ECONOMICS
ECONOMICS- The study of the ways societies choose to use their limited resources.
SCARCITY- Goods and services are not available in unlimited amounts.
OPPORTUNITY COST: We must decide to give up something in order to get what we want.
OPPORTUNITY COST: Because we have limited resources ($$$) we lose the opportunity to buy one thing when we buy another.
How did we buy things a long time ago? BARTER SYSTEM- Trade one good for another
= =
Supply and Demand SUPPLY = what is available DEMAND = what is wanted
Supply and demand DIRECTLY affects the price of goods
High supply = Surplus, which creates lower prices. Low supply = Scarcity, which creates higher prices
Consumer A person who uses goods and services
Producer A person or company who makes something.
Distributors Those who transport or deliver goods.
Incentives What makes you pick one choice over another. Encouragement to buy one product over a different one. Examples: sales, discounts, coupons, rebates.
Competition Businesses trying to get consumers to purchase THEIR goods and services, not someone else s. This causes businesses to provide incentives, variety of choices, better prices, better quality, better service.
Interdependence We rely on others to get the things we need (goods and services).
Three things necessary to produce goods: 1.Natural Resources Trees, oil, metal, coal 2.Human Resources People, workers 3.Capital Resources $$$, equipment, factories, supplies
GDP?? Gross Domestic Product The total value of ALL the goods and services produced in the country in one year
Per Capita means Per Person GDP per capita or (GDP per person) or GDP/capita DIVIDE the GDP by the country s population.
If GDP = $1,000,000 Population = 25 GDP/c =? Answer = $40,000
GDP = $1,000,000 Population = 500,000 GDP/c =? Answer = $2
1.) Primary Industries
2.) Secondary Industries
3.) Tertiary Industries
4.) Quaternary Industries
Traditional Economy Grow their own food and make their own goods. Usually found in underdeveloped or poor countries.
Market Economy Based on private ownership, free trade, and competition. Prices are determined through supply and demand.
Also called Capitalism. The USA is a Market Economy
Key elements of a Market Economy: People can buy and sell what they want for whatever price they want.
People can own property. People can earn profits.
People can choose their own carers. Competition is allowed and encouraged.
Command Economy A strong, central government makes all the economic decisions. The government decides what is produced, how much is produced, and what prices will be.
The History of Money
Barter: Trading surplus items for needed items. Example: Trading eggs for sugar.
Advantages -Everyone has something to trade. Problems -Supply gets used up quickly. -What if the person selling sugar does not want eggs?
Precious Metals: Using gold and silver to purchase items.
Advantages -Gold and silver are rare so they have more value. -Gold and silver have many uses. -People want it. Problems -Hard to carry around. -Hard to make change. -Gets used up.
Representative Money: Using coins, paper money, or checks that REPRESENT certain amounts of precious metals.
Advantages -Don t have to carry around precious metals. -Can make change. Problems -Value of money tied to the value of precious metals. -Value changes often.
Fiat Money: (Fiat means let it be done or it shall be ) Money that looks like Representative Money but it DOES NOT represent precious metals. It is not backed by precious metals.
Advantages -It counts as money because the government says it does. -Its value does not change with the price of precious metals. Problems -Money is backed just by trust. -Value of money changes with the health of the economy.
Function 1: Medium of exchange People are willing to accept it as payment. It is easily exchanged (traded) for goods and services and easily divisible.
Function 2: Measure of Value We know what it is worth. $5 bill is worth $5. We can count how much we have.
Function 3: Store of value $5 today is worth $5 tomorrow. We can put it in the bank and get it out a month later and it has not spoiled.