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Capitalism: means of production are privately
controlled
Command: state-run, centrally planned
economy; communism, socialism
Differ based on who answers the 5 fundamental
economic questions:
 What will be produced?
 How will goods and services be produced?
 Who will get the output?
 How will the system accommodate change?
 How will the system promote progress?
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There are no PURE command economies
There are no PURE market economies
Economic systems are MIXED
 Involve some Government ownership/control and
some private ownership/control
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U.S. Mixed

Government sets interest rates, collects taxes,
controls money supply, sets minimum wage, has
federal agencies (FDA, FAA, USDA, SEC, etc)

Monetary Policy:

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
Controlled by the Central Bank, the Federal Reserve
Control of money sully & interest rates
Fiscal Policy:

Government spending and taxation

Depression, Recession, Recovery, Peak

Determined by economic factors such as:

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Unemployment levels
Stock Market (Dow, S&P 500 index)
GDP (Gross Domestic Product)
CPI (level of inflation)
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Definition: The ability and willingness to buy
specific quantities of a good at alternative
prices in a given time period, ceteris paribus.
Law of Demand: as the price of a good rises, the
quantity demanded of the good falls, as the price of a
good falls, the quantity demanded of the good rises,
ceteris paribus.
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
Definition: the ability and willingness to sell
(produce) specific quantities of a good at
alternative prices in a given time period, ceteris
paribus.
Law of Supply: as the prices of a good rises, the
quantity supplied of the good rises, and as the price
of a good falls, the quantity supplied of the good
falls, ceteris paribus.
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Price of any given product at which supply
equal demand.
equilibrium
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Also known as Shortage
Scarcity is the basic economic problem: our
wants are unlimited but resources are limited.
Occurs when demand is higher than supply
Causes prices to rise
Examples??
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Scarcity occur because we have to make choices
Economics is the study of why people make
choices
Every choice has an alternative, that’s
opportunity cost.
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What do you give up?
Example: You have $30 for your big date so it’s dinner
OR a movie. If you choose the movie, opportunity cost
is dinner, vice versa.
Opportunity cost is only 1 thing, not many.
Other examples?
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Occurs when supply is higher than demand
Causes prices to fall
Examples???

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Goods that are related to each; that
complement each other
Examples


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CD’s and CD players
PS2 and video games
Others??

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If the price of complementary goods increases
then the demand for the original good
decreases
Example


As gas prices rise, demand for SUV’s and cars in
general have fallen
Others???

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If the price of complementary goods decreases
then the demand for the original good will
increase.
Example

If the price of DVD players decreases, it will likely
cause an increase in the demand for DVD’s and thus
increase DVD sales.

Can be used instead of the original good

Examples



Choose PS2 over X box
Choose Abercrombie over Am. Eagle
Others???

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If the price of substitute goods rises, the
demand for the original good will increase
If the price of substitute goods falls, the
demand for the original good will decrease.

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The price of Gatorade increases from $1.00 to
$1.50; the demand for PowerAde will increase.
(PowerAde a substitute for Gatorade).
The menu prices at Wendy’s decrease by 10%,
the demand at McDonalds will decrease.
(Wendy’s is a substitute for McDonalds).
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as a person increases consumption of a product,
while keeping consumption of other products
constant, there is a decline in the marginal
utility.
Examples:
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craving food at a buffet, the more you eat the less
satisfaction, or utility you get.
Roller coaster ride
Sporting event
Non-examples:

Play chess, golf, boating, other sports/activities
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Selling products or services to buyers in
another country is known as: _____________
____________ refers to buying goods and
services made in a foreign country.
How is a product deemed an import or export
if parts are made in several different countries?

If _____% of the product is made in the U.S. it can be
labeled “Made in the U.S.A.”
1. Boeing (U.S.) makes and sells planes to Qantas (Australia) Airlines

Import for __________/_________; Export for __________/________
2. CDW (U.S.) purchases Acer (Taiwan) laptops.

Import for __________/_________; Export for __________/________
3. Mitsubishi Endeavors sold to car dealerships in Tokyo.

Import for __________/_________; Export for __________/________
1. Tariffs: _____ placed on _______ goods

Ex: U.S. places a 10% tariff on foreign jeans. $30 jeans now
cost:
 $ _____
2. Dumping: selling goods in a _______ market
_______cost or below the cost in their home
country to drive out competitors (like a retail store
using a loss leader).
3. Quota: places ______ on the number of products
that can enter
4._________no products allowed/accepted
Example?

Exchange rate: value of one country’s currency
expressed in the currency of another country.


$1US = ¥125 (Jap.Yen). A 12,500 ¥ camera in the U.S.
would cost:
If exchange rate changes to ¥ 100 camera in U.S. now
costs:

Yen ¥

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Dollar

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Real

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Yuan

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Franc

 Pound £

 Rand

 Rupee

 Peso

 Euro €

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Treaties:


NAFTA: free trade among _____, ______ & ________


______: enforces rules governing international trade. Stands for:
U.S. signed it originally with just….
EU: _____ European countries




__________
Why? Removes _______, encourages ____with the free
movement of people, goods and ______.
Bulgaria and Romania recent additions in ______.
__ of 27 nations have adopted the Euro as their currency
U.K.?
Imports vs. Exports
Imports exceed Exports = Trade ______
(negative)
 Exports exceed Imports = Trade _______
(positive)

Top 5 U.S. Trading Partners?

Absolute Advantage


One country can
produce an item more
efficiently than anyone
else
Ex: crops in certain
climates or specialized,
cheaper labor or better
technology

Comparative
Advantage


ability to produce good
or service at a lower
marginal and
opportunity cost over
another
Reason why it is
beneficial for nations to
trade



Country A can produce 5 widgets per hour with 3
employees.
Country B can produce 10 widgets per hour with 3
employees
Who has an absolute advantage?
Unit labor costs
Cloth
Wine
Britain
100
110
Portugal
90
80
• It is most efficient for Britain to produce ____ and for
Portugal to produce ______
• What is the opportunity cost for Britain to produce wine?
For Portugal to produce wine?



Lebron James has an absolute advantage in
________.
Many say he could be a successful NFL Tight
End or Defensive End, which should he focus
on, basketball or football?
If he tried to play in the NFL, what would the
opportunity cost be of the time he spent
practicing and training?