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 A social science which studies how resources will be used and how the wealth they produce will be distributed.  Goods are products that are tangible.

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Presentation on theme: " A social science which studies how resources will be used and how the wealth they produce will be distributed.  Goods are products that are tangible."— Presentation transcript:

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2  A social science which studies how resources will be used and how the wealth they produce will be distributed.  Goods are products that are tangible  Services are intangible products  Economic resources are used to produce goods and services. What are the three main categories??

3  Land – natural resources  Labor – people  Capital - money

4  You have unlimited wants and needs, but resources are limited. The fact that a monetary value is placed on goods and services reflects supply and demand. Ultimately it forces you to make economic choices. The choice that you FOREGO when deciding how to spend your money is called the opportunity cost. or

5  An economic system answers the three basic economic questions: ◦ What goods and services should be produced? ◦ How should the goods and services be produced? ◦ Who will get those goods and services?  What’s made, how it’s made, and who gets it.

6  Government lets the market answer the three basic economic questions. ◦ Consumers decide what they will buy, producers respond to the demand by producing more of those products; thus, consumers determine WHAT will be produced. ◦ Competition forces businesses to find the most efficient means to produce their products; thus, businesses determine HOW the products will be made. ◦ People with more money can buy more. He/she with the most money wins. This answers the question as to WHO receives the goods and services.

7  A form of government which allows people to choose its’ representatives to run the government.

8  The government makes the three basic economic questions.  The theory is that the government should be able to allocate the nation’s resources efficiently and that everyone would share in what is produced.

9  Two types of political systems are associated with command economies. ◦ Communism: The government has control over the entire economy. What will be made, how it will be made, and who will get it. ◦ Democratic Socialism: The government makes the economic decisions for the country’s major industries (banking, mining, utilities, medical care, transportation). Consumers make their own decisions in the marketplace.

10  There are two types: ◦ Price competition: Assuming that all other things are equal, consumers will buy the product that is lowest in price. ◦ Non-price competition: Businesses compete on the basis of other factors not related to price. ◦ What are some benefits of competition?

11  It is when a firm has exclusive control over a product or means of production.  They can charge whatever they want because people can not get the products/services elsewhere.  Do they exist in the U.S.?

12  It is what is left after all expenses are paid.  It is the driving force in a market economy.  It provides an incentive for risk.  The range of profit for most businesses is 1%-5% of their net sales.

13  It is the potential for loss or failure.  As the potential for earnings becomes greater so does the risk.  Eighty-five percent of new products fail within the first year.  One in three businesses fail within the first year.

14  In a market economy, supply and demand determine price.  They interact to determine how much customers will pay the number of products producers are willing to make.

15  Supply: The amount of goods producers are willing to make and sell.  Demand: The customers willingness and ability to buy a product/service.  The law of demand : As prices decrease, demand will increase. As prices increase, demand will decrease.  The law of supply: At a higher price, a producer will offer more of its products for sale. At a lower price, producers offer fewer products for sale.  Demand Curve: Graphical representation of the quantity demanded at various prices.  The law of diminishing marginal utility: Consumers will only buy so much of a product even though the price is low.

16  Elasticity of demand: A products sensitivity to a change in price.  Elastic demand: A change in price causes a large change in demand.  Inelastic demand: A change in price has little effect on demand.

17  Factors that determine the elasticity or inelasticity of demand: ◦ Availability of substitutes  If you have a choice between two similar items, the demand will tend to be elastic ◦ Price relative to income  The more money you have, the more inelastic your demand will be for goods and services ◦ Whether the product is a luxury or a necessity  Luxury items tend to be elastic in demand while items of necessity tend to be inelastic in demand ◦ Immediacy of purchase  The more immediate your need, the more inelastic your demand

18  Surplus: Occurs when supply exceeds demand.  Shortage: Occurs when demand exceeds supply.  Equilibrium point: The point at which the amount of a product being supplies is equal to the amount of product being demanded.

19  To provide general services ◦ Build/maintain roads, bridges, infrastructure ◦ Public libraries ◦ Public schools ◦ Social welfare ◦ Police, military, fire protection ◦ Retraining for those workers who are displaced due to foreign competition

20  To support businesses ◦ Provided auto industry with loans (Why?) ◦ Provides disaster relief ◦ SBA (Small Business Administration) – Guarantees loans ◦ Establishes trade alliances with other countries so that it is easier for companies to do business in foreign markets.

21  Serves as a regulator – consumer and worker protection  What does these acronyms stand for and what do they do? ◦ FDA ◦ EEOC ◦ OSHA ◦ CPSC ◦ EPA ◦ SEC

22  How does our government protect businesses? ◦ Through the issuance of patents, trademarks, copyrights, and licensing agreements. ◦ They also enact legislation that prevents unfair business practice (the following prevent monopolies)  The Sherman Antitrust Act (1890) – outlawed contracts/agreements that would restrain or limit competition in interstate commerce.  The Clayton Antitrust Act (1914) – addressed loopholes in the Sherman Antitrust Act and created the FTC to enforce the acts.

23  They ensure economic stability. If the economy is moving too slow or too fast, the board acts to correct the problem. ◦ If prices are going up too fast, they will increase interest rates (makes it more difficult to borrow money and discourages business expansion). ◦ If there is not enough economic activity, they will decrease the interest rate to encourage borrowing and spending. ◦ Who is the Chairman of the Federal Reserves Board? ◦ http://www.federalreserve.gov/aboutthefed/bios/b oard/bernanke.htm http://www.federalreserve.gov/aboutthefed/bios/b oard/bernanke.htm

24  Ups and downs in economic activity  All aspects of our economy are affected by business cycles

25  Actions of businesses: ◦ Businesses make many decisions (expansions, cut- backs) based on business cycle forecasts.  Actions of consumers: ◦ Increased spending and saving has a positive effect on the economy. ◦ Increased saving allows banks to give loans to people wanting to spend.  Actions of government: ◦ Taxation (Increase so consumers have less to spend, decrease so consumers have more to spend). ◦ Increase interest rates to discourage spending.

26  Prosperity ◦ Economy is growing ◦ Low unemployment ◦ Increase in output of goods and services ◦ High consumer spending  Recession ◦ Growth slows down ◦ Unemployment rises ◦ Production decreases ◦ Lack of consumer spending ◦ Lack of consumer confidence in business and government

27  Depression: ◦ Economy hits rock bottom ◦ Unemployment is high ◦ Consumers are unwilling/unable to spend ◦ Results in poverty  Recovery ◦ Businesses and consumers start to put money back into the economy ◦ Government makes plans to promote spending ◦ Consumer confidence increases

28  GDP (Gross Domestic Product): The total amount of goods and services produced by a nation within a given year. The “real GDP” provides a more accurate depiction as it is adjusted for inflation.  Standard of living: GDP The nation’s population What might be some problems with this measurement?

29  CPI (Consumer Price Index): measures the price of a bundle of goods and services over a period of time. The items are weighted according to how much a typical household spent on the item and are then averaged to chart the “cost of living” in comparison to a base year.  Unemployment: Full employment is at 96%. Discussion…why?


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