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Economics Unit Consumer Economics Unit Overview I. Types of Economic Systems II. Microeconomics III. Macroeconomics I. Types of Economic Systems • Traditional • • • Command • • Decisions made by central government Market • • Decisions based on traditional customs and beliefs Rare today Decisions made by individuals in their self-interest Mixed • Combination of command and market systems II. Microeconomics • Competition • • • Encourages efficient use of resources Consumers benefit - low prices and improvements Supply and Demand (video) • • Central relationship to all economic theory Demand and supply curve components • • • • Price Quantity Equilibrium Monopoly • • Single company controls supply of a good/service Illegal except in certain situations Microeconomics (cont’d) • • Law of Scarcity • Not enough resources to satisfy all wants • Societies must make choices (opportunity costs) Economic Resources (Factors of Production) Land • Labor • Capital • Entrepreneurship • Technology III. Macroeconomics • Measuring the Economy • Market Conditions • Government & its Effect on the Economy • International Trade Macroeconomics – Measuring the Economy • Standard of Living • • Consumer Price Index (CPI) • • • • Measured by kinds and quality of goods and services you can afford Measures change in prices of goods and services over time Base year = 1982 (100) Nov, 2010 CPI = 218.8 (what does that mean?) Gross Domestic Product (GDP) • • Total dollar value of all goods & services produced in one country during one year U.S. GDP (2010) = $14,660,000,000,000 (link) Macroeconomics – Market Conditions (6.1) • Recession • • • • Depression • • • • Period of economic decline (usually 6-12 months) Producers produce more than public can consume Profits decrease, people laid off & buy less What a recession can turn into Longer lasting and more devastating Prices plummet, businesses fail, unemployment soars Inflation • • Prices increase too quickly for consumers Wages/income don’t increase proportionately Macroeconomics – Government & its Effect on the Economy • • • Fiscal/Monetary Policy Video • Fiscal Policy - Government adjusts taxes or spending to assist the economy • Monetary Policy – Government adjusts amount of money in circulation to assist the economy Federal Reserve System • Main function is to set monetary policy Video • Comprised of 12 districts (Chicago is one) Video • Current Chairman of the Fed is Ben Bernanke Federal Reserve Operations • Sets Reserve Requirement for banks-% of money banks deposit that must be kept on hand (link) • Discount Rate – Interest Rate % the banks pay to the Fed to borrow money • Federal Funds Rate – Interest Rate at which banks lend money to one another Macroeconomics – Government & its Effect on the Economy • Federal Reserve Operations (cont’d) • Open Market Operations – Most frequently used tool by the Fed Reserve to control the supply of money through securities • BUY securities = more money in circulation • SELL securities = less money in circulation • Securities are guaranteed by the U.S. Government and exempt from state and local income taxes Macroeconomics – Government & its Effect on the Economy • • Federal Reserve Operations (cont’d) Securities Include: • Treasury Bills • • • • Treasury Notes • • issued at a discount & repaid value at final maturity Shortest maturation 91, 182, or 364 days 10,000 minimum investment mature 2-10 yrs./$1,000 minimum/most sold in $5,000 denominations Treasury Bonds • mature 10+ yrs./denominations include: $1,000, $5,000, $10,000, $100,000 and $1,000,000/sensitive to int. rate change Microeconomics • • Opportunity Cost • The value of giving up one choice for another (after school job vs. playing sports) Wants/Needs • Wants– items you desire but don’t need to live • Needs– items essential to survival (food, water, clothes, shelter) • Some items may be either (car, money, sunglasses) Anti-trust Laws • Designed to promote competition and the economy • Sherman Antitrust Act 1890--prohibits monopolies • Clayton Antitrust Act 1914--prohibits price fixing and unfair trade • FTC was created in 1914 Macroeconomics – International Trade • Import/Export • Import - goods or services (examples?) brought into a country for sale • • • Why not make our own? Export – goods or services (examples?) sent to a foreign country for sale there Trade Deficit/Surplus • U.S. has been running a deficit since 1977 • Current (June 2015) U.S. trade deficit: $43.8 billion • Why do some people think a deficit is good? Macroeconomics – International Trade (cont’d) • Trade Agreements • Used to expand trade opportunities with other countries • Can be helpful but also hurtful to American workers (why?) • NAFTA (North American Free Trade Agreement) (link) • Eliminates barriers between U.S., Canada, and Mexico • Implemented in 1994 • Has created the world’s largest free trade area • Why are many Americans against NAFTA? • EU (European Union) (link) • Over two dozen countries in Europe with no trade barriers • Common currency is the euro