3 Recovery • Recovery is the phase in which unemployment begins to decrease, demand for goods and services begins to increase, and GDP begins to rise again. • Recovery leads an economy into the most-welcome business cycle, prosperity.

LESSON 1.4 PARTICIPATE IN AN ECONOMY Define three economic roles and state how they affect supply and demand Discuss standard of living and quality of life

1.4 Economic Roles • Citizen • a legally recognized subject or national of a state or commonwealth, either native or naturalized • Worker • an employee in an organization • Consumer • a person who purchases goods and services for personal use

1.4 Supply and Demand • Demand is the relationship between the amount of a good or service that consumers are willing and able to buy and the price of the good or service. • Supply is the amount of a good or service that businesses are willing and able to provide and the price of the good or service.

1.4 Supply and Demand Effect on Price • Demand • As the demand for a good or service increases, the price tends to go up. • As demand begins to fall, the price generally goes down. • Supply • When a product is in short supply, prices tend to increase if the demand stays the same.

1.4 Your Economic Well-Being • Standard of living refers to the way you live as measured by the kind and quantity of goods and services you can afford. • Quality of life is the satisfaction and enjoyment that you get from your life.

MARKET ECONOMIES