Economic Lecture Economic Lecture &&

TerminologyTerminology

1) Economics1) EconomicsQuestion AQuestion A Looking at the long list of flavors at the ice Looking at the long list of flavors at the ice

cream store, you have a decision to make. You cream store, you have a decision to make. You have only enough money for one cone. Will it have only enough money for one cone. Will it be mint chip or bubble gum flavor? be mint chip or bubble gum flavor?

You will have to You will have to choosechoose. .

1)1) EconomicsEconomics is a is a choice choice or science of how people or science of how people use resources to satisfy their wants or needs.use resources to satisfy their wants or needs.

Question BQuestion B What is the difference between a want & a need?What is the difference between a want & a need?

2) Scarcity2) ScarcitySome economists claim that people’s desires Some economists claim that people’s desires

are unlimited. Resources to satisfy these are unlimited. Resources to satisfy these desires are limited. These economists refer desires are limited. These economists refer to the conflict between people’s desires & to the conflict between people’s desires & their limited resources as their limited resources as scarcityscarcity. .

ScarcityScarcity is the is the limited supply limited supply of something.of something.

2) 2) ScarcityScarcity is a word economists use to is a word economists use to describe the conflict between people’s describe the conflict between people’s desires & unlimited resources. desires & unlimited resources.

3) Opportunity cost 3) Opportunity cost ScarcityScarcity occurs because our resources are occurs because our resources are

limited & our wants are unlimited. Human limited & our wants are unlimited. Human wants always outstrip the limited resources wants always outstrip the limited resources available to satisfy them. available to satisfy them. Question CQuestion C Because of Because of scarcityscarcity, everyone must what? , everyone must what? make choicesmake choices Question Question

DD Every choice involves what?Every choice involves what? opportunity costopportunity cost

3) 3) opportunity cost opportunity cost is the best alternative is the best alternative that is not chosen when a decision is made. that is not chosen when a decision is made. Question E Question E What is opportunity cost? Explain. What is opportunity cost? Explain. It is the value of what It is the value of what you give up in order to get what you want.you give up in order to get what you want.

4) Standard of living4) Standard of livingPeople’s wants are never satisfied. No matter People’s wants are never satisfied. No matter

what we already have, we would like to have what we already have, we would like to have more. Few of us are satisfied with our more. Few of us are satisfied with our education, health care, & education, health care, & standard of standard of livingliving. Many people would like to have more . Many people would like to have more income, a better education, & live longer.income, a better education, & live longer.

4) 4) Standard of livingStandard of living a measure of a nation’s a measure of a nation’s quality of life based on income, education, quality of life based on income, education, life expectancy, & other factors.life expectancy, & other factors.

Question FQuestion F A countries standard of living is determined by what?A countries standard of living is determined by what?It is based on income, education, life expectancy, & other factorsIt is based on income, education, life expectancy, & other factors

5) Four Factor of Production5) Four Factor of ProductionThere are basic factors that influence economic There are basic factors that influence economic

growth in the world. They are the productive growth in the world. They are the productive resources used to produce goods & services. resources used to produce goods & services.

5) 5) Factors of Production Factors of Production – The resources – The resources needed to produce goods & services. needed to produce goods & services.

There are 4 ways societies turn resources into goods & services.There are 4 ways societies turn resources into goods & services.

1) 1) Human Capital Human Capital (people who perform labor)(people who perform labor)

2) 2) CapitalCapital (factories or machinery) (factories or machinery)

3) 3) Natural Resources Natural Resources (minerals & trees)(minerals & trees)

4) 4) EntrepreneurshipEntrepreneurship (ideas & innovations) (ideas & innovations)Question GQuestion G List the Factors of Production? List the Factors of Production?

6) Human Capital6) Human CapitalDifferent countries & regions have different levels of Different countries & regions have different levels of

economic development. In a country with a high level economic development. In a country with a high level of development, most people are well educated, have of development, most people are well educated, have good health, & earn a decent living. good health, & earn a decent living. Developed Developed countries countries invest a lot of time, effort, money in the invest a lot of time, effort, money in the education of future skilled workers to produce goods education of future skilled workers to produce goods & services.& services.

6) 6) Human Capital Human Capital – The workers of a business – The workers of a business or country including their education, training, or country including their education, training, skills, & health.skills, & health.

