2 What is Economics?The study of choice under the conditions of scarcity.Microeconomics-study of the behavior and decision making by small units such as individuals and businesses.Macroeconomics-study of the behavior and decision making of large units such as governments.
4 Scarcity~ The concept that there are limited resources for Scarcity and ShortageScarcity~ The concept that there are limited resources forunlimited wantsShortage~ A condition that occurs when producers will not or cannot offer goods and services at the current price.What is the difference between scarcity and shortage?
5 FOP ACTIVITY In small groups you will complete the following: PART I Terms and ConceptsDefinition of the term factors of productionList and define the “four” factors of productionPART IIScavenger HuntTake four index cards. Label them with each of the FOPWalk around and find examples of each in the creation of “education”.
6 Chapter 1, Section 2: “Choosing is Refusing” Trade-offs- All the alternatives that we give up whenever we choose one course of action over another.IndividualsBusinessesGovernmentsOpportunity Cost- The most desirable alternative given up as the result of a decision. The next best thing!!Thinking at the Margin- Deciding whether to do or use one additional unit of some resource.Discussion Topic: “There is no such thing as a free lunch.”
8 Our Role in Funding the Government We authorize the government, through the Constitution and elected officials, to raise money through taxes.Must originate in the House (Ways and Means)House-Senate-PresidentTaxation is the primary way that the government collects money.Without revenue, or income from taxes, government would not be able to provide goods and services.
9 Power and Limits of Taxation The Power to TaxArticle 1, Section 8, Clause 1 of the Constitution grants Congress the power to tax.The Sixteenth Amendment (introduced 1909, ratified 1913) gives Congress the power to levy an income tax.Great DepressionSocial Security Act (1935) and the Internal Revenue Service (IRS)Administrative agency of the Dept. of TreasuryHeadquarters in DC, 7 regional officesMain functions are to collect income taxes and enforce tax lawsWWIILimits on the Power to Tax1. The purpose of the tax must be for “the common defense and general welfare.”2. Federal taxes must be the same in every state.3. The government may not tax exports.
10 Tax Activity Person A (Low-Income)- $15,000 Person B (Middle-Income)- $75,000Person C (High-Income)- $225,000
11 Types of Taxes Social Security Taxes Medicare Taxes Unemployment Taxes This program is funded by the Federal Insurance Contributions Act (FICA). Most of the FICA taxes you pay go to Social Security, or Old-Age, Survivors, and Disability Insurance (OASDI)Medicare TaxesMedicare is a national health insurance program that helps pay for health care for people over 65 and for people with certain disabilities. Medicare is also funded by FICA taxes.Unemployment TaxesUnemployment taxes are collected by both federal and state governments. Workers can collect “unemployment compensation” if they are laid off through no fault of their own and if they are actively looking for work.Other TaxesFederal Income TaxesExcise TaxesEstate TaxesGift TaxesImport Taxes
12 Tax Structures Proportional Taxes Progressive Taxes Regressive Taxes A proportional tax is a tax for which the percentage of income paid in taxes remains the same for all income levels.Progressive TaxesA progressive tax is a tax for which the percent of income paid in taxes increases as income increases.Regressive TaxesA regressive tax is a tax for which the percentage of income paid in taxes decreases as income increases.
13 What is a “good” tax? Simplicity Economy Certainty Equity Tax laws should be simple and easily understood.EconomyGovernment administrators should be able to collect taxes without spending too much time or money.CertaintyIt should be clear to the taxpayer when the tax is due, how much is due, and how it should be paid.EquityThe tax system should be fair, so that no one bears too much or too little of the tax burden.
15 The Politics of Tax and Spend Hannityon the BudgetFederal Spending:“Guns or Butter”Zinn on US MilitarismFY 2010 IntroducedObama Defends BudgetRon Paul on Government Spending
16 Spending Categories Discretionary Spending Money that government planners can choose howto spend.DefenseEducationTrainingEnvironmental cleanupNational parks and monumentsScientific researchMandatory SpendingMoney that lawmakers are required by law to spendInterest payments on the national debt“Entitlement” programs (Social Security, Medicare and Medicaid)Makes up almost 2/3 of federal budgetProblem because Congress and the President cannot control much of spending.
18 The Appropriations Process HouseSenateAppropriation Subcommittee Reports a BillSent to PresidentAppropriation Subcommittee Reports a BillFull Committee ApprovesFull Committee ApprovesSent to the FloorConference Committee Meets to Resolve DifferencesSent to the Floor
21 Guns or Butter? Analyze the federal spending pie chart on page 371. Consider the difference between mandatory and discretionary spending as described on pagesCreate your own federal spending pie chart based on your priorities. You may not “leave it the same”…think critically about what you think is the best way to spend our tax dollars!Explain the rationale for your spending choices.Present your poster and defend your choices.
23 What can we learn from looking at a Production Possibilities Graph/Frontier? Trade-Offs/Cost- Alternative given up as a result of a decision. Every point on the PPF indicates a cost in on item or another.Efficiency- Making the best possible use of resources (any point on the PPF)Underutilization/Inefficiency- Misuse or waste of resources (any point inside the PPF)Growth- Expanding an economy’s ability to produce (shift of the entire curve to the right or any point to the right of the PPF)~New Technology/ Innovation~Increase in Resources