Download Economics

Bellringer
Choices people make to
satisfy their wants and needs
What do economists study?
The condition from unlimited wants
but limited resources
What is scarcity?
-What to produce?
-For Whom to produce?
The Three economic
-How to produce?
questions are:
Bellringer
Command
Economy
Which type
of economic
system has industry but no
freedom of choice?
It is easy to go into debt AND
interest
the
costcredit to
Explain increases
a danger of
using
buy goods and services?
In a mixed market the
government
passes
rules to
What is the
difference
safe
guardFree
workers
andand
between
Market
consumers
Mixed Market economies?
Economics
Welcome to Economics
The study of Economics is far more than just money,
debt and goods.
Economics is the study of choices people make to satisfy their wants
and needs.
Economics is complicated because people have unlimited wants, but limited
resources
This is scarcity, the condition that results from limited resources and unlimited
wants.
Economists study the production of goods and services using scarce resources.
They are looking to see efficiency, or whether we are best using our scarce
resources.
Scarcity
Economics is complicated because people have unlimited wants, but limited
resources
This is scarcity, the condition that results from limited resources and
unlimited wants.
Economists study the production of
goods and services using scarce
resources. They are looking to see
efficiency, or whether we are best
using our scarce resources.
Resources
When we talk about resources we mean a
variety of things:
-Capital (machines, land)
-natural resources
-human
-labor
-transportation
Economic Systems
The economies of today have been developing over thousands of years, from
our earliest ancestors. There are four main economic forms today:
-Traditional
-Command
-Free Market
-Mixed Economy
Regardless of the system, there are 3 basic economic questions that MUST be
answered:
1) What to produce?
2) For whom to produce?
3) How to produce?
Traditional Economies
Traditional: what is produced and how is determined by tradition. Often
based on bartering exchange, trading goods and services for other
goods and services. Self sufficient- take care of themselves
Traditional economies exist mostly in tribal areas of South America and Africa,
but do exist around the world.
Command Economies
Command: The government determines what is produced. They COMMAND
the means of production, the use of resources and prices
Command economies are mostly found in Communist and totalitarian
countries such as North Korea and Cuba.
Free Market Economies
Free Market: Production is determined by the buyers and sellers through
supply and demand. If the individuals demand a supply it will be made. A Free
market system promotes Laissez Faire, or complete freedom from government
intervention.
Originally developed by Adam Smith, a Free Market system leaves all
economic decisions up to consumers and businesses, and restricts the
government from getting involved.
Types of Economies
Economic
systems
WHAT to
produce
HOW to produce
FOR WHOM to
produce
Modern
Examples
Traditional
Determined by
tradition, passed
on generation to
generation
Determined by
custom
Usually centered
Inuit of Canada
around traditional
family and social
Aborigines of
units
Australia
Determined by
government
officials
Determined by
government
officials
North Korea
Command
Determined by
Government
officials
Determined by
Free Market individuals
Determined by
individuals
Determined by
individuals
United States
England
Mixed Market Economies
Mixed Market: Truly Laissez Faire economies can cause massive problems
when businesses exploit workers. When industry first began companies paid
low wages for long hours, they hired children and did not maintain any safety
standards.
Mixed markets exist around the world. Many capitalist nations are mixed
markets, where the government imposes some regulation and taxes, but
businesses are still free to answer most of the economic questions by
themselves.
Bartering vs Money Systems
The barter system eventually led to the money system. The Barter system is
complicated because the goods that are wanted, are not always available for
trade.
The Money system sets up a standardized means of exchange. Money is readily
accepted by people in return for goods and services.
Money
Money is ANY standard form of exchange. It can be bills, coins, gems, gold, salt, beads,
etc.
At Case Middle School they currently have
Money has three functions:
Case Cash.
This
a form
of money as it
-standardized
item traded
for is
goods
and services
-aholds
measurevalue
of value and
that allows
and consumers
determine and
canproducers
be exchanged
forto goods
express worth
services.
-can be stored and saved toor
purchase
items later
Installment Buying/ Credit
Credit allows consumers to use items before they have completely paid for them.
Credit allows consumers to pay for an item over a specified period. This includes
credit cards, store finance plans and bank loans.
