3The study of scarcity, or how society tries to satisfy unlimited wants through the use of limited resources.
4Words to Know:Scarcity: the gap between what the consumers would like (UNLIMITED) and what the consumers can get (LIMITED).Trade Off: the process of giving up one desire in order to satisfy another desire.Opportunity Cost: the value of what we give up in order to get or do something else. (LOST)
5Trade Offs &Opportunity Costs Two highly talented athletes want to compete for Coach ‘M’ who has only 1 opening on the team. Each are equally talented. Since he can only keep one, he must choose:he decides to keep athlete ‘X’ because he is also a good student and is highly ‘coachable’.What was the trade off?What is the opportunity cost?
10Review Budgeting Wage: $11.00 How much do they make an hour? How much do they make a week?How much do they make a month?How much do they make a year?Salary: $110,000.How much do they make an hour?How much do they make a week?How much do they make a month?How much do they make a year?
11Review, Opportunity Cost On Saturday Ty’Shawn is thinking about going to the Panthers game. If he doesn’t go to the game he might stay home and work on homework, help his neighbor paint his house, or hang out and watch TV. What is an opportunity cost of Ty’shawn choosing to help his neighbor?What is the opportunity cost of choosing to go to college?
12Review, Opportunity Cost The North Carolina government decides to build more prisons at the cost of $20.5 Billion. In order to do this they will increase the sales tax. The state decided to build prisons instead of much needed schools, rehabilitation programs, and gun safety programs.John decided to go a party Friday night instead of studying for his Civics and Economics Test. Studying increases his chances of passing the Goal 6 test. He could have studied for his test, or gone to the movies.
13Review, Opportunity Cost Tom chose to get a massage this week instead of getting new sneakers or pay for his cell phone bill and cable bills.Carrie decided to spend her last $3.00 on a bottle of lotion. During lunch the next day she is unable to buy herself any food. She is hungry the rest of the day. She gets into her car and her gas light is on E.Jaquan studied all night for his Geometry Test. He wanted to go out with is friends and go see the new Happy Feet Movie. He passed his test with a 97%.
14Personal Financial Literacy Online!!!!!VisitSelect ‘Login’ (on the top right)Select ‘Sign-Up’(on the top right)Put in Information you will remember!!!!!When you create a LOG-IN! REMEMBER YOUR INFORMATION! WRITE IT DOWN! TAKE A PICTURE! REMEMBER IT!!!!!!!!!!!!!!!!!!!!!!!!After you do this, get out a pair of headphones, and Sit tight and wait
153 Basic Economic Questions What to produce?How to produce?For whom to produce?
22Types of LaborBlue Collar: typically performs “manual” labor (uniform)White Collar: typically performs more “business” like laborProfessional: most advanced type of labor- highest educational degrees.Skilled: typically knows a craft
23CapitalPHYSICALMan-made instruments that assist in making something elseExamples:HammerRobotBookComputer
25Capital HUMAN Training programs Skills development Advanced degrees Investment in knowledge or training for a laborer to become more productiveExamples:Training programsSkills developmentAdvanced degrees
26EntrepreneursPeople who RISK time and money ($) to start their own business and organize the other factors of production.Examples:P. DiddyLemonade StandsMartha Stewart
30ProductivityThe measure of the efficient use of an economy’s resources.Making the MOST of the resources you have.Utilizing resources to 100% of their capacity.UNDERUTILIZATION: not using resources efficientlyProduction Possibilities Curve: graphic representation of an economy’s productivity potential
31A Production Possibilities Curve Units of food Units of clothing(millions) (millions)8m7m m6m m5m m4m m3m m2m m1m mmUnits of food (millions)Units of clothing (millions)
32ProductivityThe more productive a nation’s economy, the more potential for profit.A company’s goal is to maximize profit. One way this can be done it to increase productivity.
33Division of Labor When work is divided amongst many workers. Each worker specializes in one task making the work go faster and more efficient.
