Economic Principles Economic Principles http://www.youtube.com/watch?v=yoVc_S_...

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Economic PrinciplesEconomic Principles
http//www.youtube.com/watch?vyoVc_S_...
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Unit 1 Vocab

1. Economics
2. Microeconomics
3. Macroeconomics
4. Economic model
5. Economic system
6. Scarcity
7. Trade-off
8. Opportunity cost
9. Marginal cost
10. Cost-benefit analysis
11. Factors of production
12. Gross Domestic Product (GDP)
13. Standard of living
14. Productivity
15. Specialization
16. Division of labor
17. Economic interdependence

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Economic Models

• Economy
• All activity that affects production,
  distribution use of goods services
• Economists use economic models to study the
  economy
• They study past and present to predict the future
• Based on assumptions
• Businesses government make decisions based on
  models

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Economic Principles

• Economics Study of how decisions are made when
  resources are limited.
• Scarcity Not enough income, time, and resources
  to satisfy every desire. Faces individuals,
  businesses, and countries.
• Economics must answer the questions of what, how,
  and whom when dealing with production.

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• SCARCITY IS THE FUNDAMENTAL ECONOMIC PROBLEM
• Because of Scarcity we must answer 3 questions in
  economics
• What to Produce?
• How to Produce?
• Whom to produce for?

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Assessment Activity

• All economic questions and problems arise from
  scarcity. Economics assumes people do not have
  the resources do satisfy all of their wants.
  Therefore, we must make choices about how to
  allocate those resources. We make decisions about
  how to spend our money and use our time. This
  activity will focus on the central idea of
  economics- every choice involves a cost.
• Let's say you have five dollars. What would you
  like to spend it on? There are a million things
  you would love to spend five bucks on, but let's
  imagine there are only three things out there you
  really want to buy gum, soda, and movie tickets.
  Look at the price chart to the right and answer
  the questions.

Good Price
Gum . 50
Soda 1.oo
Movie Ticket 5.00
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Questions

• How many sodas can you buy instead of one movie
  ticket?
• How many packs of gum can you buy instead of one
  soda?
• If buy 4 packs of gum, how many sodas could you
  have bought?
• For example, if you go to the movies you have to
  give up a certain amount of gum and soda. If you
  are a sodaholic, you have to give up five sodas.
  If you are gum fanatic, you surrender ten packs
  of gum. But, the opportunity cost of a movie is
  not five sodas and ten packs of gum. It is five
  sodas or ten packs of gum.

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Which of the following best describes scarcity?

1. Not enough goods for everyone
2. Not enough resources to provide every desire
3. Lack of desire to produce enough resources
4. The amount that people want

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What is the fundamental economic problem?

1. Money
2. Time
3. Scarcity
4. Economics

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All of the following are questions we must ask
because of scarcity except

1. When to produce?
2. How to produce?
3. What to produce?
4. Whom to produce for?

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Goods and Services

• Good Anything manufactured.
• Service Something people do for others.

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Needs and Wants

• Need Basic item for survival.
• Want Anything including and beyond needs.

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Factors of Production

1. Capital
2. Land and Natural Resources
3. Labor
4. Entrepreneurship or management

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Capital

• Capital goods All tools, buildings, and
  machinery businesses use to make goods and
  provide services. Same as Resources

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Land and Natural Resources

• All land used for the business.
• Natural resources are things that come form the
  earth such as water and minerals.
• All energy is considered a natural resource.

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Labor

• Hired workers to help in production.
• Labor earns money, which they use
• to buy other goods and services.
• Division of Labor Separating a big job into
  smaller jobs. Each person is responsible for
  doing one job. (Assembly line).

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Entrepreneurship

• Entrepreneurs are people willing to take risks in
  business.
• Plan and supervise production.
• Decision makers.

