Economics 101

Standards
• SS6E5: The student will analyze different economic systems. a. Compare how
traditional, command, and market, economies answer the economic questions of 1
-what to produce, 2-how to produce, and 3-for whom to produce. b. Explain how
most countries have a mixed economy located on a continuum between pure and
market and pure command. c. Compare the basic types of economic systems found
in the United Kingdom, Germany, and Russia.

• SS6E6: The student will analyze the benefits of and barriers to voluntary trade in
Europe. a. Compare and contrast different types of trade barriers such as tariffs,
quotas, and embargos. b. Explain why international trade requires a system for
exchanging currencies between nations.

• SS6E7: The student will describe factors that influence economic growth and examine
their presence or absence in Europe. a. Explain the relationship between investment
in human capital (education and training) and gross domestic product (GDP). b.
Explain the relationship between investment in capital (factories, machinery, and
technology) and gross domestic product (GDP). c. Describe the role of natural
resources in a country’s economy. d. Describe the role of entrepreneurship.
 Production, Distribution,
and Consumption

The production, distribution and

consumption of goods/services
produced by the society, are
affected by the location, customs,
beliefs, and laws of the society.
 Gross Domestic Product (GDP)
• GDP is the total value of all goods and
services produced in a country in a year.
• GDP divided by the country’s population is
called GDP per capita (or per head)
• GDP shows how rich or poor a country is
 Gross Domestic Product (GDP)
• USA’s GDP – 16.77 Trillion
• Germany’s GDP – 3.73 Trillion
• United Kingdom’s GDP – 2.678 Trillion
•  
 Human Capital
• Human capital means the knowledge and
skills that make it possible for workers to earn
a living producing goods or services.
• Types of Human Capital:
– Entrepreneurs
– Education
– Training
– Workers
– If you invest, GDP goes up!
 Human Capital
• Companies that INVEST in human capital
through training and education are MORE
likely to have profitable businesses and MORE
satisfied workers than companies who do not.
 Capital Goods
• The factories, machines, and technology that
people use to make their goods.
• If you INVEST MORE into capital goods, what
do you think will happen for the economy?
• GDP will MOST LIKELY go up!
Factors that Influence the Economy
• Employment
• Literacy
• Resources (capital)
• International trade (import/export)
• Supply and Demand
• Stock Market
• Etc…
 Traditional Economy
• Economic decisions are
based on customs, rituals,
religious beliefs, or habits
developed by the society
long ago.
• Tradition means something
that has been passed down
from generation to
generation.
 Command Economy
• The government decides
what, and how much will
be produced. It also sets
the prices of goods to be
sold.
 Market Economy
• Business owners and
consumers make
decisions about what to
make (produce), sell, and
buy.
• Other names include:
– Capitalism
– Free enterprise
Which type of economy do you think is best?
Why?
• Traditional
• Command
• Market
 Mixed Economy
• Nearly ALL modern economies in the world
today have characteristics of both MARKET
AND COMMAND economic systems, which is
why they are called MIXED economies.
• Mixed economics are located on a continuum
between pure market and pure command.
 Let’s recap…
• https://
www.youtube.com/watch?v=Cpqq9HXYJPM&li
st=PLaSP9oNn44MfG51iFMZdzlsEMgRN0Ex2l
&index=1
 International Trade
• Trade between countries, or nations
• Important to countries’ economies
 Imports and Exports
• Imports include products a country buys from
other countries **Think import=incoming**
• Exports include products sold to other
countries **Think export=exit**
 Imports and Exports
• Name some products that you think we
import.
• Name some products that you think we
export.
 Entrepreneurs
• People who use their money and talents to
create new businesses and products.
• They risk their own money to produce these
goods and services in hope they’ll earn a
profit.
• They are important to countries’ economies…
but how?
 Specialization
• Products a country makes best and that are in
demand on the world market.
• Why do should a country specialize in a
product?
• Countries specialize to build a profitable
economy and earn money to buy items that
cannot be made locally (basis for international
trade).
 Exchanging Currency
• Currency is a medium of exchange (MONEY)
• International trade requires a system for
exchanging currencies between nations
• All money is not worth the same!
 Trade Barriers
- are anything that slows down or prevents one
country from exchanging goods with another.

3 types of trade barriers:

• Tariff
• Quota
• Embargo
Can help or hurt international trade
 Tariff
• A tax placed on goods brought into a
country (imports) from another country.

• As a country why do you think you would

you place a tariff on imports?
 Quota
• A limited or fixed amount of goods that
can come into a country.
• Usually a government regulation

• How would setting a quota help YOUR country?

 Embargo
• An official ban on
trade or other
commercial activity
with a particular
country.
• Why do you think a country would place
an embargo on another country?
– Isolate that country.
– Cause problems for their economy.