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Exploring the Social Sciences Introduction to ECONOMICS Economics is the science that deals with the production, allocation,

and use of goods and services, it is important to study how resources can best be distributed to meet the needs of the greatest number of people. As we are more connected globally to one another, the study of economics becomes an extremely important one. While there are many subdivisions in the study of economics, two major ones are macroeconomics and microeconomics. Macroeconomics is the study of the entire systems of economics. Microeconomics is the study of how the systems affect one business or parts of the economic system. I. History of Economics

A. First writings occurred in early Greece times: 1. Plato - The Republic, and Aristotle. 2. Later such Romans as Cicero and Virgil also wrote about economics.
B. In medieval times the system of feudalism dominated. 1. There was a strict class system ( nobles, clergy and the peasants). 2. The king owned almost all the land and a. Under him were a series of nobles b. Landholdings were series of manors farming tracts w serfs/peasants. C. Mercantilism predominated major trading nations during the 16th, 17th, and 18th cent., \ 1. Based on the national wealth and power best served by increasing exports 2. Collecting precious metals in return. 3. Manufacturing and commerce was more important in this system. D. In the mid eighteenth century, the Industrial Revolution ushered in an era in which machines rather than tools were used in the factory system. 1. More workers were employed in factories in urban areas rather than on farms. 2. The Industrial Revolution was fueled by great gains in technology and invention. 3. Farms were more efficient, although fewer people were working the farms. E. "Laissez faire" became popular. F. Thomas Malthuss writing caused a reaction to "laissez-faire" thinking of the eighteenth century . 1. Felt that population would always advance faster than the science 2. Technology needed to support such population growth. 3. David Ricardo later stated wages tend to settle at a poor or subsistence level for most workers. 4. John Stuart Mill socialistic view that supported farm cooperatives and labor unions, less competition. 5. Karl Marx attacked the capitalistic, "laissez-faire" theories of competition a. Favored socialisms, marked more government control and b. State rather than private ownership of property. G. Another important idea at this time was the change in how items are valued. While formerly and item's value stayed the same according to what the item was, now worth of

an item is determined by how many people want the item and how great the supply of the item was. This was the beginning of the laws of supply and demand. In the first half of the twentieth century, John Maynard Keynes wrote about business cycles when the economy is doing well and when it is in a slump. His theories led to governments seeking to put more controls on the economy to prevent wide swings. After World War II, emphasis was placed on the analysis of economic growth and development using more sophisticated technological tools. In recent years, economic theory has been broadly separated into two major fields: macroeconomics, which studies entire economic systems; and microeconomics, which observes the workings of the market on an individual or group within an economic system. In the later twentieth century such ideas as supply side economics which states that a healthy economy is very necessary for the health of the nation and Milton Friedman's ideas that the money supply is the most important influence on the economy. In the twenty-first century, the rapid changes and growth in technology have spawned the term "Information Age" in which knowledge and information have become important commodities. SUPPLY AND DEMAND You may wonder why the prices of goods go up and down so often. One of the reasons is the law of supply and demand. Supply refers to how many of a certain good or service are available for people to purchase. Demand means how many people wish to buy that good or service. How does this work? Let's say that a brand-new, super powerful video game is about to come out. The game makers must decide how many of the games to make so they are not stuck with too many. They then have to decide how much to charge for the game - its price. They would need to charge enough for the game to cover the costs of creating the game, advertising the game, shipping the game to stores. Since they also wish to make a profit on the game, they will also want to figure that cost as well. If the price of the game is too high, however, people may not be able to afford it or decide it is not worth the price and there will be too many or an oversupply. If the price is too low, costs will not be covered and little profit will be made even though the game may sell very well. The company would lose money and may even have to close. The people who invest money in the company would not want to give the company money anymore to make more products because they would not get a good share of the profits. Usually as prices rise, the supply or amount of a product increases and as prices fall, the supply decreases as more people can afford the product. If the product is a truly excellent one, there will probably be high demand. Also if it is well advertised, more people will know about the product and be apt to want it. If the product is not well advertised or is not a good product, people will not want it and the demand will be low and the supply greater. In the case of the video game, if a better game came on the market later with superior technology, the demand for the current game would probably drop and thus the price would have to drop to sell it. Other factors that affect sales of an item are if the product is available, how good the customer service is, the appearance of the store, how the items are displayed - even what the parking is like for a store or the colors of the boxes the product is in.

