Download Civics and Economics

Economics 1.1
Microeconomics
Conceptual Lens: Decision Making
1.1 Compare how individuals and governments
utilize scarce resources (human, natural and
capital) in traditional, command, market and
mixed economies.
Economics
 Study of how individuals, firms, and nations
fulfill their wants and needs.
 Why Do We Study Economics?
 To solve the problem of SCARCITY
 Resources are scarce
4 Basic Economic
Questions
 What will be produced?
 How will it be produced?
 How much to produce?
 For whom will it be produced?
4 Basic Economic
Questions
 Example: Teen Vogue Magazine
 What will be produced?
 How will it be
produced?
 How much to produce?
 For whom will it be
produced?
4 Basic Economic
Questions
 Example: Clinique Makeup
 What will be produced?
 How will it be
produced?
 How much to produce?
 For whom will it be
produced?
4 Basic Economic
Questions
 Example: Gillette Shaving Cream
 What will be produced?
 How will it be
produced?
 How much to produce?
 For whom will it be
produced?
4 Basic Economic
Questions
 Example: Pampers Diapers
 What will be produced?
 How will it be
produced?
 How much to produce?
 For whom will it be
produced?
4 Basic Economic
Questions
 Example: Depends Underwear
 What will be produced?
 How will it be
produced?
 How much to produce?
 For whom will it be
produced?
Wants
 Things one desires but does not have to
have to survive.
Needs
 Things you must have to survive – food,
clothing, shelter
Distributive Summarizing




Assessment Prompt #1
1’s: Why do we study economics?
1 minute
2’s: What is the difference between a
need and a want?
 1 minute
Goods
 Material products that satisfy wants and
needs
 You can touch these!
Services
 Activities performed to satisfy wants and
needs
4 Factors of Production
 Resources are combined to produce
wants and needs
 Capital
 Entrepreneurship
 Labor
 Land
Capital
 Tools and equipment used to make the
product.
 Used to produce goods and services.
Distributive Summarizing
 Assessment Prompt #2
 1’s:What is the difference between a
good and a service?
 1 minute
 2’s: Explain what a resource is?
 1 minute
Entrepreneurship




Business portion
Ideas - Business Plans
Owner
Person takes a RISK
with their money
Labor
 Human labor
 Efforts that help
produce the product
Land
 Resources provided by nature to
help produce the product
 Includes Natural Resources
 Renewable - Can be replaced
 Trees, Fish
 Non-Renewable – Cannot be
replaced
 Fuel, Coal
4 Factors of Production
 Capital + Entrepreneurship + Labor +
Land = ________________
 How can I remember???????
CELL
Distributive Summarizing
 Assessment Prompt #3
 1’s: Explain entrepreneurship.
 1 minute
 2’s: Explain the difference and give an
example of a renewable and nonrenewable resources.
 1 minute
Scarcity
 Lack of adequate resources to obtain all
of one’s wants or needs
 Scarcity always exists because our
wants and needs are always greater than
the amount of resources (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.
Producer
 The one who
makes the goods
and services
 Goal – to get the
highest price
Consumer
 The one who receives
goods and services
 Goal – To get the lowest
price
Distributive Summarizing
 Assessment Prompt #1
 1’s: Why does the producer want to get
the highest price for their product?
 1 minute
 2’s: Why does the consumer want to pay
the lowest price for a product?
 1 minute
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
Salaries and Wages
- You gotta get paid!!
 Salary – Set amount of
money paid to a worker for
their labor
 Wage – Payment to a
worker by the hour for their
labor
Distributive Summarizing
 Assessment Prompt #2
 1’s: What is the difference in a salary
and a wage?
 1 minute
 2’s: Give an example of a job that earns
a salary and an example of a job that
earns a wage.
 1 minute
Tom’s Decision
 Tom takes a date to the varsity
football game. At half-time, he
goes to the concessions. He
asks his date, Melissa, what
she would like. Melissa wants a
soda and nachos. Tom is really
hungry. He wants a hot dog,
nachos, and a soda.
 Lets take a look at the price list.
Price List




