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Basic Economics
Study of how people meet their wants and
needs.
What goods and services should be
made?
How should the goods and services be
made?
Who consumes those goods and
services?
Introduction: Island Survivors
Imagine that your class is flying to Hawaii for a trip and
suddenly the plane goes down. Luckily everyone
survives the crash and swims to an uncharted island.
The island is small and has a limited amount of fresh
water, trees, animals and other natural resources.
Three weeks pass and there is no sign of rescue.
These natural resources need to be used wisely in order
to survive for a long amount of time .
Basic Economics
I wanted to buy 3 Hummers and give them to
some students in the class.
But I didn’t have the money to buy 3 Hummers.
Not Enough Resources
• Producers rely on different
types of resources to make
goods and services.
• The amount of resources is
limited.
• As a result, the goods and
services that can be made
are also limited.
• However, what we want
and need is not limited.
Basic Economics
Scarcity: the conflict between peoples unlimited
desires and limited resources
 Basically you can’t get everything you want
because you don’t have enough time, money
or resources.
 What are some scarce things in the world?
Fresh water( water you can drink)
Food
Economics
Supply- amount of
good or service
https://www.youtube.c
om/watch?v=NpdZSdzymk
Demand – desire for
a certain item.
Making Decisions
As a result of scarcity, people must
make decisions. Consumers must
decide which products to buy.
Producers must choose which products
to make. Other choices are given up
when one choice is made. The next
best choice given up when you make a
decision is the opportunity cost.
© 2014 Created by Sally Camden ~ The Reflective Educator ~ www.thereflectiveeducator.com
Opportunity Cost
Opportunity cost is not how much
money you spend to buy something. It
is what you gave up instead. Suppose
you have $20 to spend. While
shopping, you notice a sweater you
like and a new book by your favorite
author. They each cost $17. You
cannot buy them both. What will you
decide? If you buy the sweater, then
the opportunity cost is the new book.
You gave up the book so you could
have the sweater.
https://www.youtube.com/watch?v=8
QLkhmsvKLo
More Than Money
Not all decisions involve
money. What if your friend
invited you to a birthday party
but you already had a camping
trip planned that day? If you
decide to go to the party, the
opportunity cost (what you gave
up) was the fun you would have
while camping. Opportunity
cost is the value of the next best
choice.
Making Goods and Services
Producers- people
that make and sell the
products
Consumers- people
that buy or consume
products.
A Web of Decisions
Consumers and producers make
decisions that affect each other in many
ways. If you buy the sweater instead of the
book, the clothing store gets your money.
The book store doesn’t. The clothing store
now has money to pay the sales clerk who
sold you the sweater. The sales clerk gets
paid and spends her income on other
products. Every decision affects other
people and businesses.
Economic Process
Goods and services are exchanged in a
market.
Business want to make a profit.
Product costs to make is $3.00
It Sells to consumer for $5.00
Business makes
$2.00 profit
Making a Profit
Companies try to reduces expenses and
increase revenue.
Prices of resources and expenses can
increase or decrease revenue and profit.
Competition – Companies compete for
your business.
Think of your favorite commercial.
Advertising increases the demand.
Candy Plan
I can’t give you hummers, but I can give some candy bars to
some of my students
But the problem is I’m not sure what type of candy bars and
who I should give them to.
I want you to decide what candy bars and how the bars
should be distributed.
Candy Plan
You will create a plan that decides what type
candy bars and how the candy bars are distributed
(given) to students.
Then all the students will vote on which method is
the best.

If your method is chosen then you automatically get 1 of
the four Candy Bars.
We will use a distribution method that is chosen.
Candy
Bars to be
Selected
How do the Candy
Bars get to our
Students????
Candy Plan
Students will be able to suggest a plan and the class will
vote and write down the top four plans. Then the class
will vote again, but only on the top 4 plans to pick a
winning plan.
Example: Plan: Kit Kat Bars: Only for the students who
were never late to class. Teacher will randomly draw
those students names from a jar.
Plan 1:____________________
Plan 2:____________________
Plan 3: ____________________
Plan 4:____________________
Candy Plan
What have you created when you thought of a
candy bar and a way to distribute the candy bars?
Economic System: How do we decide what to
make, how to make it and for whom?

Traditional
Based on tradition, custom or culture

Market
Individuals have businesses (free market or capitalism)

Command
Based on a powerful government telling people what to do.