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With a neighbor, list the land, labor, capital,
and entrepreneur that went into making each of
the following (you can list more than one item
for each)

• Your shoes
• iPod
• Dominos pepperoni pizza

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Trade-off and Opportunity Cost

• Scarcity forces people to make choices.
• Trade-off Decision that must be made when
  choosing between items.
• Opportunity cost Value of the next best
  alternative that was given up when a choice was
  made. Involves time or money.
• When choosing to do something, you lose. You
  lose the ability(opportunity) to do something
  else.
• ____________________________________________
• Production Possibilities The combinations of
  goods and services that can be produced from a
  fixed amount of resources.

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What was the opportunity cost of passing the
Health Care Bill?

1. More people will have health care coverage.
2. Grandparents will be put to sleep because of
   Death Panels.
3. Obama will become the Devil and the Four Horseman
   will arrive.
4. The government will have less money to spend on
   other services like the military.

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• How do you make trade-offs with your time? What
  do you give up?
• Consider time studying, time with friends, or
  time sleeping.

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Business Costs

• Fixed Costs
• Expense is the same no matter how much is
  produced
• Example - Rent
• Variable Costs
• Expenses that change with number of items
  produced.
• Fixed Costs Variable Costs Total Cost
• Marginal Cost
• extra cost of producing one additional unit of
  output
• Marginal Benefit /Revenue
• additional benefit after all costs are accounted
  for producing one more unit
• Cost Benefit Analysis
• economic model used to compare marginal costs
  benefits of a decision Which should be greater
  the benefits or the costs??

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Considerations for Businesses

• Productivity -
• Measure of the amount of output produced by a
  given amount of inputs in a specific period of
  time. In other words How resources are being
  used efficiently to produce goods and services.
• Specialization
• Takes place when people, businesses, regions
  countries concentrate on goods or services that
  they can produce better than anyone else
• Examples China and electronics
• Human Capital
• Sum of the skills, abilities motivations of
  people
• How would businesses and employees benefit from
  this?

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Productivity

• Goes up when more output can be produced when
  scarce resources are used efficiently
• Requires labor and human capital
• Increases when businesses invest in human capital
• Increases with specialization

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What is an example of a fixed cost of doing
business?

1. Wages
2. Cost of fuel
3. Price of materials
4. Rent on a building

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Economic systems
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Gross Domestic Product (GDP)

• Measure of an economys size success (monetary
  measure - 16.72 trillion 2013 est. 1)
• Total value of all the final goods services
  produced in a country during a single year
• Used cars not counted in GDP because second hand
  sales are not counted
• Used to measure standard of living (quality of
  life based on the possession of necessities and
  luxuries that make life easier) in a country
• Measures quantity not quality

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Gross Domestic Product (GDP) cont.

• Per Capita GDP total GDP divided by the
  countrys population U.S. was 52,800 2013 est.
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• Compared yearly to check growth of country
• Higher GDP from previous year growing economy
• Lower GDP from previous year shrinking economy

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Economic Systems

• Three major types
• Traditional
• Command
• Market
• The distinguishing factors are the role of
  government in the economy and the decision making
  for production.

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Traditional Economy

• Economic decisions are made by customs handed
  down through generations.
• Hunting, farming, and gathering.
• No technology.
• Activities center around the family.
• Men and women have defined social roles.
• Found in rural, non-industrialized areas.
  (Africa, S. America, Asia)

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Traditional Economies
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Command Economy

• Government makes all economic decisions. (China,
  N. Korea, Vietnam, Cuba, and the former Soviet
  Union).
• Advantages
• The Govt. can set prices of goods.
• Set low prices for consumers and give help to
  factories.
• Disadvantages
• No competition.
• Factories are poorly run and shortages are
  common.
• No individual freedoms.

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Command Economies Former Soviet Union
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Command Economies North Korea
Slideshow
Video
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Command Economies - Cuba
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Market Economy

• Decisions are made by the principles of supply
  and demand.
• People buy, sell, and produce what ever they
  want. People can work where they want.
  Individual freedoms
• Capitalism Private citizens own most means of
  production land, labor, capital
  entrepreneurship to make a profit.
• Free Enterprise Freedom of businesses to
  compete for profit without govt. interference.

