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Explorations in Economics

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Presentation on theme: "Explorations in Economics"— Presentation transcript:

1 Explorations in Economics
Alan B. Krueger & David A. Anderson

2 Chapter 2: Comparing Economic Systems
Module 4: Using Resources to Achieve Economic Goals Module 5: Types of Economic Systems Module 6: The Modern Market Economy

3 MODULE 4: Using Resources to Achieve Economic Goals
KEY IDEA: Every society must determine how to use its resources to achieve its economic goals. OBJECTIVES: To explain the three basic economic questions. To identify five economic goals that societies pursue. To describe tradeoffs made among the five goals. Reminder that resources are scarce. Use an example of a tradeoff : to sleep in or come to class on time; buy a big hamburger or slice of pizza; choose college or work after high school.

4 THE THREE BASIC ECONOMIC QUESTIONS
1. What should be produced? 2. How should it be produced? 3. For whom should it be produced? Demand and supply drive what SHOULD be produced in the US but not everywhere. The method depends on the PROFIT motive…what are the costs of production? WHO is the market that will demand and supply the good ? How will the exchange be made? How will payment be received?

5 Are your favorite goods produced?
Is your favorite food sold? Is your least favorite food sold? If your favorite food is easier to find then your least favorite world, resources are being allocated well to serve your dietary needs. 4/15/2017 Chapter 2: Modules 4,5 & 6

6 How should we produce a guitar?
A guitar can be made by workers A guitar can be made alone Small number of jigsaws Industrial robots Materials- lots of decisions need to be placed 4/15/2017 Chapter 2: Modules 4,5 & 6

7 For whom should it be produced?
One must think about their target audience Demographics SES Age Potential changes in that field 4/15/2017 Chapter 2: Modules 4,5 & 6

8 SOCIETY’S ECONOMIC GOALS
The standard of living is a measure of comfort in terms of the goods and services available. Economic Goals: Economic Growth- correlated to standard of living Efficiency- example of meat in India Equity- sense of fairness Economic Security- the confidence and ability to support themselves and their families; leads to a social safety net- gives assistance to those in needs Economic Freedom- people the ability to make economic decisions for themselves Quality of life Sustainability Explain how economic growth is measured—GDP; Describe Efficiency-productive and allocative; Discuss Equity-opportunity and income distribution; Discuss Security=stability both privately and publicly; Describe Freedom-choices for both careers and as a consumer.

9 TRADEOFFS AMONG GOALS Tradeoffs force societies to prioritize among economic goals. When the gains from change exceed the losses, it is possible to achieve an improved standard of living without neglecting the goals of equity and economic security. Discussion questions What is your definition of a “good” or adequate standard of living? Does the definition change with age and life circumstance? How does scarcity and the need to make tradeoffs affect your answer? How does that compare to other nations?

10 MODULE 4 REVIEW What is… A. Standard of living? B. Equity?
C. Efficiency? D. Economic security? E. Social safety net? F. Economic freedom? G. Allocated? H. Equality of outcome? I. Equality of opportunity? J. Economic growth? Use the online resources to review key terms Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

11 MODULE 5: Types of Economic Systems
KEY IDEA: A country’s economic system determines how well it can achieve each economic goal. OBJECTIVES: To explain what an economic system is and how incentives play a role. To describe the features of a traditional economy, a command economy, a market economy, and a mixed economy. Recall the set of economic goals: Economic Growth, Efficiency, Economic Security, Economic Freedom Discussion: What is an economic system? What type of system do you think we have here?

12 ECONOMIC SYSTEMS AND INCENTIVES
An economic system is an organizational structure for addressing what, how, and for whom to produce. An incentive is the prospect of a reward or punishment that influences a decision or motivates greater effort. Discussion: What incentives do you have to be a good student to get an education that helps you land a good job?

13 TRADITIONAL ECONOMIES
In a traditional economy, decisions about resources are made by habit, custom, superstition, or religious tradition. Discussion: Can you provide examples of any traditional economies? Amish, Inuit Indians in Alaska, others?

14 COMMAND ECONOMIES In a command economy, central planners make the important decisions about what, how, and for whom to produce. Communism is a political- economic system under which all resources and businesses are publicly owned and economic decisions are made by central authorities. Socialism is an economic system under which most resources and businesses are publicly owned and economic decisions are made by groups of workers and consumers. Discussion: What are some of the pros and cons of a command economy? government powers vs individual choice, government inefficiency and inequality, keeping the status quo.

