Because we have an enormous number of wants, both individuals and governments face the fundamental...

Economics IntroductionWhat is Economics?

Economics is the study of how we use our limited resources to meet our unlimited wants or needs.

Economics is the study of how we use our limited

resources to meet our unlimited

wants or needs.

Economics

Because we have an enormous number of wants, both individuals and governments face the fundamental economic problem of scarcity.

SCAR

CITY

Scarcity and Economics Because we have an enormous

number of wants, both individuals and governments face the fundamental economic problem of scarcity.

Because of scarcity we must make choices

among alternatives.

Society must decide what to produce, how to produce, and for whom to produce.

When we exchange one good or service for money we are making a trade-off.

Making choices involves more than just money, however. An opportunity cost is what you cannot buy or do when choosing to do one thing rather than another.

To make wise choices consumers must understand the type of economy we have, stay informed, and take advantage of incentives.

Different types of Global

Economies1.Market Economy2.Traditional Economy

3.Command Economy

4.Mixed Economy

Not all economic systems are alike. The United States and many of the other largest economies in the

world are market economies.

Command Economy

Others, like Cuba and North Korea, have command economies. In a command economy the government tells producers what to do.

One of the many reasons for the collapse of the Soviet Union was the overall failure of the "command economy".  Unlike the "market economy" where prices of goods and services are set by the forces or supply and demand based on the purchasing decisions of consumers, prices in a command economy are set centrally and resources are allocated based on government priorities.  Because it is impossible for governments to make the millions of minute decisions required to keep an economy running, serious problems resulted.

The photograph below, taken in 1971, shows Moscow stores with a limited supply and selection of consumer products.  Fruits and vegetables that were available, were often of poor quality, due to problems throughout the supply chain.  Muscovites routinely had to stand in long queues to purchase everyday consumer items.  This lost time was a hidden cost that caused resentment of the government.

Command Ec. food lines

MIX

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Most countries of the world have a mixed economy, which combines basic elements of a pure market economy and a command economy.