ECONOMICS: PART 1

MICROECONOMICS IS…

…the study of the choices people make to satisfy their needs and wants.

MACROECONOMICS IS…

…the study of the choices countries make in order to satisfy their needs and wants.

AN ECONOMIC SYSTEM IS…

…the way a country produces and exchanges goods and services.

There are four types of economic systems:

traditional, command, market and mixed

TRADITIONAL ECONOMY

Goods and Services are traded withoutexchanging money. Also called “barter”.

MARKET ECONOMY

Production of goods and services isdetermined by the demand from

consumers.

Examples: Free EnterpriseCapitalism

COMMAND ECONOMY

Production of goods and services isdetermined by a central government,

whichusually owns the means of production.

Example:Communism

MIXED ECONOMY

A combination of command and marketeconomies provides goods and services

sothat all people will benefit.

Examples include combinations of mixedand command economies.

ECONOMIC SYSTEMS:SATISFY NEEDS AND WANTS WITH…

Goods – Things we can touch or see that satisfy our wants or needs.

Services – Actions people undertake in order to satisfy their wants and needs.

ECONOMIC INDICATORS:

Resources - A country’s access to and use of resources has a major impact on its economic development.

Development requires access to raw materials, such as minerals and trees, that can be turned into useful products.

Development also requires energy resources such as coal, oil, water, natural gas, or uranium to operate factories.

Businesses use three types of resources to produce goods and services.

Natural HumanCapital

NATURAL RESOURCES

Resources that are present without human interference.

They are “gifts of nature”. Examples include land, timber and

mineral deposits.

HUMAN RESOURCES

Any human effort used to produce goods and services

Examples include workers, their skills, training and education

CAPITAL RESOURCES

Include the “tools of production” which are any of the goods used to produce other goods/services.

Examples include tools, machinery and buildings.

Money used to purchase these resources is also a capital resource.

IDENTIFYING RESOURCES:

cotton tractor marketing degree table saw computers

water driver’s license crude oil employees

factory building aluminum electrician’s license land

NATURAL

HUMAN CAPITAL

*NOTE ON RESOURCES

New technologies create new demand for resources.

Examples

Steam Engine Demand for Coal

Internal Combustion Machine Demand for Gasoline(Cars and trucks) (petroleum)

Computer Chips Demand for Skilled Workers

*NOTE ON RESOURCES

Because resources are not distributed equally on earth, countries must TRADE with one another.

More on trade later.

ECONOMIC INDICATORS:

Market Sectors – Economic activities can be divided into four categories or sectors.

1. Primary2. Secondary3. Tertiary4. Quaternary

PRIMARY ACTIVITIES

Businesses involved in gathering raw materials.

Examples include agriculture, mining and forestry companies.

SECONDARY ACTIVITIES

Businesses that take goods made in primary industries and change the goods into products that are useful to consumers.

Examples include automobile manufacturers and textile factories.

TERTIARY ACTIVITIES

Companies that provide business or professional services to consumers.

Examples include salespeople, teachers and doctors, banking, insurance.

QUATERNARY ACTIVITIES

Businesses that use skilled professionals to process information.

Examples include information research, management, and administration companies.

Market Sectors can be used to measure a country’s level of economic development. The more industrialized a country is, the more developed its economy.

Poorest countries have no industrialization (primary and secondary).

Next poorest countries are industrializing (primary and secondary).

Wealthier countries are postindustrial (tertiary and quaternary).

IDENTIFYING LEVELS OF ACTIVITY

_____ Hershey Chocolate Company _____ Pilot Gas Station

_____ Luck Stone Corporation _____ NTelos

_____ Law Well Drilling Inc. _____ Fry Appraisal Co.

_____Oak Lawn Cemetery _____ Walmart

_____Augusta Health _____ Hollister Manufacturing

*NOTE ON MARKET SECTORS:

The more developed an economy is, thegreater the number and variety of

market sectorsyou will find.

ECONOMIC INDICATORS:

Gross National Product or GNP – Gross national Product is the total value of goods and services produced by a country in a year, both inside and outside.

Gross Domestic Product or GDP – Gross domestic product includes only those goods and services produced within a country and does not include income earned outside that country.

ECONOMIC INDICATORS:

GDP Per Capita – A country’s GDP divided by the number of people in that country.

Per capita income is often used as an average income, a measure of the wealth of the population of a nation, particularly in comparison to other nations.

Per capita income is often used to measure a country's standard of living.