Question HQuestion H What are some examples of Human Capital? What are some examples of Human Capital? Examples – Doctors, teachers, & factory workers Examples – Doctors, teachers, & factory workers

7) Capital Goods7) Capital GoodsCapital goods Capital goods are a key factor in economic growth. are a key factor in economic growth.

More & better capital goods enable workers to More & better capital goods enable workers to make products more quickly & more cheaply. In make products more quickly & more cheaply. In other words, with more capital goods workers other words, with more capital goods workers become more efficient & productive.become more efficient & productive.

7) 7) Capital Goods Capital Goods – all the tools, machines, – all the tools, machines, technologies, & factories that humans need technologies, & factories that humans need to turn natural resources into final products.to turn natural resources into final products.

Question IQuestion I What are some examples of Capital Goods? What are some examples of Capital Goods? Examples – trucks, computers, factoriesExamples – trucks, computers, factories

8) Natural Resources8) Natural ResourcesBusiness owners & consumers need to use these Business owners & consumers need to use these

resources wisely. Some resources wisely. Some natural resourcesnatural resources, such as , such as trees can be replaced. These are called trees can be replaced. These are called renewable renewable resourcesresources. Others, such as oil & minerals cannot be . Others, such as oil & minerals cannot be replaced when they are used up. Some replaced when they are used up. Some nonrenewable resources nonrenewable resources include fossil fuels, such as include fossil fuels, such as oil, natural gas, & coal.oil, natural gas, & coal.

8) 8) Natural Resources Natural Resources – raw materials that are – raw materials that are used to support life & make goods.used to support life & make goods.

Question JQuestion J What are some examples of Natural Resources? Examples What are some examples of Natural Resources? Examples - - land, air, water, forests, soil, minerals, & climateland, air, water, forests, soil, minerals, & climate

9) Entrepreneurs9) EntrepreneursEntrepreneursEntrepreneurs bring the other three factors bring the other three factors

together. The qualities of together. The qualities of entrepreneursentrepreneurs include vision, cleverness, & energy. People include vision, cleverness, & energy. People who have these traits provide the sparks who have these traits provide the sparks that make a market economy system run. that make a market economy system run. They risk their time, money, & energy in the They risk their time, money, & energy in the hope of making a profit. They hope to make hope of making a profit. They hope to make what people need or want in the future.what people need or want in the future.

9) 9) EntrepreneursEntrepreneurs – someone who brings – someone who brings together land, labor, & capital goods to together land, labor, & capital goods to produce goods & services. produce goods & services.

10) Money10) Money MoneyMoney is used to acquire all the is used to acquire all the factors of productionfactors of production..

Question KQuestion K MoneyMoney is easier to use than trade or barter. Why? is easier to use than trade or barter. Why?

Because money is a unit of account & it retains its value.Because money is a unit of account & it retains its value.

A unit of account relates to the fact that A unit of account relates to the fact that moneymoney is divided is divided

into common amounts. There is a general agreement on into common amounts. There is a general agreement on the cost of items….but how many pieces of pizza would it the cost of items….but how many pieces of pizza would it take to buy a Barbie if money didn’t exist? take to buy a Barbie if money didn’t exist? MoneyMoney (currency & coin) (currency & coin) retains value unlike items used in the past retains value unlike items used in the past (spices, oxen, animal skin, etc.)(spices, oxen, animal skin, etc.)

10) 10) MoneyMoney is a medium of exchange used to make is a medium of exchange used to make the buying & selling of goods & services easier. the buying & selling of goods & services easier.

Goods & ServicesGoods & Services 2 Types of Services2 Types of Services

ConsumerConsumer – bought & used by – bought & used by households. households. Examples include Examples include haircuts, banking, veterinaryhaircuts, banking, veterinary

IndustrialIndustrial – primarily bought – primarily bought & used by businesses. & used by businesses. Examples include security, cleaning, Examples include security, cleaning, phonephone

11) Economic System11) Economic SystemEvery society must content with the problem of Every society must content with the problem of

scarcityscarcity. Every society, regardless of its political . Every society, regardless of its political structure, must develop an structure, must develop an economic system economic system to to determine how to use its determine how to use its limited productive resourceslimited productive resources to answer the to answer the three basic economic questionsthree basic economic questions..

1)1) What goods & services will be produced?What goods & services will be produced?

2)2) How will goods & services be produced?How will goods & services be produced?

