Social Studies: Module 3, Section 2

Economics

is the study of how people provide goods and services, distribute these goods and services, and use other resources to fulfill needs and wants.

Traditional Economies

Individuals needs are met through trade and barter in a traditional economy. Most people do the same work their parents did and there is little innovation.

Command Economies

The government controls all means of production and distributions in command economies, they are also known as centralized economies. Communism is an example of a command economy.

Market Economies

Commonly known as the free enterprise system, companies and individuals decide what and how much to produce and consume. Supply and demand regulate the pries and distribution

Mixed Economies

A combination of common and market economies, both the government and individuals make decisions on production and distribution

Goods

Tangible objects that fulfill a need or want

Service

Action someone does to provide for a need or want

Free enterprise

Private businesses working in competition with each other, free of state control

Interdependence

Relationship between groups, where one is reliant on the other to provide goods or services

Needs

Necessary items and services for survival

Wants

Something that is desired but not needed for survival

Scarcity

When the demand for a good is greater than the supply

Producers

Someone who makes and supplies a good or service

Consumers

Someone who buys goods or services to satisfy needs and wants

Exchange

The movement of goods and services between producers and consumers

Factors of production

Production is the creation of goods and services. Surplus is when goods or services are overproduced, while a shortage results from too little. The opposite would be scarcity.

Specialization

Focusing on a specific job makes for more efficient work in the production of goods or services.

Trade

A relationship that exchanges goods or services

Entrepreneurship

Launching a new business to disrupt the market with a new idea, product, or service.

Basic human needs are met in different ways:

• People may barter or exchange goods and services without money

• Some goods and services have a set price, which people spend money on in exchange for the goods and service

• Public goods are goods and services provided by the government. 

Resources may be:

human, natural, or capital.

Human resources

are the “people” involved in creating a good or providing a service.

Natural resources

come from the earth

capital resources

human-made resources that help in the production of goods or services. 

When teaching economics to students, include the:

value of working to earn an income. Students need to know the difference between spending and saving money earned from work, budgeting, or setting aside earned income to pay for needs and wants.

The Free Enterprise System

The free enterprise system depends on government intervention to protect private property, ensure contracts are followed, and create fair and competitive markets and the infrastructure that makes commerce and industry possible. 

• Governments have significant control and run the postal service and schools. Governments place regulations on industries to prevent abuse, fraud, or monopolies. 

• The Federal Reserve Bank is a government-run agency that controls the money supply and interest rates. The government may ban trading with other countries, impose embargos, tax foreign goods, or place tariffs.  

• Governments will provide individuals and businesses with tax credits, incentives, and subsidies. So, while free enterprise has limited government influence, it is not completely disconnected from the government.

The Federal Reserve Bank

is a government-run agency that controls the money supply and interest rates. The government may ban trading with other countries, impose embargos, tax foreign goods, or place tariffs.  

Free market enterprises

must be built on values such as honesty and integrity so that the companies providing goods and services do so without greed but with the consumer’s best interest in mind.

supply

being the quantity of goods available

demand

referring to interest in those goods or services by society

Supply & Demand

when toilet paper was out of stock at most grocery stores (supply was down), more and more people needed it (demand went up). When this happens, companies can increase the price of their product because consumers "need" to buy the products, no matter what the cost. 

On the flip side of that scenario, if grocery stores have shelves full of different brands of toilet paper, the demand is low because consumers can buy whenever they need it. Companies have to keep their prices lower to stay competitive. 

Competition

refers to the rivalry between businesses that sell similar goods or services.

Markets

are places where buyers and sellers exchange goods and services.

The price of a product can influence the financial behavior of businesses, governments, and individuals.

For example, a business may decide to lower the price of a product if it is not selling well, or a government may raise taxes on a product to discourage people from buying it.

Market structure

Market structure

refers to the characteristics of a market that determine the behavior of buyers and sellers, the level of competition, and the pricing of goods and services. It is the organizational and institutional framework of a market.

