Unit 1.4 | European Economics

​Unit 1.2 | European Economics

​Part 1 | Economic Systems

​Scarcity and the Economic Questions

• ​Scarcity occurs when nations don't have the ability to provide its citizens with all the goods (things you can use) and services (skills or talents provided to people).

• No nation can provide its citizens with everything they need, so to get around the scarcity problem, nations focus on the resources they do have. After that, they must ask themselves the three economic questions to determine how to best use their limited resources. Those questions are...

1. ​What to produce? In other words, what can we produce with the resources we have available?

2. How to produce it? In other words, what is the best type of economy to produce goods/services and get them to the people?

3. For whom are we going to produce it? Who are the people that need the goods and services the most?

​Economic Systems | Traditional

• ​In order to answer the three economic questions, nations or groups of people decide on an economic system to use. For much of human history, people lived in small groups, tribes, or villages so they answered the three economic questions by using a traditional economy.

• In a traditional economy, money is not used. Instead, citizens trade/barter (exchange one good or service for another). They learn how to produce goods and provide services using skills passed down from generation to generation.

• Traditional economies work well in small groups where the people know and trust each other. However, when populations grow, the need for money comes about as a trusted form of payment for goods and services among strangers.

• For this reason, there are few traditional economies left. Modern cities and countries are simply too large for traditional economies to work.

​Economic Systems | Command

• ​Another economic system is known as a command system. This is one in which the government controls all parts of the economy. It is sometimes called a "planned economy" because it is solely the government's responsibility to decide what to produce, how to produce it, and who to produce it for.

• Typically, autocratic governments in which citizens have little to no rights and there is one supreme leader have more command economies. This is because in order to maintain control of the government, the ruler needs money, and having a command economy ensures that any and all money needed to keep power, keeps flowing back to the one leader.

​Economic Systems | Market

• ​A market economy, also known as a "free market" economy, is one in which entrepreneurs, businesses, and companies have complete control of the economy. Supply and demand control what/how/and for whom goods and services are produced.

• Since citizens control market economies and not the government, you see them much more often in nations that have democracies.

• This is because in order for citizens to freely participate in the economy, they must have written rights and freedoms protected by their government. Protected rights and freedoms are common in democracies, but not in autocratic governments.

• One drawback of economies that are close to pure market however, is the fact that businesses and large companies and corporations can more easily take advantage of customers and citizens if the government is not there to put laws in place protecting them.

​Economic Systems | Mixed

• Nearly every economy is mixed today. This means that they have some command traits and some market traits.

• The economic continuum is a scale that ranks countries based on the command/market elements present in their economies.

• Too much command or too much market can be a bad thing. Most countries mix it up because the government is good at providing people with needs, while private businesses are better at providing citizens with wants.

Multiple Choice

An economic system in which the government controls what, how, and for whom goods and services are produced.

• Command

• Mixed

• Market

• Traditional

Multiple Choice

An economic system in which the businesses, companies, and entrepreneurs control what, how, and for whom goods and services are produced based on supply and demand.

• Market

• Traditional

• Command

• Mixed

Multiple Choice

An economic system in which the government and businesses, companies, and entrepreneurs each control at least some of what, how, and for whom goods and services are produced.

• Command

• Market

• Mixed

• Traditional

Multiple Choice

An economic system in which money is not used and citizens trade/barter for goods and services that are produced using skills and traditions passed down from one generation to the next.

• Command

• Market

• Mixed

• Traditional

​Part 2 | Economic Growth Factors

​What is GDP and GDP Per Capita?

• ​GDP or "Gross Domestic Product" is a total for the value of all the goods and services produced in a country in one year. It is a good indicator for how a country's economy is doing.

• GDP Per Capita takes a country's total GDP and divides it by its population. This gives you an average for the amount of money that each citizen makes.

• GDP per capita gives us a better picture at a country's standard of living (the overall quality of life a person has) because knowing how much on average citizens are making, lets us know what people can afford.

• There are five main ways to increase GDP/GDP per capita.

​Raising GDP | Natural Resources

• Every country needs resources to produce goods. Natural resources are any raw, or natural good that has value in an economy. Such as oil, fresh water, wood, metals, minerals, fish, and farmland. ​

• When nations have plenty of natural resources, they are able to sell or trade what they don't need to other countries for profit.

• By selling these surplus, or extra, natural resources, countries can increase their GDP.

​Raising GDP | Capital Goods

• ​Capital Goods are machines, factories, and technology. Nations and businesses need these to increase production so they can get their jobs done faster and easier.

