Economics

1. Economics Mrs. Kissling Business 2008-2009

2. Where Have We Been? • The Federal Reserve Bank (The Fed) • How long has the Fed been around? • 1913 • What is the main purpose of the Fed? • To maintain public confidence in the monetary and banking system by maintaining price stability. • How does the Fed do that? • With monetary policy.

3. Where Have We Been? • What is economics? • Economics is the study of how a society uses its resources to satisfy its wants and needs with limited resources.

4. Where Have We Been? • Wants and Needs • Wants are unlimited • Needs are limited • Economic Resources (when economic resources are used to produce goods and services they become factors of production. The three resources that are essential are • Natural Resources (Land) • Human Resources (Labor) • Capital Resources (Buildings, Equipment, Machines)

5. Where Have We Been? • The Law of Supply and Demand • What is the law of supply? • When the price of a supply (good or service) increases the supply increases.

6. Where Have We Been? • The law of demand • What is the law of demand? • When the price of good or service increases the demand will decrease. (Supply is held constant.)

7. Where Are We Going? • Opportunity Cost (the cost of choosing) • Kinds of economic systems

8. Opportunity Cost • You have $150 to spend. • iPod and cell phone (both cost $150) • Buy the cell phone • What do you give up? • iPod and… • $150 and… • The opportunity to own the iPod (at least for the time being) • What you give up when you make one choice instead of another is called the opportunity cost.

9. Economic Systems • What are economic systems? • An economic system is a way of producing goods and services and of providing a way for people to get them. • Because we have limited resources each country must decide… • What they will produce… • How will they produce the goods and services… • How will they distribute the goods and services

10. How Do Countries Decide What Economic System They Will Have? • Priorities (powerful, safe, providing food and clothing) • History • Culture • Geography • Political situation

11. Traditional Economic Systems • An economic system in which people do things the same way they have always been done is called a traditional system. • Dad, Mom (Farmer, Weaver) • Same tools and methods • Based on habit, custom, religious beliefs

12. Traditional Economic Systems • Pros and Cons • Cons: • Individuals are not free to make decisions on what they want. • Discourages new ideas and ways of doing things. • Pros: • Everyone has a role in it

13. Traditional Economic Systems • Societies on the west coast of Canada, in the rain forests of Latin America, in Africa, and in the Middle East still have traditional economic systems

14. Command Economic Systems • In a command system, the basic economic questions of what and how to produce and distribute are made by a central authority. This is sometimes called a directed or planned economy. • Two kinds in the world today: • Strong Command • Moderate Command

15. Command Economic Systems • In strong command economic systems the government owns all of the natural and capital resources factors of production. • Where are the strong command economic systems? • China • Cuba

16. Command Economic Systems • Pros and Cons • Cons: • Does not meet consumer needs. • Lack of incentives to work hard • Lack of choice to make their own economic decisions. • Pros: • Can make a dramatic change in a short time. • Government provides each person with a job and certain medical coverage and social services.

17. Command Economic Systems • Moderate Command Economies. This is also described as socialist. • The government owns all major industries. There is however opportunity for private ownership. • Government and private owners must work together to make decisions as to what is being produced and how to produce it. • You will find the moderate command economies in Sweden or France.

18. Command Economic Systems • Pros and Cons • Cons: • Very high taxes discourages private businesses and lessens spendable income for people. • Lack of choice to make their own economic decisions. • Pros: • Health care, social welfare, social security are provided

19. Market System Economics • In a market system the basic economic decisions are based on the economic actions of people and businesses. This is also known as a capitalist economy. • You will find this economy in the United States, Canada and Japan. • What is produced is based on what people are willing to buy and will bring profit to the sellers. • The interaction of consumers and producers makes the system work.

20. Market System Economics • Pros and Cons • Cons: • Rewards only those that are productive. • Pros: • Can adjust to change over time as consumer wants and needs change • Freedom for all involved • Lack of government control

21. Mixed System Economy • Reality Check: No economy is based totally on one of the three systems just described. They are more accurately mixed systems. • However, one of the systems has more of an influence and therefore referred to as whichever economic system that has the strongest influence.