What is Economics There are many definitions for

What is Economics? There are many definitions for the term Economics. Let us examine one: _____is the study of how people use scarce resources in an economy to meet their unlimited demands. Economics is primarily concerned with the _____

Macro – Big Picture Micro – Individual people or businesses

Economics: ________the branch of economics that studies decision making for the economy as a whole, rather than individual parts. ü Macroeconomic decision making considers “_____” policies. ü National income and savings, gross domestic product, gross national product, consumer and producer price indexes, consumption, unemployment, foreign trade, inflation, investment and international finance. ü Economists seek to understand fluctuations in business cycles and the elements that contribute to long-term economic growth, which are vital to the creation of sound economic policies by governments and businesses.

Economics: _______is the branch of economics that studies decision making by individuals, families, or businesses. • Supply and demand determine the price of goods and services so microeconomics also studies how prices factor into economic decisions, and how those decisions, in turn, affect prices.

REVIEW The study of the behavior of firms, individual markets, and households is called: A) normative economics. B) positive economics. C) macroeconomics. D) microeconomics. The study of the behavior of the overall economy is called: A) normative economics. B) positive economics. C) macroeconomics. D) microeconomics. The study of a trade agreement with China is called: A) normative economics. B) positive economics. C) macroeconomics. D) microeconomics.

Understanding the Economic Environment _____a system of managing the productive and employment resources of a country, community, or business. ______is a condition of increasing production and consumption in the economy. _________is a wavelike pattern of economic activity that includes temporary phases from boom to bust. ________occurs when production is at a high capacity, unemployment is low, retail sales are high, and prices and interest rates are low or falling. ______ is generally a decline in business “a recurring period of decline in total output, income, employment, trade, usually lasting _________and marked by widespread contractions in many sectors of the economy. ” ______is a severe downward phase of the economic cycle where unemployment is very high, prices are very low, the level of living decreases sharply, and economic activity virtually ceases. Usually > _____& decrease of at least ____________A situation where someone of working age is not able to get a job but would like to be in full time employment. ▪ Note: if you left workforce & don’t look for work, you are not counted in this rate

Business Production and Retail Sales Phases of the Business (Economic Cycle) Expansion (Prosperity) Recession (or Depression) Recovery Average growth rate expected in economy GDP in Economy

Unemployment Rate What is the current Unemployment Rate? Formula: # of people looking for work DIVIDED by (# of people working PLUS # of people looking for work) Assume that, in the US population, 95 million people worked for pay last week, 5 million people did not work for pay but had been seeking a job & 5 million people did not work for pay and had not been seeking a job for the past several months. The unemployment rate, given these numbers, is: a. 5% b. 8% c. 10% d. 20% e. 45%

FUNCTIONS OF MONEY Functions of Money: (SUM)

Characteristics of Money (PUDDAL)

MONEY CHARACTERISTICS REVIEW QUESTIONS 1. At the grocery store last week, you purchased $93. 25 worth of groceries. You paid for the groceries in cash. You gave the cashier four $20 bills, a $10 bill, three $1 bills, and a quarter. What is the primary CHARACTERISTIC of money exhibited here? 2. At the grocery store last week, you had to decide whether to buy the 14. 5 oz. can of diced tomatoes for $1. 75 or the 28 oz. can of diced tomatoes for $2. 55. What is the primary CHARACTERISTIC of money exhibited here?

Economic Indicators ______: used by economists to estimate the entire money supply within an economy, and by governments to direct policy and control inflation over medium and longterm time periods. 3 types: 1. ______ = cash and checking account deposits 2. _____ = ____ + savings accounts & money market accounts 3. _____ = _____+large deposits and other large, long-term deposits. • Since 2006, ______ is no longer tracked by the U. S. central bank.

Money Characteristics Use the following to answer question below 1. Agricultural products 2. Savings Accounts 3. Gold 4. Currency 5. Credit Cards 6. Checking Accounts Refer to the above list. Which of the choices from below from the list would be considered money in the US economy? A) 1, 3, 4 B) 2, 5, 6 C) 2, 4, 6 D) Only

MONEY QUESTIONS 1. When a consumer wants to compare the price of one product with another, money is being used primarily for which function? A) store of value. B) unit of account. C) checkable deposit. D) medium of exchange. 2. Which of the following is the most important advantage of the medium of exchange function of money? A) money transfers purchasing power from the present to the future. B) money measures the relative worth of products. C) money reduces the complications of barter. D) money allows people use credit cards instead of currency

Economic Indicators • _______for evaluating the _____ of our economy, the latest business cycles and how consumers are spending and generally faring. • Various economic indicators are released ________.

