Personal Finance Unit 2 Lesson 1: Economics and Money

Gabe cleans people's houses.

Services

Holli is a soccer coach.

Services

Monica is a veterinarian who treats cats and dogs.

Services

Medium of Exchange Money is used as a medium of exchange, which means it is used to buy and sell commodities. Money makes it much easier for producers and consumers to exchange items of value.

Without money, a producer and a consumer might have difficulty getting what they want from each other. If a consumer wanted something from a producer, the consumer would also need to have something the producer wanted.

Good

an item of value that a person can buy or make and then sell to other people, such as a t-shirt, cake, or painting.

finances

are the money you have and the things you own that are worth money.

The Texas real estate market is a market that is categorized in which two ways?

commodity location

Personal finance

the way you manage your own money and the things you own.

Scarcity

when people want more of something than is available.

market

where producers and consumers gather to exchange commodities. This is where economic activity takes place.

A financial exchange is when commodities are bought and sold using money.

EXAMPLE Buying an item in a store is an example of a financial exchange.

Commodities can also be traded back and forth without using money.

EXAMPLE Friends might trade video games or books with each other.

Here are some things good financial planning skills can help you do. -Create a budget. -Fund your education or the education of your children. -Save and invest money. -Borrow money to make big purchases like houses or cars.

-Purchase items at low prices. -Use credit cards responsibly. -Plan for retirement. -Set financial goals. -Keep track of the money you earn and the money you spend. -Understand how taxes work. -Make choices about how to spend money responsibly

Which of the following is a sign of a weak economy?

A high unemployment rate

By Location The size of the geographic area used to define a market can vary dramatically. A market can be as small as a few booths set up to sell fruits and vegetables in a specific neighbor hood of a city or town, or a market may be as large as an entire country. The U.S. market and the global marketplace are terms commonly used to mean the exchange of commodities in the U.S. or the world.

A market can also be a city, state, or a region, such as the Phoenix market, the Arizona market, or the Southwestern market in the U.S. Being aware of each market you're a part of as a consumer helps you understand your role in the economy of that market.

Store of Value Money is also a way for people to store value and use it later. Unlike many commodities, money doesn't go bad or expire. A person who tried to store value in a perishable commodity could easily lose that value.

EXAMPLE A farmer grows and harvests berries, and at the end of the summer, she has a valuable berry crop. If she doesn't sell the berries and turn them into money, the berries will go bad and lose their value.

Services aren't things that can be owned. People pay for services because they want other people to help them or to do things for them.

EXAMPLE If you don't speak French, you may need to hire a tutor to help you learn. If you don't have time to clean your house or wash your car, you might decide to pay someone else to do these things for you.

EXAMPLE Some things are not scarce, such as air or ocean water. There is currently plenty of air and ocean water, so people don't wish they had more than they do.

EXAMPLE Many people want more money or things that they could buy with money, but the amount of money that exists is limited, so people can't just have as much money as they want.

When a good is sold, ownership of the good is transferred from the seller to the buyer.

EXAMPLE Sweaters you buy at a store, apples you buy at a fruit stand, and books you purchase online are all examples of goods.

By Commodity Markets can be categorized by the type of commodity being exchanged. EXAMPLE The real estate market is focused on the exchange of real estate, such as houses, buildings, and land.

EXAMPLE The stock market is a market focused on a single type of commodity called stocks. You'll learn more about stocks later. Markets are often categorized by both commodity and geographic location, such as the Southwestern real estate market or the U.S. stock market.

Which three things does money help people do in an economy?

Exchange commodities Measure the value of commodities Store value

Justin makes and sells sculptures.

Goods

Kanesha sells bicycles.

Goods

Raul grows vegetables and sells them at a roadside stand.

Goods

A commodity is also sometimes called a product. As you learn to manage your personal finances, you will pay attention to which commodities you need or want, and how you will pay for them.

Having a good understanding of the value of a commodity will help you make smart financial decisions and avoid overpaying.

Value is what something is worth to people.

If something has value, people are willing to give money or something else of value in exchange for it.

PRODUCER EXAMPLE

If you sell fruit at a grocery store, teach violin lessons at a school, or make and sell mittens, you are a producer.

