Seven Major Sources of Economic Progress

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(No Transcript)
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The income tax law is a lot of bunk. The
government cant collect legal taxes from illegal
money.
Al Capone
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Source 6

• Low Tax Rates
• People will produce more when they are permitted
  to keep more of what they earn.

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Where do taxes come from?
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Who pays taxes?
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The Top 10 Percent of Income Earners Paid 70
Percent of Federal Income Tax
Levels of Household Income Earners and their
Proportion of the Federal Income Tax in 2005
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The Top 10 Percent of Income Earners Paid 70
Percent of Federal Income Tax
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High Marginal Tax Rates

1. Discourage work effort and reduce the
   productivity of labor.
2. Reduce both the level and efficiency of capital
   formation.
3. Encourage individuals to consume tax-deductible
   goods when nondeductible goods may actually be
   more desirable.

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Marginal Tax Rates

• For Single Status (2015)
• 0-9,225 10
• 9,226 - 37,449 15
• 37,450 - 90,749 25
• 90,750 - 189,299 28
• 183,300 - 411,499 33
• 411,500 - 413,199 35
• 413,200 - ----------- 39.6

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Highest Marginal Tax Rates
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Tax Policy and the Great Depression

• A huge personal income tax increase was adopted
  in 1932 in the midst of the Great Depression.
• The top marginal rate was increased from 25
  percent to 63 percent in 1932. Other tax rates
  were increased by a similar proportion.
• The results were disastrous. In 1932, real output
  fell by 13 percent, the largest single-year
  decline during the Great Depression era.
  Unemployment rose from 15.9 percent in 1931 to
  23.6 percent in 1932.
• In 1936, the Roosevelt Administration increased
  the top marginal rate to 79 percent. Recession
  and rising unemployment also followed this tax
  increase.

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Important Lesson

• It is not a good idea to increase tax rates
  during a recession.

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A famous economic concept
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THE LAFFER CURVE EXPLAINED

• https//www.youtube.com/watch?featureplayer_detai
  lpagevFqLjyA0hL1s

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The Laffer Curve
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Low Taxes Economic Growth
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Source 7

• Free Trade
• A nation progresses by selling goods and services
  that it can produce at a relatively low cost and
  buying those that would be costly to produce.

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How Do We Satisfy Our Wants and Needs?

• We can be economically Self-Sufficient, or
• We can specialize and trade with others leading
  to Economic Interdependence

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Are we Self-Sufficient or Interdependent?

• If every article of clothing you are wearing was
  made in the USA then Ill give you 20!

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What was the most important document written in
1776?
The Wealth of Nations
written by
Adam Smith
The Father of Economics
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What made The Wealth of Nations THE most
important document written in 1776?
Adam Smith wrote about a pin factory.
What did they call the workers in the pin factory?
Just a bunch of pinheads.
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THE WEALTH OF NATIONS

• Smith observed that if each worker had to make
  their own pin they could maybe produce 20 in a
  day.
• Through specialization the production stage was
  broken into 18 distinct operations.
• Through specialization, the total output in the
  factory was 48,000 pins per day.

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I am going to prove that specialization works. I
am going to name a state and you tell me what
that state specializes in
Idaho
Potatoes
Florida
Oranges
Oil or cattle
Texas
Michigan
Automobiles
Nevada
Any illegal activity that you can think of
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Absolute Advantage

• When a country is able to produce more of a given
  product than another country

Adam Smith
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Absolute Advantage

• Countries should specialize in and export those
  things in which they have an absolute advantage
  and should import those things which their
  trading partners have an absolute advantage in

Adam Smith
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Comparative Advantage

• A countrys ability to produce a given product
  relatively more efficiently than another country
  that is production at a lower opportunity cost

David Ricardo
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Comparative Advantage

• Mutually beneficial trade is always possible
  between nations whose pre-trade relative costs
  and prices differ.
• Really?
• What if one country is better at making
  everything?

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Comparative vs Absolute Advantage

• https//www.youtube.com/watch?vcqGRIqFDo2wfeatur
  eplayer_detailpage

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Comparative Advantage

• https//www.youtube.com/watch?featureplayer_detai
  lpagevol4NexZ0iII

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Comparative Advantage Illustrated

• https//www.youtube.com/watch?featureplayer_detai
  lpagevFpTBjRf8lGs

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Man-hours required
U.S. Canada
Maple Syrup 5 8 Copper
Wire 6 7
Which country has the Absolute Advantage in the
production of Maple Syrup? In Copper Wire?
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Man-hours required
U.S. Canada
Maple Syrup 5 8 Copper
Wire 6 7
More importantly, which country has the
Comparative Advantage in Maple Syrup? In Copper
Wire? And Why?
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Opportunity Costs
U.S. Canada
Maple Syrup 5/6 C 8/7 C Copper Wire
6/5 MS 7/8 MS
If you spend time making maple syrup you give up
the opportunity to make copper wire and vice versa
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Opportunity Costs
U.S. Canada
Maple Syrup 5/6 C 8/7 C Copper Wire
6/5 MS 7/8 MS
Which country has the Comparative Advantage in
Maple Syrup?
In Copper Wire? Why?
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Man-hours required
U.S. Canada
U.S.
1
2
10
Maple Syrup 5 8 Copper
Wire 6 7
2 x
Canada


1
2
2 x
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11
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U.S. saves one-man hour
Canada saves one-man hour