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Transcript
Welcome to Economics! “TINSTAAFL” Standard 1: Students understand common economic terms, concepts, and economic reasoning and make connections to their daily lives. Scarcity and the Science of Economics Objective: Examine the causal relationship between scarcity and the need for choices. Scarcity: Needs vs. Wants Economics is the study of how people try to satisfy seemingly unlimited and competing wants through the careful use of relatively scarce resources. http://glencoe.com/sites/common_assets/ socialstudies/in_motion_08/epp/EPP_p12 8.swf Scarcity is the condition that results from society not having enough resources to produce all the things people would like to have. A need is a basic requirement for survival, such as food, clothing and shelter. A want is simply something we would like to have but is not necessary for survival. “The gap in our economy is between what we have and what we think we ought to have - and that is a moral problem, not an economic one.” Paul Heynes Economic YAHOO You always have other options! Unlimited Wants + Limited Resources = Scarcity Because there is scarcity, we must make choices. These choices drive economic change. WHAT to produce? FOR WHOM to Produce? HOW to produce? The Factors of Production • Includes “gifts of nature” not created by human effort. • Since natural resources are finite, land is said to be fixed or in limited supply. • Includes the tools, equipment, and factories used in production. • Capital drives production and innovation. LAND ENTREPRENEURS • Includes individuals who start a new business or bring a product to market. • Entrepreneurs do something new with existing resources; they take risks in search of profits and drive economic change. CAPITAL LABOR • Includes people with all their efforts, abilities and skills. • Factors such as birthrates, immigration, famine, war, and disease have had a dramatic impact on the quantity and quality of labor. The Scope of Economics http://www.glencoe.com/video_library/index_with_mo ds.php?PROGRAM=9780078747649&VIDEO=4756 &CHAPTER=1&MODE=2 Gross Domestic Product (GDP) is the dollar value of all final goods, services, and structures produced within a country’s borders within a 12-month period. Like other sciences, economics uses an inquiry process that is similar to the scientific method. Economists use their skills to describe economic activities, analyze trends, communicate their ideas and make predictions about what will happen in the future. The Bureau of Economic Analysis provides data for the GDP. The BEA is part of the US Department of Commerce. http://www.bea.gov/ How does the GDP of the United States compare to other countries around the world? “Economists are pessimists. They have predicted eight of the last three depressions.” Barry Asmus Economic Choices and Decision Making Objective: Explain opportunity cost, marginal benefit and marginal cost. Basic Economic Concepts Goods: Useful, tangible items. Capital goods are used to produce other goods and services. Consumer goods are intended for final use by individuals. Durable goods last more than three years; nondurable goods last less than three years. Services: Work performed for someone. Consumers: People who used goods and services to satisfy their wants and needs. Value: A worth that can be expressed in dollars and cents. The paradox of value is that sometimes nonessential items have high value while essential items have low value. For something to have monetary value, it must be scarce and have utility. Utility: The capacity to be useful and provide satisfaction. Wealth: The accumulation of products that are tangible, scarce, useful and transferable from one person to another. Factor Market: Mechanism by which the factors of production are bought and sold. Examples of factor markets include the labor market, the real estate market, and the banking market. Product Markets: Mechanism by which producers sell their goods and services. http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/epp/EPP_p15.swf Productivity and Economic Growth Economic growth occurs when a nations total output of goods and services increases over time. Productivity measures the amount of output produced with a given amount of productive factors— productivity goes up when more can be produced with the same amount of resources. Everyone in a society benefits when productivity increases and scarce resources are used more efficiently. One way to boost productivity is to invest in human capital—the sum of people’s skills, abilities, health, knowledge and motivation. Both governments and businesses can invest in human capital and improve economic growth. Division of labor and specialization can also boost productivity. For example, it is sometimes more efficient to divide work into a number of separate tasks to be performed by different workers. This division of labor leads to specialization—assigning specific tasks to the workers, factories, regions or nations that can perform them most efficiently. In the United States, there is a high degree of economic interdependence. We rely on others— and others rely on us—to provide goods and services in a global market. Efficiency is doing things right; effectiveness is doing the right thing. Trade-Offs and Opportunity Cost Every decision has its trade-offs, or alternative choices. Decisions are not usually based entirely on one factor. Opportunity cost is the cost of the next best alternative use of money, time, or resources when making a choice. A decision making grid lists alternatives and criteria to help evaluate choices. A production possibilities frontier shows the different combinations of two products that can be