What is economics?

1. What is economics?

2. What is the basis of economics? • The basis of every economy comes from the fact of scarcity. Scarcity is the idea that all resources are limited. • Because of scarcity, we have to make choices, or decisions about our resources. • Every country makes these decisions differently-that’s how the economic systems developed.

3. What are the different types of resources/capital? • Natural/Land resources are any resources that come from the earth. • Human/Labor resources are the abilities and skills of the people. An entrepreneur is a human resource. • Capital resources are the tools we use to produce goods and services. Remember, MONEY IS NOT CAPITAL!

4. If money isn’t capital, then what is it? • Many people think that economics is the study about money, or that money is the basis for our economy. However, this is not the case. • Money does not drive economics, because it is not a resource. Money is a recent invention of humans. • Money is simply currency that is available, and is often used to trade for a resource or service. • Different countries have different types of money, and each country’s currency has different values!

5. So why is it important to learn about scarcity? • Scarcity is simply the idea that there is only so many resources to go around. • Because resources are limited, choices must be made about what to do with them. • For example, Saudi Arabia produces more oil than other countries. They have to decide if they want to use it all for gasoline, or numerous other options available (making plastic, heating houses, etc) • Every country/state has to make these decisions for themselves.

6. What is opportunity cost? • Because of scarcity, we cannot do or have everything we desire. • Once the decision is made about the resources, opportunity costs represent the next best option that was not chose. • Going back to the previous example, let’s say Saudi Arabia decided to use all their oil to make gasoline. Their opportunity cost would be not producing rubber and making the technology to heat houses.

7. Do I understand opportunity cost? • Use the chart on this slide. Pretend your parents dropped you off at the mall for the weekend, with enough money to do what you wanted. However, because of scarcity, you can only do one activity. List the activity you would do first 1, the second activity 2, and the last activity you would choose third.

8. What are the decisions that countries have to make? • Every country has to make three decisions about their resources: • 1. What will we produce? • 2. How will we produce it? • 3. Who will we produce it for? • These decisions are the factors of production. • How a country answers these questions depends on the amounts of resources, and type of government that they have.

9. What are the different ways that countries make their decisions? • There are four main ways to answer the Factors of Production. • In a traditional system, governments let traditions dictate the factors of production. • In a command system, the government dictates the factors of productions. • In a market system, consumers dictate the factors of production. • In a mixed system, consumers and the government dictate the factors of production.

10. Why do countries make these decisions? • Countries must make decisions because of scarcity. • Countries make the decisions that they feel are best for themselves and the people of that country. • GDP (Gross Domestic Product)- is the total dollar amount of all resources produced/made in a particular country. The higher the GDP, the more resources they have/are making.

11. What should I know about the four economic systems? • Because the world has become so interdependent, there really are no true traditional, command, or market systems anymore. • In order to support the population, countries have to have some qualities of a mixed system. • Just imagine economics as a line, with Command on one side, and Market on the other. Countries like China, Vietnam, North Korea, Saudi Arabia, and Sudan would be very close to the command side, while countries like Japan, the USA, South Korea, South Africa, India, and Israel would be closer to market.

12. What is a consumer and entrepreneur? • A consumer is a human/country who is willing to trade or purchase a particular item or resource. • Depending on their demand for the resource, more or less will be utilized. (supply and demand) • An entrepreneur is one of the most important human capitala country can have. An entrepreneur is a person willing to take a risk with a new invention or idea. • Many create their own companies and products.

13. What are the roles of entrepreneurs? • An entrepreneur is a person who creates their own business, or successfully establishes industry. • They bring together all types of resources into a product for the general population. • Ted Turner is another example. News and TV was nothing new but he came up with the idea for CNN. Eventually, he could expand. • The Clark Brothers are also great entrepreneurs. They invented the most recognized product in the world.

14. What if a country wants a resource but they don’t have it? • If another country has the resource, they can engage in a trade for the resource. • Trade is simply when one country barters or buys a resource from another . • Trade always benefits both countries when it is voluntary and Nonfradulent!

15. How do countries trade with each other? • Countries trade with each other because they want a particular resource they do not have. • Trade usually benefits both sides, and is usually very easy to complete. • However, there are factors that limit trade. • Geographical features, like deserts, mountains, oceans, can limited the amount of trade a country can have. This is called a trade barrier. • Another type of trade barrier can be man made-embargos and tariffs, and quotas.

16. How do people impose limits on trade? • Sometimes, other countries tax things made in another county. This is called a tariff. By taxing them, they are raising the price of that resource. The hope is that consumers will purchase products made in their home country. • A quota is when a country puts a limit on the number of goods that can be imported from somewhere else. For example, the United States has a quota on the oil we import from the Middle East. • An embargo is when a country refuses to trade with another country. This usually happens when governments are at war with each other, or one government is unstable and unfair to the people. For example, the USA did not trade with Iraq when Sadam Hussein was president. Why?