SOCIALISM AND CAPITALISM There are many different ideas or systems of how an economy should be run. The two most common are capitalism and socialism. They are very different in how they view who runs the economy. Most economies have ideas from both systems, but tend to be more of one than the other. Socialistic /Communistic China Cuba North Korea Capitalistic United States Canada Great Britain

Capitalism is the economic system based on private or corporate ownership of, production and distribution of goods. It has always existed to some extent in all civilizations but was written about formally by Adam Smith in his book "The Wealth of Nations" in 1776. Capitalists favor a system of free enterprise which means the government should not interfere in the economy that the laws of supply and demand will make sure that the economy runs most efficiently in meeting people's needs. Capitalism is characterized by competition in which there is rivalry in supplying or getting an economic service or good. Sellers compete with other sellers, and buyers with other buyers. The buyers seek the best possible deal in purchasing goods and the sellers look to make the best possible sale allowing them the most profit. Socialism is an economic theory or idea that states that the government or the state should be in charge of economic planning, production and distribution of goods. This contrasts with capitalism where free markets predominate and property is privately owned. Socialism tends to favor cooperation whereas capitalism is characterized by competition. The theories of socialism first arose in the late eighteenth century in response to the Industrial Revolution where factory owners were becoming wealthy and the workers impoverished. Thus, workers wanted a greater share in the wealth that factories were making. Later a form of socialism called communism sprang up based on the writings of Karl Marx and Friedrich Engels. Communism advocates class struggle and revolution to establish a society of cooperation with strong government control. Communism predominated in the former Soviet Union and much of Eastern Europe at one time. Today it predominates in China and Cuba, but its influence has lessened. MONEY Money is something that everyone knows something about. But what is its relationship in the economic picture? Money is defined as anything that is used as a medium for exchange for goods and services. This is different that trading or barter where one directly exchanges one thing for another. Currency is paper money issued by the government. In ancient times, people used such objects as cattle for their medium of exchange. This was obviously very clumsy and difficult, so as trade became more important and popular, money evolved as a convenient medium or way for people as they sought goods and services.

The History of the Money or Monetary System in the United States The money or monetary system in the United States was based on backing of two metals, gold and silver during the nineteenth century. This means that any money could be exchanged for a designated amount of gold or silver. Thus all paper money or currency was backed by gold and there later existed a gold standard in the early twentieth century. Today's currency is not tied to the gold standard and is inconvertible fiat money, meaning it stands more or less alone as a means of exchange, not necessarily backed by gold or other reserved metal or commodity. Money is then valuable because the government says so, by fiat.. STOCKS & BONDS What does it mean to own stock? Basically it means that a stock holder has a share in the company it holds stock in. In a sense the stockholders own a piece of the company that it has stock in. Stock shares are traded, bought and sold at a stock exchange such as the New York Stock Exchange which is the best known, but by no means the only stock exchange. Stocks are a type of security, Securities are instruments giving to their legal holders rights to money or other property. Securities include stocks, bonds, notes, mortgages, How does one get to own stock? Usually stock is obtained through a stock broker. Let's say you wish to own a piece of Toys R Us or Coca-Cola. You would call a stock broker and he would tell you how much a share in the company would be. He would then place an order for the stock for you. When the stock is purchased, the broker would keep a stock certificate that shows that you are the legal owner of the stock until you choose to sell it. What are the advantages of owning stock? One is that it allows the stock owner to share in the profits of a company. These profits come in the form of dividends, which are allocated according to how much stock one holds in the company. Of course one of the disadvantages is that one can lose money if a stock's price goes down. What makes stock prices go up and down? There are many reasons: how much profit or loss a company has, the time of year, good or bad publicity about the company, how the economy is doing in general, etc.. There are several different kinds of stock. Preferred stock is a type of stock in which the stockholder gets a certain percentage of dividends each year based on the profits of the company. Common stockholders get dividends based on the remainder of the profits after preferred stockholders have been paid their dividends. Another way to purchase stocks is through mutual funds. A mutual fund is an investment company that continually offers new shares and buys existing shares back at the request of the shareholder and uses its capital to invest in diversified securities of other companies. An investor puts money into a mutual fund and then the company invests the money on behalf of the investors. What are bonds and how do they differ from stocks? A bond is a certificate of debt issued by a government or corporation guaranteeing payment of the original investment plus interest by a specified future date. Basically one is making a loan to the government or corporation and gets paid a sum of money in the future for letting the government or corporation borrow the money. Bonds are one way the government raises money besides taxes.

