What is Economics?  An economic system is a country’s way of using limited resources to provide goods and services.  Scarcity means that there is never enough of everything to satisfy everyone completely.  Opportunity cost is the next best choice that you give up in order to do something else.  Economics classifies resources as land, labor, and capital.  Producers are the companies or individuals who make or provide goods and services. The people who purchase and use goods and services are consumers. 1 Economics is the study of how people produce, distribute, and use goods and services. ChapterBasic Economics 2

Measuring the Economy  Economists use many mathematical tools and equations, or indicators, to measure the health of the economy.  The total value of all goods and services produced in a country is called the gross domestic product (GDP).  The consumer price index (CPI) is used to measure changes in the prices of goods and services.  When the average price of goods goes up sharply, it’s called inflation.  When the unemployment rate is high, people cut back their spending, which can lead to a slower economy.  When statistics show unemployment to be rising, investments falling, and GDP decreasing over a long period of time, it often indicates an economic downturn, or recession. 2 ChapterBasic Economics 2

Analyzing Supply and Demand  Supply is the quantity of goods and services a business is willing to sell at a specific price and a specific time. Demand is the quantity of goods and services consumers are willing to buy at a specific price and a specific time.  Supply and demand have a direct impact on the price of goods and services.  When the supply is greater than the demand, the price goes down.  When the demand is greater than the supply, the price goes up.  In a market economy, the price of a particular good or service is determined by supply and demand.  A surplus exists when the quantity supplied is greater than the demand.  A shortage exists when the quantity supplied can’t meet demand. 3 ChapterBasic Economics 2

Visualizing Supply and Demand  A supply curve shows the quantity of a product or service a supplier is willing to sell across a range of prices. Here the supplier is willing to provide more product as the price increases.  A demand curve shows the quantity that consumers are willing to buy across a range of prices. Here the consumer is willing to buy more as the price decreases. 4 ChapterBasic Economics 2

Supply and Demand Curve  A supply and demand curve shows the relationship between price and quantity.  The equilibrium point is where the supply curve and the demand curve meet and supply and demand are balanced. It also represents the quantity that a business should produce of a given item (the equilibrium quantity) and how much the business should charge for it (the equilibrium price). 5 Equilibrium Price ChapterBasic Economics 2

Analyzing Economic Systems  In a command economy, the government owns or manages the nation’s resources and businesses.  In a market economy, suppliers produce whatever goods and services they wish and set prices based on what consumers are willing to pay.  In a free enterprise system, individuals or businesses operate with little government interference.  Free enterprise systems share the same five characteristics.  Private property  Freedom of choice  Voluntary exchange 6 ChapterBasic Economics 2  Economic incentive  Competition

The Free Enterprise System  In a free enterprise economy, competition is a driving force.  Competition has many benefits.  Competition between businesses results in bigger and better selection, lower prices, and better service.  Competition between businesses encourages innovation.  Competition between individuals can lead to higher earnings as businesses compete for talented workers.  If a business has no competition, then it controls all of the supply and demand for the product or service it sells it is called a monopoly.  A business makes a profit when the amount of money coming in from sales is greater than the business’s expenses. 7 ChapterBasic Economics 2

Taking Part in a Global Economy Globalization refers to the growing integration of the world’s economies.  Some of the benefits of globalization include:  Increased trade  Increased prosperity  Increased cultural exchange  Globalization presents the following problems:  Increased interdependence  Loss of jobs  Exports are goods or services that are sent from one country and sold to foreign consumers.  Imports are goods and services that are brought into a country from foreign suppliers. 8 ChapterBasic Economics 2

International Trade  A trade barrier is a governmental restriction on international trade.  A tariff is a fee, similar to a tax, that importers must pay on goods they import.  A quota is a limit on the quantity of a product that can be imported into a country.  Advances in technology provide much of the driving force behind globalization  Culture includes a people’s language, beliefs, attitudes, customs, manners, and habits.  Businesspeople in most societies follow particular social rules and customs called etiquette. 9 ChapterBasic Economics 2

Chapter Review  Economics is the study of how people produce, distribute, and use goods and services.  Supply is the quantity of goods and services a business is willing to sell at a specific price and a specific time.  Demand is the quantity of goods and services consumers are willing to buy at a specific price and a specific time.  A supply curve shows the quantity of a product or service a supplier is willing to sell across a range of prices.  A demand curve shows the quantity that consumers are willing to buy across a range of prices. 10 ChapterBasic Economics 2

Chapter Review ( continued )  In a command economy, the government owns or manages the nation’s resources and businesses.  In a market economy, suppliers produce whatever goods and services they wish and set prices based on what consumers are willing to pay.  In a free enterprise system, individuals or businesses operate with little government interference.  Globalization refers to the growing integration of the world’s economies.  Culture includes a people’s language, beliefs, attitudes, customs, manners, and habits. 11 ChapterBasic Economics 2