1. Chapter 2

2. Quiz Monday Review Key Terms on p25 Decision Making Model
Know laws and fallacies
Be able to graph a production possibility curve, diminishing returns and increasing returns to scale

3. Widget Game Profit = Revenue – Cost Profit = Q x P – Cost
Price = $100 – Q
Cost = Q x $2
Q= ??????

4. Get your WIDGET ON!!
First things first….what the heck is a widget?

5. Widget – a small mechanical device

6. Goal of the Widget Game
You want to make the most profit you can and beat your fellow competing teams.

7. Rules There are 6 Rounds Each round is 3 minutes long
No calculators or phones with calculators
You cannot discuss business tactics with other teams (until the 4th round and only the 4th round)
You must report and show your numbers to the teacher at the end of every round
You may not use scrap paper to test different combinations
You may not erase, cross out or change your numbers. Any changes will result in 0 profit for that round
Any cheating and your team will be disqualified

8. Homework Answer the questions from the exercise
Study for quiz on Monday
Notes are on wikisite
lredmond.wikispaces.com

9. Answers from Questions from the Widget Game
At what level of production is sales revenue highest for this industry?
At what level of production is profit highest?
How and when did your firm calculate its profit potential
How close did you come to realizing your fair share of this competitive market?

10. What prevented you from maximizing your profits
What prevented you from maximizing your profits? Which decisions most adversely affected your profits during this game? What adjustments would you make next time?

11. Not understanding market conditions represented by the formula $100-Q
Incorrectly anticipating the moves of rival teams
Overreacting to previous round results
Competition reduces profit levels

12. Who benefited most from your collective decision as an industry?

13. Consumers benefited most when market prices were low and quantities available were high

14. Who would have benefited most if you had conspired to fix production levels? Why would the government not tolerate this kind of activity?

15. Capitalism: A Love Story
The film focuses heavily on a moral condemnation of capitalism. Do you agree with that approach?
Corporations repeatedly claim that cutting jobs will allow them to save money and stay in business. Why does this not seem to work much in the examples detailed in the film?

16. What did you find most troubling when watching the film?
Of the four political models; captialism, communism, socialism and fascism, which do you think is best for western society? Why?

17. Factors of Production
Productive resources: Anything that can be used to create or manufacture goods or services
Land
Labour
Capital

18. Land Physical Space Fertile Soil Raw Materials Mineral Deposits
Ground Water
Fossil Fuels
Forests

19. Labour Human contribution to production process
Physical Labour (TANGIBLE)
Mental Effort (INTANGIBLE)
Entrepreneurship: Organise, Assume Risk, Achieve Results, Innovation
Knowledge: Science, use and creation of technology
Environmental: Political stability, social values

20. Capital Goods that aid in the production of other goods
Real Capital: Factories, Machines, equipment
Money Capital: Funds to acquire Real Capital and other factors of production
Example: Wages to acquire labour

21. Economics
Economics is the social science that studies the production, distribution, and consumption of goods and services
Answers the questions:
What gets made?
Who gets to have it?
How do they get it ?
Economist: A person who studies economics 21

22. Economic Systems
An Economic System is the way government and business work together to provide goods and services to consumers
Government: Public Sector
Business: Private Sector

23. Economic Systems HOW WHAT TO PRODUCE ???? FOR WHOM
Answers the questions
HOW
WHAT
TO PRODUCE
????
FOR WHOM

24. There are 3 economic systems
1) Traditional Economy
2) Command Economy
3) Market Economy

25. Traditional Economy System
Goods and services produced today are the same as those produced in the past, and in are produced the same fashion
Common in underdeveloped countries
Practices of the past determine what, how and for whom we produce.

26. Traditional Economy What to produce: Same products as in the past
Same quantity – subsistence
For whom to produce:
Own use
Family
Tribe
How to produce:
Traditional Methods
Skills passed from parent to child
Bedouin of Sahara Desert

27. Traditional Economy Strengths Little environmental damage
Consumption and waste are minimized
Focus on self reliance
Control price and quantity
FREEDOM!!
Weaknesses
No social improvement
Limited planning
Limited choice of products
Individualism Discouraged

28. Examples of Traditional Economic Systems
The Bedouin of the Sahara Desert
The Bushmen of the Kalahari Desert
The Mongols of the Gobi Desert

29. Command Economy
All production decisions are made by a small group of political leaders who have the power to enforce their decisions throughout the entire economy.
Supply and price are controlled by the governement
What, how and for whom to produce are all answered by the central authority

30. Command Economy What to produce:
Decided by state through central a planning authority
Capital Goods
For whom to produce:
Decided by state through a central planning authority
How to produce:
Decided by state through central a planning authority
North Korea
Cuba

31. Command Economy Strengths
Planning Promotes Growth (Capital Goods vs Consumer Goods)
Reduces waste
Equitable distribution of wealth
Economic Stability
Needs are provided for
Weakness
Bureaucratic and inflexible
Limits individual choice
Personal
Consumer goods
Quotas foster quantity over quality
Little incentive
To strive socially
To innovate

32. Command Economy
Motivation in a command economy

33. Pure Market Economy
Economic activity is coordinated by many individuals who make independent decisions in a free market
Supply and demand determine prices
The actions of individual buyers and sellers in the marketplace answer what, how and for whom goods and services will be produced.

