1. Economic Principles Economic Principles http://www. youtube. com/watch

2. Unit 1 Vocab Economics Gross Domestic Product (GDP) Profit motive
Microeconomics
Voluntary exchange
Standard of living
Macroeconomics
Productivity
Laissez-faire economics
Economic model
Specialization
Economic system
Per capita GDP
Division of labor
Scarcity
Socialism
Economic interdependence
Trade-off
Communism
Opportunity cost
Market
Marginal cost
Product market
Cost-benefit analysis
Capitalism
Consumer sovereignty
Factors of production
Competition

3. Economic Models Economy
All activity that affects production, distribution & use of goods & services
Economists use economic models to study the economy
They study past and present to predict the future
Based on assumptions
Businesses & government make decisions based on models
Just like science they use examples.
What is wrong with this? Can’t predict the future.

4. Economic Principles
Economics: Study of how decisions are made when resources are limited.
Scarcity: Not enough income, time, and resources to satisfy every desire. Faces individuals, businesses, and countries.
Economics must answer the questions of what, how, and whom when dealing with production.

5. SCARCITY IS THE FUNDAMENTAL ECONOMIC PROBLEM
Because of Scarcity we must answer 3 questions in economics
What to Produce?
How to Produce?
Whom to produce for?
What to produce – examples public services or defense (guns or butter) Ex: North Korea more weapons than food
How to produce – what type of industry? Or pollution vs manufacturing, or oil vs wildlife
Whom to produce for? – how will the goods be distributed and at what cost? – Price determines who it goes to

6. Assessment Activity: Good Price Gum $ . 50 Soda $1.oo Movie Ticket
All economic questions and problems arise from scarcity. Economics assumes people do not have the resources do satisfy all of their wants. Therefore, we must make choices about how to allocate those resources. We make decisions about how to spend our money and use our time. This activity will focus on the central idea of economics- every choice involves a cost.
Let's say you have five dollars. What would you like to spend it on? There are a million things you would love to spend five bucks on, but let's imagine there are only three things out there you really want to buy: gum, soda, and movie tickets. Look at the price chart to the right and answer the questions.
Good
Price
Gum
$ . 50
Soda
$1.oo
Movie Ticket
$5.00

7. Questions: How many sodas can you buy instead of one movie ticket?
How many packs of gum can you buy instead of one soda?
If buy 4 packs of gum, how many sodas could you have bought?
For example, if you go to the movies you have to give up a certain amount of gum and soda. If you are a sodaholic, you have to give up five sodas. If you are gum fanatic, you surrender ten packs of gum. But, the opportunity cost of a movie is not five sodas and ten packs of gum. It is five sodas or ten packs of gum.

8. Which of the following best describes scarcity?
Not enough goods for everyone
Not enough resources to provide every desire
Lack of desire to produce enough resources
The amount that people want

9. What is the fundamental economic problem?
Money
Time
Scarcity
Economics

10. All of the following are questions we must ask because of scarcity except:
When to produce?
How to produce?
What to produce?
Whom to produce for?

11. Goods and Services Good: Anything manufactured.
Service: Something people do for others.

12. Needs and Wants Need: Basic item for survival.
Want: Anything including and beyond needs.

13. Factors of Production Capital Land and Natural Resources Labor
Entrepreneurship or management

14. Capital
Capital goods: All tools, buildings, and machinery businesses use to make goods and provide services. Same as Resources

15. Land and Natural Resources
All land used for the business.
Natural resources are things that come form the earth such as water and minerals.
All energy is considered a natural resource.

16. Labor Hired workers to help in production.
Labor earns money, which they use
to buy other goods and services.
Division of Labor: Separating a big job into smaller jobs. Each person is responsible for doing one job. (Assembly line).

17. Entrepreneurship
Entrepreneurs are people willing to take risks in business.
Plan and supervise production.
Decision makers.

