Intro to Economics Civics & Economics M. Teal. Do Now What is the difference between a want and a...

Intro to Economics

Civics & EconomicsM. Teal

Do Now

• What is the difference between a want and a need?

Barter Simulation

• Each of you has been given a sheet of paper. On this sheet of paper, you are given a particular good that you have. Example: “You have 4 bails of hay”. The sheet of paper also states a good that you want. Example: “You want 5 pigs”

• The goal of the simulation is for you to trade with your classmates so that your “want” is the same thing as your “have”

• In order to trade, you should tear your sheet of paper at the dashed line. You may trade away your “have”, but you must keep your original “want”

• When your new “have” matches your original “want”, return to you seat.

• Barter is a type of trade in which goods or services are directly exchanged for other goods and/or services, without the use of money.

BarterBenefits Drawbacks

barter economy money economy

• Money is anything that is generally accepted as payment for goods and services and repayment of debts.

• vote on the characteristics of money that you think are most necessary– Durability– Portability– Acceptability– Divisibility– Stability in value

“The Story of Money”

https://docs.google.com/a/cms.k12.nc.us/file/d/0B6tgXhprC8x2a1pmSExuNUt2QWs/edit



“The Story of Money”• 1. Commodity money- money whose value comes from a

natural resource or good out of which it is made. Examples of commodities that have been used as mediums of exchange include gold, silver, copper, salt, peppercorns, large stones, decorated belts, shells, alcohol, cigarettes, cannabis, and candy.

• 2. Representative money- money that consists of token coins, other physical symbols such as certificates that can be reliably exchanged for a fixed quantity of a commodity such as gold, water, oil, food, etc.

• 3. Currency- coins and paper money• 4. Fiat money- money used as the circulating medium of

exchange that is not backed by or directly convertible into any specific physical commodity, but rather has value because the society that created the system that has assigned it value

“The Story of Money”

• 5. Legal tender- money that by law cannot be refused as a medium of exchange

• 6. Checkbook money/demand deposits- An account from which deposited funds can be withdrawn at any time without any notice to the bank that is holding it.

• 7. Savings deposits- accounts maintained by banks that pay interest but cannot be used directly as money. Customers must transfer the money to a demand deposit or into cash to use this money as a medium of exchange.

• 8. Timed deposit- a money deposit at a banking institution that cannot be withdrawn for a certain period of time.

• Our high school has decided to issue its own money and you have been asked to design the currency and create a table of the value of the currency in relation to certain commonly used school supplies.

• The money should:– Be colorful with multiple illustrations that relate to high

school life and their school in particular– Meet the major characteristics of effective money

discussed during class– Have at least three difference denominations (divisible

units)

Do Now

Make a list of resources used in the production of this car.

• The factors of production are the resources used to produce.– Capital Goods - a man-made factor of production used by

labor in making other products. Includes tools, factories, machines, etc.

– Labor - any form of human effort exerted in production. Also called human resources.

– Natural resources - productive resources that are provided by nature - such as land, air, water, forests, coal, iron ore, oil, and minerals.

– Entrepreneurship - the individual responsible for combining and organizing natural resources, capital goods, and labor to produce a good or service. Role could involve assuming the risks of business failure and/or providing the creativity and managerial skills necessary for production to take place.

Factors Of Production Poster

Entrepreneurs Consideration

1. Scarcity- Nearly all resources are scare, meaning there is a limited supply available to meet unlimited wants. In a free and open market, the more scare a resource is, the more expensive it is.

• This is an inverse economic relationship. When a fruit is out of season, supply is more scarce. This causes the price to increase because it is more valuable.


2. Opportunity Cost- Because resources are scarce, he choice to use a resource in one way means not using it in another. For example, to using a field to grow tobacco means the field cannot be used to grow soy beans


3. Productivity- is a measure of the amount of output produced by a given amount of inputs. It reflects how efficiently resources are being used. This is also referred to as measuring efficient use of the factors of production. For example, the productivity of a farmer (labor) increases with the use of a tractor (capital). Investing in human capital is one way to increase productivity.

• Human capital refers to the quality of labor resources, which can be improved through investments in education, training, and health


• In order for an entrepreneur to realize a profit, he/she must produce at a cost lower than the market price for the good or service. Profit is the money left over from selling a good or service after the cost of buying productive resources have been paid.


• The entrepreneur must minimize the use of scarce resource in production and maximize the productivity of the factors used in production to keep cost as low as possible.

Economic Decision Making

Do Now

• What is Economics?

• Economics is the study of how people make decisions in a world where wants are unlimited but resources are limited.– Needs are things that are required for survival,

such as food, clothing, and shelter. – Wants, on the other hand, are things we would

like to have—things that improve our quality of life, such as entertainment and vacations.

• Doing so requires people to consider 3 fundamental economic questions: – WHAT is produced? – HOW is it produced? – WHO consumes what is produced?

