1. Introduction to Economics Chapter 17

2. What is Economics? Lesson 1
Essential Questions:
Why and how do people make economic choices?
How do economic systems influence societies?
It Matters Because:
As someone who uses goods and services and will someday be a worker, you are part of the American economic system.
Guiding Question
What is scarcity, and how does it affect economic choices?

3. Our Wants and Resources
Wants- desires individuals and nations have that can be met by getting a good or service
Wants fall into 2 groups
Goods- includes things that we can touch or hold
Services- work that is done for us
Healthcare, lawyer services, accounting services

4. Economics
Limited Resources- unlimited wants and limited resources forces us to make choices
Economics- the study of how individuals and nations make choices about ways to use scarce resources to fulfill their needs and wants
Resources – a thing that can be used in making products and services people want

5. 3 Types of Resources
Natural Resources- nation’s land, soil, trees, oil, iron and more
Labor- includes workers and their abilities (knowledge and skills)
The more workers you have the more you can produce
Capital- Buildings, tools, factories, computers, trucks, trains and more

7. The Basic Economic Problem
Scarcity- occurs when we do not have enough resources to produce all the things we want to have
Economics looks at how we go about dealing with this basic economic problem

8. Societies and Economic Choices
Guiding Question – What determines how societies make economic choices?
Scarcity is an economic problem in every nation
Nations have to make choices also
Three Basic Economic Questions
What goods and services will be produced?
How will they be produced?
Who will they be produces for

9. Economic Systems
Economic System- a nation’s way of producing things its people want and need
Each country has its own economic system

10. Traditional Economy
Traditional Economy- decisions of what, how, and for whom to produce is based on custom or habit
Follow family traditions of production
Not very productive
Does not adopt new and better ways to produce

11. Market Economy
Market Economy- individuals and businesses own all resources and make economic decisions on the basis of price.
It answers the three economic questions based on profit and price.

12. Command Economy
Command Economy- economic system in which the government makes the major economic decisions.
Government decides what, how, and for whom to produce
Individuals and businesses don’t have much say

13. The American Economy
The United States economy is based on a market economy
Businesses compete for profit with little interference from the government
Elements of a command economy
Government makes rules on how workers are treated
Provides services such as education, defense, and disaster relief
Elements of traditional Economy
Many people decide to work in the same traditional jobs
The United states is a mixed market economy-
Our economy has elements of traditional, market, and command economies

14. Economic Decisions Lesson 2
Essential Questions:
Why and how do people make economic choices?
How do economic systems influence societies?
It Matters Because:
You make economic decisions everyday, and you will do so for the rest of your life
Guiding Question
Why are trade offs important in making economic decisions?

15. Trade Off
Trade off- the alternative you face when you decide to do one thing rather than another
People make trade offs all the time
Businesses also make trade-offs
Invest in research for new products or spend money on advertising to increase sales of old products
Governments also face trade-offs
Spend money to build new schools or build new roads

16. Opportunity Cost
Opportunity Cost- the cost of the next-best use of your money or time when you choose to do one thing rather than another
Only the next-most-attractive alternative

17. Measuring Costs and Revenues
Guiding Questions – How do costs and revenues influence economic decision making?
Assessing Costs- “Joe’s Seafood Depot”
Joe’s Seafood Depot has been making and selling seafood for 10 years. Joe wonders if his business would be better off if it were open longer every day.

18. Different Types of Costs
Fixed costs- an expense that does not change no matter how much a business produces
Rent, insurance
Variable costs- an expense that changes depending on how much a business produces
Total cost- the combination of all fixed and variable costs
Marginal cost- the additional or extra opportunity cost associated with each increase of one unit of sales
Marginal cost means that variable costs increased

19. Different Types of Revenues
Revenue- the money a business receives from selling its goods and services
The sum of money Joe receives from his customers
Marginal Revenue- the additional income received from each increase of one unit of sales

20. Marginal Analysis
Marginal analysis- compares the additional benefit of doing something with the additional cost of doing it
If benefit is greater than additional cost, the rule is to do it
If the cost is greater than the benefit, the rule is don’t do it
Do it until marginal cost is equal to marginal revenue
Benefit-Cost Analysis- economic model that compares the marginal costs and marginal benefits of a decision
Helps businesses choose among two, three, or more projects
Benefit/cost ratio= Revenue
Cost

21. Demand and Supply in a Market Economy Lesson 3
Essential Questions:
Why and how do people make economic choices?
How do economic systems influence societies?
It Matters Because:
Demand and supply work together to set the prices of the goods and services you buy and use.
Guiding Question
How do demand and supply affect prices?

22. Demand and Supply Make Markets
Where do prices come from?
What do they tell us?
Why do they change?
Are prices important?
Command economy- government set the prices
Market economy- prices are set by the interaction between demand and supply
Demand and supply- are a result of two groups
Consumer- a person who buys goods and services
Producers- a person or business that provides goods and service

23. Demand and Supply
Demand- the amount of a good or service that consumers are willing and able to buy over a range of prices
Supply- the amount of a good or service that producers are willing and able to sell over a range of prices
When prices go up producers increase supply
When prices go down producers decrease supply

24. Markets and Competition
Representing information on a schedule as a line on a graph. (Page 470)
Demand curve- shows the amount demanded at a particular price
Slopes down to the right
Supply curve- shows the quantity supplied at a particular price
Slopes up to the right

25. Demand and Supply curve together show a Market
Market- a location or an arrangement that allows buyers and sellers to get together and buy or sell a certain product
Competition- efforts by different businesses to sell the same good or service
To be efficient markets must have many competing buyers and sellers

26. How Prices Are Set Market Economy Equilibrium price Surplus Shortages
People buy and sell what they want, its like a democratic vote for a product or service
Markets help prevent too much or too little production of goods and services
Equilibrium price
The price set for a good or service in the market place, where demand and supply are perfectly balanced
Surplus
amount of a good or service supplied by producers is greater than the amount demanded by consumers
Shortages
the supply of the good or service available is less than the demand for it
Forces applied by surpluses
and shortages, keep a price
at its equilibrium level

27. Factors Affecting Demand
Number of Consumers
If more consumers enter the market the demand curve shifts to the right
If more consumers leave the market the demand curve shifts to the left
Change in Customer Income
If consumers earn more, they tend to buy more, the demand curve shifts to the right
Less income, consumers buy less, the demand curve shift to the left
Change in Customer Preference
Change in like or dislike of a product will shift the demand curve left or right
Finding out a product is harmful will make people want to buy less of it

28. Factors Affecting Supply
Number of suppliers increases
As the number of suppliers increases, the availability of a good or service increases
More is produced, the supply curve moves to right
Suppliers leave the market
Supply curve moves to the left
Fewer suppliers, prices go up
Fewer choices, producers charge more
Cost of production
As cost of production goes down, producers increase supply
As cost of production goes up producers decrease supply

29. The Economic Role of Prices
Prices and the Economic Questions
What to produce?
How to produce?
For whom to produce?
Prices as Measures of Value
Consumers and producers use the prices to value goods and services
Prices as Signals
If consumers think an item is priced too high, they will not buy it.
Lack of demand sends a signal to the producer that the price is too high.
The reverse is also true for consumers