“…the study of how wealth* is created and distributed**.” *“anything of value,” including...

Chapter 1

Economics

“…the study of how wealth* iscreated and distributed**.”

*“anything of value,” including products produced andsold by business

**“who gets what”

Economic Systems Differ

o Ownership of factors of productiono The answer to four basic economic

questions about nation’s economic activityWhat & how much will be produced?How will it be produced?For whom will it be produced?Who owns/controls factors of production?

Factors of Production

“…resources used to producegoods and services.”

1. Land/natural resources2. Labor3. Capital4. Entrepreneurship

Types of Economies

Capitalism Command(Market) (Planned)

SocialismCommunism

Life in a Command Economy

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Table 1.3 Four DifferentTypes of Competition

Examples

Figure 1.6: Supply Curveand Demand Curve

Figure 1.4: Circular Flowin Mixed Economy

Government Actions

Monetary Policy- Federal Reserve determines size of money supply & interest rates

Controlled by the Federal Reserve (FED) Seven Member

Board Chairman

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Fiscal Policy- Influencesamount of savings and expenditures by altering tax structure and governmentspending

Controlled by Congress/Budget Process

Federal Deficit

“…a shortfall created when thefederal government spends morein a fiscal year than it receives.”

U.S. National Debt Clock

Socialism

Key industries owned/controlled by government

Land, buildings, and raw materials may be propertyof state

Private ownership permitted to varying degrees

People chose own occupations National goals determine what/how

produced Uses taxes, rents, and wages to control

distribution

Communism

Karl Marx- Father Advocated classless society Citizens own all economic resources Workers contribute based on ability & received

benefits based on need Examples- North Korea & China Centralized planning- sets prices &

wages Emphasis on gov’t needs not

consumers No job choice- professionals better off

than factory workers