Unit 1: Language and Systems of Economics

Language of Economics… Economics: the study of choice in a world of scarcity Scarcity: limited resources for unlimited desires Resources: anything used to make something else Land: natural resources (oil, land, water, cattle, etc.) Labor: people Capital: human-made objects used to make others Physical Capital: factories, tools, money Human Capital: knowledge or skills a person has

Language Cont. Goods: physical objects Services: actions or activities Need: something you must have to survive Want: not needed for survival

Opportunity Cost Warm-Up (8/15) Write a ½ to full page response on the following prompt: Describe one of the biggest decisions you have had to make or think you will be making in the future. What were (are) the specific choices involved and why did you choose what you did. Are you happy with the results?

Opportunity Cost and PPF The next best alternative given up as the result of a decision Caused because limited resources Example: Playing sports or spending time with friends The opportunity cost of playing sports is spending time with friends Are you willing to give up friend and family time for the sport you love?

Production Possibility Frontier (PPF) PPF: visual way to represent opportunity cost and trade-offs Example: Soybeans v. Corn At point A, if I produce 30,000 bushels of soybeans, I can only make 10,000 bushels of corn.

Efficiency, Underutilization, and Growth Efficiency: producing maximum number of goods with resources available Any point on the line Underutilization: producing less goods that possible with resources available Any point inside the line Causes: decrease in resources (factory breaks down, labor strike, rising cost of goods, draught) Growth: increase in max production at all points Shifts line to right Cause: increased land, labor, or new technology

Economic Systems Economic System: way to choose, produce, and distribute resources 3 Major Questions: 1. Who decides what goods and services to be produced? People? Government? 2. Who makes those goods and gets the profits? 3. How are those goods distributed? Money? Rationing/Price Controls

Capitalism Characteristics… 1. People decide what goods to produce by their desires Top Seller: Popsockets 2. Private Ownership of Business Entrepreneurs make products to meet demand and earn profit 20 Billion Dollar Industry Goods distributed by money Those who can afford it, buy it $10 Laisses-faire “hand’s off” Government does not interfere with prices/products/production

Capitalism Cont. Market Based Pricing Products: more scarcity/demand=high price Hemophilia Medicine: $1000/pill Labor: more scarcity/demand=more pay Fast Food Worker: $16,000/year Cardiologist: $350,000/year

Progressive Movement Cont. Tried to improve working condition and living condition of workers Caused by IR Example: Karl Marx and Communism Goal: Increase workers salary Method: Armed Revolution (War) Proletariat: working class Bougousasi: Rich owning class

Progressivism Continued Steps: 1. Workers overthrow government 2. Government takes factories from Bougous class 3. Money is divided equally to workers Result: Russia becomes communist in 1910s

Communism Founder: Karl Marx (1818-1883) Wrote Communist Manifesto Time Period: Industrial Revolution Great wealth for some, poverty for most Terrible working conditions Solution: Armed Revolt 1. Workers (proletariat) overthrow government 2. Government takes factories from Bougous class (factory owners) 3. Money is divided equally to workers

Characteristics of Communism 1. Centrally Planning Gov. decides what to produce and how many to make 2. Government Owned All Businesses Profits are redistributed to people 3. Price Control Gov. sets price low to avoid price gouging 4. Welfare Programs: Gov aid and housing given to poor Authoritarian Control One person makes all economic decisions

Market Failures and Socialism Market Failure: a necessity that private businesses will not provide Public Good: something that is… Too expensive for one person to pay for You cannot exclude non-payers Example: Military Protection Too expensive for one person Army protects all, regardless of pay Other Examples: Space Program, Fire Department, Police Department, Roads

Socialism Characteristics Government Ownership and Regulation of Key Industries Healthcare, Education, Power, Water Labor laws etc. Wealth Redistribution Tax Rich, give to poor Welfare Program Gov. aid to poor Demand Based Pricing

Socialism Example: Sweden Government Stats Income Tax: Flat 57% Sales Tax: 20% 28% GDP on Welfare Government Services: Complimentary Healthcare Complimentary College Minimum Wage: $20/hour Average Salary: $4000/month Cost of Living: Big Mac Meal: $8.35 Rent: $1000/month Gas: $5.50/gallon