Understanding Economic Indicators Tracking these indicators may help understand the direction of the economy: _________-- the value of all goods and services produced by workers and capital located in the United States__________. ▪ GDP = Individual Consumption + Government Expenditures + Individual/Business investments (NOT STOCKS/BONDS)+ US Exports – US Imports. NOTE: This formula EXCLUDES FINANCIAL ASSETS (STOCKS/BONDS) & ALL PAYMENTS FROM GOV TO INDIVIDUALS ▪ Gross domestic product that has been adjusted for inflation is called ________– measures the average change over time in the prices paid by consumers for goods and services. _______– a steady rise in the general level of prices. When inflation occurs, the purchasing power of the dollar goes down ______– A general decline in prices, often caused by a reduction in the supply of money or credit. (_______)

Why GDP Matters: GDP (economic production) has a large impact on nearly everyone within that economy. When GDP declines for two consecutive quarters or more, by definition the economy is in a “recession”. (lower interest rates, higher unemployment, etc) Meanwhile, when GDP grows too quickly and fears of inflation arise, the Federal Reserve often attempts to stimulate the economy by raising interest rates.

GDP EXAMPLES (state whether it’s Included of Excluded from GDP) The government’s purchase of a new submarine for the Navy A barber’s income from cutting hair The services of a mechanic in fixing the radiator on his own car Cashing a U. S. government bond

Economic Cycle Effects

GDP Review • A purely financial transaction will not be counted in GDP. Why? • If Apple builds a new factory in the United States, what part of the GDP formula would this be considered?

Supply & Demand • _____ refers to how much (quantity) of a product or service is desired by buyers. • The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. • _____ represents how much the market can offer. • The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. • The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. • _______is a reflection of supply and demand.

Supply & Demand • According to the law of demand, when the price of an item goes up, the quantity ______. • According to the law of supply, higher prices prompt producers to _____. • Prices on goods and services are determined ____________ • In perfect competition, prices are controlled by _________

SCARCITY _______ is the condition in which human wants are forever greater than the available supply of time, goods, and resources. ü There always limits on the economy’s ability to satisfy unlimited wants. ü Scarcity is a fact of life throughout the world. ü Individuals and countries never have all the goods and services that they wish.

Scarcity • Scarcity always exists because there is not enough of all goods and services to satisfy everyone’s needs and wants. • _______If resources become scarce, competition for those resources increases. That means prices go up, because people are willing to pay more to beat the competition in getting resources. Extreme scarcity can mean there are not enough resources at any price, and an economy can collapse as a result. • ______When companies have to compete for employees, wages tend to rise. Scarcity of labor can mean better pay for employees, but if labor becomes so scarce that companies can't operate, businesses may collapse. This would create more scarcity as products and services decline. • Tangible Items that Become Scarce: Real estate, commodities and supplies can become scarce. If you invest in scarce tangible items, you can expect prices of those items to go up and your income from investing to increase as a result.

Opportunity cost Rearrange the following words to find the definition of opportunity cost – then write it in your notebook. next best alternative that could have Opportunity cost been chosen. is the cost of the

Elasticity

Elasticities ______are both economic concepts used to describe changes in the buyer’s and supplier’s behavior in relation to changes in price. • ______refers to changes in demand/supply that can occur with the slightest price change. • _____occurs when the demand/supply does not change even when prices change. •

What couldn’t you live without? • Goods, which are ____, usually have easily replaceable substitutes. • Goods, which are ____, are usually necessities or goods which are habit forming.

Calculating Price Elasticity HERE ARE THE STEPS: • STEP 1: Get the percentage change in QUANTITY DEMANDED by taking (NEW Demand MINUS OLD Demand) DIVIDED BY OLD DEMAND • STEP 2: Get the percentage change in PRICE by taking (NEW PRICE MINUS OLD PRICE) DIVIDED BY OLD PRICE • STEP 3: STEP 1 DIVIDED BY STEP 2 • Price is elastic if the answer is more than 1 & Inelastic if less than 1. • NOTE: When we analyze price elasticities we're concerned with their absolute value, so we ignore the negative value

Example Problem… Yesterday, the price of envelopes was $3 a box, and Julie was willing to buy 10 boxes. Today, the price has gone up to $3. 75 a box, and Julie is now willing to buy 8 boxes. Is Julie's demand for envelopes elastic or inelastic?

Rank the following products in order from least to highest price elasticity of demand: 1. 2. 3. Lazy-Boy brand recliners (chairs) Plain (no logo or design) sweatshirt Sugar.

Markets A ______ is any place or method used by buyers and sellers to exchange goods and services. A ______is the freedom of consumers and businesses to buy and sell products with a minimum of government restrictions. ü Consumers are free to buy or not buy. ü Both consumers and businesses benefit from exchange. ü Driven By Profit Motive

Traditional Economic System Prior to the invention of money, ancient communities used barter as a means of trade. This form of trade allowed people to access one good or service in exchange for another. This system had its own problems which eventually led to the development of money.