3)3) Who will consume the goods & services?Who will consume the goods & services?(the way a society answers these 3 questions determines its economic system)(the way a society answers these 3 questions determines its economic system)

11) 11) Economic System Economic System – the way a country decides – the way a country decides what goods & services will be produced, how they will what goods & services will be produced, how they will be produced, & who will consume them.be produced, & who will consume them.

Question LQuestion L What are the 3 basic economic questions that every society must answer? What are the 3 basic economic questions that every society must answer?

12) Traditional economy12) Traditional economyTraditional systems are found in agricultural Traditional systems are found in agricultural

societies where people make what they need societies where people make what they need to survive. Economic decisions are based on to survive. Economic decisions are based on custom & historical precedent. custom & historical precedent. A families status A families status

may determine whether they can own a tractor or not.may determine whether they can own a tractor or not. India has features of both market & traditional economiesIndia has features of both market & traditional economies

12) 12) Traditional Economy Traditional Economy – an economy – an economy in which customs & habits of the past in which customs & habits of the past decide what & how goods & services are decide what & how goods & services are produced, distributed, & consumed.produced, distributed, & consumed.

13) Command Economy13) Command EconomyThe government decides what goods & services will be The government decides what goods & services will be

produced, how they will be produced, their prices, produced, how they will be produced, their prices, wage rates, & how they will be distributed. wage rates, & how they will be distributed.

13) 13) Command Economy Command Economy – An economy in – An economy in which centralized planning groups decide what which centralized planning groups decide what & how goods & services will be produced, & how goods & services will be produced, distributed, & consumed.distributed, & consumed.

Question MQuestion M What are some examples of Command Economies? Examples What are some examples of Command Economies? Examples include North Korea, Cuba, & the former USSRinclude North Korea, Cuba, & the former USSR

14) Market Economy14) Market EconomyAn economic system based on individual choices An economic system based on individual choices

& voluntary trade. In a market system, & voluntary trade. In a market system, supply supply & demand & demand determine what is produced & sold. determine what is produced & sold.

14) 14) Market Economy Market Economy – An economy in which – An economy in which changes in price guide what & how goods & changes in price guide what & how goods & services will be produced, distributed, & services will be produced, distributed, & consumed.consumed.

Question N Question N What are some other names for market systems? What are some other names for market systems?

free free enterpriseenterprise, , capitalismcapitalism, & , & laissez-fairelaissez-faire

15) Mixed Economy15) Mixed EconomyThere are no There are no pure commandpure command or or marketmarket

economieseconomies. To some degree, all modern . To some degree, all modern economies exhibit characteristics of both economies exhibit characteristics of both systems & are often referred to as systems & are often referred to as mixed mixed economieseconomies. . However, most economies are closer to However, most economies are closer to one type of economic system than another.one type of economic system than another.

15) 15) Mixed EconomyMixed Economy -An economic -An economic system that has features of both system that has features of both command & market systems, but falls command & market systems, but falls closer to one or the other.closer to one or the other.

16) Trade16) TradeTradeTrade & voluntary exchange occur when & voluntary exchange occur when

buyers & sellers freely & willingly engage buyers & sellers freely & willingly engage in market transactions. When trade is in market transactions. When trade is voluntary & non-fraudulent, both parties voluntary & non-fraudulent, both parties benefit & are better off after the trade than benefit & are better off after the trade than they were before the trade.they were before the trade.

16) 16) TradeTrade is the voluntary exchange of is the voluntary exchange of goods & services among people & goods & services among people & countries. countries.

Imports & ExportsImports & Exports

17) 17) ImportsImports – goods brought – goods brought into one country from into one country from another country through another country through trade or sale.trade or sale.

18) 18) ExportsExports – goods or – goods or services traded with or sold services traded with or sold to other countriesto other countries

19) Balance of Trade19) Balance of TradeThere has always been more exports than imports in the There has always been more exports than imports in the

Americas, now USA, from 1607 until 2007. However, we Americas, now USA, from 1607 until 2007. However, we now have imported more than we export since 2007. This now have imported more than we export since 2007. This is one argument against free trade, due to loss of USA is one argument against free trade, due to loss of USA jobs & industries. However, many economists believe jobs & industries. However, many economists believe that free trade increases our standard of living in the USA that free trade increases our standard of living in the USA & our quality of life when products imported are cheaper.& our quality of life when products imported are cheaper.

