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Economics Summer 2011

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Economics Summer 2011 Pueblo High School Mr. Klein Travis.klein_at_tusd1.org Session 1: June 1 June 15 PHS Session 2: June 16 June 30 THS – PowerPoint PPT presentation

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Title: Economics Summer 2011


1
Economics Summer 2011
  • Pueblo High School
  • Mr. Klein
  • Travis.klein_at_tusd1.org
  • Session 1 June 1 June 15 PHS
  • Session 2 June 16 June 30 THS
  • Past 2007 Marana HS
  • 2008 Mountain View HS

2
Quiz 1
  • What is the scarcity problem of economics?
  • When an economist is talking about a firm, what
    is that?
  • Is a car a need in economics?
  • What is your opportunity cost of being here?
  • Why do you think entrepreneurs are vitally
    important to our society?

3
G.A.T.E. Economic Assumptions
  1. People Choose, based on preferences
  2. All Choices Involve costs
  3. People respond to incentives in predictable ways
  4. Economic systems influence individual choices and
    incentives
  5. Voluntary trade creates wealth
  6. The results of choices lie in the future

4
Economic Questions
  1. What to produce?
  2. How much to produce?
  3. How to produce it?

5
G.A.T.E. Economic Assumptions
  1. People Choose, based on preferences
  2. All Choices Involve costs
  3. People respond to incentives in predictable ways
  4. Economic systems influence individual choices and
    incentives
  5. Voluntary trade creates wealth
  6. The results of choices lie in the future

6
Value, in economic terms
  • 2 ways economists measure value of a
    good/service
  • Price (How much are you willing to pay?)
  • Utility (how happy does this make me?)

7
Why trade is important?
  • On this ½ sheet of paper
  • What is your original good/service?
  • Write what you think the value (in ) your good
    or service is.
  • Write down the goods utility for you (1-10)
  • Walk around the room for 10 minutes and see if
    you can trade your good for something of higher
    utility
  • How many trades did you make?
  • What is your new good/service?
  • What is its value?
  • What is your new utility?
  • Imagine you had to pay Mr. Klein 10 for each
    trade, how would that have impacted this
    simulation? (this tax is called a tariff)

8
Profit Motive
  • People want profits
  • Different than command economy
  • Adam Smith invisible hand
  • Movie clip What's the point?

9
Free Market Economy
  • Invisible hand
  • Government does as little as possible
  • Property rights
  • Stays out for winners and losers

10
Circular Flow Model
Product Market
Goods/Services
Households
Firms
Interconnectivity
Wages
labor
Investments
Factor Market
11
Mixed Economies
  • Modern countries have the government help some,
    but mostly its the market
  • For example.
  • Schools
  • Roads
  • Healthcare
  • Child care
  • Space Travel

12
What if.
  • In our system
  • Firms need households
  • Households need firms
  • They are interconnected
  • Govt raised sales tax to 25?
  • Govt lowered the income tax by 5
  • Unemployment rate rose by 10

13
Investing
  • One way to save for your future is to invest
  • You can publically invest in hundreds of
    companies
  • Brainstorm a list of 10 companies (or industries)
    you think would be a good investment and a brief
    why.

Investments
14
Investing in the USA
  • Stocks
  • Bonds
  • Stock Market
  • NYSE, NASDAQ
  • Dow Jones
  • Bull vs. Bear
  • Mutual Funds
  • Industries

15
Savings Accounts
  • 0 - 0.5 interest

16
Investing
  • Brokerage Account
  • Old School Stock Broker
  • Higher fees, but advice
  • New School DIY online
  • Lower fees, little to no help

17
A stock broker at work
  • Finance degree
  • Income 50,000 and up
  • Commission per trade

18
Famous Investor
  • Warren Buffett (1930-
  • Richest man in the world (52 Billion)
  • Successful investor
  • Earns only pays himself 100,000/year
  • hold investments