34Assembly LineEach member of the line does the same procedure or task on each input item.The more items created the more potential for profit a company has.
35SpecializationWhen each worker learns a specific/one job and becomes a professional in that specific task.
36Law of Diminishing Returns By adding more factors of production (i.e. technology, better trained workers, better entrepreneurship) it leads to greater efficiency.But ONLY to a certainpoint and then you beginto lose efficiency.
37Law of Diminishing Returns Maximum returns is 300- using 200 agents.When you add any additional agents, the number of returns decreases.
38Comparative Advantage When a nation has an advantage in the production of a particular product over another.Example:The Southern Colonies had a comparative advantage to produce cotton over the New England Colonies.
40Types of Economic Systems TraditionalCommandMarketMixed
41Traditional Economy Determined by tradition, ancestors, customs What did you Produce?Determined by tradition, ancestors, customs
42How did you Produce it?Produce the same way its always been done; NO SPECIALIZATIONFor Whom did you Produce?Produce for tribe, village, local communityExamples:Ex. Native American, Aborigines, AmishBarter: trade item for item (no money)* limited growth potential!
43Command Economy Determined by the government or central planner What did you Produce?Determined by the government or central planner
44How did you Produce it?Told how to by central planner; SPECIALIZATIONFor Whom did you Produce?The gov’t or central plannerEx. China, N. Korea, the former U.S.S.R. (Soviet Union)
45Market Economy Determined by whatever would make the most profit What did you Produce?Determined by whatever would make the most profit
46The way that made the most profit; SPECIALIZATION How did you Produce it?The way that made the most profit; SPECIALIZATIONFor Whom did you Produce?Consumers, people interested in productEx. UNITED STATES!
47Mixed Economies Have elements of market economies with some command Ex. Canada, France, England
48Pick up the THREE Sheets! December 12, 2013Pick up the THREE Sheets!
49Agenda Housekeeping What time do we have left? Demand .ppt Individual WorkChangesSupplySupply and Demand, The Epic MergerEquilibrium PricesShortages and Surpluses
50The desire to own something and the ability to pay for it! DemandThe desire to own something and the ability to pay for it!
51The Law of DemandThe Law of Demand states that as prices decrease people are willing/able to buy more. As price increases people are willing/able to buy less.Inverse/opposite relationshipP D P D
52Demand Schedule Demand Curve Price QuantityDemand CurveGraphic representation of the demand schedule.y-axis = pricex-axis = quantity$5.00100$10.0070$15.0050$20.0030$25.0020$35.0010
53Market Demand CurvesShow how people’s buying habits will change at certain prices ONLYShow a specific market onlyAssume no other factors change (just price)
54WHY WOULD THERE BE A CHANGE IN DEMAND? Shifts in DemandWHY WOULD THERE BE A CHANGE IN DEMAND?Consumer’s income changes: As income increases, demand increases.Consumer Expectations: if shortage is expected, demand increasesPopulation Size: Population increases, demand increases
554. Consumer Taste: If a good becomes popular, demand increases. 5. Change in Price of Related Goods:* Compliments: goods bought togetherComp. good price increases, thegood’s demand decreases*Substitutes: goods used in place ofone another. If a substitute price increases, the good’s demandincreases
56People’s Income Increases Effect on DemandDemand Increases(shift right)PD1D2Q
57Bad Weather (for product) Effect on DemandDemand Decreases(shift left)PD1D2Q
65Price of Complementary Good Decreases ex: peanut butter & jelly Effect on DemandDemand Increases(shift right)D1D2Q
66Price of Substitute Good Decreases ex: Pepsi & Coca-Cola Effect on DemandDemand Decreases(shift left)D1D2Q
67ELASTIC DEMAND: demand that is very sensitive to a change in price ELASTICITY of DEMAND: How much the quantity demanded will change if the price rises or falls?ELASTIC DEMAND: demand that is very sensitive to a change in pricegoods that one might stop buying or cut back on as price increased (SUVs, Luxury items)**on a graph this demand curve will be FLAT
68INELASTIC DEMAND: demand that is not very sensitive to a change in price goods that you would buy at any price; there are few if any substitutes for these goods (milk, gas, prescription drugs)**on a graph this demand curve would be very steep.