34. Pure Market System Also called Free market, Free Enterprise, Capitalist system
What to produce:
What will sell at the most favourable price - Market
For whom to produce:
Consumers WILLING and ABLE
How to produce:
As efficiently as possible to keep costs/price low

35. Pure Market System Also called Free market, Free Enterprise, Capitalist system
Strengths
Freedom of choice
Variety of goods
Competition = quality, innovation, better prices
Profit motivates
Flexibility
Weakness
Poor distribution of wealth
Boom and Bust cycles (hurt)
Large producers can manipulate prices
Waste and over consumption

36. Modern Mixed Economy Business and government answer questions
Business and Government each are responsible for production and distribution of different goods and services
Public Sector: Parts of the economy run by the government
Private Sector: Parts of the economy run by business

37. Modern Mixed Economy What would they produce
Public Sector:
Law enforcement
Health Care
Public swimming pools
Garbage Collections
Education
Public Transit
Post
National Defence
Private Sector:
Food
Water
Clothing
Phones
Hot tubs
Computers
Cars
Etc

38. Modern Mixed Economy Almost all countries are mixed economies.
They exist on a spectrum
The roll of government and business change over time

39. Understanding Political Economies
Economics works within a governmental framework
Some examples of how government has affected the economy
Ex New government rules regarding housing and mortgages
Ex Trade agreements - NAFTA
GOVERNMENTS SET THE RULES OF THE GAME

40. How would tax cuts affect our economy?

41. Tax Cuts  Good Saving High enough
Lower taxes will allow people to spend more
 Bad
Fewer public services
Lower quality public services
Increase government debt

42. Political Orientation
Democracy
Moderate Left
Socialism
Capitalism
Moderate Right
Command
Economy
Market
Economy
Communism
Fascism
Dictatorship
Extreme Left
Extreme Right

43. Political Economies Democracy: Dictatorship Freely elected government
Represents majority of citizens
Limited term in control
Open to other political views
Checks and balances can make system inefficient
Dictatorship
Single person or group absolute control
No way for citizens to change their leadership
Not hindered by checks and balances

44. Find an Example Communism: Cuba, North Korea
Socialism: Sweden, Norway, Denmark
Capitalism: US
Fascism: Nazi Germany, Argentina ( s)

45. Communism Command economy + Dictatorship
Based on the theories of Karl Marx, Friedrich Engels and Vladimir Lenin
Under Communism
Private Property & Free enterprise are abolished
Strong central government
Examples: Cuba, North Korea

46. Socialism Command Economy + Democracy
Based on public ownership or control
Allows democratic and peaceful methods
Claims that free enterprise is inefficient and wasteful
Labour movement – co-operation and worker solidarity
Equitable distribution of goods
Examples: Scandinavian Countries (Free enterprise socialism)

47. Socialism = Happiness?? Top 10 Happiest Countries In Norway…
Norway, Denmark, Finland, Sweden, Switzerland and Netherlands
In Norway…
Free universal health care
Free post-secondary education
1 year paid maternity leave/4 week mat leave
16 days paid sick leave
Unemployment rate ~2%
Poverty rate 1.7%

48. So Why Doesn’t Every Country Adopt a Socialist Political Economic Model?

49. High cost
Less entrepreneurships
Big governement
Communism???

50. Capitalism Market Economy + Democracy
Based on the theories of Adam Smith
Focuses on the accumulation of capital resources as a means to greater wealth
Private ownership is key
Producers are driven by Profit
Examples: Canada, US

51. Fascism Market Economy + Dictatorship
Based on the theories of free market economy with a non democratic with authoritarian form of government
Do not tolerate political opposition
Ex Nazi Germany, Chile under Pinochet

52. Homework
Come up with 2 pros and cons for each political model (capitalism, fascism, socialism and communism)
Fill in the political economic model

53. Capitalism Pros Cons It’s all about the za benjamins
Promotes economic growth
Econcomic freedom
Decentralized=more competion=better prices
People who work hard are rewarded…sometimes
Cons
It’s all about the za benjamins
Wasteful=Depletion of resources
Wealth inequality
Booms and busts

54. Socialism Pros Cons EQUALITY no man/woman left behind Higher cost
Medical
Social
Economic
Political
no man/woman left behind
Cons
Higher cost
Less entrepreneurship
Government has more power
Free ride
Little incentive to be all that you can be

55. Communism Pros Cons Efficiently distribute resources
Focus is on cooperation of resources
Incentive to participate
Cons
Difficult to maintain a common goal
Block out external culture and competition=weakening of their economic system

56. Fascism Pros Cons Strong military Unity Laws can be passed quickly
Opportunities for private business and property
Cons
Corrupt
Controlling
Promotes war and violence