Unit 1 - Understanding the Role of
Economics in the Global Economy
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Explain the three basic economic questions
answered by any economy (035)
Identify characteristics of free enterprise (aka
Market Economy) (039)
Explain supply, law of Supply, demand, Law
of Demand, and economic equilibrium (040)
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DECA Updates
Bell Ringer Question
◦ How do economic decisions and policies affect your daily
life?
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Direct Instruction – Types of Economies,
Supply vs. Demand
Activity – M&Ms (Yum! )
Review – Multiple Choice Questions
Closure – TNT, Test in 2-3 classes
How do economic decisions and policies affect your
daily life?
An economy is a nation’s method for making
economic choices that involve how it will use its
resources to produce and distribute goods and
services to meet the needs of its production.
Scarcity of economic resources forces every country
to develop an economic system that determines
how resources will be used. Each economic system
has its advantages and disadvantages.
What Creates an Economy?
Economists use the term factors of
production when they talk about
economic resources.
factors of production
Resources that are comprised
of land, labor, capital, and
entrepreneurship.
resources
All the things used in producing goods and
services; a source of aid or support that
may be drawn upon when needed.
What Creates an Economy?
Manufacturing
Buying
Economy
Selling
Transporting
Investing
economy
The organized way a
nation provides for
the needs and wants
of its population.
What Creates an Economy?
Land
Provides raw
materials
Labor
Full- and parttime workers,
managers, and
professional
people
infrastructure
The physical development of a
country,such as roads, ports,
and utilities.
Capital
Entrepreneurship
Money, buildings,
infrastructure
Organizing
factors of
production to
create goods and
services
entrepreneurship
The skills of people who are willing to
invest their time and money to run a
business; the process of starting and
operating your own business.
What should be
produced?
How should it
be produced?
Deciding to use a
resource for one
purpose means
giving up the
opportunity to use it
for something else.
The methods and
labor used as well
as the quality of
items produced are
important factors.
This is called
opportunity cost.
Who should
share in what is
produced?
In most societies,
people can have as
many goods and
services as they can
afford to buy.
Types of Economic Systems
The Three Economic Questions
Types of Economic Systems
The Three Economic Questions
Different economic systems answer the three basic
economic questions in different ways.
Economic systems
 the methods societies use to distribute
resources
Types of Economic Systems
Traditional
Economy
Market
Economy
Command
Economy
Mixed
Economy
traditional economy
An economic system in which habits, traditions, and rituals answer the basic
questions of what, how, and for whom.
market economy
An economic system in which there is no government involvement in economic decisions.
command economy
A system in which a country’s government makes all economic decisions regarding
what, how, and for whom.
A market economy can
also be called a private
enterprise system, the
free enterprise system,
or capitalism.
market economy
an economic system in
which economic decisions
are made in the
marketplace
Characteristics of a Market Economy
Resources are privately owned
Citizens can own their own homes, land, and businesses
Business owners decide how their businesses will be run
Business owners decide what to produce and sell
Business owners decide what to charge
Government works to promote free trade and prevent unfair
trade practices
Consumers choose their occupations and where to live
There is an uneven distribution of income
The higher the price for
goods or services, the
less consumers will
buy.
The lower the price, the
more consumers will
buy.
price
the amount of money
given or asked for when
goods and services are
bought or sold
There is a relationship
between price, supply,
and demand.
supply
the amount of goods and
services that producers will
provide at various prices
demand
the amount or quantity of
goods and services that
consumers are willing to
buy at various prices
Supply and demand
interact with each other
to form the equilibrium
price.
equilibrium price
the point at which the
quantity demanded and
the quantity supplied meet
Competition among similar businesses is one of
the basic characteristics of a free enterprise
system.
Profit motive is the desire to make a profit.
In a command
economy, the
government owns and
controls all the
resources and
businesses.
command economy
an economic system in
which a central authority
makes the key economic
decisions
Characteristics of a Command Economy
The government dictates what will be produced, how it will be
produced, and who will get the goods
There is little choice of what to buy
Goods are not considered necessities
Prices are controlled by the state
There is no competition and little incentive to produce a
better product
Highly skilled workers may earn the same as low-skilled workers
A moderate command economy is also known
as socialism.
In a moderate command economy, there is
some form of private enterprise, but the state
owns major resources.
Most nations have a
mixed economy, which
combines elements of
capitalism and
socialism.
mixed economy
an economy that contains
both private and public
enterprises.
1. How does a market system decide what will
be produced?
A market system decides what is to be
produced through supply and demand in the
marketplace.
2. In a market system, what determines how
many goods and services an individual can
buy?
It is through one’s income—mostly generated
by working.
3. Some nations can produce more goods with
fewer workers than other countries that have
more workers. How can that be true?
More technology is used in the country with
fewer workers, increasing worker productivity.
a.
b.
two
three
What should be produced? How should it be
produced? Who should share in what is produced?
a.
b.
by the government
in the marketplace
A market economy can also be called a private
enterprise system, the free enterprise system, or
capitalism.
a.
b.
c.
being informed
making careful
decisions
all of the above
In a market economy, citizens can own their own
homes, land, and businesses.
a.
b.
c.
d.
supply
demand
equilibrium
capacity
The higher the price, the less consumers will buy
a.
b.
profit
competition
Profit is the reward for taking a risk and starting a
business.
a.
b.
c.
market economy
command economy
mixed economy
In a mixed economy, the market makes more
decisions regarding the allocation of resources
than the government.
◦ How does a market system decide what will be
produced?
 A market system decides what is to be produced
through supply and demand in the marketplace.
◦ In a market system, what determines how many goods
and services an individual can buy?
 It is through one’s income—mostly generated by
working.
◦ Some nations can produce more goods with fewer
workers than other countries that have more workers.
How can that be true?
 More technology is used in the country with fewer workers,
increasing worker productivity.
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Economic Activity
Indicators
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◦ Test after next lesson
– 2 blocks out
◦ Alphabet Soup!
 GDP, GNP, CPI, etc
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The Business Cycle
Looking Ahead
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We will review for
the test
You will have a
study guide