Economic systems answer the three questions: 1) What to produce, 2) How to produce, and 3) For who to produce.
There are 3 basic types of economic system:
Traditional
Command
Market
TRADITIONAL:
Families, clans, etc make decisions and answer the 3 Questions based on decisions handed down from generation to generation.
-goal-survival
- everyone has a set role
- group more important than the individual
Command Economy
The government answers the 3 questions.
-government officials look at the resources and decide how they are going to be used
-the government owns all the means of production (natural resources, factories, etc)
-ex: North Korea, Cuba, Soviet Union
Market economy
Based on individual choice, not what the government decides.
Producers answer the questions, based on what they know about consumers.
Consumers decide what they want to spend their money on.
Economy SURVIVES based on producers & consumers working together.
Assignment:
In groups of 3-4, make a mini-poster, illustrating the characteristics if one the three economies and how one how they answer the 3 economic questions. Then summarize your findings in a paragraph.
Thursday, January 26, 2017
Tuesday, January 17, 2017
Ch 1 Sec 3: Trade-offs & Opportunity Costs
Section Three
Key Vocabulary
• Tradeoff
• opportunity cost
• production possibilities frontier
• cost-benefit analysis
• free enterprise economy
• standard of living
Trade-Offs
• The alternative choices people face in making an economic decision.
• A decision-making grid lists the advantages and disadvantages of each choice.
Opportunity Cost
• the cost of the next best alternative among a person’s choices. The opportunity cost is the money, time, or resources a person gives up, or sacrifices, to make his final choice.
Example:
• I want to go to Ozzfest. Tickets are $10, but it’ll take $40 in gas and I’ll need $50 for a tshirt and some drinks.
• So I need $100. With that same money, I could go see Piranha 3D, buy a new pair of Converse, and get a new pair of plugs, or go to see Eminem in concert.
• What’s the trade-off I choose to make for the Ozzfest experience?
• What’s my opportunity cost?
Production Possibilities Frontier
• A visual diagram of opportunity cost.
• It shows the combinations of goods and/or services that can be produced when all productive resources are used.
• The line on the graph represents the full potential—the frontier—when the economy employs all of these productive resources
• The PPF allows us to consider different ways to totally use resources and analyze the combination of goods and services that leads to maximum output.
• An economy pays a high cost if any of it resources are idle (not being used).
– It cannot produce on its frontier and it will fail to reach its full production potential.
Ways to increase the PPF:
Add:
• Resources
• a larger labor force
• increased productivity
Put it all together to make a decision
• Economists look at the trade-offs, opportunity costs, and the PPF to make a decision
• This cost-benefit analysis helps economists evaluate alternatives by looking at each choice’s cost and benefit.
• This allows them to make the best decision based on the information they have
So…why study economics?
1. It helps us know how the economy works on a daily basis.
2. It helps us understand a free enterprise economy, where people and privately owned businesses rather than the government make the majority of the economic decisions.
3. It helps us to become better decision makers.
Answer these questions in your notebook:
1. What do people try to achieve
when they make decisions or trade-offs?
2. Describe the relationship between trade-offs and opportunity costs.
3. List the decision-making strategies that economists use.
Key Vocabulary
• Tradeoff
• opportunity cost
• production possibilities frontier
• cost-benefit analysis
• free enterprise economy
• standard of living
Trade-Offs
• The alternative choices people face in making an economic decision.
• A decision-making grid lists the advantages and disadvantages of each choice.
Opportunity Cost
• the cost of the next best alternative among a person’s choices. The opportunity cost is the money, time, or resources a person gives up, or sacrifices, to make his final choice.
Example:
• I want to go to Ozzfest. Tickets are $10, but it’ll take $40 in gas and I’ll need $50 for a tshirt and some drinks.
• So I need $100. With that same money, I could go see Piranha 3D, buy a new pair of Converse, and get a new pair of plugs, or go to see Eminem in concert.
• What’s the trade-off I choose to make for the Ozzfest experience?
• What’s my opportunity cost?
Production Possibilities Frontier
• A visual diagram of opportunity cost.
• It shows the combinations of goods and/or services that can be produced when all productive resources are used.
• The line on the graph represents the full potential—the frontier—when the economy employs all of these productive resources
• The PPF allows us to consider different ways to totally use resources and analyze the combination of goods and services that leads to maximum output.
• An economy pays a high cost if any of it resources are idle (not being used).
– It cannot produce on its frontier and it will fail to reach its full production potential.
