A SHORT COURSE IN ECONOMICS

What is Economics? Economics is a social science that studies the production, distribution and consumption of goods and services.

What is an Economy & How does it Work? DEFINITION: How a nation makes decisions for using its resources The economy has to use it’s limited resources to make decisions…these resources are:

FACTORS OF PRODUCTION LAND-Materials supplied by nature and used by people to create products LABOR-The employees necessary to accomplish the work CAPITAL-Money, equipment used to create a product or provide a service, & inventory KNOWLEDGE-The skills and information needed to make decisions within your business ENTREPRENEURSHIP-The ability to take risk and turn that into something of value Factors of production are the resources available to make goods & services: Land: natural resources used to make products Labor: people who work on making products- human resources Capital: money, equipment. Used to make products Entrepreneur: the person(s) whop take risk and make products

Many types of economic systems… The American free enterprise system or CAPITALIST system is what the US operates under to ensure that all citizens needs are met…but how does this work? It’s not truly a FULL FREE ENTERPRISE…talk more about it later…

Three Basic Economic Questions: What goods should be produced? How should they be produced? For whom should they be produced? No matter what system, these 3questions are answered in order to meet the needs of all people

There’s a model/theory behind our beliefs: Known as the CIRCULAR FLOW MODEL : the cyclical movement of goods, services, & money thru our economy States there are 4 elements/sectors in the system that interact together to ensure needs are provided for.

Four sectors are: Consumers/Households Businesses Government Financial Institutions The interaction looks something like this…

CIRCULAR FLOW SHOWS US THAT EACH SECTOR SPURS PRODUCTION AND THEREFORE GOODS AND SERVICES ARE CREATED TO MEET THE NEEDS OF EACH SECTOR.

IS THIS ACCEPTED IN ALL COUNTRIES? We’re more of a “mixed economy”= the government has a role and helps when needed. Command economy= government controls all and provides all aspects of economy Socialist economy= some aspects have government control while some don’t… (For instance Canada and their health care system)

Resources are scarce, so… Consumers help answer the three economic questions by looking at the laws of supply and demand within our system.

DEMAND QUANTITY OF A SPECIFIC PRODUCT THAT A BUYER IS ABLE & WILLING TO BUY AT A CERTAIN PRICE. ON ONE SIDE OF THE MARKET IS THE BUYERS AND THEY WANT THEIR MONEY TO GO FAR.

LAW OF DEMAND STATES: AS PRICE GOES UP, DEMAND: DEMAND PRICE

THE LOWER THE PRICE THE GREATER THE DEMAND SO …THE LINE SLOPES DOWNWARD

SUPPLY QUANTITY OF A SPECIFIC PRODUCT THAT THE SUPPLIER IS WILLING TO OFFER TO THE MARKET AT A CERTAIN PRICE. ON THE OTHER SIDE ARE SUPPLIERS (THE SELLERS) AND THEY WANT TO GET THE MOST MONEY FOR THEIR PRODUCTS OR SERVICES

LAW OF SUPPLY STATES: AS PRICE GOES UP, SUPPLY: PRICE DEMAND QUANTITY SUPPLIED PRICE DEMAND

THE HIGHER THE PRICE, THE GREATER THE SUPPLY… SO THE LINE SLOPES UPWARD

MOST TIMES BUYERS AND SELLERS COME TOGETHER IN A MARKET…

SUPPLY = DEMAND EQUILIBRIUM THE AMOUNT DEMANDED BY BUYERS IS EXACTLY EQUAL TO THE AMOUNT OFFERED BY SELLERS. In this case it appears to be approx. $2.50

What happens when the market is not in balance? When the price is above the equilibrium point there is a ______________ of supply Where the price is below the equilibrium point there is a _________________ in supply. B= surplus/extra A= scarcity/not enough

So how does our economy work? Factors of Production Circular Flow Mixed Economy Supply & Demand Make a jingle, rap or poem that tells us how it all works.

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