Basics of Economics

1. Basics of Economics SS6E5 The student will analyze different economic systems (SS6E5a, b, SS6E6a, SSE7a-d)

2. Essential Questions • What are the three different economic systems? • How do quotas, tariffs, and embargos effect trade? • What is the Gross Domestic Product?

3. What is Economics? Write down ANYTHING you know about economics or economic systems. It can be in note form or written in full sentences. After five minutes we will share our answers with the class. Do the best you can!

4. What is Economics? • The study of how a society uses its resources to satisfy its wants and needs. 3 Economic Questions • What to produce? • How to produce? • For whom to produce?

5. Economics • Economics is what keeps a nation on its feet. It determines whether or not a nation’s people are educated, well-paid, fed, healthy, and living a good life.

6. Let’s Take a Deeper Look • To decide how funds get allocated we need to look at our wants and needs. • Needs- our basic needs to survive, food, clothes, and shelter • Wants- everything else and they are unlimited • Ex. I need to eat I am hungry • Ex. I want a new car, new mp3 player etc…

7. What is Scarcity? • Scarcity- all resources are limited and therefore are scarce. • Everyone cannot have everything they want. • There is not enough stuff to go around.

8. What are the resources we have to use to satisfy our wants and needs? • Land- natural resources we have to produce goods and services • Goods- a physical thing you can hold • Service- some thing that gets used up right after it is purchased

9. Labor- the effort that individual people put into making a good or service • Ex. factory workers, medical personnel, and teachers. • Get paid a wage • Capital- anything that is used to produce other goods and services. • Ex. If you make cars you need machines to make the metal that is used in the cars. Also is the truck that drives the car to the dealer, and is the building that the cars are made in

10. Human Capital • stock of skills and knowledge embodied in the ability to perform labor so as to produce economic value • Many early economic theories refer to it simply as labor, one of three factors of production, and consider easily interchangeable.

11. Why do we study it? • We want to be good consumers. • Consumers- people in an economy that purchase goods and services

12. What Is a Quota? • a restriction on the amount of goods a country will let into another country to be sold. • A quota may also refer to a total restriction on a particular good entering a country. • For example, Japan may allow the importation of 5,000 U.S. cars at a reduced or waived duty rate. Once car number 5,001 enters, either no more can enter or a significantly increased duty rate will apply.

13. What Is a Tariff? • is an additional price put upon an imported product from a particular country, essentially to make the product more expensive in the foreign market, which will discourage consumers from buying that foreign product. • The United States Customs Service imposes tariffs and quotas on products or services, which are imported into the United States. • Other countries impose tariffs and quotas on products or services, which are imported from the United States

14. What is an Embargo? • Government does not allow trade with another country.

15. Exchange Rate • We need exchange rates because one nation's currency is not always accepted in another. • Example: You can't walk into a store in Japan and buy a loaf of bread with Swiss francs.  • An exchange rate is the cost of one form of currency in another form of currency. • Example: If you exchange 1 Swiss franc for 80 Japanese yen, you really just purchased a different form of money. • In other words, a currency is worth whatever buyers are willing to pay for it. This is determined by supply and demand.

16. Gross Domestic Product • measures the national income and output for a given country's economy • Measures the market value of all the goods and services produced in the economy in a year • Economists use GDP data to measure the economy’s growth • Disadvantages: GDP as a measure of economic growth does not measure increases in leisure time and it measures only market activity

17. Traditional Economy • Resources are allocatedby inheritance • a strong social network and is based on primitive methods and tools • connected to subsistence farming, as well as herding cattle and hunting and gathering • often make their own clothing and tools • produce more food than they need, they trade the surplus for goods made by others. • Most countries that have historically had a traditional economy have replaced it with a command economy, market economy, or mixed economy • found today in underdeveloped, agricultural parts of South America, Asia, and Africa.

18. Disadvantages: • does not allow for much economic growth depending on the economic needs of the country • changes are very slow and little social mobility • A traditional economy does not take advantage of technologyand there is relatively little promotion of intellectualand scientific development again usually. • provides few incentivesfor entrepreneurs • limiting choices for consumers and lowering standards of living

19. Command Economy • an economic system in which thestate or government manages the economy. • government controls all major sectors of the economy and formulates all decisions about their use and about the distribution of income • The planners decide what should be produced and direct companies to produce those goods. • may consist of state-owned enterprises, private enterprises directed by the state, or a combination of both.

20. Examples: China during its Great Leap Forward, and India, prior to its economic reforms in 1991 . • Command economies exist in some countries such as Cuba, Libya, Saudi Arabia, Iran, North Korea, and Burma.

21. Market Economy • based on the division of labor in which the prices of goods and services are determined by supply and demand. • contrasted with a command economy in which a central government determines the price of goods and services using a fixed price system. • In the real world, market economies are regulated by society. • Entrepreneurs are willing to take a risk and invest their own money into a starting a company with hopes to make more money.

22. Mixed Economy • incorporates aspects of more than one economic system • usually means an economy that contains both privately-owned and state-owned enterprisesor that combines elements of capitalism and socialism, or a mix of market economy and planned economy characteristics • There is not one single definition for a mixed economy,but relevant aspects include: a degree of private economic freedom, with centralized economic planning • Economies ranging from the United Statesto Cubahave been termed mixed economies

23. REMEMBER!!!! • No country is pure command or pure market. • ALL COUNTRIES WILL BE • “MIXED LEANING TOWARD MARKET” OR • “MIXED LEANING TOWARD COMMAND”

24. L6-8WHST1 • Which economic system do you think is best? Why? (Write a 5-8 sentence paragraph)

25. Advanced Literacy Standard L6-8WHST1 • Write a paragraph (5-8 sentences) on which economic system you think is the most effective and why? • How are quota, tariff and embargo related? How can they affect trade?