Hot dogs:
Nachos:
Chips:
Soda:
$1.50
$2.00
$ .75
$1.00
Tom only has $5.00!!!!!!!!!
Decision Making Model
 Step 1 – Define the problem
 What is Tom’s problem?????
Decision Making Model
 Step 2 – List the alternatives
 Option #1
 Get what he wants. It will cost him $4.50 and he will have
.50c left over.
 Option #2
 Get Melissa what she wants. It will cost him $3.00. He will
have $2.00 left over. He will be able to get a hot dog but
nothing to drink.
 Option #3
 Get both himself and Melissa a hot dog and soda. It will
cost him $5.00.
Decision Making Model
 Step 3 – State the criteria
 What are his priorities?
 Filling his own tummy?
 Making Melissa happy?
Decision Making Model
 Step 4 – Evaluate
the Alternatives
 There is a trade-off
in all three options
listed. He must
give up one thing in
order to get
something else.
Trade-Offs
 Option #1
 Get what he wants. It will cost him $4.50 and he will have .50c
left over.
 Trade off?
 Option #2
 Get Melissa what she wants. It will cost him $3.00. He will
have $2.00 left over. He will be able to get a hot dog but
nothing to drink.
 Trade off?
 Option #3
 Get both himself and Melissa a hot dog and soda. It will cost
him $5.00.
 Trade off?
Decision Making Model
 Step 5 – Make a decision
 Tom decides making Melissa happy is
more important than filling his own
tummy. He chooses Option #2 and
goes without a drink. He instead gets
a drink from the water fountain.
 Tom chose a want (Melissa) over a
need (food)
Distributive Summarizing
 What are the steps in the
decision-making model?
Trade Off
 The act of giving up
one thing of value for
another
 Give up good test
score for fun at the
mall
 OR
 Give up fun at the mall
for good test score
Opportunity Cost
 Value of the
alternative option that
is lost when one
makes a decision.
 Study for test or trip
to the mall?
Opportunity Cost
 Option #1
 Get what he wants. It will cost him $4.50 and he will have .50c
left over.
 Opportunity Cost?
 Option #2
 Get Melissa what she wants. It will cost him $3.00. He will
have $2.00 left over. He will be able to get a hot dog but
nothing to drink.
 Opportunity Cost?
 Option #3
 Get both himself and Melissa a hot dog and soda. It will cost
him $5.00.
 Opportunity Cost?
Types of Cost
 Variable Cost
 Costs that change
 Fixed Cost
 Costs that do not change
 Total Cost
 Variable cost + Fixed cost
 Marginal Cost
 Cost of producing “one more unit”
Types of Cost
 Variable + Fixed = Total
 Cost – Expenses = Profit
Distributive Summarizing
 1’s: What is a variable cost. Give an
example.
 2’s: What is a fixed cost. Give an
example.
Technology
 Application of scientific breakthroughs to
commerce and industry
Invention
 Technology created to
meet a need
 Example? Paper clip,
light bulb
Innovation
 Something that
profoundly
changes and
improves the way
things are done
 Examples?
 Computers
 Light Bulb
Robotics
 Machines used to
produce goods and
services
Automation
 Machines (robots) are used to complete
the same task a human did for less cost
Agribusiness
 Replacement
of small labor
intensive farms
with larger
capital
intensive
farms.
Productivity
 The ability to
turn input into
output 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 production) are used to
produce Output (the product)
Specialization
 Devotion of certain
resources to a
specific task
 Someone who can
make a product
better than anyone
else.
Division of Labor
 Act of splitting up
work into smaller
tasks performed by
different workers
 Get better and
better at each task
 Boosts productivity
Economic
Interdependence
 The outcome of specialization and the
division of labor
 Individuals depend on others to produce
many or most of the goods they need to
sustain their lives.
Mass Production
 The production of
large quantities of
goods
 Factory – building
used to produce
the product
Assembly Line
 Henry Ford
 The product moves down the line and is assembled by a
series of laborers, each of who carries out a specific
task – specialization
 Cost is low, production is high
Lucy, Lucy, Lucy
Lucy
 What part of the factors of production are
Lucy and Ethel?
 Lucy and Ethel are preforming one task,
in economics what is this called?
 What is the method of assembly being
shown in the video?
 What kind of production is being shown
in the video?
Investment
 Invest now – get the benefit later
 Example: Stock Market or Savings
Account
Capital Investment
 A business
purchases capital in
order to invest in
their business
 Capital goods
 Money is spent to
invest in capital
goods such as
machines, tools, and
other equipment to
increase productivity
Human Capital
 Investment in labor to make employees more
productive
Education and Training
 Investment in your employees (labor)
 Send them for education and training to
enhance their skills
 The worker becomes more productive
Blue Collar Worker
 Manual labor
 Use physical
skills
 Burger King,
McDonald’s
 Carpenter
 Cashier at
Wal-Mart
White Collar Worker
 No manual labor
 Use their brains
 Doctors, Lawyers
 Office Workers
Skilled Worker
 Includes both blue
collar and white
collar
 Make more $$$
 Carpenter
 Doctor
 Both are skilled
Unskilled Worker
 Blue collar only
 Make less $$$
 McDonald’s worker
 Cashier
Law of Diminishing
Returns
 As you add more input to production,
your output decreases
 Adding one more worker will cost you
more money!!
 Example: Cooks in a kitchen
Tennis ball assembly line
Law of Diminishing Returns Graph
Traditional Economy
 Economy based on
tradition and customs
 Subsistence level -make
just enough to survive
 Productivity is
motivated by the need
to survive
 Very little technology –
no computers, cell
phones, farm equipment
 No opportunity to
advance – keeps many
in poverty
 Social status inherited
from your parents
Market Economy
 Adam Smith – 1776
 Advocated a Market Economy
 Wrote Wealth of Nations
 Described laissez faire
economics
 “Invisible Hand”
 Unseen force that directs the
market
 Individuals pursue their own
self interest in the market
 Laissez faire
 “leave alone” – no government
intervention in the economy
Market Economy
 Capitalism – private property – Factors of
Production are owned by the people
 FREEDOM! – Privately owned!
 Profit Motive – Producers enter the market to
make $$$
 Incentive for Workers to Produce – Workers
produce more to make more $$$