19
Bonds
  • Government backed
  • Very Safe
  • Low risk
  • Low return
  • Loan for a time
  • Corporations also offer them

20
Stocks
  • Ownership in a publically traded company
  • Issued to raise capital
  • Some pay dividends

21
Stocks
  • Stock Calculation
  • 25.90/share
  • You have 1000 to invest in Disney
  • 1000 investment
  • 25.90 per share
  • You can buy 38.6 shares with 1000
  • Dividend 0.35 /year

Investment divided by share price shares you
can buy
22
Lets try one
  • 1,000 investment
  • Someone name a large company

23
Stocks
  • Stock Calculation
  • 25.90 share price
  • You own 38 shares
  • Price 28/share
  • 28 X 38 1064 now!

Total investment share price X shares owned
24
Stock Market
  • Place where Stocks are traded
  • Most famous NYSE
  • Others, NASDAQ, Nikkei, London, Hong Kong, Chicago

25
Stock Symbols
  • Makes trading easier
  • EX Disney DIS
  • Use finance.google.com to look them up

26
Dow Jones
  • Dow Jones average 30 top companies
  • MMM, AA, AXP, T, BAC, BA, CAT, CVX, CSCO, KO, DD,
    XOM, GE, HPQ, HD, INTC, IBM, JNJ, JPM, KFT, MCD,
    MRK, MSFT, PFE, PG, TRV, UTX, VZ, WMT, DIS

27
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28
Bull vs. Bear Markets
  • Bull Market
  • Bear Market

29
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30
Industries
  • Field of business
  • Stocks follow others
  • Chinese increase car purchases
  • Tough times for biotechnology

31
Same Economic Questions
  1. What to produce?
  2. How much to produce?
  3. How to produce it?

32
Command Economies
  • This is the flag of the Union of Soviet Socialist
    Republics (USSR)
  • Why do you think they chose the hammer and sickle
    as their symbol?

33
Command Economies
  • Use the slips to estimate how much of each item
    you eat in 1 year.
  • (Think about how much you would need for 1 day,
    then multiply by 7 (days), then multiply by weeks
    (4 weeks per month), then by 12 (months per year)

34
Command Economies
  • Lets experiment
  • Try and predict how much of each item you should
    produce to feed the entire classroom for one year
  • Be careful, this food is perishable and if you
    produce too much the food will spoil.
  • Conversely, if you produce too little, people
    will starve and die.
  • If your committee is 100 correct, 100 on 1st
    Quiz

35
What you just did
  • You tried to centrally plan the economy
  • What happened to our village?

36
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37
Command Economies
  • Based on the ideas of Karl Marx (1818-1883)
  • German Economist
  • Lived in England
  • First Sociologist
  • Industrial Revolution

38
Command Economy Philosophy
  • Produce needs, not wants
  • Make needs as close to free as possible
  • Treat workers better (safe, high wages, benefits)
  • No private property
  • Economic equality
  • Central planning of production
  • No new types of business
  • Benefits of economic system?
  • Problems with economic system

39
USSR
  • 1917-1991
  • Tried experiment with communism
  • Communism command economy with restricted
    rights.

40
Free food Bread Lines
Lenningrad 1988
41
Command Economies today
  • Cuba
  • North Korea
  • China (sort of)
  • Laos
  • Cambodia
  • Communist parties around the world

Communist rally in France, 2007
42
Questions for consideration
  • How is a command economy different than our
    economy?
  • Why do most command economies fail in the long
    run (30-80 years)?

43
A Range of Economic systems Depends on Economic
Rights
Command
Mixed
Free Market
USSR
1800s USA
Hong Kong
Sweden
Cuba North Korea
Germany
Dubai
France
44
Questions for video
  1. Which place seemed the easiest to start a
    business?
  2. Which place seemed most similar to a command
    economy?
  3. What could India learn from Hong Kong?
  4. Do you think the US going to make more economic
    laws in the next 20 years or fewer? Explain your
    answer.

