our global economy

Our Global Economy2-1 Economics and Decision Making2-2 Basics of Economics2-3 Economic Systems2-4 Achieving Economic Development2-5 Resources Satisfy Needs

CHAPTER 2

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LESSON 2-1

Economics and Decision Making

GOALS • Describe the basic economic problem.

• List the steps of the decision-making process.

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The Basic Economic Problem

• Scarcity **refers to the limited resources available to satisfy the unlimited needs and wants of people.

• Economics **is the study of how people choose to use limited resources to satisfy their unlimited needs and wants.

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Making Economic Decisions

• Coping with scarcity--How do we cope with scarcity?

• Making choices

**Every time you decide how to use your time, money, and energy, you are making an economic decision.

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The Decision-Making Process

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•Step 1 – Define the problem•Step 2 – Identify the alternatives•Step 3- Evaluate the alternatives•Step 4- Make a choice•Step 5 – Take action on the choice•Step 6- Review the decision

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LESSON 2-2

Basics of Economics

GOALS •Describe how the market sets prices.

•Explain the causes of inflation.

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Price-Setting Activities

• Supply - is the relationship between the amount of a good or service that businesses are willing and able to make available and the price.

--Baseball Cards/Video Tapes & DVD’s

• Demand - is the relationship between the amount of a good or service that consumers are willing and able to purchase and the price.

--Law of Demand(As price declines, demand increases.)

• Market price - is the point at which supply and demand cross.

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Market Price Is Set by Supply and Demand

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Changing Prices

• Inflation: An increase in the average prices of goods and services in a country.

• Demand-pull inflation: The situation when demand exceeds supply

• Cost-push inflation: The situation when the expenses of a business increase

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LESSON 2-3

Economic Systems

GOALS •Name the three main factors of production.

•Understand how different countries make economic decisions.

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Economic Resources Satisfy Needs

•Natural resources

•Human resources

•Capital resources SLIDE 11

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Natural Resources

• Also known as land, these resources are the raw materials that come from the earth, from the water, and from the air. Iron ore, gold, silver, agricultural products, rivers, and oxygen are examples of natural resources.

• These items are used in the production of goods and services consumed by individuals, businesses, and governments.

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Human Resources

• Also known as labor, these resources are the people who work to create goods and services.

• While technology has changed or eliminated certain tasks previously performed by people, new types of work are continually being created.

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Capital Resources

• Also called capital, these resources include buildings, money, equipment, and factories used in the production process.

• These items are expensive and are used over several years by business organizations.

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Economic System

The economic choices of a country relate to three basic questions:

1. What goods and services are to be produced?

2. How should the goods and services be produced?

3. For whom should the goods and services be produced?

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Types of Economic Systems

• Command Economies: where the government or a central-planning committee regulates the amount, distribution, and price of everything produced…Communism or Communist Countries.

• Market Economies: where individual companies and consumers make the decisions about what, how, and for whom items will be produced…Capitalism or Capitalist Countries. 3 Characteristics:• Private property-individuals have right to buy and sell productive

resources.• Profit motive-individuals rewarded for taking big risks and

working hard.• Free, competitive marketplace-consumers choose what is

produced and influence prices charged.• Mixed Economies: the situation with a blend between government

involvement in business and private ownership.

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LESSON 2-4

Achieving Economic Development

GOALS •Describe the factors that affect economic development.

• Identify the different levels of economic development.

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Development Factors

•Literacy level

•Technology

•Agricultural dependency

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Types of Development

• Industrialized countries: a country with strong business activity that is usually the result of advanced technology and a highly educated population.

• Less-developed countries: a country with little economic wealth and an emphasis on agriculture or mining.

• Developing countries: a country evolving from less developed to industrialized.

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Levels of Economic Development

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Low literacyLimited

technologyAgricultural or

mining economy

Improving literacy

Improving technology

Decreasing dependence on agriculture or mining

High literacyModern

technologyIndustrial

economy

Less-Developed Country

Developing Country

Industrialized Country

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LESSON 2-5

Resources Satisfy Needs

GOALS •Discuss economic principles that explain the need for international trade.

• Identify various measures of economic progress and development.

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The Economics of Foreign Trade• Absolute advantage exists when a country

can produce a good or service at a lower cost than other countries. (Natural Resources or Raw Materials…South America and Coffee; Canada in lumber sales; Saudi Arabia and Oil).

• Comparative advantage exists when a country can produce a good or service with more efficiency than other countries.

(Computers and Clothing example)

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Measuring Economic Progress

• Measure of Production• Gross domestic product (GDP): a measure

of the output of a country within its borders, including items produced with foreign resources

• Gross national product (GNP):a measure of the total value of all goods and services produced by the resources of a country

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International Trade Activity

• Balance of Trade- the difference between a country’s exports and imports.

• When a country exports (sells) more than it imports (buys), it has a favorable balance of trade called a trade surplus.

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International Trade Activity

• Foreign exchange rate: the value of one country's money in relation to the value of the money of another country (1 British Pound is equal to $1.56 US Dollars).

• Foreign debt: the amount a country owes to other countries

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Other Economic Measurements

• Consumer price index (CPI): the monthly United States federal government report on inflation-(general increase in prices in a country).

• Unemployment rate: percentage of population unemployed at a given period of time

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