CONSUMER EXAMPLE

If you trade a candy bar to your friend in exchange for a baseball hat, you are trading commodities without using money.

Price Stability and Inflation Price stability is when prices of goods and services in an economy stay about the same for a long period of time. Price stability is a sign of a strong economy.

In many economies, prices are not stable. They are constantly changing because of factors like inflation and supply and demand. You'll learn more about supply and demand later.

Spending Power Spending power is the amount of goods and services a person can buy with the amount of money they have. As you earn more money, your spending power increases. EXAMPLE A person who earns $200 per week has more spending power than someone who earns $100 per week.

In order for your spending power to increase, the amount of money you earn must increase faster than the inflation rate increases. If the amount of money you earn doesn't rise as fast as the inflation rate, your spending power will decrease.

Inflation is when the value of a dollar goes down, so you can't get as many goods or services for your dollar. EXAMPLE A pair of shoes that cost $20 one year might cost $22 the next year if the inflation rate rises quickly. Or the price of an airplane ticket might be $300 one year and $325 the next year.

Inflation is a sign of a weak economy. A weak economy is usually experiencing an increase in inflation and in unemployment.

EXAMPLE A consumer wants apples from a producer, but the consumer only has oranges to offer in exchange. If the apple producer doesn't want oranges, the consumer won't get apples from that producer.

Money ensures that producers and consumers are able to buy and sell items without trading commodities in both directions. A commodity can go from a producer to a consumer in exchange for money.

Unit of Account Money also exists as a unit of account. This means that money is something that can be measured, defined, recorded, and compared.

Money makes it much easier to measure the value of a commodity and compare it to others. Without money, it would be difficult for consumers to know which producer was offering the best deal on a certain product.

Which of the following could financial planning help you do?

Plan for retirement.

You bake a cake for a friend's party, and the friend pays you for it. This makes you a _____________.

Producer

By Consumer Markets are also categorized by the type of consumer buying the commodity. Markets may be categorized very specifically, such as the retiree market and the teenage market.

The characteristics of one group of consumers can be very different from the characteristics of another group. They may have very different wants, needs, lifestyles, and beliefs. EXAMPLE Retired people have very different wants and needs from teenagers.

A strong economy is one in which the region or country and its people are becoming more profitable. This means they are producing and earning more money than they spend. In a strong economy, companies are being formed and expanding, so the number of jobs is growing.

The goods and services the region or country produces are growing in value, so the amount that people earn increases. In a strong economy, consumers have more money to spend than they would in a weak economy. This means they are more likely to purchase goods and services.

An economy is a system of trade.

Trade is the exchange of things of value.

GDP The GDP is one of the most common ways to measure a country's economy. A country's GDP, or gross domestic product, is the value of the goods and services produced in that country.

When the GDP increases, the economy is growing and becoming stronger. When it decreases, the economy is shrinking and becoming weaker.

The unemployment rate is the percentage of people who don't have jobs in a country or area. A low unemployment rate is a sign of a good economy, because it means most people have jobs. In a strong economy, companies are growing and being formed, and the number of jobs grows, so more people are employed.

When the economy is weak, companies go out of business or make cutbacks, people lose their jobs, and the unemployment rate goes up. In an economy with a high unemployment rate, consumers often have less money to spend. If jobs are scarce, consumers may also accept jobs with lower wages than they would at other times.

EXAMPLE Making a plan to save the money you'd need to make a big purchase, like a car, is an example of financial planning.

When you make a financial plan, you'll consider things like how to pay for purchases over time, how taxes work, and how to save and invest money.

Financial planning

making a plan for the future about how to manage your finances.

consumer

someone who buys or trades in order to receive the commodity. If you're buying something, you are a consumer.

producer

someone who makes a commodity available for sale or exchange. If you're selling something or offering it to trade, you are a producer.

service

something of value that a person can do for other people, such as babysitting, tutoring, or landscaping.

commodity

something of value that can be bought, sold, or traded, such as a book, a bicycle, or music lessons.

Economics

the study of how people decide what they want and what they are willing to pay or give in order to get it.