WHAT is produced?

HOW is it produced?

WHO consumes what is produced?

This is one of the economic choices that people in a society, both producers and consumers, are forced to make with regard to “what” should be produced in a world with limited resources.

A second choice that society has to make is “how” to produce.

After goods and services are produced, a society must determine how the goods and services will be distributed among its members.

• An economic system is a particular set of social institutions which deals with the production, distribution, and consumption of goods and services in a particular society.

• Explain that there are 4 types of economic systems – Traditional– Command– Market– Mixed

• While all societies face the same economic questions, the way these questions are answered determines the type of economic system of that society

Traditional Command

Market Mixed

Define

Example

Advantage

Disadvantage

Which Type of Economic System?

• Type:– How do you know?

Do Now• Brainstorm meaning of the word “Price.”• Consider the following:

– What is a price? Are prices negotiable? Explain.– Who sets prices? If no one person sets prices, how are they

determined?– What characteristics of a product make you willing to pay a higher

price for it compared to other products?– Why don’t businesses charge low enough prices so that everyone can

afford to buy their goods/services? On the other hand, why don’t businesses charge as much money as they possible can for their goods?

– What current events or events in recent history can you think of that relate to prices being too high or too low? How long did this event last? What caused the event?

PPT accompaniment for the Consortium's

Supply, Demand, and Market Equilibrium

Introduction to Demand• In the United States, the forces of supply &

demand work together to set prices. • Demand is the desire, willingness, & ability to

buy a good or service.– Supply can refer to one individual consumer or to

the total demand of all consumers in the market (market demand).

Introduction to Demand

• A demand schedule is a table that lists the various quantities of a product or service that someone is willing to buy over a range of possible prices.

Price per Widget ($) Quantity Demanded of Widget per day

$5 2

$4 4

$3 6

$2 8

$1 10


• A demand schedule can be shown as points on a graph. – The graph lists prices on the vertical axis and

quantities demanded on the horizontal axis. – Each point on the graph shows how many units of the

product or service an individual will buy at a particular price.

– The demand curve is the line that connects these points.

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$1

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$3

$4

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Demand Curve for Widgets


Quantity Demanded of Widgets

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What do you notice about the demand curve?

How would you describe the slope of the demand curve?

Do you think that price and quantity demanded tend to have this relationship?


• The demand curve slopes downward. – This shows that people are normally willing to buy less

of a product at a high price and more at a low price. – According to the law of demand, quantity demanded

and price move in opposite directions.

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• We buy products for their utility- the pleasure, usefulness, or satisfaction they give us.

• What is your utility for the following products? (Measure your utility by the maximum amount you would be willing to pay for this product)

• Do we have the same utility for these goods?


• One reason the demand curve slopes downward is due to diminish marginal utility

– The principle of diminishing marginal utility says that our additional satisfaction tends to go down as we consume more and more units.

• To make a buying decision, we consider whether the satisfaction we expect to gain is worth the money we must give up.

Changes in Demand• Change in the quantity demanded due to a

price change occurs ALONG the demand curve

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At $3 per Widget, the Quantity demanded of wid-gets is 6.

•An increase in the Price of Widgets from $3 to $4 will lead to a decrease in the Quantity Demanded of Widgets from 6 to 4.

Changes in Demand

• Demand Curves can also shift in response to the following factors:– Buyers (# of): changes in the number of consumers– Income: changes in consumers’ income– Tastes: changes in preference or popularity of

product/ service– Expectations: changes in what consumers expect

to happen in the future– Related goods: compliments and substitutes

• BITER: factors that shift the demand curve

Changes in Demand• Prices of related goods affect on demand

– Substitute goods a substitute is a product that can be used in the place of another.

• The price of the substitute good and demand for the other good are directly related

• For example, Coke Price Pepsi Demand

– Complementary goods a compliment is a good that goes well with another good.

• When goods are complements, there is an inverse relationship between the price of one and the demand for the other

• For example, Peanut Butter Price Jam Demand

Changes in Demand

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$1

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Increase in Demand

Orginal Demand CurveNew Demand Curve

Quantity Demanded of Widets

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•Several factors will change the demand for the good (shift the entire demand curve)

•As an example, suppose consumer income increases. The demand for Widgets at all prices will increase.

Changes in Demand

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$1

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$6 Decrease in Demand

Original Demand CurveNew Demand Curve


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•As an example, suppose Widgets become less popular to own.

•Demand will also decrease due to changes in factors other than price.

Changes in Demand

• Changes in any of the factors other than price causes the demand curve to shift either:

• Decrease in Demand shifts to the Left (Less demanded at each price)

OR• Increase in Demand shifts to the Right (More

demanded at each price)

Demand Practice Answers

1. The income of the Pago-Pagans declines after a typhoon hits the island.

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2. Pago-Pagan is named on of the most beautiful islands in the world and tourism to the island doubles.

