Basics of Economics

Needs and Wants Want: something we would like to have (but you can live without) iTunes downloads, iPods, iPhones, other cellular devices, junk food Need: something we can’t live without. Food, water, air, shelter

Goods versus Services Goods are things you can touch, or feel, or hold in your hands. Goods must be grown or made by someone. Services are the jobs people provide to make goods available (pizza delivery guy, hair dresser, dentist, etc.)

3 Basic Economic Questions Every nation must answer three questions about goods and services. We call these questions the 3 basic questions of economics. The questions are: What goods and services should be produced? How should these goods and services be produced? Who will get the goods and services?

Kinds of Economic Systems How a country answers the 3 economic questions determines the form of economic system. The 4 major economic systems are: (leave room to describe each) Traditional Command (Socialist) Market (Free Enterprise) Mixed

Economic Systems

Ways of life and jobs passed from parent to child Traditional Economy Traditional Economy: makes decisions based on what has been done in the past. People produce the goods and services they have always produced. (herd cattle, produce clay pots) Ways of life and jobs passed from parent to child Money rarely used

Government makes all economic decisions! Command Economy Command Economy: government leaders decide the answers to the basic economic questions. The government controls the land, labor, and capital (the three factors of production). Government makes all economic decisions!

Market Economy (Free Enterprise) Market Economy: the opposite of a command economy. In a market economy, each person makes the basic economic decisions for themselves. Individuals make the decisions!

Mixed Economy Most nations in the world have a mixed economy. A mixed economy is one which is part command and part market economy. Most governments have some say over how the 3 basic questions are answered. However, many decisions are left up to the people.

Types of Economic Activity There are 5 major types of economic activity. Manufacturing Resource production Retail Agriculture Service Industries

Manufacturing Manufacturing is where raw materials and natural resources are made into products people or companies can buy. Example – clothing factory

Resource Production Natural resource production involves the collection and processing of natural resources into products for manufacturing or consumption. Examples: Mining, logging, oil industry

Retail Retail is where products are sold. Example: Electronics store

Agriculture Agriculture is the business of food production. Examples: Farming, Ranching

Service Industry A service industry is a business where people pay for a service instead of a physical product. Examples: Healthcare, Travel, Education

Economic Indicators Economic indicators are statistics that show how successful a country’s economy is. GDP Literacy Rate Life Expectancy School life expectancy Infant mortality rate

GDP GDP (Gross Domestic Product) – the value of all the goods and services a country produces. Sometimes shown as GDP per capita – or the GDP divided by the number of people in a country. A high GDP indicates a strong economy. A low GDP indicates a weak or failing economy.

Literacy Rate A country’s literacy rate tells what percentage of the population can read and write. A high literacy rate indicates a strong economy and an emphasis on education. A low literacy rate indicates a weak economy and that education is not important.

Life Expectancy Life expectancy is an estimate of how long a baby born in a country today will live. A high life expectancy indicates a successful economy and strong healthcare system. A low life expectancy indicates a weak economy and weak healthcare system.

School Life Expectancy School life expectancy is an estimate of how long a person in a particular country will go to school. A long school life expectancy indicates a successful economy and strong education system. A short school life expectancy indicates a weak economy and weak education system.

Infant Mortality Infant mortality rate is the number of babies who die in the first year out of every 1000 born in a country. A low infant mortality indicates a successful economy and strong healthcare system. A high infant mortality indicates a weak economy and weak healthcare system.