• As time goes by, newer and better capital goods are invented. By spending money on these new capital goods, nations and businesses are able to make more money in the longrun because it will make them more efficient at their jobs.

​Raising GDP | Human Capital

• ​Human Capital is associated with the talents and skills that people provide. Such as teachers, lawyers, scientists, and factory workers. All these people bring specific skills and talents to a job that would be impossible without them.

• If nations and businesses want to be more efficient and productive and increase GDP, they must invest money in human capital as well.

• They can do this by hiring people with these talents and skills, or by providing training and education on the job to improve the talents and skills of the workers they already have.

​Raising GDP | Entrepreneurship

• ​An entrepreneur is a person that risks their assets (possessions) and money to start a new business.

• Entrepreneurs are important because if they are successful, they bring new ideas, products, and jobs to the economy. This will eventually increase GDP.

• If a nations/governments wants to increase their GDP, they need to make it easy for entrepreneurs to get started and grow their business.

• Governments can do this by making it cheaper/easier to get a business license, and limiting taxes on new and small businesses.

​Raising GDP | Literacy Rate

• ​Literacy is the ability to be able to adequately read, write, and do basic math. Countries measure this by using literacy rate. This is a percentage of citizens within a country that can read and write by the age of 15 most of the time.

• If large amounts of a nation's population is not literate, they cannot perform basic tasks at a job. This leads to them not being able to participate in more difficult, higher-paying jobs in an economy, which ultimately leads to a decrease in GDP for a nation.

• To get around this nations must invest in free, mandatory, public education. Such as K-12 schooling in the US.

Multiple Choice

Which of the following choices is the BEST way to measure standard of living for individual citizens?

• GDP per capita

• GDP

• Entrepreneurship

• Natural resource availability

Multiple Choice

Training an electrician on new wiring techniques, training a teacher on new classroom strategies, and education a fireman on fire safety in a skyscraper are all examples of investing in...

• literacy rate.

• human capital.

• entrepreneur assistance.

• capital goods.

Multiple Choice

A construction business purchasing new tools for a job, a pastry company building a new factory, or a school purchasing new computers for all of its students are examples of investing in...

• human capital.

• natural resources.

• literacy rate.

• capital goods.

Multiple Choice

_____________ bring new products, ideas, and jobs to economy by risking their money and/or assets to begin a new business.

• Dictators

• Entrepreneurs

• Governments

• Traditional economies

Multiple Choice

Look at the pictured chart regarding literacy rate. How can you tell that most countries around the world have improved their literacy rates?

• Literacy rates in Africa have risen.

• Literacy rates in Australia and Latin America have decreased.

• Literacy rates for the younger age group have increased.

• Literacy rates for the older age group has increased.

​Part 3 | Specialization and Trade

​What is Specialization?

• ​Specialization is when a nation excels at producing a particular good or services better, faster, and/or cheaper than other nations.

• It is important for nations to specialize in as many goods and services as possible because then more nations will want to import (to bring foreign goods in) these goods/services from them.

• For example, recently Brazil has begun to specialize in and export (send goods to other countries) coffee, cattle, and steel. Now, much of the United States' steel and a significant portion of its coffee imports come from Brazil. However, since the US is also a major cattle producer, it does not need Brazilian cattle as much as other nations around the world.

​Why Trade Barriers? | Tariffs

• ​Trading between nations is not always so simple. Often times nations want to protect their goods from other nations or stop trading with them entirely. In these cases, nations use trade barriers. Which are limits on trade set up for different reasons. There are several types of trade barriers that countries can use. One of the main types is a tariff, or a tax on imported goods. But why would a country put a tax on another country's goods?

• Country's put tariffs on imported goods from other nations to protect businesses making the same goods in their own country.

• For example, Brazil specializes in cattle, but so does the United States. In order to protect the cattle industry from cheaper Brazilian cattle entering the country, the US government will put a tax on Brazilian cattle imports so the prices are the same.

​Why Trade Barriers? | Quotas

• ​A quota is a limit on the quantity of a particular good or service that is allowed to be imported into a country.

• Just like a tariff, a quota is meant to protect a country's goods and services from cheaper foreign goods coming in.

• For example, the United Kingdom produces a fair amount of oil but not as much as Russia. If the UK allowed Russia to export as much oil as they wanted to the UK, the UK oil companies would not be able to compete with the cheaper Russian oil coming into the countries, so they would eventually fail.