 Four Essential Economic Questions are
answered by producers and consumers in a
market economy
 Producers produce what they want
 Consumers consume what they want
Command Economy
 Karl Marx
 Advocated a Command Economy
 Wrote Communist Manifesto
 Describes the problems with capitalism
and the market economy
 Centralized Economy
 Everyone in society is equal (Equity)
 Government distributes goods and
services evenly
 The government controls the economy
 No competition – 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
mixed
 Mixture of market economy and
command economy
 Production owned by individuals but
guided by the government
 United States is a mixed economy
(mostly market with some
command)
 China is a mixed economy (mostly
command with some market)
United States Economy
 Elements of market and command
 Market: People own Factors of Production capitalism
 Command: Some government intervention
 Sets a minimum wage (minimum amount an
employer can pay their employee)
 OSHA – workplace safety (hardhats, steel toe
boots, chemical safety)
 EPA – environmental safety
 CPSC – consumer protection (unsafe products)
 Barack Obama’s Stimulus Package
The Free Enterprise System –
Mixed Market Economy
 US is a mixed market
economy
 government intervention
 producers are free to
enter the market
 Capitalism
 Driven by voluntary
exchange
 Buy and sell what you
wish in the market
Capitalism = FREEDOM
 The factors of production (resources)
are privately owned
 Consumer sovereignty
 Consumers are rulers of the market!!!!
They decide what gets produced!
 Profit Motive $$$$$$$$$$$$$$$$$$$$
 Producers are in business for a profit
Keynesian Theory
 John Keynes
 Keynesian economics
advocates a mixed
economy– predominantly
private sector, but with a
role for government
intervention during
recessions – “deficit
spending”
 Fiscal policy – how the
government taxes its
citizens and the
government decides to
spend money
Disadvantages (Bad stuff) of the Free
Enterprise System
 Offers less security
to citizens
 If you open a
business, you
could lose money!
 Does not
guarantee full
employment
 Not everyone will
have a job
 Fails to produce
equity
 Not all citizens are
equal
Competition
 Struggle among
producers to compete
to make the most profit
 Lowers prices
 Increases quality of
products
Government’s Role
 Patent
 Legal rights to an
invention or innovation
 Copyright
 Legal rights to written
work
Government’s Role in the
Economy
 Monopoly
 Prohibits illegal
monopolies
 One producer of
a good or service
cannot dominate
the market
Monopoly
 Market structure under which there is
only one producer of a given good or
service
 No adequate substitutes
 NO Competition
 Lower quality products – no one to compete with
 Monopolies are allowed to dictate price
 Higher prices
Sherman Anti-Trust Act
 Anti-trust laws
 Laws passed that prohibit monopolies /
trusts
 Why?
 To ensure competition
 Microsoft Anti-Trust Case
 1998 – US Justice Department and 20
US states filed suit against Microsoft
 many computer companies were upset
and felt that they violated free market
competition.
 Microsoft ordered to break into two parts
 Microsoft appealed and the case was
settled out of court
Circular Flow of Economic
Activity
“Economic
Interdependence”
 Households,
businesses, and
government must
have each other to
function
Circular Flow - Major
Players
 Households (Individuals)
 Labor – they go to work
 Consumer – they
purchase stuff
Circular Flow - Major
Players
 Businesses (Firms)
 Producers – they
make stuff
 They pay people for
their labor
Circular Flow - Major Players
 Government
 Pay people for their
labor
 Pay business for
goods
 Provides “other”
stuff not provided by
producers
 Police protection
Factors Market
 Where the factors
of production are
sold
 Capital goods
 Labor
 Land
Product Market
 Where consumer goods are sold
Product Market
___________ Market
Individuals
__________ Market
Firms
Product Market
Factors Market
Individuals
Product Market
Firms
Supply
 How much of a certain good is available to
consumers
 Law of Supply – Producers will only
produce a good or service that will make
them a profit.
Demand
 How much consumers want the good
 Law of Demand: Consumers will only
demand (buy) a product if they need it or
want it AND it is at an affordable price.
Equilibrium Price – “Market
Price”
 The point at which supply and demand meet
and the price is said to be balanced.
Supply
Demand
Equilibrium Price
Surplus
 When demand is lower than supply.
 There is a supply of goods and no consumer
demand to purchase them.
 Example – Wal-Mart Clearance
Christmas Stores After December 26
DEMAND
SUPPLY
PRICE
Shortage
 When supply is lower than demand
 There are not enough goods to fulfill consumer
demand.
 Example: Oil
 Affects gas prices
DEMAND
SUPPLY
PRICE
Price
 The amount of money expected,
required, or given in payment for
something.
Quantity
 An exact amount or number
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 lower than demand
 There are not enough goods to fulfill consumer
demand.
 Example: Oil
 Affects gas prices
DEMAND
SUPPLY
PRICE
Surplus
 When demand is lower than supply.
 There is a supply of goods and no consumer
demand to purchase them.
 Example – Wal-Mart Clearance
Christmas Stores After December 26
DEMAND
SUPPLY
PRICE
Pricing – Factors that Affect
Price
 What determines price?
 What is the equilibrium price?
Pricing
HIGH Price
Shortage = ________
Surplus =
LOW
________
Price
Consumer Tastes
 What consumers prefer affects what they
buy
 Name brand clothing
 Popular cars
 Name brand shoes
Competitive Markets and
Pricing
 In the market there are buyers and
sellers
 Buyers
 Consumers
 Make decisions about what goods and
services to buy
 Influence supply through demand
 Sellers
 Producers
 Make decisions about what goods and
services to offer based on demand
 In competition with other producers in the
market
GDP
 Gross Domestic
Product
 Total value of all
goods and
services
produced in an
economy
**Per Capita GDP
- GDP based on
population
Standard of Living
 Measured by a nation’s GDP
 Standard in which citizens live
 Access to healthcare, infrastructure, etc.
United States
GDP is???
Uganda
GDP is???
CPI
 Consumer Price Index
 Measures the amount of goods and services bought by
consumers
Business Cycle
 4 Main parts:




