Study Guide in ECED 107 Social Studies in Early Childhood Education Module No.
STUDY GUIDE FOR MODULE NO. 9
PRODUCTION, DISTRIBUTION, AND CONSUMPTION
MODULE OVERVIEW
People have wants that often exceed the limited resources available to them. The unequal
distribution of resources necessitates systems of exchange, including trade, to improve the well-being of the
economy, while the role of government in economic policy-making varies over time and from place to place.
Increasingly, economic decisions are global in scope and require systematic study of an interdependent world
economy and the role of technology in economic growth. As a result, a variety of ways have been invented to
decide upon answers to four fundamental questions: What is to be produced? How is production to be
organized? How are goods and services to be distributed and to whom? What is the most effective allocation
of the factors of production (land, labor, capital, and entrepreneurship)?
In exploring this theme, students confront such questions as: What factors influence decision-making
on issues of the production, distribution and consumption of goods? What are the best ways to deal with
market failures? How does interdependence brought on by globalization impact local economies and social
systems?
Students will gather and analyze data, as well as use critical thinking skills to determine how best
to deal with scarcity of resources. The economic way of thinking will also be an important tool for students
as they analyze complex aspects of the economy.
In schools, this theme typically appears in units and courses dealing with concepts, principles,
and issues drawn from the discipline of economics. Young learners begin by prioritizing their economic
wants vs. needs. They explore economic decision-making as they compare their own economic experiences
with those of others and consider the wider consequences of those decisions on groups, communities, the
nation, and beyond. In the middle grades, learners expand their knowledge of economic concepts and
principles, and use economic reasoning processes in addressing issues related to fundamental economic
questions. High school students develop economic perspectives and deeper understanding of key economic
concepts and processes through systematic study of a range of economic and sociopolitical systems, with
particular emphasis on the examination of domestic and global economic policy options related to matters
such as trade, resource use, unemployment, and health care.
MODULE LEARNING OBJECTIVES
At the end of this module, you should have:
1. discussed rudimentary ideas of how goods and services are produced exchanged, and consumed.
LEARNING CONTENTS
Understanding Economics
Economics is a social science concerned with the production, distribution, and consumption of goods and
services. It studies how individuals, businesses, governments, and nations make choices about how to
allocate resources. Economics focuses on the actions of human beings, based on assumptions that humans
act with rational behavior, seeking the most optimal level of benefit or utility. The building blocks of economics
are the studies of labor and trade. Since there are many possible applications of human labor and many
different ways to acquire resources, it is the task of economics to determine which methods yield the best
results.
Economics can generally be broken down into macroeconomics, which concentrates on the behavior of
the economy as a whole, and microeconomics, which focuses on individual people and businesses.
One of the earliest recorded economic thinkers was the 8th-century B.C. Greek farmer/poet Hesiod, who
wrote that labor, materials, and time needed to be allocated efficiently to overcome scarcity. But the founding
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Study Guide in ECED 107 Social Studies in Early Childhood Education Module No. 9
of modern Western economics occurred much later, generally credited to the publication of Scottish
philosopher Adam Smith's 1776 book, An Inquiry Into the Nature and Causes of the Wealth of Nations.
The principle (and problem) of economics is that human beings have unlimited wants and occupy a world
of limited means. For this reason, the concepts of efficiency and productivity are held paramount by
economists. Increased productivity and a more efficient use of resources, they argue, could lead to a higher
standard of living.
Despite this view, economics has been pejoratively known as the "dismal science," a term coined by
Scottish historian Thomas Carlyle in 1849. He used it to criticize the liberal views on race and social equality
of contemporary economists like John Stuart Mill, though some commentators suggest Carlyle was actually
describing the gloomy predictions by Thomas Robert Malthus that population growth would always outstrip
the food supply.
Types of Economics
The study of economics is generally broken down into two disciplines.
Microeconomics focuses on how individual consumers and firms make decisions; these individual
decision making units can be a single person, a household, a business/organization, or a government
agency. Analyzing certain aspects of human behavior, microeconomics tries to explain how they respond to
changes in price and why they demand what they do at particular price levels. Microeconomics tries to explain
how and why different goods are valued differently, how individuals make financial decisions, and how
individuals best trade, coordinate, and cooperate with one another. Microeconomics' topics range from the
dynamics of supply and demand to the efficiency and costs associated with producing goods and services;
they also include how labor is divided and allocated; how business firms are organized and function; and how
people approach uncertainty, risk, and strategic game theory.
