1. Economics is the study of how individuals and societies make choices about ways to use scarce resources. It examines trade-offs and decisions made at both the individual and national level. 2. There are different types of economies including traditional, market, command, and mixed economies. Most modern nations have mixed economies that incorporate both private and public sector involvement. 3. The United States has transitioned from a laissez-faire approach to a mixed economy, incorporating both free market principles and government intervention to address issues like market failures, public goods, and negative externalities.

1. Basic Economics - Academic Unit One

2. I. What is Economics?

3. A. Study of Choice All decisions involve choices Resources are finite or limited. Human needs and wants are unlimited. Needs – necessities (water, food) Wants – luxuries, things not needed. Scarce – when there is a limited amount of an item. Shortage – a sudden shortfall of a product.

4. B. Decisions Trade offs – always two or more options in our choices. Costs – What is given up when making a decision.

5. C. National Guns and Butter Guns = Military spending Butter = Domestic Spending Social Security Medicare Medicaid Social Security

6. 4. Presidential Decisions FDR Great Depression WWII LBJ Great Society Vietnam GWB No Child Left Behind Tax Cuts War on Terror

7. 5. Production Possibilities Curve A graph that shows alternative ways to use an economy’s resources. Efficiency – Using resources to maximize production of goods and services. Underutilization – Using fewer resources than an economy is capable of using. Examples: Cost – To an economist, countries give up on ideas, products. Law of Increasing Costs –Cost of producing the second item increases.

8. D. Individuals Entrepreneurs use the Factors of Production Land Labor Capital Physical Capital - All human-made goods Human Capital – The skills and knowledge gained by a worker through education and experience. Thinking at the Margin – taking into consideration the consumption of one more unit.

9. II. Different Economies

10. A. Answering the Three Economic Questions What goods and services should be produced? How should goods and services be produced? Who consumes goods and services? Who and how these questions are decided is one of the most significant questions in economics.

11. B. Economic Goals and Societal Values Economic Efficiency- Societies attempt to produce most out of their resources. Economic Freedom- Unlimited choices. Patriotism- The love of one’s country Many feel the USA should ensure economic freedom. Instead of economic or political freedoms, China favors freedom from poverty instead.

12. C. Economics and Values Traditional Economy –relies on habit, custom, or ritual, Slow to change, but evolve into other economies. These rely on bartering, are inefficient. Market Economy –production and consumption are based on exchanges people make. Command Economy – central authority is in control (Moscow in Soviet Union).

13. D. Adam Smith Wealth of Nations Thought self-incentives like profit motivated people. Companies work to provide best product and lowest price to beat competitors. Marketplace automatically fixes itself – principle known as invisible hand. Government should stay out of economy – policy known as laissez faire.

14. E. Marx & The Communist Manifesto Marx & Engels (his co-author) had the following ideas about people & their delusions: They… are greedy Want things like TV, cars, big houses (materialism). Were power hungry (rich controlled poor). Used religion, alcohol, drugs -to relieve themselves of reality. Society was to evolve – Workers (proletariat) were to revolt against the rich (bourgeois) & take over government, means of production. Socialist society evolves - people distribute wealth evenly & no more oppression. Eventually people would not be greedy and no longer need government, live in harmony, in a communist state. PROBLEM - Dictators can take over easily & create an authoritarian regime.

15. F. John Maynard Keynes The General Theory of Employment, Interest, and Money Reduction in interest rates Government should invest in economy, especially in infrastructure. Saving instead of spending will encourage recession or depressions.

16. F. Modern Economics and Mixed Economies Countries slide on economic continuum that ranges from command to free. China is now involved in a transition period to move toward privatization (free). Most nations strive to become as free as possible and let decisions be made in the private sector. The USA is also privatizing (more businesses, less regulations.)

17. G. Modern China 1,321,851,888, GDP:$7.043 trillion Premier WEN Jiabao, Beijing 1978 leadership moved economy-centrally planned economy to more market-oriented system. Strict Communist control Influence of non-state organizations and individual citizens has been steadily increasing. Household and village responsibility in agriculture in place of collectivization Increased the authority of local officials and plant managers in industry Wide variety of small-scale enterprises Opened the economy to increased foreign trade and investment. Quadrupling of GDP since 1978. China in 2003 stood as the second-largest economy in the world after the US Per capita terms the country is still poor. Worst results of Socialism (bureaucracy and lassitude) Capitalism (growing income disparities and rising unemployment). Government has struggled to Sustain adequate jobs growth for tens of millions of workers laid off from state-owned enterprises New entrants to the work force; Reduce corruption and other economic crimes Keep afloat the large state-owned enterprises -shielded from competition by subsidies From 80 to 120 million surplus rural workers are adrift Lose arable land because of erosion and economic development.

18. H. North Korea 23,301,725 population, GDP $40 billion KIM Jong Il Pyongyang One of the world's most centrally planned and isolated economies Underinvestment Spare parts shortages. Nation has suffered years of food shortages because of a lack of arable land, collective farming, weather-related problems, and chronic shortages of fertilizer and fuel. Large-scale military spending eats up resources needed for investment and civilian consumption. Black market prices continued to rise following the increase in official prices and wages in the summer of 2002 Relaxed restrictions on farmers' market activities in spring 2003, leading to an expansion of market activity.

19. III. American Economy

20. A. Free Enterprise, Yesterday and Today America’s birth was marked by wishes for new freedoms and less taxes. Most politicians believed in laissez faire. Government needed little revenue and gained it through tariffs, land sales, etc. Few government programs. Unregulated industry led to massive growth, but heavy negative externalities. Pollution Slums Deep cutting depressions. Bank closings Economic panics. Great Depression – FDR takes on Keynesian Economics. Ronald Reagan – Decides taxes are too high and there is too many regulations that stifles business. Supply side economics – Taxes need to be at a moderate amount. Deregulation begins. Laffer Curve – demonstrates that when taxes are too high or low, governamne will bring in little revenue.

22. 8. When the government should get involved… a. Over time problems have to be met by solutions from the gov’t. Follows these steps: Market failure: something the private sector cannot do. Public interest –people are concerned and want gov’t to intervene if the economy cannot provide. Public policy –Government responds to public interests with laws. Interest groups lobby politicians, or give them ideas. Examples: Healthcare – unfulfilled. Transportation – to big for companies. Water and sewage – to big and important for a company. Must restrain negative externalities such as : Coal burning power plants = exhaust that may harm breathing – Government responds with pollution laws.

23. B. Providing Public Goods Cost of public goods is spread more evenly. The cost would be higher if it were provided privately. These generally benefit society as a whole.

24. C. Tracking Our Successful Economy Macroeconomics/Microeconomics = Big/Small Gross Domestic Product – Income of a whole nation. Business Cycle – Expansion and contraction. Technology –Anything used to help produce (biggest advantage for USA) has.