Expansion
Peak
Trough
Contraction
Expansion






The steady ride up
Economy is growing
Real gdp is increasing
Businesses are investing
Economy is recovering
Something happens to jump start the economy
 Example: WWII
***Recovery***
Business Cycle
Contraction
 Economy coming down
 Real gdp is decreasing
 What goes up must come down







Fall in production
Rising interest rates
Declining profits
Slowdown in capital investments
Demand slows
Hiring stops - unemployment is high
Layoffs
Business Cycle
Peak
 Top of the hill
 Has prosperity




Production is high
Unemployment is low
Wages increase
Must come down
***Prosperity***
Business Cycle
Trough
 Low point in the business cycle
 High unemployment
 Low economic production
 Falling stock prices
 If the trough lasts a long time, the economy
experiences a depression.
Business Cycle
Recession
 If a contraction (economy going down)
lasts for 6-8 months, the economy
experiences a recession
Business Cycle
Distributive Summarizing
 Assessment Prompt #1
 1’s: What are the four main parts of the
business cycle?
 1 minute
 2’s: On which part of the business cycle
is the economy experiencing a recovery?
 1 minute
Exports and Imports
 Exports
 Goods leaving a nation to be sold to another
nation
 Imports
 Goods entering a nation from a foreign
nation to be sold
Balance of Trade
 Favorable balance of
trade
 Export MORE than
you import
 TRADE SURPLUS
 Unfavorable balance
of trade
 Import MORE than
you export
 TRADE DEFICIT
Favorable Balance of Trade
$100
$80
in billions
$60
Profit
$40
Imports
Exports
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
$0
1994
$20
Favorable balance of trade is when a nation exports, or
sells, more than it imports, or buys. Therefore the nation
makes a profit, or is said to have a
“Favorable Balance of Trade.”
Unfavorable Balance of Trade
$100
$80
$60
Profit
Exports
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
Imports
1994
in billions
$40
$20
$0
-$20
-$40
-$60
-$80
An Unfavorable balance of trade is when a nation imports,
or buys, more than it exports, or sells. Therefore the
nation suffers a loss, or is said to have an
“Unfavorable Balance of Trade.”
Distributive Summarizing
 Assessment Prompt #3
 1’s: What is the difference in an import
and an export?
 1 minute
 2’s: Explain what a favorable balance of
trade is (trade surplus) and why the US
would want a surplus.
 1 minute
National Debt
 National debt – how
much money the
government owes
 Deficit spending –
the government
spends more money
(revenue/income)
than it takes in
 In the RED
 Also called a
budget deficit