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

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www.free-bullion-investment-guide.com/price-inflation.html

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