ECONOMICSBusiness Management

ECONOMICS IN PERSPECTIVE

OBJECTIVE

We will identify basic micro- and macro-economic concepts in order to understand disposable and discretionary income.

ESSENTIAL QUESTIONS•What is economics?

•What is the driving force of the economy?

• Explain the difference between disposable and discretionary income.

ECONOMICS & THE DECISION-MAKING

PROCESS

WHAT IS ECONOMICS?

oStudy of producing, distributing, and consuming goods and services

oInvolves decisions regarding the use of resources

oEveryone has to make decisions about how to use resources!

Individuals – consumers

Businesses – producers

Societies – government

THE ECONOMY’S DRIVING FORCE

WantsoThings you would like to haveoNon-essential; adds to the quality of lifeoAlso referred to as a luxury

NeedsoThings necessary for basic livingoEssential to human life; required for survivaloIncludes basic food, water, shelter, and clothing

RESOURCES ARE LIMITED

oResources limit the number of wants & needs that a person can satisfy.oMost consumers in the U.S. can satisfy their basic needs.oMost people have unlimited wants… we have to make choices!

Basic Needs+

Unlimited Wants

Economic Resources

DISPOSABLE VS. DISCRETIONARY

Disposable Income

oAmount of an individual’s income that is left after deducting taxes

oGross Income – Taxes = Disposable

Discretionary Income

oAmount of an individual’s income that is left for spending, investing or saving after taxes and personal necessities (food, shelter, clothing) are paid

o Includes money spent on luxury items, vacations, and all other non-essential goods and services

WHAT’S YOUR INCOME?

Jacks – Kings

$100,000

8 – 10 $75,000

5 – 7 $60,000

Ace – 4 $48,000

(1) MONTHLY INCOME

Divide your annual salary by 12 to determine your monthly salary.

(2) UNCLE SAM!

oMultiply your monthly salary by 0.75oWe are assuming that you pay 25% in taxes and other payroll deductions, which means you take home 75% of your monthly salary.oThis amount is your disposable income.

WANTS VS. NEEDS

Prioritize the following purchases & expenditures:

Going Out to Eat $50.00 / week = $200.00 per month

Entertainment $20.00 / week = $80.00 per month

Clothes Shopping $150.00 per monthNew Laptop $700.00Savings = 10% of disposable incomeDoctor Visit & Antibiotics $50.00Tithe / Charity = 10% of disposable

incomeCredit Card Payment $100.00

(3) BASIC NEEDS

Rent for 1-bedroom Apartment $1300

Utilities $250Car & Insurance $325

Student Loans $500

Groceries $50 / week = $200.00

Gas $40 / week = $120.00

This is your discretionary income!

HAS ANYTHING CHANGED?

Prioritize the following purchases & expenditures:Going Out to Eat $50.00 / week = $200.00

per monthEntertainment $20.00 / week = $80.00 per

monthClothes Shopping $150.00 per monthNew Laptop $700.00Savings = 10% of disposable incomeDoctor Visit & Antibiotics $50.00Tithe / Charity = 10% of disposable incomeCredit Card Payment $100.00

CLOSING TASK #1

1) Economics involves decisions regarding _______________.

2) _______ and _______ are the driving force of the economy.

3) Most people have _______________ _______________ but limited resources, which means we have to make choices!

4) Individuals (consumers) are limited by the amount of _______________ income available after taxes and personal necessities are paid.

ECONOMICS – SUPPLY & DEMAND

ObjectiveWe will identify basic micro- and macro-economic concepts in order to understand the role of supply and demand in the economy.

Essential Questions• What is the driving force

of the economy?

• What is supply? What is demand?

• Explain the laws of supply and demand.

• Describe the impact of a shortage and a surplus on the economy.

SUPPLY & DEMAND

THE ECONOMY’S DRIVING FORCE

oWants & needs are the driving force of the economy.oWants & needs determine the supply & demand of goods and services!

DEFINITIONS

Supply

the quantity of goods that producers (businesses) are willing to SELL at a particular price

Demand

the quantity of goods that consumers are willing to BUY at a particular price

LAW OF SUPPLY

o As price increases, the quantity businesses are willing and able to produce will also increase.

o Supply = Same direction

P3

P2

P1

Q1

Q2

Q3

LAW OF DEMAND

o As price increases, the quantity that consumers are willing and able to pay will decrease.

o Demand = Different direction

P3

P2

P1

Q1

Q2

Q3

GRAPHING

oEquilibrium – the point at which supply meets demand; point of maximum profit

oShortage – when demand is greater than supply

oSurplus – when supply is greater than demand

D

P3

P2

P1

Q1

Q2

Q3

S

CONSIDER THE COOKIES…

PRICE SUPPLY DEMAND

$0.25 12 55

$0.50 24 45

$1.00 36 30

$1.50 48 15

$2.00 60 5

GRAPH THE COOKIES!

EFFECTS ON ECONOMY

Seller!oIf there is a shortage, this means there is less supply from businesses than there is demand from consumers.

oWho has more bargaining power – the buyer or the seller?

Buyer!oIf there is a surplus,

this means that there is more supply from producers than there is demand from consumers.

oWho has more bargaining power – the buyer or the seller?

GRAPHING SUPPLY & DEMAND

Worksheet

CLOSING TASK #21) __________: the quantity that a business is willing

and able to produce at a given price

2) __________: the quantity that a consumer is willing and able to purchase at a given price

3) The law of supply states that as price goes up, quantity will _______.

4) The law of demand states that as price goes up, quantity will _______.

5) A shortage creates a __________ market.

6) A surplus creates a __________ market.