economics leap review. market system market system: free enterprise or capitalist system people are...
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Economics LEAP Review
Market System
• Market System: free enterprise or capitalist system
• People are allowed to own property and operate businesses with little government interference
• Government doesn’t own all property or tell people how to earn a living; works to ensure fair business practices, safe environment, and consumers are protected
Command System
• Command System: a small group of government officials decides how to answer the four questions of economics
• Government commands the choices about production
• Also called Planned because central or gov. planners control most of the resources and decide how they should be distributed
• China and Cuba
Traditional System
• Traditional Systems: economics are based on custom and tradition;
• Tradition provides the answers to the four basic questions
• jobs are handed down from father to son;
• men and women work different jobs• Produce enough for survival• Third World Countries• Maasai in East Africa; Inuit; Aborigines
Three Types of Resources
1. Natural Resources: resources found on Earth such as land, forest, water, and minerals
-Some renewable; some non-renewable2. Human Resources: labor; work of humans3. Capital Resources: all money, tools,
equipment, and buildings used to produce goods and services.
Economic Cycle
Supply
• Supply: the amount of goods and services available
• The Law of Supply: as the price of a good rises, the quantity supplied will rise.
• Therefore, if the price decreases, the supply will ____________
Demand
• Demand: the level of “want” for goods and services
• The Law of Demand: says that when the price of a good or service rises, the amount demanded goes down.
• Therefore, if the price decreases, the demand will _______________.
Allocation, Efficiency, and Scarcity
• Production based on availability of resources and demand
• Must use resources efficiently• Businesses don’t want to produce too few or too much
• Scarcity can affect production and prices
Opportunity Cost
• Trade-off: choice of one over the other• Example> After you pay all of your bills, you
have $1,000 left. How do you spend it?• Vacation? Save money? Spend it going out
and playing? • Opportunity Cost: the cost of what you give
up Example> if you spend the $1,000 on video games, your opportunity cost is what?
Taxes
Reason for taxes:• Government can pay for
goods and services we use• Income Tax: based on
earnings• Property tax: based on
home and property values• Sales tax: based on
purchases• User fees: admission of
state parks, ferries, and toll bridges
Inflation and Deflation
• Inflation: occurs when the demand for goods and services is greater than the supply
• Prices rise• Deflation: occurs when there is a greater
supply of goods and services than there is demand for them.
• Prices fall
Gross Domestic Product
• GDP: value of all goods and services produced in the United States in one year
• Shows how well the economy is doing
• If the GDP increases each year> the economy is _______________
• If the GDP decreases each year> the economy is _______________
CPI
• Consumer Price Index (CPI): measures changes in the prices of necessary items
• Food, clothing, housing, transportation, and medical care
• Calculated monthly by the Bureau of Labor• Used to calculate inflation rate
Why is foreign trade necessary?
• 1. People cannot obtain all the things they need or want in their own country
• 2. Foreign relations; Countries may supplement their political and military alliances through foreign trade
• 3. A country may lack enough consumers to buy the goods it produces.
• Balance of Trade: difference between a country’s exports and its imports
• Trade Surplus: If it exports more than it imports
• Trade Deficit: if it imports more than it exports
• United States has a _______________
Foreign Policy
• Foreign Policy: a plan that a nation uses to deal with other nations
• National Security: Foreign Policy goal that tries to keep the country safe from attack
• US Foreign Policy goals: National security, international trade promoting world peace, democracy, and human rights
1. Isolationism: Policy that stats that a nation should interact politically as little as possible with other nations so that it can exist peacefully by itself in the world
2. Protectionism: The policy of placing barriers in the way of trade among countries; a tariff is one such barrier to save domestic jobs
3. Sanctions: Penalties against nations that have violated international law
Foreign Policy
4. Embargo: prohibition on trade with another country5. Diplomacy: The way in which a nation conducts
relations with foreign governments6. Foreign Aid: Assistance given to help other
countries7. Alliances: Formal Unions or agreements among
nations