Mixed
Based on producers and sellers but there is a little government
control.
Candy Plan
How would the different economic systems distributed the
candy?
Traditional



Maybe only the boys or girls get to eat the candy.
Maybe the oldest students get to eat the candy.
Maybe only the first born get to eat the candy
Command

Maybe the only the principal decides who gets the candy.
Candy Plan
Mixed Economy
 Maybe the principal tells me that I can only
sell them to students who have never
been tardy to class. (Command)
 Then I decide that I will only sell it to those
students for $1 (Free Market)
Traditional
1. What
goods/services
will be produced?
2. How will
goods/services be
produced?
3. Who will
consume the
goods/services?
Command
Market
Economic Systems
Each country has a limited supply of natural resources.
Every country needs to create an organized way to have
goods made and services provided to customers.
If there isn’t an organized system of producing goods
and services, then the citizens of a country will fight over
natural resources like little children.
Economic Systems
1.
2.
3.
There are basic Economic question for any nation:
What are we producing/servicing?
For Whom are we producing/servicing?
How are we producing/servicing?
To answer these questions, economic systems were
created.
Economic Systems
1.
2.
3.
4.
Each economic system answers the 3
economic questions differently:
Traditional
Command
Mixed
Market economy
Traditional Systems
Social roles and cultures (the way of life) determines
what, for whom and how goods and services are
produced; based on how things have been done in the
past
Example: Some countries may say that your family are to
be only farmers and that you are to farm using hand tools
Example: Only males can be hunters and females can
only cook meals
Traditional Systems
Third World Countries: poor countries in Asia,
Africa and Asia usually have a traditional system
Low Productivity: they don’t make a lot of things

In these countries you usually wont find things like IPods
or TVs in these areas and there are no Wal-marts or
Best Buys
Traditional Systems
Barter System- trading for goods and services,
no money is involved when buying or selling
thing

Like trading food at lunch
The community owns the goods in the village or
city, no personal ownership
Problems with Traditional
System
Individuals don’t have the right to choose their
job; the past culture decides what you do.
The village or country is usually very poor and
have people have bad health.
Women are usually discriminated against based
on past culture.
Command Systems
Government determines what, for whom and how goods
and services are produced
Example: you may build a factory to make expensive
shoes, but later the government may tell you to start
making coats at a low price.
Example: The government may forbid its citizens from
selling candy because the government think candy is bad
for its citizens’ teeth.
Command Systems
Countries with a command economy usually
have a government that is communist:

government completely controls the economy and
government (no political freedom like voting and
speech)
North Korea
Cuba
Problems with Command System
Individuals don’t have the right to run their business the way
they want to
The government may be bad at deciding what and how to
make things
Government Corruption: government stealing money or
taking bribes
Command Economies are usually found in poorer countries
The Economic Continuum
command
Cuba
Market
Russia
Germany
UK US
Australia
Reflection:
If you had to choose between living in a country with a
traditional or command economic system, which country
would you choose and why?
Why would you choose one over the other?
Write your answer down and be prepared to share with
your “elbow partner” and class.
Market System
Producers and Consumers make
decisions
Capitalism- free market
Encourage entrepreneurs to establish
new business
Economic freedom
Mixed System
Individuals determines what, for whom and how
goods and services are produced with little
government control
Individuals decide:



What to sell
Whom to sell to
How to produce or service
Mixed Systems
Individuals own the machines and tools that make the good
or provide a service
Producer + Consumer = Free Market
Market determines the price
 Price goes down if no one buys a good/service
 Price goes up if there is high demand for a good/service
Mixed Systems
Most democratic countries realize they want individual freedom to
run their business but realize that there needs to be some laws to
protect it citizens from bad business
Most national economies today are Mixed economic system.
 Mixture of individual and government control
Mixed
Economic
Systems
Example: Government may allow businesses to sell alcohol or
cigarettes but they cant legally sell it to children because the
government passed an age requirement law.
Example: The government says you can sell milk, but you
can’t sell it if you know that it is contaminated or has a high
level of germs.
Mixed Economic Systems
Even though most countries have a mixed
economy, many mixed economies are called
the following in the real world:
 Market Economy
 Free Market Economy
 Free Enterprise Economy
Youtube Link
Teacher Directions:
Click on the link below to have students watch a report
on Mayor Bloomburg’s Soda Tax
Questions to the clip are on the next slide
Preview the clip. Check for any inappropriate side videos
or comments before putting it up on the screen.
Put it in Full Screen Mode to minimize other content
http://www.youtube.com/watch?v=MTY0qMTMSl4
New York City Soda Law
What are your thoughts on this law?
What were arguments for and against the
law?
What type of economic system is shown
by this law? Explain why.
Do you think the government should
regulate drink sizes? Explain why or why
not?
Economic Development
Measuring Economic Development

