What is Economics?

Economics is the study of how people produce, distribute, and use

goods and services.

An economic system is a countrys way of using limited

resources to provide goods and services.
Scarcity means that there is never enough of everything to
satisfy everyone completely.
Opportunity cost is the next best choice that you give up in
order to do something else.
Economics classifies resources as land, labor, and capital.
Producers are the companies or individuals who make or
provide goods and services. The people who purchase and
use goods and services are consumers.
Chapter

Basic Economics

Measuring the Economy

Economists use many mathematical tools and equations, or
indicators, to measure the health of the economy.
The total value of all goods and services produced in a country is
called the gross domestic product (GDP).
The consumer price index (CPI) is used to measure changes in
the prices of goods and services.
When the average price of goods goes up sharply, its called
inflation.

When the unemployment rate is high, people cut back their

spending, which can lead to a slower economy.
When statistics show unemployment to be rising, investments
falling, and GDP decreasing over a long period of time, it often
indicates an economic downturn, or recession.
Chapter

Basic Economics

Analyzing Supply
and Demand
Supply is the quantity of goods and services a business is
willing to sell at a specific price and a specific time. Demand is
the quantity of goods and services consumers are willing to buy
at a specific price and a specific time.
Supply and demand have a direct impact on the price of goods
and services.
When the supply is greater than the demand, the price goes down.
When the demand is greater than the supply, the price goes up.

In a market economy, the price of a particular good or service is

determined by supply and demand.
A surplus exists when the quantity supplied is greater than the
demand.
A shortage exists when the quantity supplied cant meet demand.
Chapter

Basic Economics

Visualizing Supply
and Demand
A supply curve shows
the quantity of a product
or service a supplier is
willing to sell across a
range of prices. Here the
supplier is willing to
provide more product as
the price increases.

Chapter

Basic Economics

A demand curve shows

the quantity that
consumers are willing to
buy across a range of
prices. Here the
consumer is willing to buy
more as the price
decreases.

Supply and Demand Curve

A supply and demand curve
shows the relationship between
price and quantity.
The equilibrium point is where the
supply curve and the demand curve
meet and supply and demand are
balanced. It also represents the
quantity that a business should
produce of a given item (the
equilibrium quantity) and how
much the business should charge
for it (the equilibrium price).
Chapter

Basic Economics

Equilibrium
Price

Analyzing Economic Systems

In a command economy, the government owns or
manages the nations resources and businesses.
In a market economy, suppliers produce whatever goods
and services they wish and set prices based on what
consumers are willing to pay.
In a free enterprise system, individuals or businesses
operate with little government interference.
Free enterprise systems share the same five
characteristics.
Private property
Freedom of choice
Voluntary exchange
Chapter

Basic Economics

Economic incentive
Competition
6

The Free Enterprise System

In a free enterprise economy, competition is a driving force.
Competition has many benefits.
Competition between businesses results in bigger and better
selection, lower prices, and better service.
Competition between businesses encourages innovation.
Competition between individuals can lead to higher earnings as
businesses compete for talented workers.

If a business has no competition, then it controls all of the

supply and demand for the product or service it sells it is
called a monopoly.
A business makes a profit when the amount of money
coming in from sales is greater than the businesss expenses.
Chapter

Basic Economics

Taking Part in a
Global Economy
Globalization refers to the growing integration of the worlds
economies.

Some of the benefits of

globalization include:
Increased trade
Increased prosperity
Increased cultural
exchange

Globalization presents the

following problems:

Exports are goods or

services that are sent from
one country and sold to
foreign consumers.
Imports are goods and
services that are brought
into a country from foreign
suppliers.

Increased interdependence
Loss of jobs

Chapter

Basic Economics

International Trade
A trade barrier is a governmental restriction on international
trade.
A tariff is a fee, similar to a tax, that importers must pay on
goods they import.
A quota is a limit on the quantity of a product that can be
imported into a country.
Advances in technology provide much of the driving force
behind globalization
Culture includes a peoples language, beliefs, attitudes,
customs, manners, and habits.
Businesspeople in most societies follow particular social rules
and customs called etiquette.
Chapter

Basic Economics

Chapter Review
Economics is the study of how people produce,
distribute, and use goods and services.
Supply is the quantity of goods and services a business
is willing to sell at a specific price and a specific time.
Demand is the quantity of goods and services
consumers are willing to buy at a specific price and a
specific time.
A supply curve shows the quantity of a product or service
a supplier is willing to sell across a range of prices.
A demand curve shows the quantity that consumers are
willing to buy across a range of prices.
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Basic Economics

10

Chapter Review (continued)

In a command economy, the government owns or
manages the nations resources and businesses.
In a market economy, suppliers produce whatever goods
and services they wish and set prices based on what
consumers are willing to pay.
In a free enterprise system, individuals or businesses
operate with little government interference.
Globalization refers to the growing integration of the
worlds economies.
Culture includes a peoples language, beliefs, attitudes,
customs, manners, and habits.
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Basic Economics

11