• A quota allows countries to trade with each other, but prevents foreign companies from flooding the market with so much goods that it makes it hard to compete with their prices.

​Why Trade Barriers | Embargo

• ​An embargo is when two countries totally stop trading with another, usually over political disagreements.

• Countries use trade embargos to hurt other nations economically without having to get into an armed conflict.

• For example, when Cuba sided with the USSR during the Cold War in 1959, the United States put an embargo on them. The US wanted to hurt Cuba by damaging its economy, but did not want to risk war with the USSR by attacking them.

Multiple Choice

Producing a good or service better, faster, and/or more cheaply than other nations is known as...

• imports

• a trade barrier.

• specialization

• exports

Multiple Choice

An ______ is when a country brings in goods or services from another.

• import

• specialization

• export

• trade barrier

Multiple Choice

An ______ is when a country sends goods or services to another.

• import

• trade barrier

• specialization

• export

Multiple Choice

A trade barrier in which a nation limits the quantity of imports allowed into their country.

• tariff

• quota

• embargo

• specialization

Multiple Choice

A trade barrier in which a nation taxes imports to protect their country's goods and services from cheaper foreign ones.

• embargo

• quota

• import

• tariff

Multiple Choice

A trade barrier in which a nation completely stops trade with another usually over political disputes.

• tariff

• quota

• embargo

• specialization

​Part 4 | Economics Around the World

​Economies Around the World | United Kingdom

• ​Today the UK is the closest country we have studied from Europe to a pure market economy as shown on the continuum.

• The reason for this is it only takes about 5 days on average to open a business in the UK. Also, citizens are free to own land, factories, natural resources, and businesses. The government only controls taxes, trade, and certain public services.

• However, since leaving the European Union in 2016, the United Kingdom's GDP per capita has decreased.

United Kingdom Economic Information

• Literacy Rate - 99%

• Business Freedom - 90%

• GDP Per Capita (2021) $45,000

​Economies Around the World | Germany

• ​Germany ranks roughly in the middle of the economic continuum.

• Although Germans are able to own land and run businesses, the government collects high taxes to pay for welfare and other social services for its citizens.

• Thanks to it's investment in capital goods, especially factories along the Rhine River, Germany has the highest GDP per capita of the countries in Europe we study.

Germany Economic Information

• Literacy Rate - 99%

• Business Freedom - 86%

• GDP Per Capita (2021) $53,200

​Economies Around the World | Russia

• ​After the collapse of the Soviet Union in 1991, Russia has struggled to gain a more market economy. Despite a high literacy rate, trying to train and educate its workforce, and update its capital goods, its GDP per capita remains low.

• This is mainly due to Russia's government being more autocratic than other European nations. This has led to a more command economy also.

Russia Economic Information

• Literacy Rate - 99%

• Business Freedom - 74%

• GDP Per Capita (2021) $28,000

​The European Union

• ​The European Union is a collection of 25 European countries that joined their economies in hopes of creating one strong unified economy.

• The EU is a confederation, meaning that its member countries have more power than the EU and are able to control their own governments. The EU has little power to make major decisions outside the economy for its members.

• All member nations also share a single currency called the Euro, which today is one of the more valuable currencies on Earth.

​Benefits of the European Union

• Helps promote peace and stability among the member nations.

• Promotes trade and travel among the member nations.

• Helps protect the citizens and environment.

• Has a single currency for member nations (euro)

Multiple Choice

Which of the following is NOT a reason as to why the United Kingdom is ranked where it is on the economic continuum?

• It only takes about 5 days to open a business.

• Its literacy rate is 99%.

• Citizens control land, factories, and businesses.

• Its government collects high taxes.

Multiple Choice

Which of the following is NOT a reason as to why the Germany is ranked where it is on the economic continuum?

• Its literacy rate is 92.4%.

• Its business freedom 86%.

• Citizens control land, factories, and businesses.

• Its government collects high taxes, in order to provide more social services.

Multiple Choice

Which of the following is NOT a reason as to why the Russia is ranked where it is on the economic continuum?

• Over 70% of citizens have some sort of government job.

• Its business freedom 74%.

• Citizens control land, factories, and businesses.

• Its government collects very high taxes.

Multiple Choice

Which of the following is NOT a benefit of the European Union?

• To increase the strength of member-nations' military.

• To promote peace and stability among the member-nations.

• To increase the strength of member-nations' economies and have a shared currency (Euro).

• To protect the environment and open up free trade.