Developed countries-20% of the world
United States
Japan
China
Developing countries- lower standards of
living
Haiti
Jamaica
• GDP is the total value of all the goods and
services produced in that country in one year.
• It measures how rich or poor a country is.
• It shows if the country’s economy is getting better
or worse.
• Raising the GDP of a country can improve the
country’s standard of living.
•
Economic growth in a country is measured by the
country’s Gross Domestic Product (GDP) in one
year.
o It measures only what has been produced within
the country--this doesn’t include products that
are imported.
o It is much better for the economy of a country to
produce its own goods and services (this increases
the country’s GDP).
• Measuring the GDP each year can:
• Compare one country’s economy to another
•
•
•
The more goods a country has, the more goods & services they
are able to produce.
If a business is to be successful, it cannot let its equipment
break down or have its buildings fall apart.
New technology can help a business produce more goods for
a cheaper price.
•
Money is NOT a capital good, but rather a medium of
exchange!
• The higher a country’s GDP, the better
standard of living for the people within the
country.
• In order for a country to have an increasing
GDP, it must invest in human capital through
education & training, and it must produce
goods that have value to be sold within the
country or exported.
• This involves the exchange of goods or
services between countries.
• International trade is described in terms
of:
o Exports: the goods and services sold
other countries
o Imports: the goods or services bought
from other countries
• Countries trade goods because no
country has all the resources necessary
Exchange of goods and services in a
market
Exports- made within a country sold
outside that country
Import – made outside a country and
brought into that country
• A tariff is a tax put on goods imported from other
countries.
• The effect of a tariff is to raise the price of the
imported product.
• It makes imported goods more expensive so that
people are more likely to purchase lower-priced
items produced domestically.
• Tariffs are taxes charged for goods that leave or enter a
country.
• In order to get a product from another country, you
have to pay extra for it.
• It is the same concept as sales tax that is put on items
your purchase at the store.
• Think of how many goods the United States imports.
• How do you think tariffs might affect the economy?
• How do you think this affects world trade?
• With free trade, nothing hinders or gets in the way of two
nations trading with each other.
• Countries sometimes set up trade barriers to restrict trade
because they want to produce and sell their own goods:
• Trading is difficult because things get in the way.
• There are costs and benefits related to free trade as well as
trade barriers.
•
Natural barriers can slow down trade between nations by making it
harder and more expensive to move goods from place to place.
•
Example: The Swiss Alps make it difficult for northern Italy to trade
with Switzerland. The countries are building tunnels through the
mountains to help make trade easier.
•
Example: The Sahara Desert makes it extremely hard for countries in
Northern Africa to trade with the rest of the continent.
• Tariffs increase the price of imported goods.
• The tax on imported goods is passed along to the
consumer so the price of imported goods is higher.
• Less competition from world markets means there is an
increase in the price of goods.
• With quotas, there is a smaller variety of goods available
for consumers to choose from.
Money Management
Budget- income should be more than budget
wages – bills = savings
Saving –setting money for future use
Interest- cost for using the bank’s money
Credit-an arrangement with the bank saying
you will pay it back
Making your own money
Investing-using money to make a profit
Stock-share of ownership
Bond- company promising to pay you
interest
• Entrepreneurship creates jobs and lessens
unemployment.
• It encourages people to take risks, and in doing so,
they’ve created better healthcare, education, & welfare
programs.
• The more entrepreneurs a country has, the higher the
country’s GDP will be.
• People who provide the money to start and
operate a business are called entrepreneurs.
• These people risk their own money and time
because they believe their business ideas will
make a profit.
• They bring together natural, human, and
capital resources to produce foods or services to
be provided by their businesses.
• Entrepreneurs have 2 characteristics that make them
different from the rest of the labor force:
• 1. innovative (have creative ideas)
• 2. risk taker (use limited resources in an innovative
way in hopes that people will buy the product)
• It can be several things:
• Starting your own business
• Inventing something new
• Changing the way something was previously done
so that it works better