19) 19) Balance of TradeBalance of Trade –the difference in value –the difference in value between a country’s between a country’s exportsexports and and importsimports over a over a

certain period of timecertain period of time..

20) Trade Barriers20) Trade BarriersSometimes people complain about trade. Sometimes people complain about trade.

They say that too much trade causes They say that too much trade causes workers to lose jobs. Therefore, countries workers to lose jobs. Therefore, countries sometimes try to limit trade by creating sometimes try to limit trade by creating trade barriers. Others disagree.trade barriers. Others disagree.

20) 20) Trade Barriers Trade Barriers -Any law or practice -Any law or practice that a government uses to limit free trade that a government uses to limit free trade between countries.between countries.

3 Types of Trade Barriers3 Types of Trade Barriers21) 21) TariffTariff – a fee or tax charged for – a fee or tax charged for importsimports

(goods or services brought into a state or (goods or services brought into a state or country from another state or country).country from another state or country).

22) 22) QuotaQuota – – a limit on the amount of a a limit on the amount of a product that may be product that may be importedimported during a during a given period of time.given period of time.

23) 23) EmbargoEmbargo – government places – government places restrictions on the restrictions on the importimport or or exportexport of of certain goods.certain goods.

24) Free Trade24) Free TradeShould countries create trade barriers that limit trade? Should countries create trade barriers that limit trade?

It is true that some workers in certain industries may It is true that some workers in certain industries may be hurt by trade. For example, some US clothing be hurt by trade. For example, some US clothing workers have had to change jobs during the past 30 workers have had to change jobs during the past 30 years because many clothes are imported from other years because many clothes are imported from other countries. However, this trade allows people in the countries. However, this trade allows people in the US as a whole to buy quality clothing imports at good US as a whole to buy quality clothing imports at good prices, which results in higher standard of living for prices, which results in higher standard of living for people in the US & our trading partners. For this people in the US & our trading partners. For this reason, many economists say it is good to let reason, many economists say it is good to let countries trade as much as possible. Others countries trade as much as possible. Others disagree, due to lost US jobs.disagree, due to lost US jobs.

24) 24) Free TradeFree Trade - An exchange of goods - An exchange of goods without the use of tariffs or quotas.without the use of tariffs or quotas.

25) Exchange Rate25) Exchange RateWhen the exchange rate between two currencies When the exchange rate between two currencies

changes, the relative prices of the goods & services changes, the relative prices of the goods & services traded among countries using those currencies traded among countries using those currencies change; some groups gain & others lose. The Foreign change; some groups gain & others lose. The Foreign Exchange Market is a place or situation where money Exchange Market is a place or situation where money from different countries is bought & sold for a price.from different countries is bought & sold for a price.

25) 25) Exchange RateExchange Rate -The amount of one -The amount of one currency that can be purchased for a given currency that can be purchased for a given unit of another currency. unit of another currency.

26) Economic Growth26) Economic GrowthTo encourage economic growth & raise the To encourage economic growth & raise the

living standards of its citizens, there must be living standards of its citizens, there must be investment in human capital & capital goods. investment in human capital & capital goods. Economic growth is measured by increases Economic growth is measured by increases in real per capita GDP over time.in real per capita GDP over time.

26) 26) Economic GrowthEconomic Growth - The increase in the - The increase in the value of all the goods & services a country value of all the goods & services a country makes from one year to the next.makes from one year to the next.

27) Gross Domestic Product27) Gross Domestic ProductHow large a nation’s GDP can be determined by the availability How large a nation’s GDP can be determined by the availability

& quality of its natural, human, & capital resources. To & quality of its natural, human, & capital resources. To increase economic growth & per capita GDP over time increase economic growth & per capita GDP over time requires investments in both physical capital requires investments in both physical capital (such as factories & (such as factories &

machines) machines) & human capital & human capital (the education, training, skills, & health of a (the education, training, skills, & health of a nation’s labor force.)nation’s labor force.)

27) 27) Gross Domestic Product (GDP) Gross Domestic Product (GDP) - The value, expressed - The value, expressed in dollars, of all final goods & services produced in a country in dollars, of all final goods & services produced in a country in one year.in one year. Question OQuestion O If a countries literacy rate increases what usually increases? If a countries literacy rate increases what usually increases? GDPGDP

United KingdomUnited Kingdom

The United Kingdom has a The United Kingdom has a mixed mixed market market economy that is economy that is growinggrowing. .