69Independent Work! Work on the Predicting Demand Worksheet Demand of Pizza!
70The amount of goods or services available SupplyThe amount of goods or services available
71The Law of Supply states the higher the price, the larger the quantity produced think like a producer now; at a higher price firms earn additional revenue and more firms will have incentive to enter the market)P S P S
72Supply Schedule: shows only how price of goods changes the quantity supplied (all other factors remain constant)Price Quantity$0.50100$1.00150$1.50200$2.00250$2.50300$3.00350
73Supply Curve: Graphic representation of the supply schedule Supply Curve: Graphic representation of the supply schedule. (rises from left to right)y-axis = price x-axis = quantity supplied
74WHY WOULD THERE BE A CHANGE IN SUPPLY? Shifts in SupplyWHY WOULD THERE BE A CHANGE IN SUPPLY?Change in the Price of an Input: Rise in input cost means decrease in supply because it is too expensive to make, and a fall in input cost will increase supply at all price levels.2. Technology – lowers cost and increases supply.
75Government subsidy: payment by the gov’t that supports a business or market. Subsidies increase supply.Increase or Decrease in taxes: increasing taxes decreases supply, decreasing taxes increases supply5. Government Regulation: Usually increases cost of production and decreases supply. (emission control on cars, FDA nutritional codes on food products)
766. Future expectation of Prices: expect the price to go up the supplier will store goods to sell more in future.7. Number of suppliers: as more suppliers enter a market to produce a good the market supply of the good will rise (and the opposite)
77Costs of Inputs Decrease Effect on SupplySupply Increases(shift right)PS1S2Q
78Number of Suppliers Increases Effect on SupplySupply Increases(shift right)PS1S2Q
79Weather is bad for product Effect on SupplySupply Decreases(shift left)S2PS1Q
80Ex. Things that are cheap, use few resources, made quickly Elasticity of Supply is a measure of the way suppliers respond to a change in priceElastic Supply – a small increase in price has a big effect on supply (flat)Ex. Things that are cheap, use few resources, made quickly
81Ex. Diamonds, Bentley, Gas Inelastic Supply – a small increase in price has a small effect on supply (steep)Goods that are limited, take many resources to produce, require a lot of time to produce.Ex. Diamonds, Bentley, Gas
89Equilibrium: the point at which quantity demanded and quantity supplied are equal At a point of equilibrium….the price and quantity are balancedthe market for a good/service is stableDisequilibrium: any price or quantity not at equilibrium
90Price of CDsQuantity DemandedQuantity Supplied$5.0010010$10.008020$15.0030$20.00$25.00
92Excess Demand (SHORTAGE): when quantity demanded is more than quantity supplied Price is too low!not enough!E1P1D1QQSQD
93Excess Supply (SURPLUS): when quantity supplied is more than quantity demanded Left-oversPrice is too high!P1E1D1QQDQS
94A shift in the demand curve or the supply curve will result in a new equilibrium price.
95Orange Juice PRICE ____ QUANTITY____ BECAUSE OF A CHANGE IN SUPPLY S2 D1Q2Q1Q
96Coca-Cola PRICE ____ QUANTITY____ BECAUSE OF A CHANGE IN DEMAND S1 P
97Video Games PRICE ____ QUANTITY____ BECAUSE OF A CHANGE IN DEMAND S1 P
98Clothing PRICE ____ QUANTITY____ BECAUSE OF A CHANGE IN SUPPLY S1 P S2 D1Q1Q2Q
99Government Intervention in a Market Economy Price Ceiling: a maximum price that can be legally charged for a good or service(example: rent control)Price Floor: a minimum price for a good or service(example: minimum wage)
104Capitalisman economic system in which private citizens own and use the factors of production in order to seek a profitFree Enterprise/Market Economy: another term used to describe the American economy
105Features of Capitalism 1. Private Ownership of Resources: we have the freedom to own and use, or dispose of, our own property as we choose.This gives us the incentive to work, save, and invest because we can keep what we earn.
