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Unit 5 – Economics Microeconomics: Decision Making Understand economies, markets and the role economic factors play in making economic decisions. 1.1 Compare how individuals and governments utilize scarce resources (human, natural, and capital) in traditional, command, market, and mixed economies. 1.2 Analyze a market economy in terms of economic characteristics, the roles they play in decision making and the importance of each role (e.g., private property, free enterprise, circular flow, competition and profit motive, and allocation of resources via the price system). 1.4 Analyze the ways in which incentives and profits influence what is produced and distributed in a market system 1.5 Compare how various market structures affect decisions made in a market economy 1.3 Explain how supply and demand determine equilibrium price and quantity produced (e.g., any market example –apples, tires, etc.). 1.6 Compare national, state and local economic activity (e.g., resources, wages, production, employment, etc.) Economics Study of how _____________, firms, and nations fulfill their wants and __________. Why Do We Study Economics? To solve the problem of _____________ _____________ are scarce The Four Basic Economic Questions _____________ will be produced? ______________ will it be produced? How _______________ to produce? For _________________ will it be produced? Economic Basics Wants Needs Things one ___________ but does not have Things you must have to ___________ – to have to _______________ food, clothing, shelter Goods ___________ products that satisfy wants and needs 50 Services _____________ performed to satisfy wants and needs Unit 5 – Economics Microeconomics: Decision Making Understand economies, markets and the role economic factors play in making economic decisions. Factors of Production Capital Entrepreneurship Tools and _________________ ___________ portion used to make the product. Ideas - Business Plans Used to _____________ goods and Owner services. Person takes a _________ with their money Labor __________ labor _________ that help produce the product Land Resources provided by __________ to help produce the product Includes ________ Resources Renewable - Can be replaced Trees, Fish Non-Renewable – Cannot be replaced Fuel, Coal Scarcity Lack of adequate ___________ to obtain all of one’s wants or needs _____________ always exists because our wants and needs are always greater than the amount of _______________ (Factors of Production) we have Limited Resources We never have enough resources to buy all of our wants and needs. Therefore, scarcity exists. Remember, scarcity is the lack of resources to obtain ALL of our wants AND needs Producers and Consumers Producers Consumers The one who _________ the goods and The one who ___________ goods and services services *Goal – to get the ___________ price *Goal – To get the _____________ price Incentives Motivate consumers to buy something! Producer: Has incentive to make a profit Consumer: Has an incentive to save money Sales Buy One Get One Free 51 Unit 5 – Economics Microeconomics: Decision Making Understand economies, markets and the role economic factors play in making economic decisions. Salaries and Wages Salaries Wages Set _____________ of money paid to a Payment to a worker by the worker for their labor __________ for their labor Decision Making Model Step One – Define the _____________ What is the problem? Step Two – List the _________________ What options are there? Step Three – State the _________________ What are the priorities involved in making the decision? Step Four – Evaluate the ________________ Evaluate the options Step Five – Make a ___________________ Cost and Decision Making Trade Off The act of _____________ up one thing of value for ________________ Opportunity Cost Value of the ______________ option that is _________ when one makes a decision. Variable Cost Fixed Cost Total Cost Marginal Cost Costs that Costs that do Variable cost Cost of producing __________ ______ change ______ fixed cost “one more _______” Technology Technology Application of __________________ breakthroughs to commerce and ________________ Invention Technology created to meet a ______________ Innovation Something that ______________ changes and ____________ the way things are done Examples? Computers Light Bulb Robotics Machines used to ___________ goods and services Automation Machines (_____________) are used to complete the same task a _________ did for less cost Agribusiness Replacement of small _____________ intensive farms with larger ___________ intensive farms 52 Unit 5 – Economics Microeconomics: Decision Making Understand economies, markets and the role economic factors play in making economic decisions. Production of Goods Productivity The ability to turn ___________ into ____________ in a certain amount of time How fast a product can be created using the 4 Factors of Production Output versus Input Input (factors of ___________________) are used to produce Output (the _____________) Specialization Devotion of certain ______________ to a ____________ task Someone who can make a product _____________ than anyone else. Division of Labor Act of _____________ up work into ______________ tasks performed by different workers Get better and better at each task Boosts _____________________ Economic Interdependence The outcome of ___________________ and the division of _____________ Individuals depend on others to produce many or most of the goods they need to sustain their lives. Mass Production The production of _____________ quantities of goods Factory – _____________ used to ______________ the product Assembly Line Henry Ford The product moves down the _____________ and is ________________ by a series of laborers, each of who carries out a _____________ task – specialization Cost is __________, production