45
Successful Entrepreneurs
  • Find 3 Entrepreneurs. (page T10 has a list), or
    use your Smart phone
  • What did they do?
  • Why was that a successful idea?
  • What can you personally learn from them?

46
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47
Choose an entrepreneurial idea
  • Landscaping firm
  • Restaurant
  • Software firm
  • Trucking Company
  • 1.Think of at least two places could you raise
    the 15,000-30,000 to start the business?
  • 2. Besides going bankrupt, what bad things or
    risks could occur to your business?
  • Would your business do better during good
    economic times or could it succeed anytime?
    Explain your reasoning.

48
Sole Proprietorship
  • Single person
  • Good for low risk businesses, low entry costs
  • Benefits single person has all control and keeps
    all profits
  • Drawbacks single person assumes all risk,
  • hard to raise capital
  • Examples small construction firms,
    artistic firms, bloggers, import/export

49
Partnerships
  • Two people in business together
  • Good for low risk businesses
  • Benefits low entry costs, shared costs
  • Drawbacks partners assume all risk
  • hard to raise capital,
  • agreements like a marriage
  • Examples law firms, small specialized firms

50
What happens if?
  • New Restaurant!!!

51
Liability
  • If your Sole Proprietorship or Partnership is
    sued
  • They can take
  • Your house
  • Your car
  • Your money in the bank
  • Your future money!!!

52
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53
Corporations
  • A legal person
  • Good for higher risk businesses
  • Benefits owners protected
  • easier to raise capital
  • Drawbacks double taxation
  • increased regulation
  • Examples restaurants, LLCs,
    Sports Franchises

54
Double taxation
  • Corporation pays its own taxes 25-35
  • Corporation pays employees wages/salary
  • Employees ALSO pay taxes 20-38
  • Trade off is liability for risk

55
General Electric (16/share)
  • Founded by Thomas Edison (1878)
  • Largest producer of finished goods in world
  • Lighting, appliances, engines, aviation, power,
    railroads, healthcare, NBC, measurement systems
  • Revenue US 182 Billion (2008)

56
Non-Profit Organization
  • Goal is service, not profit (not part of govt)
  • Good for caring or political, service related
    goals
  • Benefits legally protected, no taxation
  • Drawbacks difficult to keep alive, survives on
    donations and grants
  • Examples Churches Salvation Army,
    USAID, Amnesty
    International,
    NAACP, PETA, Judicial
    Watch, Gates
    Foundation, Scholarships

57
  • 4. Which business organization would you use and
    why?

58
Subway page 218
59
2 types of Corporations
  • Privately held owned by founders or owners
  • Publicly held owned by shareholders

60
Publically Held Corporations
  • Larger corporations, publically traded
  • Good for higher risk businesses
  • Benefits owners protected,
  • MUCH easier to raise capital
  • Drawbacks double taxation
  • increased regulation
  • owned by shareholders
  • Examples Wal-Mart, Disney,
    Starbucks, Apple, Microsoft

61
Corporate Structure
Shareholders
Election
Board of Directors
Hires/fires
1976 founded as partnership Steve Jobs, Steve
Wozniak 1977 formed privately held corp 1980
went public to shareholders Steve Jobs new
CEO 1985 Jobs fired by B of Directors 1996
Jobs returns as CEO, ipods, imacs
Chief Executive Officer (CEO)
Hires/fires
Every other employee
62
220-223, Corporations
  1. Page 220, Rank US business organizations in order
  2. Rank business organizations in order of revenue
  3. Who actually owns big corporations like Walmart,
    Disney and Apple?
  4. What would your business need to do to file
    articles of incorporation with the state of
    Arizona?
  5. What is the difference between common and
    preferred stock?
  6. What would you have to do if you wanted to open a
    Subway franchise?
  7. Compare and contrast the advantages of owning a
    franchise like a Subway.
  8. What is the opportunity cost of investing in the
    stock market?

63
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