106Consumers have the right to choose the products that we will buy. 2. Self Interest Motives (economic freedom):Each person can choose the type of job to have and when and where they want to work.Consumers have the right to choose the products that we will buy.Businesses have the right to choose the products that they will produce and sell.
1073. Consumer Sovereignty: the idea that the consumer is the “king” or ruler of the market the one who determines what products will be producedbusinesses try to produce the products that people want most.
1084. Available Markets: places where the prices of goods and services are determined as exchange takes place.5. Competition: the struggle that goes on between buyers and sellers to get the best products at the lowers prices.
109Adam Smith: Father of Capitalism Smith believed that all individuals seeking a profit end up benefiting society as a whole.wrote The Wealth of Nationsdeveloped the idea of laissez-faire economics. (“to let alone”)the government should not interfere in the market place.
110Adam Smith: Father of Capitalism believed that the invisible hand guides a nation’s resources to their most productive use.Tools of the invisible hand include self-interest and competition.
111Karl Marx: Father of Communism Command EconomyEquality of the classeswrote the Communist Manifesto.“ Workers of all lands, unite”
113What is Liability?Unlimited liability: Risk extends beyond your share in a company.(you could lose EVERYTHING!)Limited Liability: Risk only involves your share of the company.
114Sole-Proprietorship Description Advantages Disadvantages A business owned and managed by a single individualAdvantages DisadvantagesEasy to start - Unlimited LiabilitySole receiver of profit Limited LifeFull controlNo additional taxes
115Partnership Description Advantages Disadvantages a business organization owned by two or more personsAdvantages DisadvantagesEasy to start - Share ProfitsSpecialization - Unlimited liabilityNo additional taxes - potential for conflict
116Corporation Description a legal entity owned by individual stockholdersStockholders own shares of stock – a certificated ownership in a corporations.Stockholders are part owners of the corporation.Advantages DisadvantagesLimited Liability - expensive to startTransferable ownership - Double taxesLong lifePotential for growth more requirements & regulations
117Franchise Description Advantages Disadvantages Semi-independent company that is part of a parent corporationAdvantages DisadvantagesBuilt-in reputation Loss of freedom & decision makingLimited Liability
118Non-ProfitA business that operates under a plan that distributes the profits made to other charitable organizations.Advantages DisadvantagesTax Exempt Relies on charityProvides Services Follows Market
119Multinational Corporations Definition – a large corporation that produces and sells its goods and services throughout the worldAdvantages DisadvantagesProvides jobs & Low wagesproducts around the world Poor working conditionsSpread new technologyaround the worldIncreases standard of livingin many poor countries
120Corporate Combinations Horizontal Merger – joining of two or more firms competing in the same market with the same good or serviceEX: Sprint buys Nextell, AT&T buys SuncomVertical Merger – joining of two or more firms involved in different stages of producing the same good or service.EX: Oils companies buy oil fields, tankers, and gas stations
131The circular flow of goods and incomes Goods and servicesfig
132The circular flow of goods and incomes Goods and services$Consumerexpenditurefig
133Services of factors of production (labor, etc) The circular flow of goods and incomesGoods and services$ConsumerexpenditurefigServices of factors of production (labor, etc)
134Services of factors of production (labor, etc) The circular flow of goods and incomesGoods and services$ConsumerexpenditureWages, rentdividends, etc.$figServices of factors of production (labor, etc)
135Conglomerate – merging of more than three businesses that make unrelated products EX: Phillip Morris & Kraft, GeneralElectric & NBC
137Perfect Competition Many buyers and sellers in the market Sellers offer identical productsBuyers and sellers are well informed about productsSellers are able to enter and exit the market freely
