Economics Review Economic Systems Types of Economic Systems

Economics Review

Economic Systems

Types of Economic Systems n Traditional – people produce & distribute goods according to custom ¨ Tribes n Command – the government makes all economic decisions ¨ China, n in Africa North Korea Market – individual choice & voluntary exchange direct decisions ¨ U. S.

What is a “Market”? n where buyers and sellers interact to trade goods and services ¨ (it can be actual store like Acme (a “supermarket”) or an online market like Amazon or even the New York Stock Exchange (a “stock market”) the market (the buying and selling) of a product like cars or cheeseburgers can be impacted by changes in the supply and demand n

Supply and Demand

Economic definitions for DEMAND n Demand: the total amount consumers are willing and able to buy at all prices.

n Demand curve: the graphical representation of what consumers are willing and able to buy.

n Law of Demand: As price increases/decreases, quantity demanded decreases/increases. P Q

Factors that cause demand to change or shift n Tastes and fads n Income n Number of buyers n Future price expectations n Price and availability of: ¨Substitutes ¨compliments

n Inelastic Demand: Price still moves up and down but Demand stays the same

Economic definition for SUPPLY n Supply: the total amount of a good or service producers are able to make at all prices.

n Supply curve: the graphical representation of a good or service producers are able to make at all prices.

n Law of Supply: as price increases/decreases, quantity supplied increases/decreases P Q

Factors that cause a change in supply: n Price of land, labor or capital n Technology n Number of other sellers n Price of other goods I could produce n Tax policy

n Equilibrium Point: the point at which the quantity demanded & the quantity supplied are equal

Surplus & Shortage n Surplus – Quantity supplied is greater then quantity demanded n Supplied 10 ice cream cones but could only sell 4 You have a surplus of 6 cones! n

Surplus & Shortage n Shortage – Quantity demanded is greater then quantity supplied n Supplied 4 ice cream cones but you had 10 customers You were short 6 cones! n

IRDL When Supply & Demand shift: n Increase in Supply/Demand = shift Right n Decrease in Supply/Demand = shift Left n Increase Right Decrease Left

Shift in Supply Lines

Shifts in Demand Lines

Let’s Try It! n Discuss with your neighbor the impact of the following headline on the market for Orange Juice? Surprising Drop in Temperatures Brings Early Frost to Florida

Discuss n What changed? (supply of Orange Juice or Demand for Orange Juice) n Did it Increase or Decrease? n What will happen to the price of Orange Juice?

Supply 2 P Supply 2 Demand

Business Cycle

Business Cycle n Series of expanding and contracting economic activity. n Stages: ¨ Expansion ¨ Peak ¨ Contraction ¨ Trough

Business Cycle Stages n Expansion – increase in the GDP; jobs increase, higher demand & prices n Peak – where GDP reaches its highest point

Business Cycle Stages n Contraction– GDP declines; producers cut back, resources become less scarce, prices stabilize, & unemployment rises ¨ Recession – a contraction that lasts for six months or more ¨ Depression – extended period of high unemployment & lower business activity n Trough – point when GDP & employment stop declining

Interdependence Due to a division of labor, a reliance on one another to produce all the goods and services needed A Farmer… …may grow vegetables but relies on someone else to make overalls and build trucks and tractors A Factory Owner …. . may assemble trucks and tractors but relies on someone else to make the tires and spark plugs not to mention the food for his family and workers to eat!

Economic Indicators n a statistic about an economic activity. n allow analysis of economic performance and predictions of future performance. n Economic indicators help us study BUSINESS CYCLES Examples: unemployment rate, housing starts, stock market prices and Gross Domestic Product

n Gross Domestic Product – all the goods & services produced by a nation w/in a certain time GDP

Another indicator of the strength of the economy is the Stock Market

n n n Stocks are ownership in a company Stocks are divided into shares All the shares make up all the ownership in the company If you had a company divided into 100 shares and you owned fifty shares, you would own half the voting rights (decision making power) in that company A share entitles you to a percentage of the profit earned by the company Your are paid “dividends” on a regular basis

The profit making ability of a company helps to determine how much a stock costs The more stocks that are traded and the more money spent – the more people are investing in business