is ___________ Types of Investment Capital Investment A business purchases _______________ in order to ____________ in their business Capital goods ___________ is spent to invest in capital goods such as _____________, tools, and other equipment to increase ______________________ Human Capital Investment in ______________ to make workers more _______________ Education and Training Investment in your ________________ (labor) Send them for ________________ and training to enhance their ______________ The worker becomes more __________________ 53 Unit 5 – Economics Microeconomics: Decision Making Understand economies, markets and the role economic factors play in making economic decisions. Types of Workers Blue Collar Worker ____________ labor Use ___________ skills Burger King, McDonald’s Carpenter Cashier at Wal-Mart White Collar Worker No _________ labor Use their __________ Doctors, Lawyers Office Workers Skilled Worker Includes both ___________ collar and ____________ collar Make more $$$ Carpenter Doctor Both are ____________ Unskilled Worker _________ collar only Make less $$$ McDonald’s worker Cashier Law of Diminishing Returns As you add more __________ to production, your _____________ decreases Adding one more worker will ___________ you more money!! Types of Economic Systems Traditional Economy Economy based on ___________ and customs _________ level -make just enough to survive Productivity is motivated by the need to ________ Very little __________ – no computers, cell phones, farm equipment No opportunity to advance – keeps many in poverty Social status __________ from your parents Market Economy Adam ________ – 1776 Advocated a Market Economy Wrote Wealth of Nations Described laissez faire economics “____________ Hand” Unseen force that _________ the market Individuals pursue their own ________ interest in the market Laissez faire “leave alone” – no ____________ intervention in the economy 54 Unit 5 – Economics Microeconomics: Decision Making Understand economies, markets and the role economic factors play in making economic decisions. Capitalism – _________ property – Factors of Production are owned by the people FREEDOM! – ___________ owned! _________ Motive – Producers enter the market to make $$$ Incentive for Workers to __________ – Workers produce more to make more $$$ Four Essential Economic Questions are answered by _________ and ___________ in a market economy Producers produce what they want Consumers consume what they want Command Economy Karl ___________ Advocated a Command Economy Wrote Communist ___________ Describes the problems with _____________ and the market economy ___________ Economy Everyone in society is _________ (Equity) _________________ distributes goods and services evenly The government _____________ the economy No ____________ – products are poorly made Four Basic Economic Questions are answered by the central government in a command economy Mixed Economy Most economic systems today are __________ ____________ of market economy and command economy Production owned by ________ but guided by the ________________ United States is a ____________ economy (mostly market with some _____________) China is a mixed economy (mostly command with some ____________) US Economy is a mixed economy Elements of market and command Market: __________ own Factors of Production - ______________ Command: Some government ______________ o Sets a _________ wage (minimum amount an employer can pay their employee) o __________ – workplace ___________ (hardhats, steel toe boots, chemical safety) o EPA – environmental __________ o CPSC – consumer __________ (unsafe products) Barack Obama’s ________ Package 55 Unit 5 – Economics Microeconomics: Decision Making Understand economies, markets and the role economic factors play in making economic decisions. The Free Enterprise System United States Economy Capitalism •US is a mixed market economy –Driven by voluntary exchange –______________ intervention •_______ and ______ what you wish in –producers are _________ to enter the the market _____________ •The _________ of __________ (resources) are privately owned Consumer Sovereignty –Consumers are _________ of the market!!!! They _________ what gets produced! Profit Motive –Producers are in business for a __________ Keynesian Theory •John Keynes •Keynesian ____________ advocates an __________ economy– predominantly private sector, but with a role for _______________ intervention during recessions – “_________ spending” •Fiscal policy – how the government _____________ its citizens and the government decides to ____________ money Disadvantages of the Free Enterprise System •Offers less ____________ to citizens –If you open a business, you could lose money! •Does not guarantee _________ employment –Not everyone will have a __________ •Fails to produce ____________ –Not all citizens are equal Competition –Struggle among producers to ____________ to make the most ___________ –Lowers ___________ –Increases ____________ of products Government’s Role in the Economy Patent –_________ rights to an _____________ or innovation Copyright –Legal rights to ___________ work Monopoly •Market structure under which there is only _______ producer of a given good or service –No adequate substitutes –NO ____________ 56 Unit 5 – Economics Microeconomics: Decision Making Understand economies, markets and the role economic factors play in making economic decisions. •Lower ____________ products – no one to compete with –Monopolies are allowed to dictate __________ •Higher prices Anti-Trust Laws –Laws passed that ____________ monopolies / trusts –Why? •To ensure ______________ Microsoft Anti-Trust Case –1998 – US Justice Department and 20 US states filed suit against ______________ –many _______________ companies were upset and felt that they violated free market competition. –Microsoft ordered to break into __________ parts •Microsoft ___________ and the case was settled out of _____________ Circular Flow of Economic Activity Economic Interdependence •Households, ______________, and government must have each other to ___________ Major Players Households •(Individuals) –Labor – they go to work –Consumer – they purchase stuff Businesses •(Firms) –___________ – they make stuff –They pay people for their __________ Government –Pay people for their ____________ –Pay ___________ for goods –Provides “other” stuff not _____________ by producers --Police protection Factors Market •Where the factors of _______________ are _____________ –__________ goods –Labor –Land Product Market •Where ______________ goods are sold 57 Unit 5 – Economics Microeconomics: Decision Making Understand economies, markets and the role economic factors play in making economic decisions. Supply and Demand Supply •How much of a certain good is ___________ to consumers •Law of Supply – Producers will only __________ a good or service that will make them a profit. Demand •How much consumers’ _______ the good •Law of Demand: Consumers will only ________ (buy) a product if they _______ it or ________ it AND it is at an affordable price. Equilibrium Price •The point at which supply and demand __________ and the price is said to be ________________. Surplus •When demand is _______________ than supply. •There is a _____________ of goods and _________ consumer demand to ___________ them. –Example – Wal-Mart Clearance – Christmas Stores after December 26 Shortage •When supply is _____________ than demand •There are not enough ___________ to fulfill consumer __________________. –Example: Oil Affects gas prices Price The amount of money expected, required, or given in payment for something. Quantity An exact amount or number 58 Unit 5 – Economics Microeconomics: Decision Making Understand economies, markets and the role economic factors play in making economic decisions. Influences on Supply and Demand Substitute Goods –Goods that can be used in place of other goods •Example: Chicken and beef •Coke and Pepsi Complementary Goods –Goods that work together to fulfill a certain need •Example: DVD, DVD Player Shortage •When supply is _____________ than demand •There are not enough ___________ to fulfill consumer __________________. –Example: Oil Affects gas prices Surplus •When demand is _______________ than supply. •There is a _____________ of goods and _________ consumer demand to ___________ them. –Example – Wal-Mart Clearance – Christmas Stores After December 26 Pricing Shortage Surplus = _______________ price = ________________ price Consumer Tastes •What consumers prefer affects what they buy –Name brand clothing –Popular cars –Name brand shoes Competitive Markets and Pricing Buyers –Consumers –Make decisions about what goods and services to _____________ Influence supply through ________________ Sellers –Producers –Make decisions about what goods and services to offer based on _____________ –In ______________ with other producers in the ________________ Economic Indicators GDP Per Capita GDP GDP based on ________________ • Gross ____________ Product – Total _________ of all goods and services produced in an _____________ Standard of Living • Measured by a nation’s _________________ • Standard in which citizens ______________ • Access to _________________, infrastructure, etc 59 Consumer Price Index (CPI) • Consumer Price Index – _____________ the amount of goods and services _______________ by consumers Unit 5 – Economics Microeconomics: Decision Making Understand economies, markets and the role economic factors play in making economic decisions. The Business Cycle Expansion • The steady ride up • Economy is ____________________ • Real _____________ is increasing • Businesses are _______________ • Economy is ____________________ • Something happens to jump start the economy – Example: WWII ***Recovery*** Contraction • Economy coming down • Real gdp is ________________________ • What goes up must come down – Fall in _________________ – Rising _______________ rates – Declining ________________ – Slowdown in capital _______________ – Demand slows – Hiring stops - _______________ is high – _________________ • If a _________________ (economy going down) lasts for 6-8 months, the economy experiences a ______________ Peak • Top of the hill • Has prosperity – _____________ is high – ______________ is low – _____________ increase – Must come down ***Prosperity*** Trough • Low point in the business cycle – ______________ unemployment 60 Unit 5 – Economics Microeconomics: Decision Making Understand economies, markets and the role economic factors play in making economic decisions. ______________ economic production Falling ________________ prices If the trough lasts a long time, the economy experiences a ___________________. – – – Recession If a ____________________ lasts for 6-8 months then the economy experiences a ________________. – Balance of Trade Exports Goods ________________ a nation to be ______________ to another nation Favorable Balance of Trade Export _____________ than you import TRADE ____________________ – – – – – Imports Goods ___________ a nation from a ______________ nation to be sold Unfavorable Balance of Trade Import _______________ than you export TRADE _________________ US National Debt National Debt how much _____________ the _________________ owes – Deficit Spending the government spends _________________ money (revenue/income) than it takes in In the RED Also called a budget _________________ – – – Favorable Balance of Trade Unfavorable Balance of Trade $100 $80 $60 61 2009 2008 2006 2007 2004 2005 2003 2001 2002 1999 Imports 2000 2008 2009 2006 2007 2004 2005 2002 2003 2000 2001 1998 1999 1996 1997 1994 $0 1995 $20 Exports 1997 Exports Profit 1998 $40 Imports $40 $20 $0 -$20 -$40 -$60 -$80 1996 Profit in billions in billions $60 1994 $80 1995 $100