Types of Economic Systems 1. 2. 3. 4. Command/communist system Socialist Capitalist/market economic system Mixed economic system

Economic Systems All Economic systems must answer the same 3 questions: 1. ____to make? 2. _______to make it? 3. ____ gets it? (_____ is it made for)

Three Fundamental Economic Questions The What question requires an economy to decide the mix and quantity of goods and services that it will produce. The How question decides about the combination of technology and resources to use for producing goods and services. The For Whom question decides which people receive the goods and services produced. It is concerned with how the economic pie is divided.

Market/Economic System In a _______economic system the economic questions are answered based on the forces of demand supply. Government has ______influence in decision making as the private sector is the main economic player. Goods and services are produced based on the demand producers perceive will come from the consumer.

Capitalism The market economic system is commonly referred to as the capitalist system. Other names include: 1. The Laissez faire System (hands off) 2. the government interference in the economy is minimal. The Free Enterprise System

Adam Smith The economic and political ideology called ______ was developed by _____. His thinking was that government _____interfere with the economy or it may disrupt trade and people’s ability to become prosperous.

Benefits of the Marketing/Capitalist System Private individuals own businesses and their entrepreneurship and risk taking is rewarded with large profits. In a capitalist system, most property ______ Government has little say in how businesses are operated. The forces of demand supply lead to the production of goods or services that consumers require.

Challenges with the Market/Capitalist Economy Only goods and services that are profitable will be produced. This type of economy demonstrates clear _____ with a very few wealthy and many poor individuals. Market economies focus on free trade and this can lead to exploitation of labor in less developed countries to produce cheaper goods. These economies can lead to large monopolies or takeovers where competition is nonexistent and prices are high.

Market/Capitalist Economy In theory, there is no economy that is truly free. This is because at some point there is government involvement in major issues. One country that operates closest to a free market economy is the _______

Socialism • ______ believe that there must be ______ between the classes, by having a single class that is neither superior nor inferior to any other. • Socialists’ core belief is that humans thrive or die depending on their social relations and that all of our actions are shaped and determined by the social structure. • ______ thought that the idea of a _______government was desirable, but that the competition created inequalities were not. • Socialism came about in the late 18 th century reacting to liberalism and its emphasis on competition. Two classes divided this society: 1. Bourgeoisie (upper class that controls the government, economy, and all of society through their wealth and influence) 2. Proletariat (the lower class of society – the basic workers – underpaid and mistreated because of capitalism) • Social structure is, usually determined by wealth. Where private property is concerned socialists feel that everything produced in society is a “social product, ” and that without society that product could not have been produced. • If one class is wealthier, then the product is distributed unevenly, which causes tensions between the classes, creating a breakdown in social relations.

SOCIALISM • • Advocates _______of all resources. is an economic system characterized by social ownership of the means of production and cooperative management of the economy. Under socialism, a government owns and controls major industries, such as steel, electricity, and agriculture. The trouble with Socialism is that eventually you run out of other people's money.

Examples of Socialist Economy • • Denmark Finland Netherlands Canada Sweden Norway Ireland Belgium

The Command (Communist) Economy In the ______, commonly referred to as the ______, the government controls all aspects of decision making. The communist ideology was developed by _____. He felt that a market system led to oppression of the poor.

Command Economy What? One person ( a dictator) or a group of government officials (central planning committee) decide what is to be produced How? The government owns all the factors of production and makes all the decisions about production Who? The government decide who receives what is produced in the economy

Benefits of a Command Economy The _____t makes all decisions on what is to be produced in the country. This means that only profitable ventures are pursued. All workers are compensated equally irrespective of the job they do. Government owns all industries and businesses. There is no class structure showing the extremely rich or poor. Wealth is evenly distributed.

Disadvantages of the Command Economy This systems stifles productivity as workers are not driven. They are paid the same for any job done. Entrepreneurship is not encouraged and so there is no thriving business sector. The government makes decisions on the distribution of goods and so citizens can seek illegal ways to obtain additional goods.

Mixed Economic System The ________strikes a good balance between the command economy and the market economy. It is both the private sector and public sector/government, working together to satisfy the demands of the people. The government is usually in charge of major industries such as health, education and transportation.

Key features of Mixed Economies Citizens are usually required to pay taxes in order for government to provide the necessary social services. Government and private individuals own property and businesses. Consumers are provided with necessary services even if it is not a profitable venture. (Government has an obligation) Citizens of the country have a wider choice.

Challenges of a Mixed Economy Taxes may be high in order for the government to maintain the services they provide. Workers are not as productive as the market economy as competition is not as high. The private sector’s refusal to provide a necessary service might lead to additional burden on the government.

Examples of the Mixed Economy There are many examples of the Mixed Economy as it is the most popular system. The United States The United Kingdom Many territories in the Caribbean (Trinidad and Tobago, Jamaica, Barbados etc. ) 4. France 1. 2. 3.