The The second strongest economysecond strongest economy in in Europe. Europe.

The economy is also The economy is also more private more private with with less of government interferenceless of government interference..

Since 1979, the British government has turned over many state owned Since 1979, the British government has turned over many state owned companies like British Steal, Coal, Airways to private ownership businesses companies like British Steal, Coal, Airways to private ownership businesses setting up free market competition instead of a government controlled setting up free market competition instead of a government controlled economy.economy.

GermanyGermany

Germany has a Germany has a social market social market economy that is economy that is growinggrowing. Germany . Germany has the has the strongest economystrongest economy in in Europe.Europe.

The economy is also The economy is also more privatemore private with with less of government less of government interferenceinterference. . Some state control & social welfare Some state control & social welfare where help is given to the poor. It combines 3 things: A market where help is given to the poor. It combines 3 things: A market system (free enterprise & competition) Some state control & social system (free enterprise & competition) Some state control & social welfare where help is given to the poor.welfare where help is given to the poor.

RussiaRussia

Russia has a Russia has a mixed market mixed market economy that is economy that is strugglingstruggling. .

The economy is also The economy is also turning over turning over many companies to private many companies to private ownershipownership, , but Russia still has but Russia still has many government owned many government owned businesses.businesses.

Assignments to ReviewAssignments to Review

Gallopade(yellow) GPSGallopade(yellow) GPSChapter 21 Environmental Issues pg104-107Chapter 21 Environmental Issues pg104-107

Chapter 25 Economic Understandings pg119-121Chapter 25 Economic Understandings pg119-121

Chapter 26 Economic Trading pg122-123Chapter 26 Economic Trading pg122-123

Chapter 27 Economic Growth pg124-127Chapter 27 Economic Growth pg124-127

Georgia CRCT Test Prep (blue) GPSGeorgia CRCT Test Prep (blue) GPSEconomic Understandings pages145-155Economic Understandings pages145-155

Questions 375-399Questions 375-399

Country Type of Economy Growing or Struggling What the Government Controls

United Kingdom

Germany

Russia

Mixed Market

Mixed Market

Mixed Market

Growing

Growing

Struggling(Recent

Transition from Command to

Mixed Market)

Less government →More Private

Controlof Industry

Less government →More Private

Controlof Industry

Less government →More Private

Controlof Industry

1) List the 3 basic economic 1) List the 3 basic economic questions that economic questions that economic systems have to answer.systems have to answer.

What to produce?What to produce?

How to produce?How to produce?

For Whom to produce?For Whom to produce?

Terms to know to Terms to know to answer other questions answer other questions

If the government controls If the government controls what is produced & how it is what is produced & how it is produced, then it is a produced, then it is a command economycommand economy..

Terms to know to Terms to know to answer other questions answer other questions

If Supply & Demand If Supply & Demand determines what is sold & determines what is sold & how much it costs, then this how much it costs, then this is a is a market economymarket economy..

Terms to know to Terms to know to answer other questions answer other questions

If people make what they need to If people make what they need to survive, then this is a survive, then this is a traditional traditional economyeconomy..

Next to each question below, write T for Next to each question below, write T for Traditional, C for Command, & M for Market.Traditional, C for Command, & M for Market.

CC 2a. The government controls 2a. The government controls what is produced & how it is what is produced & how it is produced.produced.

MM 2b. Supply & demand 2b. Supply & demand determines what is sold & how much determines what is sold & how much it costs.it costs.

TT 2c. People make what they need 2c. People make what they need to survive.to survive.

Other questions to answerOther questions to answer

3) The most common economic 3) The most common economic system today is a system today is a mixed mixed economyeconomy..

Decide if the examples below represent Decide if the examples below represent a tariff, quota, or embargo.a tariff, quota, or embargo.

Quota Quota 1. Only 3,000 pairs of 1. Only 3,000 pairs of American blue jeans can enter American blue jeans can enter France.France.

Tariffs Tariffs 2. The U.S.A. charges an 2. The U.S.A. charges an extra 10 cents per pound on bananas extra 10 cents per pound on bananas from Costa Rica.from Costa Rica.

Embargoes Embargoes 3. No Brazilian beef can 3. No Brazilian beef can be sold to Spain.be sold to Spain.