ECONOMICS Are those that are NOT ABUNDANT enough for everyone to be able to use all they want or need Studies the manner in which people and societies choose to allocate the use of scarce resources they have available, so as to produce goods (tangible) and services (intangible)

ECONOMICS Macroeconomics is the study of aggregate (total) effects on the national economy and the global economy of the choices that individuals, businesses and government make Microeconomics is the study of the choices/decisions that individuals and businesses make and the way that these choices interact and are influenced by governments

ECONOMICS in English Macroeconomics is concerned the bigger picture--the overall ups and downs of the economy, measuring and summarizing data across different markets—the aggregate unemployment rate, inflation rate, GDP Microeconomics is concerned with how individuals, households or firms (businesses) make decisions and how these decisions interact—the smaller parts that make up the economy

ECONOMICS is like a DART Board Macroeconomics is the board Microeconomics is the individual parts

The Factors of Production RESOURCES a/k/a INPUTS Factors of production, the directed use of labor and capital and the achievement of profit are the driving forces of an economic system Factors of production, the directed use of labor and capital and the achievement of profit are the driving forces of an economic system

The Factors of Production RESOURCES a/k/a INPUTS Product Land Labor Capital Entrepreneurship

The Factors of Production Evererything starts with a CELL Product Capital Entrepreneurship Land Labor

WHAT to produce HOW to produce FOR WHOM to produce Unlimited Needs & Wants Limited Resources Choices Scarcity

RESOURCES ARE SCARCE CHOICES IMPLY THAT THINGS ARE GIVEN UP SCARCITY REQUIRES THAT CHOICES BE MADE

Mechanism of Economics The exchange of goods and services in an organized marketplace, where sellers and buyers attempt to optimize their results by trading is the mechanism where the study of economics occurs.

Mechanism of Economics The clearest representation of these elements occurs in a free market economy, of which capitalism is the prime example. These factors are also in play in state- controlled systems which include communism and socialism.

Many contend that in all economic systems the driving force is self-interest, or the “Invisible Hand” that Adam Smith defined in the ‘Wealth of Nations.’

Many of the crucial components of economics are active in any organized society, regardless of its philosophy. Economics may be studied in a wide spectrum of political, social and financial systems.

Economic Systems

Traditional Economic decisions are based on rituals, or habits. Change is discouraged and sometimes even punished Methods of production are often inefficient Family and community ties are strong Little certainty exists over what or how to produce Consumer choices are rare

Market  Economic decisions are made by individuals  Individuals own the factors of production  High degree of individual freedom  Large variety of goods and services  Little incentive to engage unprofitable ventures like caring for the sick  High degree of uncertainty

Command  Economic decisions are made by government leaders.  The government owns factors of productions  Private property rights, individual freedom, and consumer choices are limited  Resources can be quickly rerouted  Many health and public services are available at little or no cost  Little incentive to work hard or show inventiveness

WHAT, HOW and FOR WHOM TO PRODUCE QUESTIONSTRADITIONALCOMMANDMARKET What to ProduceHabit or custom decidesGovernment decidesIndividuals or companies seeking opportunities --decides How to ProduceSame way for generationsGovernment owner will decide manual/mechanized Factory will decide manual/mechanized For Whom to Produce Family members receives most and a portion to the feudal or tribal chief Government’s central authority decides who gets certain goods and services Answered largely in terms of how much money a person or family has. Who owns the means of Production* Families or heads of families GovernmentIndividuals

WHAT, HOW and FOR WHOM TO PRODUCE continued… QUESTIONSTRADITIONALCOMMANDMARKET What to ProduceHabit or custom decidesGovernment decidesIndividuals or companies seeking opportunities -- decides How to ProduceSame way for generationsGovernment owner will decide manual/mechanized Factory will decide manual/mechanized For Whom to ProduceFamily members receives most and a portion to the feudal or tribal chief Government’s central authority decides who gets certain goods and services Answered largely in terms of how much money a person or family has. Who owns the means of Production* Families or heads of families GovernmentIndividuals *An economy’s means of production are its factories, farms, shops, office buildings, mines and machinery. The means of production are used to produce other goods and services. No modern economy fully fits the models in the table.

In the U.S. market economy, the government regulates businesses in order to protect consumers.

In the former Soviet Union, with its command economy, some elite individuals had more money than most and were able to get the goods and services they wanted. Meanwhile, the vast majority of the people were often forced to do with much less..

No country today has an economic system that is either 100% free market or 100% command. The U.S. system most closely represents a free market economy. The Communist economic system of North Korea are closest to describing command economies. China and Cuba have a command economy, but both have slowly been introducing elements of a market economy.

All countries today have mixed economic systems or mixed economies, with some free enterprise and some government ownership.

All productive resources are government owned and operated Spectrum of Mixed Economics Ownership of Resources socialismCommunism Directed by commandDirected by the free market Basic productive resources are government owned and operated the rest privately owned and operated Productive resources are privately owned and operated Allocation of Resources Centralized planning directs all resources Government plans ways to allocate resources in key industries Capital for production is obtained through the lure of profits in the market Role of Government Government makes all economic decisions Government directs the completion of its economic plans in key industries Government may promote competition and proved public goods Capitalism