Under s t a n d i n g

E c o n o m i c s

Monika Davies
Underst a n d i n g
Eco n o m i c s

Monika Davies
Consultants
Crystal Hahm, M.A.Ed., Ed.M.
Tustin Unified School District
Bijan Kazerooni, M.A.
Chapman University

Publishing Credits
Rachelle Cracchiolo, M.S.Ed., Publisher
Conni Medina, M.A.Ed., Managing Editor
Emily R. Smith, M.A.Ed., Series Developer
June Kikuchi, Content Director
Susan Daddis, M.A.Ed., Editor
Courtney Roberson, Senior Graphic Designer

Image Credits: p.8 Maryland State Archives, Huntingfield

Collection, MSA SC 1399-1-101; p.9 Chronicle/Alamy; p.10 North Wind
Picture Archives/Alamy; p.11, 32 North Wind Picture Archives; p.23
Rena Schild/Shutterstock; p.24 MaximImages archive/Alamy; p.26
Glasshouse Images/Alamy; p.27 (center) Taina Sohlman/Shutterstock;
all other images from iStock and/or Shutterstock.

Library of Congress Cataloging-in-Publication Data

Names: Davies, Monika, author.
Title: Understanding economics / Monika Davies.
Description: Huntington Beach, CA : Teacher Created Materials, [2019] |
Includes index.
Identifiers: LCCN 2017053308 (print) | LCCN 2017056800 (ebook) | ISBN
9781425825638 | ISBN 9781425825218 (pbk.)
Subjects: LCSH: Economics. | United States--Economic conditions.
Classification: LCC HB71 (ebook) | LCC HB71 .D295 2019 (print) | DDC
330--dc23
LC record available at https://lccn.loc.gov/2017053308

Teacher Created Materials

5301 Oceanus Drive
Huntington Beach, CA 92649-1030
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ISBN 978-1-4258-2521-8
© 2018 Teacher Created Materials, Inc.
Table of Contents
What Is Economics? . . . . . . . . . . . . . . . . . . . 4

America’s First Economies . . . . . . . . . . . . . . 8

Your Role in the Economy . . . . . . . . . . . . . 12

Factors of Production . . . . . . . . . . . . . . . . . 16

What the Future Holds . . . . . . . . . . . . . . . . 26

Write It! . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Your Turn! . . . . . . . . . . . . . . . . . . . . . . . . . . 32

3
What Is Economics?
When you think of economics, what comes to mind? If you
said “money” you are on the right track. Economics is a big word.
It has a complex meaning. It is the study of two important points.
First, it looks at the process of making and selling goods and
services. Then, it studies how people spend the money they make.
Every day, people make choices. Should we have apple juice
or orange juice? Should we buy a book or movie tickets? These
decisions are economic choices. And these choices affect more
than just us. They also affect how our community grows and
changes.

4
 The History of
Economics
The study of economics goes back to
ancient times. Aristotle, a Greek thinker
and writer, was born in 384 BC. He
wrote that people had simple needs and
endless wants. He believed that people
should trade to meet their needs.

Statue of Aristotle

5
6
 Each community has its own economy. This is the system in
which goods and services are bought and sold. Goods are items
you can see and touch. They can be things such as food, clothes,
or phones. Services are actions that someone does for others. A
service can be a plumber fixing pipes. Or it might be a bus driver
taking people around town.
Every day, people buy and sell goods and services. These
actions fuel local economies. But what is bought and sold has
changed over time. Some goods and services are the same. Others
are new. These changes direct the economy.

Hello, Technology
Technology has completely changed
our lives. We once went to stores
to shop. Now, we shop online.
Technology has influenced what we
buy and sell while also changing how
we buy and sell goods and services.

7
America’s First
Economies
In 1607, the first English colony was established in
America. It was in Jamestown, Virginia. Settlers arrived
from England. They started to build their lives in the new
colony. There was fertile land. And there was plenty of
food for all. Yet, less than half of the settlers survived.
More settlers were sent over. And again, few survived.
People were starving. British leaders were confused. How
could the settlers be hungry with so much food available?
They sent Sir Thomas Dale to find out. Dale was a navy
commander. He would be the leader of the new colony.

This map of Virginia was

drawn in the early 1600s.

8
 Dale arrived in 1611. When he came, Jamestown needed help.
People were hungry but not everyone was working hard. He
soon learned one reason why. All the food was shared. Everyone
received the same amount, no matter how much their farm grew.
There was no incentive to grow more.

These are the ruins from

the original church tower at
Jamestown.

Economics at Work
The colonists were very poor. Then,
they found a way to make money
selling tobacco. They sold a lot of
it to England. The colonists also
traded. American Indians gave
them corn and furs. In return, the
American Indians got tobacco. The
economy of the colony improved.