Macroeconomics studies an overall economy on both a national and international level, using highly
aggregated economic data and variables to model the economy. Its focus can include a distinct geographical
region, a country, a continent, or even the whole world. Its primary areas of study are recurrent economic
cycles and broad economic growth and development. Topics studied include foreign trade, government fiscal
and monetary policy, unemployment rates, the level of inflation and interest rates, the growth of total
production output as reflected by changes in the Gross Domestic Product (GDP), and business cycles that
result in expansions, booms, recessions, and depressions.
Micro- and macroeconomics are intertwined. Aggregate macroeconomic phenomena are obviously and
literally just the sum total of microeconomic phenomena. However these two branches of economics use very
different theories, models, and research methods, which sometimes appear to conflict with each other.
Integrating the microeconomics foundations into macroeconomic theory and research is a major area of study
in itself for many economists.
Gross Domestic Product (GDP)
The Gross Domestic Product (GDP) is considered by many to be the broadest measure of a country's
economic performance. It represents the total market value of all finished goods and services produced in a
country in a given year or another period.
Retail Sales
The retail sales report is very closely watched and measures the total receipts, or dollar value, of all
merchandise sold in stores. The report estimates the total merchandise sold by taking sample data from
retailers across the country—a figure that serves as a proxy of consumer spending levels. Because consumer
spending represents more than two-thirds of GDP, this report is very useful to gauge the economy's general
direction. \
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Study Guide in ECED 107 Social Studies in Early Childhood Education Module No. 9
Industrial Production
One of the closely watched measures included in this report is the capacity utilization ratio, which
estimates the portion of productive capacity that is being used rather than standing idle in the economy. It is
preferable for a country to see increasing values of production and capacity utilization at high levels. Typically,
capacity utilization in the range of 82–85% is considered "tight" and can increase the likelihood of price
increases or supply shortages in the near term. Levels below 80% are usually interpreted as showing "slack"
in the economy, which might increase the likelihood of a recession.
Employment Data
Generally, sharp increases in employment indicate prosperous economic growth. Likewise, potential
contractions may be imminent if significant decreases occur. While these are general trends, it is important to
consider the current position of the economy. For example, strong employment data could cause a currency to
appreciate if the country has recently been through economic troubles because the growth could be a sign of
economic health and recovery. Conversely, in an overheated economy, high employment can also lead to
inflation, which in this situation could move the currency downward.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) measures the level of retail price changes (the costs that consumers
pay) and is the benchmark for measuring inflation. Using a basket that is representative of the goods and
services in the economy, the CPI compares the price changes month after month and year after year. This
report is one of the more important economic indicators available, and its release can increase volatility in
equity, fixed income, and forex markets. Greater-than-expected price increases are considered a sign of
inflation, which will likely cause the underlying currency to depreciate.
Types of Economic Systems
Societies have organized their resources in many different ways through history, deciding how to use
available means to achieve individual and common ends.
Primitivism
In primitive agrarian societies, people tend to self-produce all of their needs and wants at the level of the
household or tribe. Families and tribes would build their own dwellings, grow their own crops, hunt their own
game, fashion their own clothes, bake their own bread, etc. This economic system is defined by very
little division of labor and resulting low productivity, a high degree of vertical integration of production
processes within the household or village for what goods are produced, and relationship based reciprocal
exchange within and between families or tribes rather than market transactions. In such a primitive society,
the concepts of private property and decision-making over resources often apply at a more collective level of
familial or tribal ownership of productive resources and wealth in common.
Feudalism
Later, as civilizations developed, economies based on production by social class emerged, such as
feudalism and slavery. Slavery involved production by enslaved individuals who lacked personal freedom or
rights and were treated as the property of their owner. Feudalism was a system where a class of nobility,
known as lords, owned all of the lands and leased out small parcels to peasants to farm, with peasants
handing over much of their production to the lord. In return, the lord offered the peasants relative safety and
security, including a place to live and food to eat.
