Economics

1. Economics SS6E1a, SS6E5a, SS6E8a: Compare how traditional, command, and market economies answer the economic questions of 1 – what to produce, 2- how to produce, and 3- for whom to produce. SS6E1b, SS6E5b, SS6E8b: Explain how most countries have a mixed economy located on a continuum between pure market and pure command.

2. Economics • Study of the production, distribution, and use of goods and services • Every country has to decide how to distribute its resources to meet the needs of its people. They do this through an economic system. • Each economic system answers 3 basic questions: What to produce? How to produce? For whom to produce?

3. Traditional Economy • A traditional economy is based on customs and traditions. • Found in agricultural societies where people live the same way their parents and grandparents did. • People in these systems produce what they need to survive by farming, hunting and gathering and usually share with each other.

4. Command Economy • The government decides what goods are made and how they are made. • The government owns the resources and decides who gets the products (may be based on class, a reward system, waiting in line, etc).

5. Market Economy • A country’s economic decisions are based on what its people want to buy and sell. • Supply and demand for a good/service determines what to produce and how to produce it and what the price will be. • People can own their own businesses and produce what they want.

6. Mixed Economy • A mixed economy has elements of traditional, command, and market economies. • Most countries today have mixed economies that fall somewhere in between pure market and pure command economies. Free market Hong Kong U.S.A Canada United Kingdom France Japan Poland Mexico China Iran Russia Cuba North Korea Command Where does the U.S. fall on this continuum? Which countries have the most government involvement in their economies?

7. Sample Test Question • If a product is produced by hunting, based on customs and shared by the whole community, in which kind of economy is the product mostly likely being sold? • A. Traditional • B. Command • C. Market • D. Mixed

8. Sample Test Question • If a product is produced by hunting, based on customs and shared by the whole community, in which kind of economy is the product mostly likely being sold? • A. Traditional* • B. Command • C. Market • D. Mixed

9. Sample Test Question • Which of the following statements is the BEST example of a command economy? • A. Anyone can easily start a company to sell goods. • B. Anyone can make a profit from hard work. • C. The government controls the economy. • D. Traditional foods are gathered for sale.

10. Sample Test Question • Which of the following statements is the BEST example of a command economy? • A. Anyone can easily start a company to sell goods. • B. Anyone can make a profit from hard work. • C. The government controls the economy.* • D. Traditional foods are gathered for sale.

11. Sample Test Question • What is the most common economic system today? • A. Traditional • B. Command • C. Market • D. Mixed

12. Sample Test Question • What is the most common economic system today? • A. Traditional • B. Command • C. Market • D. Mixed*

13. GDP – Gross Domestic Product • Total market value of the goods and services produced by a country’s economy during a specific year. • Economists use it to determine the health of a country’s economy and its economic growth compared to other economies. • Factors that influence economic growth (factors of production) are human capital, capital goods, natural resources and entrepreneurship.

14. Human Capital • People needed to make industry work – Labor • Investing in human capital (education, training, etc) can lead to economic growth. • This is why countries with higher literacy rates tend to have higher GDP’s and vice versa.

15. Capital Goods • Any goods or equipment used by a business to produce other goods are considered capital goods. • A business will invest money in capital goods in order to make their products faster or better = economic growth • Ex: Brazil has the highest GDP in Latin America. Brazil also has the highest amount of investment in capital equipment. Haiti is still mainly agricultural with little investment in capital equipment which contributes to a low GDP.

16. Natural Resources • Resources supplied by nature that can be used to develop wealth for a society. • A nation’s status in the world is often influenced by what natural resources it has. • They are the fuel for industry and a source of income when exported to other countries.

17. Entrepreneur • The person who takes on the risk and possible reward of operating a new business. • Entrepreneurs come up with new ideas and use human, capital, and natural resources to bring their ideas to life – and to the marketplace. • Entrepreneurs are valuable because they are creative and help economies adapt to changing conditions.

18. Sample Test Question • What type of capital is an employee? • A. Market capital • B. Government capital • C. Capital good • D. Human capital

19. Sample Test Question • What type of capital is an employee? • A. Market capital • B. Government capital • C. Capital good • D. Human capital*

20. Sample Test Question • An example of capital investment is? • A. Buying computers • B. Building an oil rig • C. Both • D. Neither

21. Sample Test Question • An example of capital investment is: • A. Buying computers • B. Building an oil rig • C. Both* • D. Neither

22. Sample Test Question • An example of a natural resource is: • A. school • B. oil • C. both • D. neither

23. Sample Test Question • An example of a natural resource is: • A. school • B. oil* • C. both • D. neither

24. Sample Test Question • When workers have the best tools, they can: • A. Be more productive • B. Help the country’s economy • C. both • D. neither

25. Sample Test Question • When workers have the best tools, they can: • A. Be more productive • B. Help the country’s economy • C. both* • D. neither

26. Sample Test Question • What is an example of investment in human capital? • A. education • B. factories • C. highways • D. trucks

27. Sample Test Question • What is an example of investment in human capital? • A. education* • B. factories • C. highways • D. trucks

28. Trade • The exchange of goods and services between countries. • Countries trade goods because no country has all the resources necessary to efficiently produce everything its people need. • Exports: Goods sent to other countries. • Imports: Goods brought in from other countries. • Countries specialize in what they do best. 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.