138Perfectly competitive markets are efficient at equilibrium!! Few markets are perfectly competitive because barriers keep the companies from entering or leaving markets easilystart-up costs are highmany require high degrees of technology
139Monopoly A market dominated by a single seller No variety of goods and the seller has complete control over pricesForms when barriers prevent firms from entering a market with only one seller
140Government Monopoly: a monopoly created by the government Natural Monopoly: a market that runs most efficiently when one large firm supplies all of the outputExample: public outputGovernment Monopoly: a monopoly created by the governmentEx: allowing a natural monopoly to formEx: patent: inventor of the new product has exclusive rights to sell it
141Antitrust laws: laws that encourage competition in the market Remember one of the goals of the gov’t in the US has been to encourage competition in the economyAntitrust laws: laws that encourage competition in the marketSherman Antitrust act: banned monopolies and other business combinations that prevented competition 1890)…this act was used to break up companies like AT&T
142Oligopolya market structure in which a few large firms dominate a market (4 largest firms produce 70-80% of the output)barriers can also create oligopolies…like start-up costs and technologyEx: cell phones, airlines, cruise ships
147Economic Indicators1. GDP – Gross Domestic Product - measures the output of the entire economy 2. Personal Income - measures the total income of families in one year, higher the income the more money they have to spend 3. Stock Market Averages - reflects investors attitude and (S&P500, The Dow) movement of interest rates 4. Unemployment rate- reflects layoffs of workers; how many unemployed at one time
148Expansion:a period of economic growthreal GDP risesEmployment increasesProduction increasesMoney supply increasesConsumer spending increasesPrices increase (INFLATION)
149Peak:The highest point in the business cycleFull Employment(those who want a job have a job)Production at full capacityMoney supply highConsumer spending highPrices high
150Contraction:a period of economic declinereal GDP declinesEmployment decreasesProduction decreasesMoney supply decreasesConsumer spending decreasesPrices decrease (DEFLATION)Long contraction (6 months) called a RECESSION
151Trough:The lowest point in the business cycleHigh rates of unemploymentProduction nearing a standstillMoney supply low (limited lending)Consumer spending lowPrices lowLong period (1 yr.) called a DEPRESSION
152Building permits- indicates construction activity Manufacturers’ new orders- predictsactual production changeConsumer Price Index - measures the rate of change in the price of 400 consumer goods
154The Stock Market Buying Stock: Corporations sell stock to raise funds. Stock represents ownership in the corporation and is issued in portions called shares.
155Stockholders make money through: dividends- a portion of a corporation’s profit, usually paid out quarterlycapital gains- money made when an investor sells stock for more than he/she paid for itStockholders lose money through:capital loss- money lost when an investor sells stock for less than he/she paid for it or when a company doesn’t make a profit, and can’t pay out dividends
156Stock split- when each single share of stock splits into more than one share. This is done to encourage investors to buy the stock, and generally results in a rise in stock value afterwards.Stock Trade:Stockbrokers- link buyers and sellers of stock; usually work for a brokerage firm that specializes in trading stock.
157Stock is bought and sold on stock exchanges. Most important in the US: New York Stock Exchange (NYSE)- the country’s largest and most powerful exchange; only for the largest and best-known companies (called blue chip companies)OTC Market (over the counter)- stock sold electronicallyNasdaq (National Association of Securities Dealers Automated Quotations)- the American market for over-the counter tradesDaytraders- buy and sell stock rapidly in hopes of trying to make a profit; very risky
158Measuring the Stock Market Bull Market- when the stock market steadily rises over a period of time Bear Market- when stock market steadily falls over a period of timeThe picture of stock performance can be determined by looking at theDow Jones Industrial- which represents about 30 large companiesS & P 500 (Standard and Poors)- which tracks price changes in 500 companies.