18. With a neighbor, list the land, labor, capital, and entrepreneur that went into making each of the following (you can list more than one item for each…)
Your shoes
iPod
Dominos pepperoni pizza

19. Trade-off and Opportunity Cost
Scarcity forces people to make choices.
Trade-off: Decision that must be made when choosing between items.
Opportunity cost: Value of the next best alternative that was given up when a choice was made. Involves time or money.
When choosing to do something, you lose. You lose the ability(opportunity) to do something else.
____________________________________________
Production Possibilities: The combinations of goods and services that can be produced from a fixed amount of resources.

20. What was the opportunity cost of passing the Health Care Bill?
More people will have health care coverage.
Grandparents will be put to sleep because of Death Panels.
Obama will become the Devil and the Four Horseman will arrive.
The government will have less money to spend on other services like the military.

21. How do you make trade-offs with your time? What do you give up?
Consider time studying, time with friends, or time sleeping.

22. Business Costs Fixed Costs Variable Costs
Expense is the same no matter how much is produced
Example - Rent
Variable Costs
Expenses that change with number of items produced.
Fixed Costs + Variable Costs = Total Cost
Marginal Cost
extra cost of producing one additional unit of output
Marginal Benefit /Revenue
additional benefit after all costs are accounted for producing one more unit
Cost Benefit Analysis
economic model used to compare marginal costs & benefits of a decision – Which should be greater the benefits or the costs??
Cost Benefit analysis graph pg 508 – businesses use cost-benefit analysis to compare the marginal benefit to the marginal cost to make an economic decision.

23. Considerations for Businesses
Productivity -
Measure of the amount of output produced by a given amount of inputs in a specific period of time. In other words – How resources are being used efficiently to produce goods and services.
Specialization
Takes place when people, businesses, regions & countries concentrate on goods or services that they can produce better than anyone else
Examples – China and electronics
Human Capital
Sum of the skills, abilities & motivations of people
How would businesses and employee’s benefit from this?

24. Productivity
Goes up when more output can be produced when scarce resources are used efficiently
Requires labor and human capital
Increases when businesses invest in human capital
Increases with specialization

25. What is an example of a fixed cost of doing business?
Wages
Cost of fuel
Price of materials
Rent on a building

26. Economic systems

27. Gross Domestic Product (GDP)
Measure of an economy’s size & success (monetary measure - $16.72 trillion 2013 est. #1)
Total value of all the final goods & services produced in a country during a single year
Used cars not counted in GDP because second hand sales are not counted
Used to measure standard of living (quality of life based on the possession of necessities and luxuries that make life easier) in a country
Measures quantity not quality
What is standard of living? – quality of life based on the possession of necessities and luxuries
Show CIA factbook – rates for countries of their curiosity
U.S. – Trillion (2007 est.) growth rate 2.2%
Per capita - $45,800
Explain difference between GNP & GDP

28. Gross Domestic Product (GDP) cont.
Per Capita GDP – total GDP divided by the country’s population U.S. was $52, est. #14
Compared yearly to check growth of country
Higher GDP from previous year = growing economy
Lower GDP from previous year = shrinking economy

29. Economic Systems Three major types: Traditional Command Market
The distinguishing factors are the role of government in the economy and the decision making for production.

30. Traditional Economy
Economic decisions are made by customs handed down through generations.
Hunting, farming, and gathering.
No technology.
Activities center around the family.
Men and women have defined social roles.
Found in rural, non-industrialized areas. (Africa, S. America, Asia)

31. Traditional Economies

32. Command Economy
Government makes all economic decisions. (China, N. Korea, Vietnam, Cuba, and the former Soviet Union).
Advantages:
The Govt. can set prices of goods.
Set low prices for consumers and give help to factories.
Disadvantages
No competition.
Factories are poorly run and shortages are common.
No individual freedoms.

33. Command Economies – Former Soviet Union

34. Command Economies – North Korea
Slideshow
Video

35. Command Economies - Cuba

36. Market Economy
Decisions are made by the principles of supply and demand.
People buy, sell, and produce what ever they want. People can work where they want. Individual freedoms
Capitalism: Private citizens own most means of production – land, labor, capital & entrepreneurship – to make a profit.
Free Enterprise: Freedom of businesses to compete for profit without govt. interference.