29. Trade Barriers • Limits to what can be traded to a country. • Governments try to use these limits to protect their businesses from foreign competition. • Trade barriers include tariffs, quotas, voluntary restrictions and embargos. • Trade agreements (such as NAFTA) remove barriers and increase wealth in countries in the agreement.

30. Tariff • Tax on imports. • By taxing imported goods, a country can protect the goods made in its own country. • The tax will make an imported good cost more.

31. Quotas • Limits the number of goods that can be imported from a certain country. • Quotas can cause scarcity (limited supply of something) that causes the price of the imported good to rise.

32. Embargo • Ban on trade with a certain country. • The U.S. has a trade embargo with Cuba.

33. Currency • System of money a country uses. • International trade requires a system for exchanging currencies between nations. • Money from one country must be converted into the currency of another country to pay for goods in that country. • The exchange rate is how much one currency is worth in terms of the other.

34. Sample Test Question • A tax on imports is called a(an): • A. quota • B. tariff • C. embargo • D. sale

35. Sample Test Question • A tax on imports is called a(an): • A. quota • B. tariff* • C. embargo • D. sale

36. Sample Test Question • What is an advantage of specialization as a voluntary trade benefit? • A. Factories cannot produce goods as quickly. • B. Workers do not become experts in their jobs. • C. A factory can produce more goods in less time and for less money. • D. Businesses cannot sell as many types of goods when they specialize.

37. Sample Test Question • What is an advantage of specialization as a voluntary trade benefit? • A. Factories cannot produce goods as quickly. • B. Workers do not become experts in their jobs. • C. A factory can produce more goods in less time and for less money.* • D. Businesses cannot sell as many types of goods when they specialize.

38. Sample Test Question • Which of the following countries is NOT a part of the North American Free Trade Agreement (NAFTA)? • A. The United States • B. Canada • C. Mexico • D. Brazil

39. Sample Test Question • Which of the following countries is NOT a part of the North American Free Trade Agreement (NAFTA)? • A. The United States • B. Canada • C. Mexico • D. Brazil*

40. Sample Test Question • Which of the following BEST describes the currency exchange rate? • A. It helps international trade. • B. It is a trade barrier. • C. It creates jobs overseas. • D. It never changes.

41. Sample Test Question • Which of the following BEST describes the currency exchange rate? • A. It helps international trade.* • B. It is a trade barrier. • C. It creates jobs overseas. • D. It never changes.

42. Income • Money that comes in for a person or business. • For most people, income is money that comes from getting paid to do work. • Income may also come from gifts, from selling something, or from savings/investments.

43. Needs vs. Wants • People spend money on needs – things you can’t live without (food, shelter, basic clothing). • People also spend money on wants – something we would like to have but don’t need.

44. Budget • Plan for how much money will be spent on each type of item that a person must buy. • Following a budget helps people plan to have enough money for necessities.

45. Savings • Income not spent • Saving money can allow people to buy something expensive in the future. • One common way to save money is to deposit it in a bank. • In a bank, money earns interest. • Interest is a charge (fee) that the bank pays to use the deposited money.

46. Invest • Spending money in the hope of earning more money than is spent. • The biggest investment most people make is a home. • Stocks and bonds are small investments in large companies. • Every kind of investment involves a level of risk.

47. Credit • Borrowed money • Someone who borrow money from a bank must pay interest to them. • It is important only borrow money when absolutely necessary and to pay back borrowed money as quickly as possible.

48. Sample Test Question • John got a check for his birthday for $100. He wants to buy a bicycle that costs $110. His father told him to put the money into the bank where it will earn interest. This is an example of which economic activity? • A. earning • B. saving • C. borrowing • D. crediting

49. Sample Test Question • John got a check for his birthday for $100. He wants to buy a bicycle that costs $110. His father told him to put the money into the bank where it will earn interest. This is an example of which economic activity? • A. earning • B. saving* • C. borrowing • D. crediting

50. Sample Test Question • The BEST definition for “interest” is the? • A. Money you are paid to do work. • B. Money you pay to buy food. • C. Money you pay to borrow money. • D. Money that you pay for your rent.