Fundamental Economic
Concepts
Grade 8
TCAP Prep
What is an Economic Market?
• It is where producers and consumers
exchange goods and services.
– Producers produce (make) goods and services
– Consumers buy goods and services.
• Consumers buy goods and services from producers
with money.
Good and Services
• Goods are products people use:
– Cars
– Food
– Clothes
– Houses
– Furniture
– Video games
– Cell phones
Good and Services
• Services are actions that people perform.
– Doctors perform exams.
– Teachers teach students.
– Mechanics fix people’s cars.
– Barbers cut people’s hair.
Can you think of other services that people
provide?
Good and Services
In Early America
Goods
• Agricultural products
• Textiles
• Finished goods (usually
from Europe)
Services
•
•
•
•
Taverns
Blacksmiths
Doctors
Ministers
Money and Currency
• Money is a medium of exchange.
• It carries a value that producers will accept
in exchange for a good or service.
• Money is measured in Currency
• The dollar is the United States’ currency
Competitive Market System
• A market system in which producers are
free to produce whatever they want and
consumers are allowed to buy whatever
they want.
Supply and Demand
• Supply refers to how much of a good or
service is available for consumers to buy.
• Demand refers to how much of a good or
service consumers want.
– When demand is high, prices are generally high.
– When supply is high, prices are low.
Economic Incentives in a
Competitive Market System
• Incentives are economic factors that
motivate producers or consumers to take
some action.
– Lower prices are an incentive for consumers.
– Profit is an incentive for producers
• Profit is the money that producers make (minus the
money spent on production) after they sell their
good or service.
Economic Incentives in a
Competitive Market System
• Other Incentives:
– Copyrights
• Protect the economic interest of writers and artists.
• A copyright says that the written material is the
writer’s personal property.
– Patents
• Protect the economic interests of people who create
new inventions or have innovative ideas.
• Patents prevent anyone else from profiting from the
idea or any similar invention for a set period of time.
How Supply, Demand, and Prices
Fluctuate
• Supply, demand, and prices are constantly
changing.
– Shortage: A shortage exists when there is not
enough of a product to meet consumer demand.
– Surplus: A surplus exists when there is more of
a good or service in supply than consumers
demand.
– Equilibrium Price: the price of a good or service
where supply equals demand.
Changing Resources into Products
• Resource – anything that people use
• Natural Resources – resources that occur
naturally (trees, air, water, soil, minerals)
• Human made resources – resources made
by humans (money, trucks, factories,
machines)
• Producers rely on resources to turn them
into goods and services.
2.1 Review
• Answer questions 1, 2, 3 on pages 45-46
Trade and Economic Theories
Free Trade and International
Competition
• Economists study how economies function.
– Some believe the government should play a big
role in the economy through regulations.
– Some believe in laissez-faire economies. This
means they think the government should play
no role in the economy.
• They think that the natural course of supply and
demand should determine the course of the
economy.
Free Trade and International
Competition
• Trade: happens when nations exchange
goods.
• Free trade: happens when national
governments to not restrict imports or
exports.
• Exports: goods that a nation sells to other
countries.
• Imports: good that a nation’s consumers
buy from other countries.
Tariffs and Other Trade Barriers
• Political Trade Barriers
– Policies that interfere with free trade
• Domestic Products
– Products made in their own country
• Tariffs:
– A common form of a political trade barrier
– They are taxes on imports
Mercantilism
• Mercantilism was the dominant economic
theory in Europe from 15th – 18th centuries
(1400s through the 1700s).
• The idea is that a nation’s economy
prospered when it maintained a favorable
balance of trade.
– They needed to export MORE than they
imported.
Mercantilism and Colonialism
• Mercantilism helped inspire Europe’s age of
exploration and early colonial period.
– During this time, European nations established
colonies in Africa, Asia, and the Americas.
– A Colony is a land that a government rules in a
foreign territory.
– Colonies allowed nations access to more natural
resources.
Capitalism
• Capitalism is a system in which capital is
privately owned.
• Capital refers to nonlabor factors of
production (examples: buildings, machines,
wagons, ect.)
• Under capitalism, goods and services are
exchanged in competitive markets.
• Adam Smith is known as the Father of
Capitalism
Major Industrial and Agricultural
Products of the United States
Key U.S. Products and Natural Resources
Land
The USA is a large country and provides
land resources for agriculture, settlement,
metals and places to drill for oil
Timber
USA is one of the world’s leading
producers of timber
Fish
The USA borders the Atlantic Ocean,
Pacific Ocean, and Gulf of Mexico. As a
result, fish is a major natural resource.
Animal Pelts
The USA has produced many valuable
animal pelts
Agricultural Products
The USA has large amounts of fertile soul
suited for growing different kinds of
agricultural products (wheat, corn,
peppers, sweet potatoes, squash,
pumpkins, peanuts, tomatoes, cotton)
Major Industrial and Agricultural
Products of Tennessee
Key Products from Tennessee
Agriculture
Industrial
Products
Key Industries
Tobacco, cotton, soybeans.
Tennessee also has a major cattle industry.
Chemicals, transportation equipment,
electrical equipment, and textiles.
Autozone
FedEx
Eastman Chemical Company
International Paper
The music industry in Nashville and Memphis
The health care industry in Nashville
Trade and Economic Theories
Review
• Answer questions 1, 2, 3 on page 51
Key Institutions That Make Up
Economic Systems
Business Firms and Corporations
• Business firms produce goods and services,
produce jobs, and contribute to the
economy as consumers.
– Businesses produces good and services.
– Businesses provide jobs
– Businesses are also consumers.
– Businesses pay taxes.
• Taxes are money that businesses and individuals
must pay to the government.
Corporations
• Many businesses are corporations.
– Corporations are protected entities.
• That means if the business fails, people who invested
money lose their money but they are not responsible
for other debts the business might still have
Households
• A household is any group of people that
lives together and functions as a “family”
unit.
• Household are key factors in the economy.
– They provide labor for businesses and the
government.
– They pay taxes and act as consumers.
• Income is the money that households bring
in.
Government Agencies
• The role of the government different from
one economic system to another (i.e. USA to
China to Cuba).
– Governments act as producers.
– Governments act as consumers.
• Governments can also impact the economy
by imposing economic regulations.
Government Agencies
• Governments also affect the economy by
imposing taxes.
– Tariffs: taxes on imports
– Income taxes: taxes on individuals income
– Sales taxes: taxes on the products people
purchase
– Excise taxes: taxes on particular products in
addition to sales tax (luxury or not necessary
items like cigarettes or alcohol).
Banks
• Banks are businesses that lend money.
• Banks are lenders and depositors.
– Households, businesses, and governments
deposit money in banks.
• Lenders: individuals, businesses, or
governments that lend money to borrowers.
• Borrowers: people, businesses, or
governments who borrower a lender’s
money
Banks
• Banks charge their borrowers interest on
the money they borrow.
– This is how banks make a profit.
• Banks extend credit.
– They allow people, businesses and governments
to borrow money to purchase things (i.e. cars
and houses)
Labor Unions
• Labor unions are organizations that
represent workers.
– Laborers in a particular industry will often
organize as a labor union.
– In theory, labor unions giver laborers (workers)
more power.
Key Intuitions That Make Up
Economic Systems Review
• Complete questions 1, 2, 3 on page 56
• Tomorrow you will have a short, multiple
choice assessment on basic economic
concepts.