37. 7 Characteristics of a Market Economy
Markets – exchanges here determine prices of goods & services. It’s the free and willing exchange of goods and services between buyers and sellers.
Consumer Sovereignty – the consumer is ‘king’ of the market
They are the ones who determine what products will be produced
It exists only in Market based economies
Economic freedom – freedom of choice with consequences
Example – an entrepreneur starts a business and it fails. The gov’t usually will not help out.
Private Property Rights – the freedom to own, use, or dispose of our own property as long as it doesn’t interfere with the rights of others.

38. Capitalism thrives on competition Rewards the most efficient producers
Competition – struggle between buyers and sellers to get the best products and the lowest prices.
Capitalism thrives on competition
Rewards the most efficient producers
Profit Motive – the driving force that encourages individuals and organizations to improve their material well-being.
Purpose is to raise the standard of living
It is the reason for growth in a market system
Voluntary Exchange – act of buyers and sellers freely and willingly engaging in market transactions
Both buyers & sellers must feel a benefit

39. Mixed Economy Any combination of Economic systems.
The United States is a mixed economy because capitalism and free enterprise exist with government regulations.
The U.S. govt. provides services such as highways, postal system, and transportation.
Some government regulation.
At certain times, govt. can take control of the means of production.

40. Activity
On the paper provided, NEATLY create a 4 square of the types of economies we just discussed – Command, Traditional, Market, and Mixed.
Be sure to include several characteristics, examples, and pictures. These will be hung up and people should be able to easily understand the differences in each of the economies.

41. Warm up
1. Economic system where the government makes all of the economic decisions?
2. Economic system that is a combination of command and market economies?
3. Total dollar value of all final goods and services produced in a country during a single year?
4. Consumers are ‘king’ of the market because they decide what produces will be produced?
5. Characteristic of a market economy that describes the struggle between buyers and sellers to get the best products and the lowest prices?
6. This is based on private ownership of the means of production and can decide how to use them to use them to make a profit?

42. Capitalism & Free Enterprise
The U.S. economy is built on a market economy, but government still plays a role
Free Enterprise – minimum gov’t interference
Capitalism – private citizens own and use factors of production (land, labor, capital, & entrepreneurship) to make a profit.

43. The Drawbacks of capitalism

44. The Drawbacks of capitalism

45. The Rise of Capitalism 2 concepts developed
People work for economic gain
Government should have a limited role
1200s C.E. trade routes opened between Europe & the East
Silk Roads, Marco Polo
Throughout hundreds of years trade increased
Development of ideas of wealth
Adam Smith
Scottish Economist
Wealth of Nations
Basic Principles of Economics
Individuals who seek profit benefit all of society
Laissez-Faire – to leave alone
The government should not interfere in the market
Government’s only role should be to ensure free competition

46. Adam Smith and The Wealth of Nations

47. Socialism
Socialism – belief that the means of production should be owned & controlled by society either directly or through the gov’t
Karl Marx
Wrote “The Communist Manifesto”
Socialist – believed industrialized nations divided into bourgeoisie (entrepreneurs) & proletariat (workers)
Predicted revolution of the proletariat
Believed socialism would develop into communism
Ask 1st what socialism is & communism is
By society owning production through government control socialists felt wealth would be distributed equally among citizens – workers are exploited

48. Communism
Communism – one class would evolve where property would be commonly held & there would be no need for government
Built on the idea of socialism

49. Transitioning Economies
Former Soviet Union & the Soviet Bloc
Inefficiency of command economies led to no or very small growth
Transition of this type of economy led to transition from Communism to Democracies
Why would a transition be hard?
Transitions are hard b/c state owned factories have to be converted to private ownership, stock markets had to be created & people had to learn how to let supply & demand work
Slow growth – pg 718 look at map to see command economies per capita gdp
Explain China & how they are doing something before never seen in Communist countries – are they transitioning?
Will come back to this when we hit internationalism & globalization

50. NAFTA
North America Free Trade Agreement (NAFTA) – agreement between Canada, Mexico, and the USA where tariffs were almost completely eliminated (“free trade”)
Began on Jan. 1, 1994