Ways to increase the PPF:
Add:
• Resources
• a larger labor force
• increased productivity
Put it all together to make a decision
• Economists look at the trade-offs, opportunity costs, and the PPF to make a decision
• This cost-benefit analysis helps economists evaluate alternatives by looking at each choice’s cost and benefit.
• This allows them to make the best decision based on the information they have
So…why study economics?
1. It helps us know how the economy works on a daily basis.
2. It helps us understand a free enterprise economy, where people and privately owned businesses rather than the government make the majority of the economic decisions.
3. It helps us to become better decision makers.
Answer these questions in your notebook:
1. What do people try to achieve
when they make decisions or trade-offs?
2. Describe the relationship between trade-offs and opportunity costs.
3. List the decision-making strategies that economists use.
Saturday, January 14, 2017
Ch 1 Sec 2: Goods & Services
Section 2: Goods & Services
Key Vocabulary
good consumer good
capital good service
value paradox of value
utility wealth
market factor market
product market economic growth
productivity division of labor
specialization human capital
economic interdependence
Goods
• items that are economically useful or satisfy an economic want.
• tangible (can be touched)
• can be classified as consumer/capital and durable/ nondurable
Services
• Services are work performed for someone and are intangible.
Consumers use goods and services to satisfy wants and needs
Goods & Services have value, utility, and wealth
Value
• worth expressed in dollars and cents.
• Scarcity by itself is not enough to create value.
• For something to have value, it must also have utility.
Utility
• a good’s or service’s capacity to provide satisfaction, which varies with the needs and wants of each person.
• The utility of a product varies based on who’s looking at it.
Wealth
• the accumulation of goods that are tangible, scarce, useful, and transferable to another person. Wealth does not include services.
Circular Flow: Economic Activity
Markets
A way for buyers and sellers to trade. Can be local, regional, national, global, and cyberspace.
factor market: where people earn their incomes; center on the four factors of production: land, capital, labor, and entrepreneurs.
product market: where people use their income to buy from producers. Product markets center on goods and services
Productivity
• a measure of the amount of output produced by the amount of inputs within a certain time. Productivity increases with efficient use of scarce resources.
• Specialization and division of labor may improve productivity because they lead to more proficiency (and greater economic interdependence).
How to increase productivity
• Specialization: focusing on only one good/service or type of good/service
• division of labor: breaking up the work
• Investing in workers’ skills, abilities, health, and motivation
• interdependence—reliance on others and their reliance on us to provide goods and services can increase or decrease productivity
Key Vocabulary
good consumer good
capital good service
value paradox of value
utility wealth
market factor market
product market economic growth
productivity division of labor
specialization human capital
economic interdependence
Goods
• items that are economically useful or satisfy an economic want.
• tangible (can be touched)
• can be classified as consumer/capital and durable/ nondurable
Services
• Services are work performed for someone and are intangible.
Consumers use goods and services to satisfy wants and needs
Goods & Services have value, utility, and wealth
Value
• worth expressed in dollars and cents.
• Scarcity by itself is not enough to create value.
• For something to have value, it must also have utility.
Utility
• a good’s or service’s capacity to provide satisfaction, which varies with the needs and wants of each person.
• The utility of a product varies based on who’s looking at it.
Wealth
• the accumulation of goods that are tangible, scarce, useful, and transferable to another person. Wealth does not include services.
Circular Flow: Economic Activity
Markets
A way for buyers and sellers to trade. Can be local, regional, national, global, and cyberspace.
factor market: where people earn their incomes; center on the four factors of production: land, capital, labor, and entrepreneurs.
product market: where people use their income to buy from producers. Product markets center on goods and services
Productivity
• a measure of the amount of output produced by the amount of inputs within a certain time. Productivity increases with efficient use of scarce resources.
• Specialization and division of labor may improve productivity because they lead to more proficiency (and greater economic interdependence).
How to increase productivity
• Specialization: focusing on only one good/service or type of good/service
• division of labor: breaking up the work
• Investing in workers’ skills, abilities, health, and motivation
• interdependence—reliance on others and their reliance on us to provide goods and services can increase or decrease productivity
Circular Flow Model
Markets:
where people earn their incomes; center on the four factors of production land, capital, labor, and entrepreneurs.
Product market
where people use their income to buy from producers. The product markets center on goods and services.
The Circular Flow Model:
- way for buyers and sellers to trade.
- Can be local, regional, national, global, and cyberspace.
where people earn their incomes; center on the four factors of production land, capital, labor, and entrepreneurs.
