economic$
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ECONOMIC$Studying how people use their resources
Average Salary based on Education
Jack and Jill live on an island. Everything on their island is an asset.
Asset—Something that can be used by people for a purpose
Jack and Jill
In order to improve their standard of living Jack and Jill decide to do different jobs.
Standard of Living—The level of comfort in everyday life
Jill demands firewood, because she doesn’t like to work hard (It messes up her nails)Jack agrees to supply firewood.
Demand—the amount of an asset people want Supply—the amount of assets available
Jack demands new clothes, because he ruins all of his cutting firewood. Jill agrees to supply clothes.
Demand—the amount of an asset people want Supply—the amount of assets available
Jack and Jill begin to trade with each other.
Trade--Exchanging assets for shared benefit
Traditional economies are when people trade one asset directly for another.
Traditional Economy
Jack and Jill discover that Ringo and Paul also live on their island.Ringo starts to catch fish and Paul starts to cook Ringo’s fish.
Everyone on the island’s standard of living goes up more.
Jack demands some of Paul’s cooked fish, but Paul doesn’t demand Jack’s firewood.
Ringo demands some of Jack’s firewood, but Jack doesn’t demand raw fish.
Everyone agrees to start using sea-shells as currency.
Currency—A commonly valued asset used to trade
Now everyone can trade, and the standard of living goes up for everyone.
Jack cuts a lot of firewood. The supply of firewood is high. Only Ringo demands Jack’s firewood. The demand is low. Jack
only gets one seashell for a stack of firewood.
Jill makes a really nice shirt. Everyone demands Jill’s nice shirt. The demand is high. There is only one shirt. The supply is low.
Nice shirts are very scarce. Ringo, Jack, and Paul bid against each other for the nice shirt. Jill ends up selling the shirt for 25 sea-
shells..
Scarcity—How much or little of an asset there is. The more scarce (low supply), the higher the price.
Market Economy-People are free to trade goods as they choose.
John moves to the island. John declares he is now the dictator of the island. John makes Jack get coconuts, Ringo now gets the firewood, and Paul and Jill are forced to start building a new house for John. Nobody gets to choose what they do. They now live in a command economy.
Command Economy
Command Economy-The government controls everything that the people make and what they have to make.
Why would currency be considered a medium of exchange?
Medium of Exchange
The total amount of currency available
Other types of circulation
Circulation
Why can’t we just print money?
Inflation
Total Money
Richest Person
Poorest Person
Average person
All the rest
Total Money—x2
Richest Person
Poorest Person
Average person
All the rest
Why can’t we just print money?
◦ Assets prices change when inflation changes, so that it still costs the same amount of the pie. In other words:
◦ Before inflation: After Inflation: Car costs $10,000 Car costs $20,000
Inflation
Amount of $$ x2
Inflation is the general increase in the cost of all assets due to the rise in the amount of currency in circulation.
Inflation
http://mpe2013.org/images/climate-system-ocean-circulation/
http://bioweb.wku.edu/courses/Biol115/Wyatt/Anatomy/Heart/circulation.htm
alwaysarocker.blogspot.com http://
www.free-bullion-investment-guide.com/price-inflation.html
http://www.free-bullion-investment-guide.com/price-inflation.html
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