Economics Mohon Social Studies 8

Vocabulary  Scarcity  Interdependence  Supply  Demand  Command Economy  Mixed Economy  Market Economy  Natural Resources  Human Resources  Capital Resources  Production  Distribution  Consumption  Specialization

What is economics?  Economics is the PRODUCTION, DISTRIBUTION, and CONSUMPTION of goods and services.  Affects people most directly, but it is the most misunderstood.

Production  How goods and services are produced.  Modern technology may or may not be used.  Examples: Automobiles, Electronics, etc. are built along an assembly line in a factory. Produce is grown on a farm and harvested and processed as needed. Clothes can be made in a textile factory, by machine, or by hand.

Distribution  Distribution refers to how goods and services are bought and sold.  Goods = sold in a market/store/mall, direct from the individual, off the internet, etc.  Services = direct from the individual, through a mediator, etc.

Consumption  How the consumer uses the goods or services.  Food consumption, Energy consumption, Transportation consumption, etc.

How does economics affect us?  Do you know how to budget?  Let’s say you get a part-time job making $100 a week. What would your money go to? (Going out with friends, clothes, savings…?)  Fast forward 10 years. You’re a college graduate making $600 a week. How would you budget that? (cell phone, rent, utilities-water & power, car payments, credit card bills…?)

Supply and Demand  Supply and Demand is the basic principle of economics. Supply refers to the goods and services given, and demand refers to the public’s want or need for that good or service.  They depend on each other… typically, businesses use this to their benefit. When demand for a product goes up, the supply may go down. Why?

Supply and Demand  When the supply of a product is high, oftentimes, we see the demand for it go down. Why?

Scarcity  Scarcity occurs when needs are greater than the resources available. (Think about the word scarce.)  In some ways, companies that make products control how SCARCE the product is. Why would they do that?  Think: iPhone 4, iPad, Xbox games, etc.

Scarcity  Nations like the United States, that have lots of resources are able to satisfy their citizens’ needs.  However, the United States does not have ALL of the resources to make ALL of its citizens happy or satisfied…

Interdependence  International trade that stimulates the economy and creates a greater need for nations to depend on each other.  For example: The US depends on Saudi Arabia for oil… in return, the US sends automobiles it produces to Saudi Arabia.  The US does not have enough oil in its own reserves to satisfy the needs of the people, it has to get that resource from somebody else.  In the same way, Saudi Arabia does not produce that many cars. It needs to import from other countries.

Resources  In order for a nation to satisfy its people’s needs, or for a company to be profitable, there needs to be resources. There are three types:  Natural resources (land)  Human Resources (labor)  Capital Resources

Natural Resources  LAND: Is the land flat, hilly, or mountainous? What can a country do with each of these types of land?  Soil: deep, thin, rich, sandy?  Climate: Hot, cold, wet, dry? (Wind?)  Minerals: Gold, Copper, Zinc, Tungsten…  Fuel: Oil, Coal, Natural Gas…

Human Resources  Human resources is the workforce that a nation has. Things to consider:  How many people can work? (Population)  Young or old? (Child labor? Elderly labor?)  Sick or Healthy? (Does the nation have the means to keep people healthy to work?)  Skilled or Unskilled? (Are they educated or skilled in a particular trade?)

Capital Resources  Capital resources refers to all of the “things” needed to be productive. These include the following:  Money  Technology  Transportation Systems (roads, docks, airports)  Buildings and Production equipment

Specialization  When a nation or a company has a particular type of land, labor, or capital, they may choose to specialize in a particular product—they are able to produce one product very well at a limited opportunity cost (or risk).  Example: US car companies (Chrysler, Ford, GM) have a wide range of compact cars, mid-size sedans, SUVs, and trucks. European car companies (BMW, Mercedes, Jaguar) focus on sedans, sports cars, and some SUVs. Japanese automakers (Hyundai, Nissan, Toyota) specialize in small cars and some smaller pickups.

Opportunity Cost  What we choose to do without. Often, this is seen in a budget:  Monthly income: $2,500  Mortgage: $700  Gas: $50  Food/Groceries: $100  Entertainment: $100  Phone Bill: $100  Cable: $80  Utilities: $120  Car payment: $300  Clothes: $200  Credit Cards: $300  What is left to save? Can you increase your savings?

Different Types of Economic Systems  There are three main systems we see in the developed world today:  Market  Mixed  Command  Traditional Systems are seen in developing countries.

Market Economy  Private businesses control the market.  Decisions are made based on the supply and demand of the products.  Technology used for goods and services are advanced.  Prices are determined between the competition of the suppliers or producers.

Mixed Economy  The US has a Mixed Economy!  Private individuals and the government both own businesses.  Like the market economy, decisions on what is produced is based on supply and demand.  Technology is advanced.  Prices are determined by competition or by the government.  What is one good or service the government sets prices for?

Command Economy  The government owns the businesses.  The government decides what is produced and how to sell it.  Technology is advanced (like China) or developing (like North Korea).  The government sets prices.  Some command economies through history: The Former Soviet Union, Nazi Germany, China, North Korea… most Communist countries.

Traditional Economy  Families or communities own the businesses… (in history, think “manor system.”)  Traditions/customs/culture determines what goods are produced.  Technology is pre-industrial—more primitive, not developing to new technology.  Prices are set by custom. The way it’s always been.  Traditional economies today can be seen in small communities throughout the world, among tribal people, very poor nations.