Warm Up

Who decides what products will be produced?

Individuals

• What roles do you think individuals play in the economy?– List!

Individual Roles in Economy

• Consumer• Saver• Investor• Producer• Earner• Borrower• Lender• Taxpayer• Recipient of government services

THE Conflict!

• The conflict between unlimited wants BUT limited resources forces both individuals and societies to make economic decisions– What to produce– How to produce– For whom to produce

Productive Resources

• Land• Labor• Capital• Entrepreneurs/management

Let’s Create

Create a business and discuss what land, labor, capital, and entrepreneurs/management you will need

Economic Systems

• Every nation has an economic system• An economic system is the way a nation uses

resources to produce goods and services• Production is the creation of goods and services• Producing goods and services require resources– Human– Non-human

• Is the study of how economic systems work

Traditional Economy

• The ways to produce products are passed from one generation to the next

• Parents teach children how to produce goods and services

• Tribes in remote areas of the world still practice traditional economies

Command Economy

• The government owns most resources and made most economic decisions

• Each company receives a plan from the government that told it what to produce

• The government determines all prices, styles, colors, and the amounts produced

• Individuals have no say in production or their role in it

• Currently practiced: N.Korea and China

Market Economy

• The primary economic system in most industrialized economies

• Known as a market or capitalist economy• People own the resources and run the businesses• People make all the decisions (what to produce,

how to produce, and for whom to produce)• They set their own prices• The purpose – to make a PROFIT $$$• Profit=price-cost

Mixed Economy

• Some government controls – Rate– Limits on what businesses and individuals can do

• Some market controls• The U.S. – with market economy dominat

Let’s Compare

• Compare a market economy to – Traditional– Command– Mixed

• What are the similarities/differences?

What is Circular Flow of the Economy?

• Draw a circular flow model showing the roles of households, businesses, and government in a mixed capitalistic economy

Going to a Concert?

• Popular concert• Sold out? Shortage of tickets?• How many would buy for $25• More?• Law of demand: consumers will demand more

of a product at lower prices

Scarcity

• The basic problem facing every economy • Consumer wants are greater than the resources

available to satisfy those wants• Resources are limited• In a market economy, you choose what

resources you will use to produce, how much, and the price

• You create market forces of demand and supply

Demand• Law of Demand - the quantity of a good or service that

consumers are willing and able to buy at various prices during a given time period

• When the relationship between price and quantity demanded is shown on a graph, it is called a demand curve

• Downward from left to right (As price goes up, quantity demanded goes down)

Supply

• Supply is the quantity of a product that producers are willing and able to make available for sale at various prices over a given time period

• Law of supply: producers are willing to offer more of a product for sale at higher prices than at lower prices

• As the price rises, the quantity supplied increases• The relationship between price and quantity

supplied is shown in the supply curve

Equilibrium

• By combining the supply and demand curves on the same graph, you can see how supply and demand together determine how much of a product will be produced and the equilibrium price

• Equilibrium – price at which the quantity supplied exactly equals the quantity demanded

• In other words, consumers are willing and able to buy the same amount of the product as producers are willing and able to supply

Draw in Equilibrium

Surplus

• Excess quantity supplied• Eventually will force producers to lower the

price• As price comes down, consumers will buy

more until it returns to equilibrium

Shortage

• Consumers are willing and able to buy a lot at low prices

• They are willing to buy more than are available for sale

• Producers will start raising the price again until it reaches equilibrium

Challenges for the U.S/Market Economies

• Unemployment• Income and wealth gaps• Other: Environmental pollution, economic

instability, discrimination

Using the Internet

• Employment data– www.whitehouse.gov/fsbr/esbr/html

• Family income distribution– www.census.gov/hhes/income/histinc/f02.htlm

Closure

• What factors determine what will be produced and at what prices in a market economy? Command economy?