Product market
where people use their income to buy from producers. The product markets center on goods and services.
The Circular Flow Model:
Wednesday, January 11, 2017
Part One: What is Economics?
Part ONE: What is Economics?
Vocabulary:
scarcity capital
financial capital labor
entrepreneur production
economics
economy need
want tradeoff factors of production land
Essential Questions:
1. What is the fundamental economic problem?
2. What are the three basic economic questions every society must decide?
3. Explain the relationship among scarcity, value, utility, and wealth
4. Describe the circular flow of economic activity
5. Analyze trade-offs and opportunity costs.
6. Explain decision-making strategies.
“Why are some people rich and others poor?”
• This question began the study of economics
• Adam Smith & The Wealth of Nations
– Competition is key; too much government involvement stifles the economy
– People want things they need & things that make life easier
Micro vs Macro
• Microeconomics: looks at decisions made by individuals, households, & businesses
• Macroeconomics: looks at the economy as a whole
The Problem…
• Scarcity: unlimited human wants meet limited resources.
• Economics is the study of how people satisfy wants with scarce resources.
• Needs are required for survival; wants are desired for satisfaction.
“There’s No such thing as a free lunch”
• The name given to the idea that everything has tradeoffs, even a free meal.
• For everything you want, something else has to be given up.
It’s all about making decisions…
• Should you do/buy/take this or that?
Principles of Economics
1. Scarcity = tradeoffs
2. Costs vs Benefits
3. Thinking at the margin (+ or – one more)
4. Incentives matter
5. Trade makes people better off
6. Markets coordinate trade
7. Future consequences count
• Margins – the edges of things
• Marginal cost = what you give up to add one more unit of something
• Marginal benefit = what you gain
• Incentive = something that motivates a person
Three Questions to Consider:
• What to produce?
• How to produce it?
• Who to produce for?
The Factors of Production: resources necessary to produce what people want or need.
Land
Land is the society’s limited natural resources—landforms, minerals, vegetation, animal life, and climate.
Labor
• Labor is the workers who apply their efforts, abilities, and skills to production.
Capital
• Capital is the means by which something is produced such as money, tools, equipment, machinery, and factories.
Entrepreneurs
• Entrepreneurs are risk-takers who combine the land, labor, and capital into new products.
Production
• Production is creating goods and services—the result of land, capital, labor, and entrepreneurs
Vocabulary:
scarcity capital
financial capital labor
entrepreneur production
economics
economy need
want tradeoff factors of production land
Essential Questions:
1. What is the fundamental economic problem?
2. What are the three basic economic questions every society must decide?
3. Explain the relationship among scarcity, value, utility, and wealth
4. Describe the circular flow of economic activity
5. Analyze trade-offs and opportunity costs.
6. Explain decision-making strategies.
“Why are some people rich and others poor?”
• This question began the study of economics
• Adam Smith & The Wealth of Nations
– Competition is key; too much government involvement stifles the economy
– People want things they need & things that make life easier
Micro vs Macro
• Microeconomics: looks at decisions made by individuals, households, & businesses
• Macroeconomics: looks at the economy as a whole
The Problem…
• Scarcity: unlimited human wants meet limited resources.
• Economics is the study of how people satisfy wants with scarce resources.
• Needs are required for survival; wants are desired for satisfaction.
“There’s No such thing as a free lunch”
• The name given to the idea that everything has tradeoffs, even a free meal.
• For everything you want, something else has to be given up.
It’s all about making decisions…
• Should you do/buy/take this or that?
Principles of Economics
1. Scarcity = tradeoffs
2. Costs vs Benefits
3. Thinking at the margin (+ or – one more)
4. Incentives matter
5. Trade makes people better off
6. Markets coordinate trade
7. Future consequences count
• Margins – the edges of things
• Marginal cost = what you give up to add one more unit of something
• Marginal benefit = what you gain
• Incentive = something that motivates a person
Three Questions to Consider:
• What to produce?
• How to produce it?
• Who to produce for?
The Factors of Production: resources necessary to produce what people want or need.
Land
Land is the society’s limited natural resources—landforms, minerals, vegetation, animal life, and climate.
Labor
• Labor is the workers who apply their efforts, abilities, and skills to production.
Capital
• Capital is the means by which something is produced such as money, tools, equipment, machinery, and factories.
Entrepreneurs
• Entrepreneurs are risk-takers who combine the land, labor, and capital into new products.
Production
• Production is creating goods and services—the result of land, capital, labor, and entrepreneurs
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