Capitalism
Capitalism emerged with the advent of industrialization. Capitalism is defined as a system of production
whereby business owners (entrepreneurs or capitalists) organize productive resources including tools,
workers, and raw materials to produce goods for sale in order to make a profit and not for personal
consumption. In capitalism, workers are hired in return for wages, owners of land and natural resources are
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Study Guide in ECED 107 Social Studies in Early Childhood Education Module No. 9
paid rents or royalties for the use of the resources, and the owners of previously created wealth are paid
interest to forgo the use of some of their wealth so that the entrepreneurs can borrow it to pay wages and
rents and purchase tools for hired workers to use. Entrepreneurs apply their best judgment of future economic
conditions to decide what goods to produce, and are earn a profit if they decide well or suffer losses if they
judge poorly. This system of market prices, profit, and loss as the selection mechanism as to who will decide
how resources are allocated for production is what defines a capitalist economy
These roles (workers, resource owners, capitalists, and entrepreneurs) represent functions in the capitalist
economy and not separate or mutually exclusive classes of people. Individuals typically fulfill different roles
with respect to different economic transactions, relationships, organizations, and contracts which they are a
party to. This may even occur within a single context, such as an employee-owned co-op where the workers
are also the entrepreneurs or a small business owner-operator who self-finances his firm out of personal
savings and operates out of a home office, and thus acts as simultaneously as entrepreneur, capitalist, land
owner, and worker.
Socialism
Socialism is a form of cooperative production economy. Economic socialism is a system of production
where there is limited or hybrid private ownership of the means of production (or other types of productive
property) and a system of prices, profits, and losses is not the sole determinant used to establish who
engages in production, what to produce and how to produce it. Segments of society band together to share
these functions
Production decisions are made through a collective decision making process, and within the economy
some but not all economic functions are shared by all. These might include any strategic economic functions
that affect all citizens. These would include Public Safety, National Defense, resource allocation (utilities like
water, and electric), education, and more. These are often paid for through income or use taxes levied on the
remaining tactically independent economic functions (individual citizens, independent businesses, foreign
trade partners, etc).
Modern socialism contains certain elements of capitalism, such as a market mechanism, and also some
centralized control over some resources. If more of the economic control is centralized in ever increasing
ways, it may eventually become more akin to communism. Note that socialism as an economic system can
and does occur under various forms of government, from the Democratic Socialism of the Nordic countries to
more authoritarian strands found elsewhere.
Communism
Communism is a form of command economy, whereby nearly all economic activity is centralized, and
through the coordination of state-sponsored central planners. A society's theoretical economic strength can be
marshaled to the benefit of the society at large. Executing this in reality is far more difficult than in theory, in
that it requires no conflicting or competing entities within the society to challenge the allocation of resources.
Note that instances of economic communism in the modern era have also been coupled with an authoritarian
form of government, although this need not be the case in theory.
SUMMARY
Economics plays a role in our everyday life. Studying economics enables us to understand past, future
and current models, and apply them to societies, governments, businesses and individuals.
Importance of studying economics
So, why do we study economics? Here are five reasons why studying economics is important.
1. Informs decisions
Economists provide information and forecasting to inform decisions within companies and governments. This
knowledge of economics – or economic intelligence – is based on data and modeling.
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Study Guide in ECED 107 Social Studies in Early Childhood Education Module No. 9
2. Influences everything
Economic issues influence our daily lives. This includes issues such as tax and inflation, interest rates and
wealth, inequality and emerging markets, and energy and the environment. A broad subject, economics
provides answers to a range of health, social and political issues that impact households and wider
communities.
3. Impacts industries
Firms of all sizes and industries have to rely on economics, whether that’s for product research and
development, pricing strategies or how to advertise. This wide influence means studying economics can open
up a variety of career options across all sectors of the economy, from agriculture to manufacturing, to banking
and consultancy.
4. Inspires business success
Understanding how consumers behave is vital for a business to succeed. Economists use theories and
models to predict behavior and inform business strategies. For example, how to analyse ‘big data’.
5. International perspective
Economics affects the world we live in. Understanding domestic and international perspectives – historic and
current – can provide a useful insight into how different cultures and societies interact. For international
corporations, understanding the world economy is key to driving success.
REFERENCES
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