Most credit charges interest, a charge for borrowing money.
The US Economy
The US economy is a mixed economy, which means it blends elements of
Command, Traditional and Market economies.
The US economy is based on capitalism. Individuals own the
factors of production and answer the basic economic
questions (what to produce, how to produce, and for
whom to produce)
The four factors of production are:
Land
Labor
Capital
Entrepreneurs
Factors of Production
Land
The natural resources
needed
Capital
The machines, tools,
factories and warehouses
Labor
The workers and their
skills used to produce
goods or perform
services
Entrepreneurs
The business owners who
take all the risks in hopes
of making profit
Freedom in America’s Economy
In the United States individuals are free to exchange their goods and services,
seek jobs of their own choosing, use their resources as they wish and own and
operate businesses.
There are 5 main features. Individuals have the right to:
-own private property and enter contracts
-make individual choices
-engage in economic competition
-make decisions based on self interest
-limited government involvement
However, being a mixed economy means there is some government regulation
and welfare programs ‘mixed’ in as well.
Private Property
Individual
Business
-clothes
-computer
-ipod
-xbox
-books
-factory
-office building
-machinery
-land
Property owners are free to use or
dispose of their private property as
they choose. They can enter into
contracts to exchange (buy or sell)
property.
Individual Choices
For the most part Americans have the freedom to make their own economic
choices. For instance, if you want a soda you can pick between a number of brands
such as Coke or Pepsi. You have the choice of what product you will purchase.
Competition
Competition is the economic rivalry that exists among businesses selling the same
or similar products. Competition is important because it encourages producers to
improve existing products and develop new ones in order to attract customers.
Competition is very important in the
United States. When we have two or
more businesses making similar
products we get competition. This
encourages producers to improve their
products, develop new ones and keep
the prices fair.
Limited Governance
America’s mixed economy tries to limit government involvement. However, the
government makes several economic decisions:
-Mandatory insurance laws
-Taxes
-Welfare programs
-labor laws
US Economic Actors
Actors
Role
Provide goods and services in
the market
Producers
These entrepreneurs take
economic risks looking for
PROFIT
Interaction
Combine human resources,
natural resources and capital
resources
Consumers
Influence production by
purchasing goods and services
Consumers tell producers who,
what and for how to produce
their goods
Government
Limited role in regulation to
ensure safety and fair
business practices
Ensures consumers and
producers are safe and that the
market is working as freely as
possible
US economic Goals
The US Economy has 6 goals:
-Freedom
-efficiency
-equity
-security
-stability
-growth
Economic Freedom
Maintaining choice in the marketplace is a major
goal of the US Economy. This is what allows
consumers freedom to decide how to spend
their income. The workers are free to choose
their job or join a union. Savers decide when and
how to spend their savings.
Economists like Adam Smith believe in Laissez
Faire, or hands off. They believe the government
should not regulate business concerns, and
instead, let the “invisible hand” dictate what, for
whom and how to produce.
Watch this video for an explanation of invisible
hand:
Invisible hand
Economic Efficiency
The goals of efficiency it to make the BEST
use of SCARCE resources.
This can be measured by how many goods
and services a nation’s workers produces
and the more efficient the economy will
be.
*Remember, Economics is the study of
choices made to meet our wants and
needs*
Economic Equity
Equity deals with questions of fairness and right
or wrong. By studying the costs and benefits of a
proposed course of actions, the policymakers try
to judge whether a particular choice is fair.
The US government attempts to ensure that
members of society share in the costs and
benefits of free enterprise.
Economic Security
A nation’s efforts to protect its members from
poverty, business and bank failures, medical
emergencies and other situations that harm the
economic well being of individual citizens and
the nation as a whole.
Economic Stability
Has two parts: achieving full employment and
price stability.
Full Employment: the lowest possible level of
unemployment in an economy. This is not 0%
as there is always some unemployment as
workers move and change jobs, businesses
open and close, etc.
Price Stability: the goal is to keep the overall
price level of the goods and services available
is relatively constant.
Economic Growth
Efforts to increase the amount of goods
and services produced by each worker in
the economy.
The goal is to increase the standard of
living, or people’s economic well being.