9
 The settlers needed to work toward a future. Dale had a
solution. Each man was given three acres of land. The land was
now his private property. Any food farmed or found on the land
was his to keep. Settlers could also trade or sell anything they
grew or hunted.
People knew if they worked hard, they would prosper. In a
short time, they had more crops. Trade was encouraged.

Jamestown settlers

10
 Soon, the settlers looked for other items to trade. They learned
new skills. Some men became blacksmiths. Others became
carpenters. Innovation was encouraged. This led to new goods
and services. The market grew.
The settlers established the first economies. Private property
is still a vital part of the United States. That is also true for
innovation. These two principles help grow strong economies.

Topping the Ranks

The U.S. economy is one of the world’s
largest. California is a big reason why.
If the state were a country, it would be
in the world’s top 10 economies!
These men work in
a blacksmith shop.

11
Your Role in the Economy
We all play a part in our local economy. We buy goods and
services. And we choose the goods and services to invest in.
Everything bought and sold comes with a benefit and a cost. A
benefit is something gained. A cost is something lost. We weigh
both when making choices.

12
 What Is a Trade-off?
A trade-off is when we take less of one thing to
gain more of something else. Every choice we
make is a trade-off. For example, you might
earn an allowance. You have a choice to save
your money for a while to buy a video game
or buy snacks now. You really want the video
game. But the snacks in the store look good.

One example is when we pick food to eat. Every day, there are
people who decide to buy a slice of pizza. This is a choice. They
think about the benefits and cost. The benefit of buying a slice is
that it will fill an empty stomach. But pizzas come with a price
tag. The cost is the money paid for the pizza. If someone buys a
pizza slice, they see the benefits outweighing the cost.

13
Human Capital
Your role in the economy is more than your buying choices.
You have skills and knowledge. These are called human capital.
They can change over time. Going to school is one way to build
your human capital.
The human mind is an important tool. It solves problems. And
it makes decisions. This is needed in every line of work.

14
 Population Riches
Many people call California home. Over
39 million people live there. More
people live in the Golden State than in
all of Canada! And they all help drive
the state’s economy.

In school, you learn many subjects. You read and write. You
practice adding and subtracting. You learn how to solve problems.
It helps grow your skill set. Your hard work as a student develops
your abilities. This enhances your human capital.
Your work in school helps build your future. Maybe you will
be an entrepreneur (ahn-truh-pruh-NUHR). Or you might be a
skilled worker in an industry you love. Either way, your skills help
your community. When you succeed, so does your community.
Your success helps grow the economy.

15
Factors of Production
Goods and services are a big part of economies. But they do
not pop out of thin air! They must be produced. Production of
goods and services relies on four “building blocks.” These are the
factors of production.

land labor
capital entrepreneurship

16
Land: atural Resources
The first factor of production is land. But land is more than
the soil under our feet. It includes any natural resource. A natural
resource is something found in nature. And it is something people
can use to create goods and services.
The list of natural resources is long. Water is one. Fruit
plucked from a tree also counts. Even wind is a natural resource!

A “Fruitful” Exchange
Many states have local farme
rs’ markets.
Farmers set up booths or sta
nds. They sell
directly to people, not to a sto
re. And these
markets aren’t just limited to
fruits and
vegetables. Other farmers wil
l sell fresh meats,
honey, cheeses, and eggs.

17
Labor: Human Resources
The second factor of production is labor. This is the
work that people do to help produce goods and services.
It is also known as human resources.
Think of where you live. Examples of labor are
everywhere. Who cuts your hair? A barber or hairdresser
cuts and styles hair. How does a garden come to life?
A gardener takes care of plants and lawns. How are
purchases processed? A cashier rings it up. How is a
painting made? A painter uses a brush to color the art.
These all show labor in action!

18
Here, There, Everywhere!
Have you ever looked at the tag on your
shirt? You may have seen a label that says,
“Made in China.” Some of the goods you
buy are made in your local community.
Others are crafted in another part of the
country. And, some goods are created
abroad. The goods we buy come from all
around the world.

19
Capital Resources
The third factor of production is capital. Capital comes
in many shapes and sizes. It could be tools. Or, it might be
machinery. Buildings also count. Capital is different for
every worker. A tool for a builder is a hammer. But a tool for
an artist is a pencil.
Consider a barbershop. A barber’s tool is a pair of scissors.
That tool is capital. The barbershop is located in a building.
The building is also capital. All this is needed for the barber
shop to run. The scissors and the building did not come from
nature. They were made to make other goods or provide
services. That is why they are known as capital resources.

