Fundamental Economic Concepts

Grade 8TCAP Prep

What is an Economic Market?

• It is where producers and consumers exchange goods and services.– Producers produce (make) goods and services– Consumers buy goods and services.• Consumers buy goods and services from producers

with money.

Good and Services

• Goods are products people use:– Cars– Food– Clothes– Houses– Furniture– Video games– Cell phones

Good and Services

• Services are actions that people perform.– Doctors perform exams.– Teachers teach students.– Mechanics fix people’s cars.– Barbers cut people’s hair.

Can you think of other services that people provide?

Good and ServicesIn Early America

Goods• Agricultural products• Textiles• Finished goods (usually

from Europe)

Services• Taverns• Blacksmiths• Doctors• Ministers

Money and Currency

• Money is a medium of exchange.• It carries a value that producers will accept

in exchange for a good or service.• Money is measured in Currency• The dollar is the United States’ currency

Competitive Market System

• A market system in which producers are free to produce whatever they want and consumers are allowed to buy whatever they want.

Supply and Demand

• Supply refers to how much of a good or service is available for consumers to buy.

• Demand refers to how much of a good or service consumers want.

– When demand is high, prices are generally high.– When supply is high, prices are low.

Economic Incentives in a Competitive Market System

• Incentives are economic factors that motivate producers or consumers to take some action.– Lower prices are an incentive for consumers.– Profit is an incentive for producers• Profit is the money that producers make (minus the

money spent on production) after they sell their good or service.

Economic Incentives in a Competitive Market System

• Other Incentives:– Copyrights• Protect the economic interest of writers and artists.• A copyright says that the written material is the

writer’s personal property.

– Patents• Protect the economic interests of people who create

new inventions or have innovative ideas.• Patents prevent anyone else from profiting from the

idea or any similar invention for a set period of time.

How Supply, Demand, and Prices Fluctuate

• Supply, demand, and prices are constantly changing.– Shortage: A shortage exists when there is not

enough of a product to meet consumer demand.– Surplus: A surplus exists when there is more of

a good or service in supply than consumers demand.

– Equilibrium Price: the price of a good or service where supply equals demand.

Changing Resources into Products

• Resource – anything that people use• Natural Resources – resources that occur

naturally (trees, air, water, soil, minerals)• Human made resources – resources made

by humans (money, trucks, factories, machines)

• Producers rely on resources to turn them into goods and services.

2.1 Review

• Answer questions 1, 2, 3 on pages 45-46

Trade and Economic Theories

Free Trade and International Competition

• Economists study how economies function.– Some believe the government should play a big

role in the economy through regulations.– Some believe in laissez-faire economies. This

means they think the government should play no role in the economy.• They think that the natural course of supply and

demand should determine the course of the economy.

Free Trade and International Competition

• Trade: happens when nations exchange goods.

• Free trade: happens when national governments to not restrict imports or exports.

• Exports: goods that a nation sells to other countries.

• Imports: good that a nation’s consumers buy from other countries.

Tariffs and Other Trade Barriers

• Political Trade Barriers– Policies that interfere with free trade

• Domestic Products– Products made in their own country

• Tariffs: – A common form of a political trade barrier– They are taxes on imports

Mercantilism

• Mercantilism was the dominant economic theory in Europe from 15th – 18th centuries (1400s through the 1700s).

• The idea is that a nation’s economy prospered when it maintained a favorable balance of trade.– They needed to export MORE than they

imported.

Mercantilism and Colonialism

• Mercantilism helped inspire Europe’s age of exploration and early colonial period.– During this time, European nations established

colonies in Africa, Asia, and the Americas.– A Colony is a land that a government rules in a

foreign territory.– Colonies allowed nations access to more natural

resources.

Capitalism

• Capitalism is a system in which capital is privately owned.

• Capital refers to nonlabor factors of production (examples: buildings, machines, wagons, ect.)

• Under capitalism, goods and services are exchanged in competitive markets.

• Adam Smith is known as the Father of Capitalism

Major Industrial and Agricultural Products of the United States

Key U.S. Products and Natural Resources

Land The USA is a large country and provides land resources for agriculture, settlement, metals and places to drill for oil

Timber USA is one of the world’s leading producers of timber

Fish The USA borders the Atlantic Ocean, Pacific Ocean, and Gulf of Mexico. As a result, fish is a major natural resource.

Animal Pelts The USA has produced many valuable animal pelts

Agricultural Products The USA has large amounts of fertile soul suited for growing different kinds of agricultural products (wheat, corn, peppers, sweet potatoes, squash, pumpkins, peanuts, tomatoes, cotton)

Major Industrial and Agricultural Products of Tennessee

Key Products from TennesseeAgriculture Tobacco, cotton, soybeans.

Tennessee also has a major cattle industry.Industrial Products

Chemicals, transportation equipment, electrical equipment, and textiles.

Key Industries AutozoneFedExEastman Chemical CompanyInternational PaperThe music industry in Nashville and MemphisThe health care industry in Nashville

Trade and Economic Theories Review

• Answer questions 1, 2, 3 on page 51

Key Institutions That Make Up Economic Systems

Business Firms and Corporations

• Business firms produce goods and services, produce jobs, and contribute to the economy as consumers.– Businesses produces good and services.– Businesses provide jobs– Businesses are also consumers.– Businesses pay taxes.• Taxes are money that businesses and individuals

must pay to the government.

Corporations

• Many businesses are corporations.– Corporations are protected entities.• That means if the business fails, people who invested

money lose their money but they are not responsible for other debts the business might still have

Households

• A household is any group of people that lives together and functions as a “family” unit.

• Household are key factors in the economy.– They provide labor for businesses and the

government.– They pay taxes and act as consumers.

• Income is the money that households bring in.

Government Agencies

• The role of the government different from one economic system to another (i.e. USA to China to Cuba).– Governments act as producers.– Governments act as consumers.

• Governments can also impact the economy by imposing economic regulations.

Government Agencies

• Governments also affect the economy by imposing taxes.– Tariffs: taxes on imports– Income taxes: taxes on individuals income– Sales taxes: taxes on the products people

purchase– Excise taxes: taxes on particular products in

addition to sales tax (luxury or not necessary items like cigarettes or alcohol).

Banks

• Banks are businesses that lend money.• Banks are lenders and depositors.– Households, businesses, and governments

deposit money in banks.

• Lenders: individuals, businesses, or governments that lend money to borrowers.

• Borrowers: people, businesses, or governments who borrower a lender’s money

Banks

• Banks charge their borrowers interest on the money they borrow.– This is how banks make a profit.

• Banks extend credit.– They allow people, businesses and governments

to borrow money to purchase things (i.e. cars and houses)

Labor Unions

• Labor unions are organizations that represent workers.– Laborers in a particular industry will often

organize as a labor union.– In theory, labor unions giver laborers (workers)

more power.

Key Intuitions That Make Up Economic Systems Review

• Complete questions 1, 2, 3 on page 56

• Tomorrow you will have a short, multiple choice assessment on basic economic concepts.