Monopoly

Market Type	Number of Competitors	Kind of Competition	Barriers to Entry
_______	One	None	No entry possible

Oligopoly

Market Type	Number of Competitors	Kind of Competition	Barriers to Entry
_______	A few	Primarily non-price	Medium barriers (difficult entry)

Monopolistic Competition

Market Type	Number of Competitors	Kind of Competition	Barriers to Entry
_________	Many	Non-price and price competition	Low barriers (easy entry)

Perfect Competition

Market Type	Number of Competitors	Kind of Competition	Barriers to Entry
__________	Unlimited	Price competition	No Barriers (free entry)

Prices

are the amount of money that buyers pay for a product or service. _______ can influence the financial behavior of businesses, governments, and individuals in several ways:

• For businesses, ______ determine how much revenue they will generate from selling their products or services.

• For individuals, _______ determine how much money they will spend on goods and services.

• Governments can also use ______ to influence behavior.

  • For example, a government may tax goods and services that harm people's health or the environment, such as cigarettes or gasoline.

Government

• Responsibilities shift according to citizen demand

• Protector - enforce laws to protect consumers, the environment, workers, and other businesses. Example: The Environmental Protection Agency

• Provider - subsidies, funding, education, infrastructure, health & human services, the military. The creation of the Affordable Care Act is an excellent example of the government’s role expanding over time.

• Regulator - oversees large industries like banking, interstate commerce, and energy. Example: The Federal Deposit Insurance Corporation (FDIC)

• Tax Collector - the government collects taxes from individuals and businesses to provide revenue for all “provider” programs.

Consumer

• Choose which products or services to buy

• Unlimited wants

• “Ruler” of the market

• Constantly changing wants 

• Determines demand

• Determines their occupation or role in earning money

Producer

• Choose which products or services to produce

• Choose how to produce or render services

• Listen to consumer demand

• Fill any unfulfilled wants of the consumer

• Change & innovate to meet consumer wants and needs

LEI

Economists have devised ways of forecasting where our economy will be in the future by using ten different economic indicators to make predictions. Leading Economic Indicators. An economic indicator is one set of data about our economy that can tell us whether our economy is headed toward growth (more money, more businesses, larger transactions, higher employment) or recession (less money, fewer businesses, smaller transactions, higher unemployment).

GDP

The gross domestic product is the total value of the economy's goods and services in a given time. The Commerce Department gathers this data quarterly. They look at:

• Consumer spending

• Business investment

• Government spending

• Foreign trade

Consumer Spending

This accounts for ⅔ of the GDP and is an excellent gauge of consumer health. The Commerce Department gathers this data monthly. It also measures:

• How much individuals spend

• Inflation rates

Inflation

Measures the change in price for consumer goods and services. 

• Over time, we expect an increase in prices, but when it happens too quickly, we call it inflation.

• Gradual increase in prices hints at economic growth.

• Inflation or lower prices over time hint at recession.

Employment Figures

How high or low an economy’s employment numbers are. 

• The Department of Labor gathers these numbers monthly.

• High employment hints at economic growth, and low employment hints at a recession.

Industrial Production

A measure of what manufacturing-based industries put on the market.

Home Sales

High home sale rates signal a growing economy, while lower home sale rates signal recession. 

• The price of homes is also important as it indicates the consumer’s ability to purchase real estate. 

• The Commerce Department releases a monthly report about home sales

Home Building

The number of houses being built and the number of permits being applied for indicate the number of people in the market for a new home. 

• Higher demand for new housing signals growth, while lower demand signals a recession.

Construction Spending

The Commerce Department gathers these numbers monthly to gauge how many new buildings exist in a region and the nation.

Manufacturing Demand

The Commerce Department gathers numbers on shipments and inventories to predict demand, indicating economic growth or recession.

Retail Sales

The Commerce department gathers monthly data on how much food and retail spending happened in a given quarter. More spending signals growth, while lower spending signals recession.

Population

growth can benefit a community’s economy because more people means more workers and value.  The opposite is true in areas with limited resources. More people means more to take care of and services to provide.  People are drawn into areas with strong economies, work, and housing (pull factor). These same people may migrate from areas that lack economic opportunities.   

Technology

drives a strong economy when paired with available resources. The economy thrives through advancements in production technologies and a strong workforce population.