BASICS OF ECONOMICS

Show me the MONEY!!!

WHAT IS ECONOMICS?
The study of how a society uses
its resources to satisfy its wants
and needs.

3 BASIC QUESTIONS OF ECONOMICS
1. What will be produced?
2. How will it be produced?
3. For whom will it be produced?
SCARCITY
DEFINITION: all resources are limited and
therefore are scarce.
Everyone cannot have everything they
want.
There is not enough stuff to go around.
NEEDS & WANTS
Needs (DEFINITION): basic needs to survive, food,
clothes, and shelter
Wants (DEFINITION): everything else and they are
unlimited
EXAMPLE: I need to eat I am hungry
EXAMPLE: I want a new car, a new iPod, a new pair of
shoes, a new computer, a new video game, a new
What are the resources we have to use
to satisfy our wants and needs?
Land- natural resources we have to produce goods and services
Good- a physical thing you can hold
Service- some thing that gets used up right after it is purchased
Labor- the effort that individual people put into making a good
or service
EXAMPLE: factory workers, medical personnel, and teachers.
Get paid a wage
Capital- anything that is used to produce other goods and
services.
EXAMPLE: If you make cars you need machines to make the metal
that is used in the cars.
Consumers- people in an economy that purchase goods and
services

TRADITIONAL ECONOMY
Resources are allocated by inheritance
A strong social network and is based on primitive
methods and tools
Most countries that have historically had a traditional
economy have replaced it with a command
economy, market economy, or mixed economy
Found today in underdeveloped, agricultural parts
of South America, Asia, and Africa.


COMMAND ECONOMY
An economic system in which the state or government
manages the economy.
Government controls all major sectors of the economy
and formulates all decisions about their use and about
the distribution of income
Government planners decide what should be produced
and direct companies to produce those goods.
May consist of state-owned enterprises, private
enterprises directed by the state, or a combination of
both.

MARKET ECONOMY
Based on the division of labor in which the prices of
goods and services are determined by supply and
demand.
Opposite of a command economy in which a central
government determines the price of goods and
services using a fixed price system.
In the real world, market economies are regulated
by society.

MIXED ECONOMY
Incorporates aspects of more than one economic system
Usually means an economy that contains both
privately-owned and state-owned enterprises

or that
combines elements of capitalism and socialism, or a
mix of market economy and planned economy
characteristics
There is not one single definition for a mixed economy,

but relevant aspects include: a degree of private
economic freedom, with centralized economic
planning
Economies ranging from the United States

to Cuba

have been termed mixed economies

GROSS DOMESTIC PRODUCT (GDP)
Measures the national income and output for
a given country's economy
Measures the market value of all the goods and
services produced in the economy in a year
Economists use GDP data to measure the economys
growth