Economics

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Economics
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Economics

• What is Economics?

• is the study of how we produce and distribute our
  wealth.

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Why do societies have economies?

• People have basic needs such as food, clothing,
  and shelter, and important wants such as
  education and health care.

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Factors of Production

• A society combines in factors of production
  land, labor, and capital to produce the goods
  and services its citizens want and needs.

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Capital

• Capital is anything produced in an economy that
  is used to produce other goods and services.

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Goods and Services

• A good is any item that can be bought and sold.
• A service is any action that one person, or
  group, does for another in exchange for payment.

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Goods and Services

• After goods are produced, they are distributed to
  people who want them.
• The purchase or use of these goods is called
  consumption.

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Opportunity Cost

• Because resources are scarce, people must
  consider each options opportunity cost and
  benefits as they decide which needs to satisfy.
• Opportunity cost is what you must give up to do
  or consume something else. It is the most
  valuable alternative that you dont choose when
  you make a decision.

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Resources

• Scarcity exists when a resource valued by a
  society is not available in quantities high
  enough to satisfy the demand.

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Resources and Production

• A resource is anything used to produce a good or
  service.

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Production

• Production is the process of changing raw
  materials of the resource into some economic good
  or service.

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Production Costs for a Pair of 100 shoes made
in China and sold in United States The cost
structure of the shoe manufacturing and retailing
industry is very revealing. The China effect is
quite clear as the total manufacturing costs
(wages, materiel, other production costs such as
energy, and the manufacturer's profit) account
for about 12 of the retail costs. This is
roughly equivalent to the research (design) costs
of the shoe product.
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Resources

• Some resources are plentiful.
• Some are scarce.
• Water is still a scarce resource in major parts
  of Africa as this picture shows a child washing
  himself with animal urine

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Resources

• A renewable resource is one that can be replaced.
• A nonrenewable resource is one that cannot be
  replaced.

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Basic Economic Decisions
WHAT to produce?
HOW to produce?

• WHO gets what has been produced?

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What to produce?

• A society must decide which goods and services to
  produce and in what quantity, or amount.

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How to produce?

• People must decide how to produce goods and
  services. The desire to bring down the costs of
  production often leads to improved production
  technology.

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Who gets what

• Society must decide how the goods and services
  will be distributed among the people.

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Specialization and Interdependence

• Because it is difficult for every society to
  satisfy all wants and needs, people specialize.
  They choose certain kinds of work, products, and
  services that they can produce efficiently and
  successfully.

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Specialization

• After specializing work they trade what they
  have for what they need. Specialization happens
  on both an individual basis and with countries as
  a whole.
• The result of specialization is interdependence.

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Interdependence
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Interdependence

• Interdependence is the way production and
  consumption of goods and services is divided
  among many different individuals, groups and
  countries.

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Interdependence

• Interdependence occurs when people and countries
  depend on one another to provide goods and
  services that they want and/or need. The more
  people specialize and trade, the more
  interdependent they become.

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Interdependence

• For example, Japan has very few natural resources
  and little land. As a result, Japan specializes
  in technology and manufacturing goods such as
  electronics and automobiles. Japan trades these
  items for the oil and other goods it needs.

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Imports

• Imports are goods and services in one country but
  produced in another things purchased.

US Oil Imports
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Exports

• Exports goods or services produced in one
  country and then sold to people of another
  country.

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3 Basic Economies

• Traditional Economies
• Command Economies
• Market Economies

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Traditional Economy

• Basic economic decisions are made according to
  long-established patterns of behavior that are
  unlikely to change.
• The FAMILY is the basic unit of the traditional
  economy.
• All members work together to support society
  rather than just their family

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TRADITIONAL ECONOMY

• What Tradition answers the question of what and
  how much to produce.
• How Customs are used to produce (same weapons,
  same methods)
• Who people usually owns their own resources
  such as land, labor and tools.

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Traditional Economies

• Examples of countries with traditional economies
• Some societies in Central and Southern America,
  Africa and Asia.

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Command Economies

• Government or central authority owns or controls
  the factors of production and makes the basic
  economic decision.
• Farms and stores
• Transportation, communication
• Banking
• Manufacturing

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Command Economy

• Who government decides
• What government decides
• How government decides

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COMMAND ECONOMY

• CUBA
• North Korea
• Former Command Economy
• Soviet Union Russia was a command economy under
  Stalin.

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Market Economy

• Known as a FREE ENTERPRISE or CAPITALISM.
• Each individual decides what to produce, how to
  produce it, to whom to sell it, and how to invest
  the profits that result from the sale.

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Mixed Economy

• Most modern economies are a blend of traditional,
  command, and market economies with the balance
  between the three differing.

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Market Economy

• A market is a circular flow of goods, services,
  capital, and payments such as wages and interest
  by producers.
• The laws of supply and demand work together to
  determine the market price of a product and the
  quantity offered.
• Supply is the amount of something available.

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Law of Supply

• The Law of Supply states that as the price
  increases, the supply increases. This means more
  sellers and fewer buyers.

Supply Curve Supply Curve
Price of a song on I-Tunes Number of SongsSellers Want to Sell
1.00 10
2.00 40
3.00 70
4.00 140
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Law of Supply

• The supply curve is upward sloping
• The supply curve has a positive slope
• The supply curve shows a direct relationship
  between price and quantity demanded

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Law of Demand
A Demand Curve A Demand Curve
Price ofa Song on I-Tunes Number of SongsPeople Want to Buy
1.00 100
2.00 90
3.00 70
4.00 40

• The Law of Demand states that as the price
  decreases, the demand increases. This means more
  buyers and fewer sellers.

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Law of Demand

• The demand curve is downward sloping
• The demand curve has a negative slope
• The demand curve shows an inverse relationship
  between price and quantity demanded

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Effect of Supply and Demand Curve Shifts on
Equilibrium

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Other Factors for Supply Demand

• Will the change of price for milk or penicillin
  change the demand?
• Why or Why Not?
• Can Brand name or Advertising change the demand
  for a product?
• Why or Why Not?

• No, People believe they need milk or medicine at
  almost any price.
• You may pay more for a higher priced item because
  the brand name is more popular than a
  less-expensive item.