Download Module 1: Basic Economic Principles

Module 1: Basic Economic
Principles
Miller
Objectives
• Upon completion of this module, SWBAT
– Define microeconomics
– Explain the Laws of Scarcity, Opportunity Cost, and
Marginal Utility
– List and describe the four factors of production
– Explain why the US economy is a mixture of
market, command, and traditional aspects
– Describe the unique aspects of the American
economy and relate them to the Production
Possibilities Frontier
SLOs
• This module focuses on the SLOs below:
– Social responsibility
– Self expression
• Personal freedom of choice and the thorough
understanding of the ramifications of these
choices
Definition
• Economics Greek etymology
• “oikos” which translates into household
• Microeconomics - study of everyday choices
made by households (individual consumers or
producers of goods and services)
Law of Scarcity
• Everything is limited
• Time, resources, energy
• Must use wise choices to maximize usage of
limited resources
Opportunity Cost
• All choices are multi-faceted in nature
• i.e. Choosing vanilla ice cream also means NOT
choosing chocolate, strawberry, mint chip,
rocky road, etc.
• Each option not chosen in a decision is a
tradeoff
• the sum of all tradeoffs in a decision is its
opportunity cost
Reflection
• Opportunity Cost refresher
• Describe a recent decision you’ve made and
list some of the tradeoffs involved when you
made that decision. Considering the total
opportunity cost, do you still have confidence
in your decision?
Life at the Margin
• In economics, the margin refers to the next or
one more additional product or service
• Utility is the usefulness or enjoyment a good
or service provides the consumer
• Question - What does “marginal utility”
mean? What about “marginal cost” and
“marginal return”?
Factors of Production
•
•
•
•
Land – natural resources, operational space
Labor – workers
Capital – money, assets, investments
Entrepreneurship – management, organizational
skill
• If you had a choice between opening a store on a
web site, or mall location or a storefront on a
street corner, which would you choose? Defend
your answer.
Types of Economies
• All styles of economic structure relate to how
a society chooses to allocate time, resources
and energy to the factors of production
Traditional Economies
• Factors of production
are used based on
matrilineal, patrilineal
conditions
• “Do what your
ancestors have always
done”
• Barter system is
important here
• Trading goods/services
for others
• Prefer to use
commodities for trade
NOT currency
Traditional Economies
Command Economies
• Requires powerful
centralized authority
figure
• Authority figure
“commands”
production of certain
economic
goods/services
• Producers/consumers
punished for
disobedience
• Spanish encomienda
system/American British
Dutch plantations
• Most recently USSR,
China (sort of), North
Korea (definitely)
Command Economies
Market Economies
• No central authority
directing
consumption/productio
n
• Indirect force called
“the invisible hand”
• Market forces such as
price, cost, and profit
margin will direct
economic activity
• “pure” capitalism
• Developed in 18th
century as a rebuke
imperial mercantilism
• Very productive in
nature
Market Economies
Mixed Economies
• Blends of the other
three elements
• Practically all nations
feature a mixed
economy
• The US is a mostly
market based system
with some command
and traditional
elements
• European nations tend
have more command
elements mixed in,
reflecting a socialist
tendency
• Chinese the reverse mostly command based
system assimilating
market elements
The American Economy
• What do you feel are the top SIX aspects of
our American economy?
• Private property
The American Economy
• What do you feel are the top SIX aspects of
our American economy?
• Private property
• Profit motive
• Freedom of choice
• Free enterprise
• Competition
• Limited Government Intervention
Private Property
• The right to controls our
own means of production
• Can be tangible (land) or
intangible (idea for an
invention or a movie plot)
• Can use the court system
to protest the unlawful
use or theft of your
property – civil law or tort
law
Profit Motive
• Gordon Gekko from the
movie Wall Street
• “Greed is good”
• Desire for more profits
→ more production of
goods and services →
higher standard of living
for all consumers
• “Rising tide lifts all
boats”
Freedom of Choice
• “the customer is always
right”
• Producers have to
accommodate the
wishes and needs of
consumers up to a
certain extent
• iPhone example transformative product
that forced consumers
to make new choices
Free Enterprise
• Success in business not
guaranteed, but
American people won’t
stop you from taking
the risk
• Relatively few
monopolies that restrict
access to markets in US
• Almost anyone can start
a business
Competition
• When producers battle
each other for access to
consumers, consumers
win ☺
• Forces innovation in
product marketing and
design
• Forces larger total
supply of goods which
decreases prices of
these said goods
Limited Government Intervention
• Federal government
serves the role of
“referee” in the current
economic structure
• product safety standards,
workplace safety
standards, worker
competency, truth in
advertising, etc.
• An advocate for both the
consumer and producer
and that causes conflict
and strife at times
Economic Flow
• Explains how
microeconomic actors
(consumers, workers,
businesses) constantly
exchange land, labor
and capital to maintain
economic well-being
Production Possibilities Frontier
• Expresses the maximum
limit of efficient
production of consumer
goods and capital in a
given economy
• Points B,C,D efficient
production
• Point A inefficient
• Point X impossible