Fundamentals Review

Types of Economies

What is Economics?

Why Study Economics?

Economics is simply
a social science that
focuses on the
choices people
make.

Multiple Choice

What is economics really about?

• money

• choices

• adulting

• education

Knowing about economics can help us understand WHY
people make the choices they do

★

Why do some people choose
not to go to college?

★

Why would someone buy a
more expensive product
when a lesser priced good is
available?

★

Why would someone drive to
Florida when they could fly?

Economic reasoning is everywhere, appropriate, and
always useful

★ It can be used by any age

group or culture, in any
situation or context.

★ The insights it provides are

powerful and can help you
make sense of the
confusing world around you.

Knowing about economics can help us unlock mysteries of
human behavior

★

Many mysteries can be solved by learning
how to identify incentives.

★

Incentives are rewards or punishments that
influence people’s actions.

★

When incentives change, people’s behavior
changes in predictable ways.

Multiple Choice

What are incentives?

• Your obligations to your job

• Giving your parents money for rent

• Rewards and punishments that influence your actions

• It sounds like insurance

Open Ended

Give an example of an incentive that would work for you

(ex. My incentive for working my job is getting a paycheck every two weeks)

By understanding economics, we can dispel common
myths and misconceptions.
★ Economics is all about institutions and

mathematical models

★ Economics is all about money
★ Bad choices have costs but good choices do

not

★ Sometimes people just have no choice

With economic knowledge, we can understand that
things are the way they are for a reason.
★ Why is the demand for Nintendo Wii’s so

great?

★ What is the price where the supply meets the

demand?

★ Why do so many people dislike monopolies,

but everyone seems to want to be one?

★ How can businesses stay in business when

they don’t earn a profit?

WHat is Scarcity?

A limited amount of
resources to meet
unlimited wants and

needs.

EVERYTHING is scarce!

Multiple Choice

What is scarcity?

• Being able to get everything you want, whenever you want

• Not getting anything you want at all

• A limited amount of resources to meet our unlimited wants and needs

Why do we have Scarcity?

We have Unlimited
Wants and Needs

But Limited Resources

Creates Scarcity…
So we need to make

Choices

Causes of Scarcity

1. Personal Perspective: your own feelings of
what is needed or wanted.

2. Poor Distribution of Resources: not using
your resources to their potential.

3. Rapid Increase in Demand: A sudden rush
to use resources can cause a shortage.

Open Ended

What is something you don't need to have but want it?

Ways we deal with Scarcity

1. Doing without something

2. Creating more resources

3. Making better use of our resources

Review! What is an economy?

An economy, or economic system, is the way a nation makes economic choices about how the nation will use its resources to produce and distribute goods and services.

Four Factors of Production

Remember we talked about resources? We discussed about human resources, natural resources, and capital resources. They are called factors of production. The last factor of production is entrepreneurship.

Multiple Choice

What is entrepreneurship?

• a person who works for a corporation

• those that manage and/or invest in a business

Multiple Choice

What is scarcity?

• having limited resources (there is a small amount available and will run out)

• having unlimited resources (there a lot of the resource available and won't run out)

Review! What are the questions that every economy, business, and individuals must answer?

WHAT goods and services should be produced?

HOW should the goods and services be produced?

WHO receives and consumes these goods and services.

Four Types of Economic Systems

These questions are answered by the type of economic system a nation has. There are four types of economies:

1.Traditional Economy

2.Pure Market Economy

3.Pure Command Economy

4.Mixed Economy

Let’s review each of these types of economies.

Traditional Economy

Economy is shaped largely by custom or religion. 

Customs and religion determine the WHO, WHAT, and HOW.

Example: India has a caste system which  restricts occupational choice. (A social class separated from others by distinctions of hereditary rank, profession, or wealth.)  

Open Ended

Can you think of another country or group of people that would have a traditional economy?

Pure Market Economy

NO government involvement in economic decisions.

Consumers decide WHAT should be produced. They do this through the purchases they make.

Businesses determine HOW the products will be produced. They must be competitive.

WHO buys the products? The people with the most money are able to buy more goods and services.

What's the Problem with Pure Market Economy?

• Difficulty enforcing property

    rights - no laws.

• Some people have few resources to sell - no minimum income.

• Some firms try to monopolize markets - conspiring and price fixing.

• No public goods. - national defense?

Multiple Choice

Is the United States a pure market economy?

• Yes

• No

Pure Command Economy

All resources are government-owned.

One person (dictator) or a group of officials decide WHAT products are needed.

The government runs all businesses, controls all employment, and decides HOW goods and services will be produced.

The government decides WHO receives the products that are produced.  

What is the Problem with Pure Command Economy?

• Consumers get low priority.

• Little freedom of choice – few products.

• Resources owned by the state are often wasted – individuals don’t care if they don’t own it.

Multiple Choice

In Command Economy, does the government control all factors of production?

• Yes

• No

Mixed Economies

Most economies in the world today are mixed. 

Classification is based on how much government intervention there is.

In the U.S. the government accounts for about 1/3 of all U.S. economic activity.

Poll

Which economic system do you think is the best economy?

• Traditional

• Pure Market

• Pure Economy

• Mixed

Multiple Choice

Which of the following is the best "economics" definition for the word "Resource?"

• A material removed from earth using human labor

• Anything that can be used to make something else

• When you "source" again and again and again.

Multiple Choice

During the industrial revolution, new machines made it possible to produce products more rapidly and less expensively than ever before. As a result, one could argue that the economic growth created by the industrial revolution was founded on an increase in.... which of these "factors of production?"

• Land

• Labor

• Physical Capital

Multiple Choice

Which of the following is the best "economic" definition of "Scarcity?"

• Scarcity is a state of shortage, in which people don't have enough of an important resource... like food.

• Scarcity is when people have been badly beaten up, and so everyone has lots of "scars." Get it, it's like "Scar-city"

• According to the principle of scarcity, society ALWAYS has limited resources and so it can never produce all the goods & services people wish to have.

Multiple Choice

Which of the following resources is NOT (technically) scarce? (Even if it is a bit unusual)

• Appleseed

• Corn

• Knowledge of Central Asian Geography

Multiple Choice

Which of the following resources is NOT scarce?

• Diamonds

• Smallpox

• Copper

Multiple Choice

Which of the following best describes scarcity?

• Having unlimited resources
  
  

• Having excess production capacity

• The condition of not having enough resources to produce desired items

• The distribution of wealth in society

Multiple Choice

What distinguishes a good from a service?

• A good is tangible and can be owned; a service is intangible and involves an activity.
• A good is intangible and cannot be touched.
• A service can be owned and transferred like a good.
• A good is always more expensive than a service.

Multiple Choice

What is a capital good?

• Money used for investments

• Tools or machinery used to produce other products

• Goods sold directly to consumers

• Products with high monetary value

Multiple Choice

What defines wealth in economic terms?

• The accumulation of services

• The value of all assets and liabilities

• The accumulation of tangible, scarce, utility-related products

• The total amount of money owned

Multiple Choice

Which statement about services is correct?

• Services cannot have value

• Services are always more expensive than goods

• Services can have value despite being intangible

• Services are considered part of wealth