produced if all resources are fully employed. The Production Possibility Frontier/Curve/Graph http://glencoe.com/sites/common_assets/advanced_placement/mcconnell_18e/solman_video_mov/prod_poss_curve1.mov Identifying Possible Alternatives Fully Employed Resources Identifying Possible Alternatives The Cost of Idol Resources Opportunity Cost Economic Growth Cost-Benefit Analysis An economic model is a simplifies version of a complex concept or behavior expressed in the form of an equation, graph or illustration. Marginal benefit Marginal cost Models are based on assumptions, or ideas economists believe are true. Models with more assumptions are easier to understand, but they are usually less accurate. Incentives A cost-benefit analysis is a way of thinking about choices that compares the cost of an action to its benefit. Incentives for Change Objective: Identify the difference between monetary and nonmonetary incentives and how changes in incentives cause changes in behavior. http://www.ted.com/talks/dan_pink_on_motivation.html http://rockcenter.msnbc.msn.com/_news/2012/01/02/98 91968-on-eve-of-caucus-a-different-boom-in-iowa-realestate-prices-soar-for-farmland Private Property and Environmental Conservation Objective: Evaluate the role of private property as an incentive in conserving and improving scarce resources, including renewable and nonrenewable natural resources. http://www.ted.com/talks/rob_harmon_how_the_market _can_keep_streams_flowing.html http://www.ted.com/talks/pavan_sukhdev_what_s_the_ price_of_nature.html Economic Systems Objective: Compare and contrast the impact of command, market, and mixed economies on political and personal liberty and national and individual prosperity. Example: Through the works of Adam Smith Major Economic Systems Traditional Economies Market Economies A traditional economy is an economic system in which the allocation of scarce resources and other economic activities are based on ritual, habit or custom. A market economy is an economic system in which supply, demand, and the price system help people make economic decisions and allocate resources. This system is stable and predictable; there are clear economic roles for each member of society and a social safety net that allows for continuation of a way of life. A free enterprise economy is a market economy in which privately owned businesses have the freedom to operate for a profit with limited government intervention. Stagnation and lack of progress can be a problem. New ideas and new ways of doing things are discouraged, which often leads to a lower standard of living. Command Economies The main draw of a market economy is that there tends to be an incredible variety of goods and services and a high degree of consumer satisfaction. Decentralized decision making and lack of government interference means there is a high degree of individual freedom. A command economy is an economic system with a central authority that makes the major economic decisions. In a true market economy, workers and businesses face uncertainty as a result of competition and change; there is no social safety net and no public services, such as defense, education or health care. Because a central authority dictates what to produce and how to produce it, the market is capable of dramatic change in a short time. Basic public services, such as education, are often available at little or no cost. Mixed Economies A mixed economy is an economic system that has some combination of traditional, command, and market economies. http://glencoe.com/sites/common_assets/socialstudies/in_ motion_08/epp/EPP_p40.swf This system requires a large and expensive bureaucracy and lacks room for individual initiative. Workers tend to be unmotivated, there is little flexibility in how things get done, and it usually does not meet the needs and wants of consumers. American Free Enterprise Major World Economic Systems Characteristics of Free Enterprise Capitalism Capitalism: economic system in which private citizens own and use the factors of production in order to generate profits. While capitalism stands for the private ownership of resources, free enterprise is the unhindered use of privately owned resources to earn profits. Socialism: economic and political system in which the government owns and controls some factors of production. Economic Freedom applies to both consumers and producers. Individuals are free to make choices for themselves and their families; likewise, businesses are free to success or failure. Communism: economic and political system in which all factors of production are collectively owned and controlled by the state. Voluntary Exchange occurs when buyers and sellers freely and willingly engage in market transactions. Private Property Rights are a fundamental feature of capitalism and allow individuals to own and control their possessions as they wish. Private property gives people the incentive to work, save and invest. Profit Motive acts as an incentive that encourages people and organizations to improve their financial and material well-being. Competition is the struggle among sellers to attract consumers. It is not possible to have competition without economic freedom! Economic and Social Goals Typically, Americans value economic freedom, economic efficiency, economic equity, economic security, full employment, price stability, and economic growth. All economic policies have opportunity costs! How might a politician use a cost-benefit analysis to develop public policy? http://www.glencoe.com/video_library/index_with_mods.php?PROGRA M=9780078747649&VIDEO=4757&CHAPTER=2&MODE=2 http://www.glencoe.com/video_library/index_with_mods.php?PROGRA M=9780078747649&VIDEO=4758&CHAPTER=3&MODE=2 Adam Smith