1. Economics LEAP Review

2. Market System Market System: free enterprise or capitalist system  People are allowed to own property and operate businesses with little government interference  Government doesn’t own all property or tell people how to earn a living; works to ensure fair business practices, safe environment, and consumers are protected

3. Command System  Command System: a small group of government officials decides how to answer the four questions of economics  Government commands the choices about production Also called Planned because central or gov. planners control most of the resources and decide how they should be distributed China and Cuba

4. Traditional System Traditional Systems: economics are based on custom and tradition; Tradition provides the answers to the four basic questions jobs are handed down from father to son; men and women work different jobs Produce enough for survival Third World Countries Maasai in East Africa; Inuit; Aborigines

5. Three Types of Resources 1.Natural Resources: resources found on Earth such as land, forest, water, and minerals -Some renewable; some non-renewable 2.Human Resources: labor; work of humans 3.Capital Resources: all money, tools, equipment, and buildings used to produce goods and services.

6. Economic Cycle

7. Supply Supply: the amount of goods and services available The Law of Supply: as the price of a good rises, the quantity supplied will rise. Therefore, if the price decreases, the supply will ____________

9. Demand Demand: the level of “want” for goods and services The Law of Demand: says that when the price of a good or service rises, the amount demanded goes down. Therefore, if the price decreases, the demand will _______________.

11. Allocation, Efficiency, and Scarcity Production based on availability of resources and demand Must use resources efficiently Businesses don’t want to produce too few or too much Scarcity can affect production and prices

12. Opportunity Cost Trade-off: choice of one over the other Example> After you pay all of your bills, you have $1,000 left. How do you spend it? Vacation? Save money? Spend it going out and playing? Opportunity Cost: the cost of what you give up Example> if you spend the $1,000 on video games, your opportunity cost is what?

13. Taxes Reason for taxes: Government can pay for goods and services we use Income Tax: based on earnings Property tax: based on home and property values Sales tax: based on purchases User fees: admission of state parks, ferries, and toll bridges

14. Inflation and Deflation Inflation: occurs when the demand for goods and services is greater than the supply Prices rise Deflation: occurs when there is a greater supply of goods and services than there is demand for them. Prices fall

15. Gross Domestic Product GDP: value of all goods and services produced in the United States in one year Shows how well the economy is doing If the GDP increases each year> the economy is _______________ If the GDP decreases each year> the economy is _______________

16. CPI Consumer Price Index (CPI): measures changes in the prices of necessary items Food, clothing, housing, transportation, and medical care Calculated monthly by the Bureau of Labor Used to calculate inflation rate

17. Why is foreign trade necessary? 1. People cannot obtain all the things they need or want in their own country 2. Foreign relations; Countries may supplement their political and military alliances through foreign trade 3. A country may lack enough consumers to buy the goods it produces.

18. Balance of Trade: difference between a country’s exports and its imports Trade Surplus: If it exports more than it imports Trade Deficit: if it imports more than it exports United States has a _______________

19. Foreign Policy Foreign Policy: a plan that a nation uses to deal with other nations National Security: Foreign Policy goal that tries to keep the country safe from attack US Foreign Policy goals: National security, international trade promoting world peace, democracy, and human rights

20. 1.Isolationism: Policy that stats that a nation should interact politically as little as possible with other nations so that it can exist peacefully by itself in the world 2.Protectionism: The policy of placing barriers in the way of trade among countries; a tariff is one such barrier to save domestic jobs 3.Sanctions: Penalties against nations that have violated international law

21. Foreign Policy 4.Embargo: prohibition on trade with another country 5.Diplomacy: The way in which a nation conducts relations with foreign governments 6.Foreign Aid: Assistance given to help other countries 7.Alliances: Formal Unions or agreements among nations