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Economics. Economics What is Economics? is the study of how we produce and distribute our wealth.

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Presentation on theme: "Economics. Economics What is Economics? is the study of how we produce and distribute our wealth."— Presentation transcript:

1 Economics

2 Economics What is Economics? is the study of how we produce and distribute our wealth.

3 Why do societies have economies?  People have basic needs such as food, clothing, and shelter, and important wants such as education and health care.

4 Factors of Production  A society combines in factors of production – land, labor, and capital – to produce the goods and services its citizens want and needs.

5 Capital  Capital is anything produced in an economy that is used to produce other goods and services.

6 Goods and Services  A good is any item that can be bought and sold.  A service is any action that one person, or group, does for another in exchange for payment.

7 Goods and Services  After goods are produced, they are distributed to people who want them.  The purchase or use of these goods is called consumption.

8 Opportunity Cost  Because resources are scarce, people must consider each option’s opportunity cost and benefits as they decide which needs to satisfy.  Opportunity cost is what you must give up to do or consume something else. It is the most valuable alternative that you don’t choose when you make a decision.

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10 Resources  Scarcity exists when a resource valued by a society is not available in quantities high enough to satisfy the demand.

11 Resources and Production  A resource is anything used to produce a good or service.

12 Production  Production is the process of changing raw materials of the resource into some economic good or service.

13 Production Costs for a Pair of $100 shoes made in China and sold in United States The cost structure of the shoe manufacturing and retailing industry is very revealing. The “China effect” is quite clear as the total manufacturing costs (wages, materiel, other production costs such as energy, and the manufacturer's profit) account for about 12% of the retail costs. This is roughly equivalent to the research (design) costs of the shoe product.

14 Resources  Some resources are plentiful.  Some are scarce.  Water is still a scarce resource in major parts of Africa as this picture shows a child washing himself with animal urine

15 Resources  A renewable resource is one that can be replaced.  A nonrenewable resource is one that cannot be replaced.

16 Basic Economic Decisions WHO gets what has been produced? WHAT to produce? HOW to produce?

17 What to produce?  A society must decide which goods and services to produce and in what quantity, or amount.

18 How to produce?  People must decide how to produce goods and services. The desire to bring down the costs of production often leads to improved production technology.

19 Who gets what  Society must decide how the goods and services will be distributed among the people.

20 Specialization and Interdependence  Because it is difficult for every society to satisfy all wants and needs, people specialize. They choose certain kinds of work, products, and services that they can produce efficiently and successfully.

21 Specialization  After specializing work – they trade what they have for what they need. Specialization happens on both an individual basis and with countries as a whole.  The result of specialization is interdependence.

22 Interdependence

23 Interdependence  Interdependence is the way production and consumption of goods and services is divided among many different individuals, groups and countries.

24 Interdependence  Interdependence occurs when people and countries depend on one another to provide goods and services that they want and/or need. The more people specialize and trade, the more interdependent they become.

25 Interdependence  For example, Japan has very few natural resources and little land. As a result, Japan specializes in technology and manufacturing goods such as electronics and automobiles. Japan trades these items for the oil and other goods it needs.

26 Imports  Imports are goods and services in one country but produced in another – things purchased. US Oil Imports

27 Exports  Exports – goods or services produced in one country and then sold to people of another country.

28 3 Basic Economies  Traditional Economies  Command Economies  Market Economies

29 Traditional Economy  Basic economic decisions are made according to long- established patterns of behavior that are unlikely to change.  The FAMILY is the basic unit of the traditional economy.  All members work together to support society – rather than just their family

30 TRADITIONAL ECONOMY  What: Tradition answers the question of what and how much to produce.  How: Customs are used to produce (same weapons, same methods)  Who: people usually owns their own resources such as land, labor and tools.

31 Traditional Economies  Examples of countries with traditional economies:  Some societies in Central and Southern America, Africa and Asia.

32 Command Economies  Government or central authority owns or controls the factors of production and makes the basic economic decision.  Farms and stores  Transportation, communication  Banking  Manufacturing

33 Command Economy  Who – government decides  What – government decides  How – government decides

34 COMMAND ECONOMY  CUBA  North Korea  Former Command Economy  Soviet Union – Russia was a command economy under Stalin.

35 Market Economy  Known as a FREE ENTERPRISE or CAPITALISM.  Each individual decides what to produce, how to produce it, to whom to sell it, and how to invest the profits that result from the sale.

36 Mixed Economy  Most modern economies are a blend of traditional, command, and market economies with the balance between the three differing.

37 Market Economy  A market is a circular flow of goods, services, capital, and payments such as wages and interest by producers.  The laws of supply and demand work together to determine the market price of a product and the quantity offered.  Supply is the amount of something available.

38 Law of Supply  The Law of Supply states that as the price increases, the supply increases. This means more sellers and fewer buyers. Supply Curve Price of a song on I-Tunes Number of Songs Sellers Want to Sell $1.0010 $2.0040 $3.0070 $4.00140

39 Law of Supply  The supply curve is upward sloping  The supply curve has a positive slope  The supply curve shows a direct relationship between price and quantity demanded

40 Law of Demand  The Law of Demand states that as the price decreases, the demand increases. This means more buyers and fewer sellers. A Demand Curve Price of a Song on I- Tunes Number of Songs People Want to Buy $1.00100 $2.0090 $3.0070 $4.0040

41 Law of Demand  The demand curve is downward sloping  The demand curve has a negative slope  The demand curve shows an inverse relationship between price and quantity demanded

42 Effect of Supply and Demand Curve Shifts on Equilibrium

43 Other Factors for Supply & Demand  Will the change of price for milk or penicillin change the demand?  Why or Why Not?  Can Brand name or Advertising change the demand for a product?  Why or Why Not?  No, People believe they need milk or medicine at almost any price.  You may pay more for a higher priced item because the brand name is more popular than a less-expensive item.


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