171Social Security Act of 1935 (SSA) WHAT IT DIDProvides money to people who cannot support themselvesIMPACT ON US ECONOMYStabilizes the economy in times of economic depression
172National Labor Relations Act, 1935 WHAT IT DIDWorkers have the right to join unions and use collective bargainingIMPACT ON THE US ECONOMYGave protection and power to the workers
173DefinitionsUnions- an organized association of workers formed to protect and further their rights and interests; a labor union.Collective Barganing- negotiation of wages and other conditions of employment by an organized body of employees.
175Fair Labor Act, 1938 WHAT IT DID IMPACT ON THE US ECONOMY Est. minimum wage of 25 cents per hour and time and a half for overtimeIMPACT ON THE US ECONOMYSet a price floor on labor for the U.S.
176Taft Hartley Act, 1947 WHAT IT DID IMPACT ON THE US ECONOMY Put restrictions on labor unionsIMPACT ON THE US ECONOMYUnions cannot be all powerful
177Economic Globalization North American Free Trade Agreement(NAFTA)World Trade Organization, WTOEuropean Union (EU)International Monetary Fund (IMF)World BankUnited Nations
178NAFTAOn January 1, 1994, the North American Free Trade Agreement between the United States, Canada, and Mexico (NAFTA) entered into force.It allows these countries to trade freely with no import or export taxesIt is supposed to increase trade in North AmericaMany US Companies moved or outsourced their jobs to Mexico in order to decrease labor cost
181World Trade Organization The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations.It allows for a legal body to oversee trade between nations
182European UnionThe EU was created in the aftermath of the Second World War.to foster economic cooperationa huge single market has been created and continues to develop towards its full potential
184IMF an organization of 188 countries working to foster global monetary cooperationsecure financial stabilityfacilitate international tradepromote high employment and sustainable economic growthreduce poverty around the world.
185World Bank End extreme poverty around the world in one generation! End extreme poverty by decreasing the percentage of people living on less than $1.25 a day to no more than 3%Promote shared prosperity by fostering the income growth of the bottom 40% for every country
186The United NationsThe United Nation is a legislative organization that fosters:Peace and SecurityDevelopmentHuman RightsHumanitarian AffairsInternational Law
188The Frost BeltThe Frost Belt is a region of the US considered to include the Northeast of the Great Lakes Region, and much of the Upper Midwest. The region is known for its cold, frost-producing winters and heavy snowfall.
189The Rust BeltA postindustrial region straddling the NE and the East North Central States, referring to economic decline, population loss and urban decay due to the shrinking of its once powerful industrial sector. The term gained popularity in the United States in the 1980s
190Sun BeltThe main defining feature of the Sun Belt is its warm-temperate climate with extended summers and brief, relatively mild winters; Florida, the Gulf Coast, and southern Texas, however, have a true subtropical climate.The Belt has seen substantial population growth since the 1960s due to an influx of immigrants, both documented and undocumented; a surge in retiringbaby boomers; and the attractiveness of a mild winter climate.
192Silicon Valley It is home to many of the world's largest technology corporations as well as thousands of small startups. The term originally referred to the region's large number of silicon chip innovators and manufacturers, but eventually came to refer to all high-tech businesses in the area, and is now generally refers to the American high-technology sector.Silicon Valley continues to be a leading hub for high-tech innovation and development, accounting for one-third (1/3) of all of the venture capital investment in the United States.Geographically, Silicon Valley encompasses all of the Santa Clara Valley, the southern Peninsula, and the southern East Bay.
194North Carolina Research Triangle The Research Triangle Park is home to more than 170 global companies, including: IBM, GSK, Syngenta, RTI International, Credit Suisse, and Cisco,that foster a culture of scientific advancement and competitive excellence.RTP is located between three major universities: Duke University in Durham, North Carolina State University in Raleigh, and the University of North Carolina at Chapel Hill.