20
 Changing Economy
panies
In the twenty-first century, some com
are spending less on capital. They are
be seen or
spending more on things that can’t
people
touched. For example, there are now
don’t
selling goods on the Internet. People
er online.
have to go to a store. They can ord

21
Entrepreneurship
The fourth factor of production is the most important. It
is entrepreneurship. This is when people innovate.
Innovation takes place in all lines of work. First, a person
or team starts with an idea. Then, they pool their resources.
These include land, labor, and capital. Their goals are to
make goods or services that help people or make lives easier.
Their ideas might also make a profit.
All entrepreneurs have a story. They might be a group of
bakers selling cupcakes. Or they can be a team running an
online store. They can even be different companies working
on the same products. For example, many companies have
changed how mobile phones are made.
Entrepreneurs go after their goals. They find the
resources they need. This helps them to succeed. When their
business grows, it helps the economy grow, too.

Changes have made

mobile phones faster.

22
 Oprah Winfrey is a famous
entrepreneur in television,
film, and magazines.

The Risk Takers

ng spirits!
Entrepreneurs are known for their risk-taki
e big dreams.
Many start with very little. Yet, they hav
big financial
Most start their own business. They take
epreneurs
risks to follow their dreams. Famous entr
t Disney.
include Oprah Winfrey, Steve Jobs, and Wal
Can you think of others?

23
Jake the Baker
The factors of production work together to produce
goods and services. Let’s look at an example to see how
production comes together.
Jake has perfected the art of making pecan pies. This
year, he has decided to open his own shop. First, he needs
resources. His recipe calls for certain ingredients. These
include pecans and eggs. Both are natural resources.
Next, he buys a new mixer. He also chooses a shop where
he can sell his pies. These are capital resources. Finally,
he hires someone to ring up purchases. Jake will bake.
His new hire will serve. They all provide labor, which is
human resources.
On their own, these resources would not produce a
good or a service. But Jake the entrepreneur has mixed
these resources together. Now, he has a business that
sells goods: pecan pies! This is one way the factors of
production create a recipe for success.

Jake rolls and shapes

pie crust.

24
 A Key Ingredient
Jake’s recipe for success has
another key
ingredient: private property
rights. The first
English settlers had the right
to own, buy, and
sell land. That is still true. No
w you are free
to do what you want with you
r property. This
allows Jake to buy a shop to
sell his pecan
pies. His rights give him the
freedom to
pursue his dream.

25
What the Future Holds
America is still growing. Much has changed since the first settlers
arrived. We now live in a modern era. We travel by car, not horseback.
Skyscrapers reach for the sun. The Internet sits at our fingertips.
The world is always changing. And that is true for our economies,
too. But some things remain the same. We make choices about
what we buy and sell. These choices drive our economies. Looking
at what guides our choices is crucial. Our decisions help shape our
community’s future. Understanding our role in the economy is one way
to keep the future looking bright.
The horse and buggy was a
popular way to travel in the
late 1800s to early 1900s.

26
 Then and Now
Compare these “then
and now”
pictures. Think abou
t the goods and
services offered in th
e past. How
are they the same or
different from
today’s goods and se
rvices?
that makes
Tesla is one company
y cars.
electric, clean-energ

27
Write It!
Many entrepreneurs start with dreams. They have ideas that put
their resources to new uses.
Imagine you work for the school newspaper. You are asked to
write an article about a local entrepreneur or business owner.
Set up a time for the interview. Have a list of questions
prepared. Here are two examples to get you started. How did you
come up with your ideas? What was the hardest part of getting
started? Think of two more questions you would like to ask.
Conduct the interview and write the article. Include a headline
and date. Share with your friends or family.

28
29
 Glossary
abroad—in a foreign country
entrepreneur—a person who starts a business to help people or
make life easier in some way
fertile—capable of supporting the growth of many plants
fuel—to give strength to something
incentive—something that gives a person a purpose to work harder
innovation—a new idea or way to do something
pool—to put people, supplies, and money together to make a
product
private property rights—a person’s right to own property and
decide how the property is used
profit—money a business makes after all the costs and workers are
paid
prosper—become healthy and strong

30
 Index
California, 11, 15
capital resources, 20, 24
Dale, Sir Thomas, 8–10
entrepreneurship, 16, 22
factors of production, 16–18,
20, 22, 24
farm, 9
human capital, 14–15
human resources, 18, 24
Jamestown, 8–10
natural resources, 17, 24
private property rights, 25
settlers, 8, 10–11, 25–26, 32
technology, 7

31
 Your Turn!

Business Know-How
Early settlers started businesses based on needs in their
communities. Think of needs in your neighborhood. For example,
someone might need a pet sitter. Make a flyer advertising a good
or service you can provide. Include the name of your business and
details your neighbors will need about it.

32
Read and Respond
1. What are the four factors of production? List at
least one example for each factor.

2. Why were the first settlers starving upon arrival

even though there was plenty of food when they
arrived?

3. Explain some of the risks entrepreneurs take

when they start their own businesses.

4. How has online shopping changed the way

people do business?

5. Which factor of production do you think is the

most important? Explain why.

6. Write a song or rap about economics. Be sure

to include some of the key terms from the book.
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