Economics LEAP Review

Market System

• Market System: free enterprise or capitalist system

•         People are allowed to own property and operate businesses with little government interference

•         Government doesn’t own all property or tell people how to earn a living; works to ensure fair business practices, safe environment, and consumers are protected

Command System

•         Command System: a small group of government officials decides how to answer the four questions of economics

•        Government commands the choices about production

• Also called Planned because central or gov. planners control most of the resources and decide how they should be distributed

• China and Cuba

Traditional System

• Traditional Systems: economics are based on custom and tradition;

• Tradition provides the answers to the four basic questions

• jobs are handed down from father to son;

• men and women work different jobs• Produce enough for survival• Third World Countries• Maasai in East Africa; Inuit; Aborigines

Three Types of Resources

1. Natural Resources: resources found on Earth such as land, forest, water, and minerals

-Some renewable; some non-renewable2. Human Resources: labor; work of humans3. Capital Resources: all money, tools,

equipment, and buildings used to produce goods and services.

Economic Cycle

Supply

• Supply: the amount of goods and services available

• The Law of Supply: as the price of a good rises, the quantity supplied will rise.

• Therefore, if the price decreases, the supply will ____________

Demand

• Demand: the level of “want” for goods and services

• The Law of Demand: says that when the price of a good or service rises, the amount demanded goes down.

• Therefore, if the price decreases, the demand will _______________.

Allocation, Efficiency, and Scarcity

• Production based on availability of resources and demand

• Must use resources efficiently• Businesses don’t want to produce too few or too much

• Scarcity can affect production and prices

Opportunity Cost

• Trade-off: choice of one over the other• Example> After you pay all of your bills, you

have $1,000 left. How do you spend it?• Vacation? Save money? Spend it going out

and playing? • Opportunity Cost: the cost of what you give

up Example> if you spend the $1,000 on video games, your opportunity cost is what?

Taxes

Reason for taxes:• Government can pay for

goods and services we use• Income Tax: based on

earnings• Property tax: based on

home and property values• Sales tax: based on

purchases• User fees: admission of

state parks, ferries, and toll bridges

Inflation and Deflation

• Inflation: occurs when the demand for goods and services is greater than the supply

• Prices rise• Deflation: occurs when there is a greater

supply of goods and services than there is demand for them.

• Prices fall

Gross Domestic Product

• GDP: value of all goods and services produced in the United States in one year

• Shows how well the economy is doing

• If the GDP increases each year> the economy is _______________

• If the GDP decreases each year> the economy is _______________

CPI

• Consumer Price Index (CPI): measures changes in the prices of necessary items

• Food, clothing, housing, transportation, and medical care

• Calculated monthly by the Bureau of Labor• Used to calculate inflation rate

Why is foreign trade necessary?

• 1.      People cannot obtain all the things they need or want in their own country

• 2. Foreign relations; Countries may supplement their political and military alliances through foreign trade

• 3. A country may lack enough consumers to buy the goods it produces.

• Balance of Trade: difference between a country’s exports and its imports

• Trade Surplus: If it exports more than it imports

• Trade Deficit: if it imports more than it exports

• United States has a _______________

Foreign Policy

• Foreign Policy: a plan that a nation uses to deal with other nations

• National Security: Foreign Policy goal that tries to keep the country safe from attack

• US Foreign Policy goals: National security, international trade promoting world peace, democracy, and human rights

1. Isolationism: Policy that stats that a nation should interact politically as little as possible with other nations so that it can exist peacefully by itself in the world

2. Protectionism: The policy of placing barriers in the way of trade among countries; a tariff is one such barrier to save domestic jobs

3. Sanctions: Penalties against nations that have violated international law

Foreign Policy

4. Embargo: prohibition on trade with another country5. Diplomacy: The way in which a nation conducts

relations with foreign governments6. Foreign Aid: Assistance given to help other

countries7. Alliances: Formal Unions or agreements among

nations