NEEDS AND WANTS One important idea in economics is that of needs and wants. Needs would be defined as goods or services that are required. This would include the needs for food, clothing, shelter, health care. Wants are goods or services that are not necessary but that we desire or wish for. For example, one needs clothes, but one may not needs designer clothes. One does not need toys, entertainment, gems, etc. One needs food, but does not have to have steak or dessert. One does not need glamorous trips, mall shopping, etc.. An important part of the economics is the distribution of resources or goods so that people's needs are met. This is especially true in times of scarcity when there are not enough resources, goods or services. Many times advertisers try to appeal to consumers in such a way that the consumers feel they needs certain goods or services when in fact they only want them. GOODS AND SERVICES Economics is concerned with the production and distribution of goods and services. Goods would be defined as anything that anyone wants or needs. Services would be the performance of any duties or work for another; helpful or professional activity. The distribution of goods and services is referred to as marketing. The marketing of goods and services can add almost as much to the cost as the actual manufacturing of the goods. Marketing a product refers to the advertising, and other efforts to promote a products sale. There are many different kinds of goods. Consumer goods are those such as food and clothing that satisfy human wants or needs. Producer goods are those such as raw materials and tools, used to make consumer goods. Capital goods are those machinery, used in the production of commodities or producer goods. There are untold numbers of services. A short list would include educational, health, communication, transportation, social services. INDUSTRY Industry can be defined as the sector of an economy made up of manufacturing enterprises different categories of businesses. The backbone of the United States economy is the many businesses and enterprises that employ millions and supply goods and services for the world. Below are a few of the leading industries of the United States.

INTERDEPENDENCE Building and real estate is a good example of one of the major industries in our country that creates a product - houses, offices, etc. and taps into many aspects of the economy. Let's take a look at some of the steps needed to complete a house and how many parts of the economy this venture is affected by and affects. It is an example of interdependence - how one industry depends on the work of another. In our global economy, materials and even labor may come from other countries and thus we depend on these countries and they on us. One of the first steps in building the house is to get capital or money to finance the project - to pay for the materials, the labor, the plans, the legal paper work. This will be obtained through a bank or other lending institution. An architect will be hired to draw up plans for the house. These plans will need to be submitted to the town or city government for approval. If anything is amiss, unsafe, not in line with community regulations, the plan must be altered. Lawyers will be needed to handle the legal paper work at many stages of the project, including the final sales of the property. Advertising in the papers and other media will be needed to obtain workers and also to sell the house. Raw materials such as trees must be used to make the lumber that will be used in the construction of the house. Other manufactured materials such as bricks, nuts, bolts, nails, etc. will need to be purchased from hardware supply outlets. Lumber and other materials purchased must be transported to the building site. Laborers such as carpenters must be hired. Water lines will need to be brought into the house and plumbers hired to pipe the house. Electricians will need to wire the house for power from the local utilities. Phone lines to allow communications will need to be installed. Some of the laborers that work on the house may be members of labor unions. Many homes depend upon oil and gas for heating which comes from oil wells. Landscapers must be hired to plant trees, bushes, seed the lawn, etc.. Painters and decorators will put the final touches on the appearance of the house. Home furnishings and house wares will need to be purchased from retail outlets. The house is finally complete. At this point the owners will continue to need the services of many to maintain the house and keep it livable. One of the most popular phrases when we shop is "Charge it". But what does this mean when we use our charge or credit cards? What is credit? Credit or credit cards allows the user to obtain goods, services or money in return for future payments. This is not a free service. When you use your credit card, you are also charged interest. Basically interest is payment to the credit card company for lending you the money to pay for whatever you have charged to your credit card.

How does this work? Let's say that you make purchases at an entertainment store for $100, You put these items on your credit card. Several weeks later you will receive in the mail a statement from the credit card company stating that you charged $100 worth of merchandise at the entertainment store. It will tell you the least amount you must pay. This may be about $10 on this amount you have charged. If you pay the whole amount right away, you will not be charged interest. However, there will be an interest fee charged on whatever you don't pay right away. If you only paid $10 on the $100 you owed, you would be charged interest on the remaining $90. Can anyone get credit cards? How much can one charge on a credit card? Credit cards are usually issued to people who have proven they can pay - in other words, they have jobs or other assets that can be used towards paying off their credit card debts. When you get a credit card, you are given a line of credit. This line of credit is how much you can owe the credit card company at any given time. For example, if you had a $1000 line of credit and had charged $100 worth of goods, you would have $900 left that you could charge on your credit card. There are two kinds of credit. Business credit is the kind of money lent to businesses to build stores, factories, purchase equipment, goods, etc.. The money that businesses are lent is generally referred to as capital. Let's say you wanted to start a computer store. You would go to a bank, tell them of your plans and if they felt you had a good business plan that would succeed they might lend you the money. You would pay back the money they lend you over a certain amount of time, paying interest on the money you borrowed. If for any reason you didn't pay back the money, the bank would take over business you have started and you might be forced to file for bankruptcy, meaning that you are not able to pay back your debts. Consumer credit is money that is lent to individuals so they can purchase goods or services. This is typically done with credit cards through a lending company. Several of these companies are MasterCard or Visa. Again, if you do not pay your credit card debts, you are not allowed to use your credit cards and you may be forced to declare bankruptcy if you own too much that you cannot repay.