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7 Characteristics of a Market Economy

• Markets exchanges here determine prices of
  goods services. Its the free and willing
  exchange of goods and services between buyers and
  sellers.
• Consumer Sovereignty the consumer is king of
  the market
• They are the ones who determine what products
  will be produced
• It exists only in Market based economies
• Economic freedom freedom of choice with
  consequences
• Example an entrepreneur starts a business and
  it fails. The govt usually will not help out.
• Private Property Rights the freedom to own,
  use, or dispose of our own property as long as it
  doesnt interfere with the rights of others.

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• 5. Competition struggle between buyers and
  sellers to get the best products and the lowest
  prices.
• Capitalism thrives on competition
• Rewards the most efficient producers
• Profit Motive the driving force that encourages
  individuals and organizations to improve their
  material well-being.
• Purpose is to raise the standard of living
• It is the reason for growth in a market system
• 7. Voluntary Exchange act of buyers and
  sellers freely and willingly engaging in market
  transactions
• Both buyers sellers must feel a benefit

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Mixed Economy

• Any combination of Economic systems.
• The United States is a mixed economy because
  capitalism and free enterprise exist with
  government regulations.
• The U.S. govt. provides services such as
  highways, postal system, and transportation.
• Some government regulation.
• At certain times, govt. can take control of the
  means of production.

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Activity

• On the paper provided, NEATLY create a 4 square
  of the types of economies we just discussed
  Command, Traditional, Market, and Mixed.
• Be sure to include several characteristics,
  examples, and pictures. These will be hung up and
  people should be able to easily understand the
  differences in each of the economies.

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Warm up

• 1. Economic system where the government makes all
  of the economic decisions?
• 2. Economic system that is a combination of
  command and market economies?
• 3. Total dollar value of all final goods and
  services produced in a country during a single
  year?
• 4. Consumers are king of the market because
  they decide what produces will be produced?
• 5. Characteristic of a market economy that
  describes the struggle between buyers and sellers
  to get the best products and the lowest prices?
• 6. This is based on private ownership of the
  means of production and can decide how to use
  them to use them to make a profit?

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Capitalism Free Enterprise

• The U.S. economy is built on a market economy,
  but government still plays a role
• Free Enterprise minimum govt interference
• Capitalism private citizens own and use factors
  of production (land, labor, capital,
  entrepreneurship) to make a profit.

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The Drawbacks of capitalism
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The Drawbacks of capitalism
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The Rise of Capitalism

• 2 concepts developed
• People work for economic gain
• Government should have a limited role
• 1200s C.E. trade routes opened between Europe
  the East
• Silk Roads, Marco Polo
• Throughout hundreds of years trade increased
• Development of ideas of wealth
• Adam Smith
• Scottish Economist
• Wealth of Nations
• Basic Principles of Economics
• Individuals who seek profit benefit all of
  society
• Laissez-Faire to leave alone
• The government should not interfere in the market
• Governments only role should be to ensure free
  competition

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Adam Smith and The Wealth of Nations
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Socialism

• Socialism belief that the means of production
  should be owned controlled by society either
  directly or through the govt
• Karl Marx
• Wrote The Communist Manifesto
• Socialist believed industrialized nations
  divided into bourgeoisie (entrepreneurs)
  proletariat (workers)
• Predicted revolution of the proletariat
• Believed socialism would develop into communism

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Communism

• Communism one class would evolve where property
  would be commonly held there would be no need
  for government
• Built on the idea of socialism

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Transitioning Economies

• Former Soviet Union the Soviet Bloc
• Inefficiency of command economies led to no or
  very small growth
• Transition of this type of economy led to
  transition from Communism to Democracies
• Why would a transition be hard?

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NAFTA

• North America Free Trade Agreement (NAFTA)
  agreement between Canada, Mexico, and the USA
  where tariffs were almost completely eliminated
  (free trade)
• Began on Jan. 1, 1994