15 MARKET ECONOMIES In a market economy, most key economic decisions are made by business owners and consumers. In a capitalist system, most resources and businesses are privately owned. A free- enterprise system is an economic system based on private(individual or business) ownership of resources and voluntary exchange. Discussion: What are some of the pros and cons of a market or capitalist economy? Ability to pay when choosing goods or services depend on income. Lack of some government protections may harm society. Many more goods and services provided.

16 MIXED ECONOMIES A mixed economy combines a market economy with significant government involvement and elements of tradition. Governments in market economies have expanded their roles in the pursuit of equity, economic security, and sustainability. Have students research the list of economically free nations in the world from both the Frazer Institute and the Heritage Foundation.

17 ECONOMIC SYSTEMS Discussion: Which system seems the most efficient? Why?

18 MODULE 5 REVIEW What is… A. Economic system? B. Traditional economy?
C. Incentive? D. Command economy? E. Communism? F. Socialism? G. Rationing? H. Market economy? I. Capitalist system? J. Free- enterprise system? K. Mixed economy? Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.

19 MODULE 6: The Modern Market Economy
KEY IDEA: In modern market economies, government participation can support market exchanges and improve economic performance. OBJECTIVES: To explain the relationship among households, firms, and markets in a market economy. To explain the government’s role in a market economy. To describe how the government fits into the circular flow model of the economy. To describe the tradeoffs different countries make in designing social safety nets. Have the class brainstorm their families involvement in the economy as both workers and consumers. Then have students think of how firms both demand labor and supply goods and services. This is the circular flow model.

20 HOUSEHOLDS, FIRMS, AND MARKETS
A household consists of an individual or a group of people who live together and share income, such as you and your family. 1. Households purchase goods and services from businesses. 2. Households provide land, labor, capital, and entrepreneurship (resources) from which goods and services are produced. This is a good place to mention that households DEMAND goods and services and SUPPLY land, labor and capital.

21 HOUSEHOLDS, FIRMS, AND MARKETS
A firm is a privately owned organization that produces goods or services and sells them to others. This is a good place to mention that firms DEMAND land, labor and capital and SUPPLY goods and services.

22 THE SIMPLE CIRCULAR FLOW
Have the students identify the difference between the clockwise flow of money and the counter-clockwise flow of goods.

23 THE SIMPLE CIRCULAR FLOW
Product markets are where goods and services are exchanged for money. Again focus on the counter clockwise and clockwise flow. Be sure to address the product market function of goods and services exchanged for money payments to firms. The Factor market is where the resources of land, labor, capital and entrepreneurship are exchanged for money payment to households. Factor markets are where resources are exchanged for money.

24 GOVERNMENT’S ROLE IN A MARKET ECONOMY
1. A government can establish and enforce rules that improve market performance. 2. A government can provide important goods and services that private individuals tend not to purchase. 3. A government can help improve economic security, equity, and sustainability. Recall for students that the term “government” could mean federal, state or local governments. Discussion: What are some goods and services that the government provides? Try to encourage goods and services from each of of the categories on the slide Why does government provide these goods and services? Why are they not provided by private sector firms?

25 GOVERNMENT IN THE CIRCULAR FLOW
A public good is a good or service that can be consumed by many people at once and that other people can’t be prevented from using. Focus on the flow of money to the government. Ask the students what taxes they pay and which government agency collects and spends the revenue. Transfer payments are expenditures for which the government receives no good, service, or resource in return.

26 Government in the Circular Flow
Discuss with the students their view of the role of government within the economy. Make sure to point out the clockwise and counter-clockwise flow in the model

27 INTERNATIONAL PERSPECTIVES
Countries have to decide if they want a strong safety net or a weak one. More public goods and transfer payments tend to increase the tax rate. Discussion: Recall the examples from the text, p. 70. Discuss how Sweden, Denmark and China are examples of a different type of market economy than the US. Ask the students what social safety programs they are aware of. Are they worthwhile? What makes a government program valuable?

28 Module 6 Review What is… A. Household? B. Firm?
C. Circular flow diagram? D. Product market? E. Factor market? F. Factor payment? G. Property right? H. Public good? I. Transfer payment? J. Regulation? This is a good place to use the online quiz and other materials online. Have the students add these terms to their notebook. Assign each student or each group of students to research the term, write the definition, and create two examples then share with the class.


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