Standard of living: how much
the average person in that
country is able to consume in a
given time (usually a year)
Goals and Trade Offs
Nations and individuals cannot work on all of their personal goals at the same time,
as a result they must prioritize their goals. Scarcity forces individuals, businesses and
governments to make choices among their needs and wants. They must decide
which are most important and arrange them.
In America, for example, national defense
and security became a high priority during
World War II. In times of peace, national
defense is not as much of a priority.
Production Possibilities Frontier
To help economists figure out what to produce, they rely on Production Possibilities
Frontier Curves, or PPF.
The PPF represent the trade off of an economy based on fixed, and scarce resources.
In other words, we have 500 gallons of milk and can choose to make either ice cream
or cheese. If we choose to make more ice cream then we will make less cheese, and
vice versa. The curve allows economists to study this tradeoff.
1) Production Possibilities pt.1
2) Production Possibilities pt. 2
Production Possibilities Frontier
PPF show all of the possible combinations of two
goods and services that can be produced,
assuming the amount of resources doesn’t change
and are working to full efficiency.
Points with in the curve represent inefficient use
of resources
Points on the curve represent working to capacity
Points outside the curve are unobtainable.
Production Possibilities Frontier
The PPF shows a simplistic visual of
the choices producers make with
What is the point of a PPF?
scarce resources.
Growth
PPF curves are rarely straight lines, instead they Curve. This Curve indicates the
trade off between making one product over another. If the curve moves outward,
it means the economy is growing. If the curve gets smaller, it means the economy
is shrinking.
Opportunity Cost
Production Possibilities Frontier (PPF) curves are used to determine the best use
of our scarce resources. These graphs also help us determine the “COST” of every
choice. When we choose to make more cheese instead of ice cream, the cost is
the ice cream.
Opportunity Cost:
What you give up to have
something else.
Law of Increasing Costs
As we continue trading the
production of one item for
another, the costs increase.
This is why the Production
Possibilities Frontier is
curved.
No efficiency 
The PPF curve shows the ideal economic situation, but true efficiency is nearly
impossible. There are several factors that prevent true efficiency:
-unskilled laborers
-unemployment
-lack of production equipment
-poor management
Economic Growth
Unobtainable points on the curve can in fact be reached. If the economy grows, new
technology is developed, better management or better workers are hired, then
production can increase.
-better workers
-New technology
-economy grows
Straight PPFs
Not all PPFs are curved. A straight linear PPF exists if the compared goods can be
interchanged. For example, if a factory has ovens for making bread, it can easily shift
to producing cookies.
Production Possibilities Frontier
To help economists figure out what to produce, they rely on Production Possibilities
Frontier Curves, or PPF.
The PPF represent the trade off of an economy based on fixed, and scarce resources.
In other words, we have 500 gallons of milk and can choose to make either ice cream
or cheese. If we choose to make more ice cream then we will make less cheese, and
vice versa. The curve allows economists to study this tradeoff.
1) Production Possibilities pt.1
2) Production Possibilities pt. 2
Homework
Task
1) Complete the following chart by explaining how the questions on the side are
answered in each economic system(can re-make in word document to submit)
Command
Market
Traditional
What to produce
How to produce it
How much to produce
Who gets what is produced
2) Analyze the goals of the United States economy. Prioritize the goals according to your
own beliefs. Should we put Economic growth before Economic Stability? What about
Economic Equity?
Create your list then explain your decision.
3) What are the four factors of production?
4) Why is competition important for a capitalist society?
5) Look at the Production Possibilities Frontier on the following page. Then determine and
label each point as either inefficient, efficient and unobtainable. (points A, B, C, X and Y)
Discussion
You also need to watch the following videos and post in the discussion board.
You must post your own thoughts AND respond to at least 2 others.
Topic: In America today, there is increasing inequality between the wealthiest
and the poorest. The Government could regulate the distribution of wealth,
but that would infringe on Economic Freedom. After watching the videos,
write an argument for keeping the status quo, and allowing the inequality to
keep growing, or for the Government to begin regulation. Defend your
position.
Video 1: Wealth inequality in America
Video 2: What Wasn’t said in the ‘Wealth Inequality video’