What is Economics? ECONOMICS IS THE SCIENCE OF THE PRODUCTION AND DISTRIBUTION OF WEALTH. ECONOMICS IS A SYSTEM THAT INCLUDES ALL OF THE ACTIVITIES THAT PEOPLE AND BUSINESSES DO TO EARN A LIVING. Economy 3 questions 4 types Questions What should we produce? How should we produce the product? For whom, should we produce the product? Four Types Traditional, market, command, and mixed Traditional Individual produces most of what a family needs to survive. Production & distribution ?’s are answered by looking at the past Underdeveloped Nation A poor nation whose main economic activity is subsistence farming Caste System System of rigid social classes in which people’s castes determine what jobs they can have Command Government controls what goods are produced, how they are produced, and what they cost Production & distribution ?’s answered by central planners Developing Nation A nation whose economic base is changing from farms to factories Market Production & distribution ?’s answered by prices & profits Businesses produce & sell goods for $ / what consumer needs People earn what they think they need Capitalism Economic system in which resources & means of production are privately owned & prices, production & distribution of goods are determined mainly by competition in a free market. Developed Nation A rich nation whose main economic activity is manufacturing & providing services democracy a form of government in which people elect leaders & rule by majority Mixed Individuals make some economic decisions & government makes some decisions Socialism An economic system in which the government owns resources & controls the economy Standard of Living The level of people’s needs & wants fulfilled by a society, increases as productivity increases Government & Economy GDP: gross domestic product / the total value of goods & services produced in a country during a year Gross Domestic Product (GDP) is related to changes in economic factors, such as employment. GDP does not directly measure education, health, life expectancy, leisure, protection from crime or environmental protection, but only the amounts of money that are spent with regard to these goals. •A country’s Gross Domestic Product can show if the economy is growing or shrinking. •It is a standard by which the economy as a whole can be judged. •It can be used to compare one economy with another. •It can also be used to compare an economy with itself over time. Trade Conti… Specialization: concentrating on 1 area of work Import: good or material for trade or sale brought into a country form somewhere else Export: good or material sold or traded to another country Trade Restrictions Embargo: decision by 1 country to eliminate all exports to & imports from another country Tariff: a tax on imported goods Quota: trade restriction that limits the amount of a good that can be imported 1) Look at the pictures on 2) the right. Which of these pictures 3) show goods and which 4) ones show services? There was a scarcity of cones 1) at Bubba’s. Scarcity means that there are limited resources, and therefore, 2) people must make choices. Look at the pictures on the 3) right. Which pictures show a scarcity? Scarcity in Underdeveloped Nations Not enough farmland, water, and food Lack of medical personnel, supplies, and facilities Lack of transportation for goods Lack of building materials Lack of employment Lack of capital for investment Lack of education What is opportunity cost? Andy had $65.00 Sara had enough to spend at the money for either toy store. The the rabbit or the basketball net bike. She decided cost $50.00, so to buy the bike he had to buy that because then she instead of the could ride bikes skateboard, which with her friends cost $75.00. after school. Opportunity Opportunity cost is Costs the process of choosing one good or service over another. The item that you don’t pick is the opportunity Purchases cost. The rabbit is Sara’s opportunity cost and the skateboard is Andy’s opportunity cost.