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3. The price of Frisbees decreases. (Frisbees are a substitute good for boomerangs)

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4. The price of boomerang t-shirts decreases, which I assume all of you know are a complementary good.

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5. The Boomerang Manufactures decide to add a money back guarantee on their product, which

increases the popularity for them.

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6. Many Pago-pagans begin to believe that they may lose their jobs in the near future. (Think expectations!)

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7. Come up with your own story about boomerangs and the Pago-Pagans. Write down the story, draw the change in

demand based on the story, and explain why demand changed.

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Do Now

• You are opening a business and need some workers for the afternoon hours. – How many hours would you be willing to work for

a week at the various wages. You can work no more than 40 hours a week and will also have to continue attending school and doing all their homework. Hourly Wage Hours Per week

$2

$6

$10

$14

$18

$22

Introduction to Supply

• Supply refers to the various quantities of a good or service that producers are willing to sell at all possible market prices.

• Supply can refer to the output of one producer or to the total output of all producers in the market (market supply).


• A supply schedule is a table that shows the quantities producers are willing to supply at various prices

Price per Widget ($) Quantity Supplied of Widget per day

$5 10

$4 8

$3 6

$2 4

$1 2


• A supply schedule can be shown as points on a graph. – The graph lists prices on the vertical axis and

quantities supplied on the horizontal axis. – Each point on the graph shows how many units of the

product or service a producer (or group of producers) would willing sell at a particular price.

– The supply curve is the line that connects these points.

What do you notice about the supply curve?

How would you describe the slope of the supply curve?

Do you think that price and quantity supplied tend to have this relationship?

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$3

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Supply Curve for Widgets

Supply Curve

Quantity Supplied of Widgets

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Introduction to Supply• As the price for a good rises, the quantity

supplied rises and the quantity demanded falls. As the price falls, the quantity supplied falls and the quantity demanded rises.

• The law of supply holds that producers will normally offer more for sale at higher prices and less at lower prices.

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Supply Curve


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• The reason the supply curve slopes upward is due to costs and profit.

• Producers purchase resources and use them to produce output.– Producers will incur costs as they bid resources

away from their alternative uses.


• Businesses provide goods and services hoping to make a profit. – Profit is the money a business has left over after it

covers its costs.– Businesses try to sell at prices high enough to cover

their costs with some profit left over. – The higher the price for a good, the more profit a

business will make after paying the cost for resources.

Changes in Supply

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Supply Curve


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At $3 per Widget, the Quantity supplied of wid-gets is 6.

•If the price of Widgets fell to $2, then the Quantity Supplied would fall to 4 Widgets.

•Change in the quantity supplied due to a price change occurs ALONG the supply curve

Changes in Supply• Supply Curves can also shift in response to the following

factors:– Subsidies and taxes: government subsides encourage production,

while taxes discourage production– Technology: improvements in production increase ability of firms to

supply– Other goods: businesses consider the price of goods they could be

producing– Number of sellers: how many firms are in the market– Expectations: businesses consider future prices and economic

conditions– Resource costs: cost to purchase factors of production will influence

business decisions• STONER: factors that shift the supply curve

Changes in Supply

1 2 3 4 5 6 7 8 9 10 11$0

$1

$2

$3

$4

$5

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Supply Curve


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$1

$2

$3

$4

$5

$6

Increase in Supply

Original Supply CurveNew Supply Curve

Quantities Supplied of Widgets

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•Several factors will change the demand for the good (shift the entire demand curve)

•As an example, suppose that there is an improvement in the technology used to produce widgets.

Changes in Supply

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$1

$2

$3

$4

$5

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Supply Curve


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$1

$2

$3

$4

$5

$6

Decrease in Supply

Original Supply CurveNew Supply Curve


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•Supply can also decrease due to factors other than a change in price.

•As an example, suppose that a large number of Widget producers go out of business, decreasing the number of suppliers.

Changes in Supply

Changes in any of the factors other than price causes the supply curve to shift either:

• Decrease in Supply shifts to the Left (Less supplied at each price)

OR• Increase in Supply shifts to the Right (More

supplied at each price)

Supply Practice Answers

Cost to Produce Amount of Supply Supply Curve Shifts

Cost of Resources Falls

Cost of Resources Rises

Productivity Decreases

Productivity Increases

New Technology

Higher Taxes

Lower Taxes

Government Pays Subsidy

1. The government of Pago-Paga adds a subsidy to boomerang production.

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2. Boomerang producers also produce Frisbees. The price of Frisbees goes up.

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3. The government of Pago-Paga adds a new tax to boomerang production.

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4. Boomerang producers expect an increase in the popularity of boomerangs worldwide.

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5. The price of plastic, a major input in boomerang production, increases.

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6. Pago-Pagan workers are introduced to coffee as Pago-Paga become integrated into the world market and their productivity increases

drastically.

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7. Come up with your own story about boomerangs and the Pago-Pagans. Write down the story, draw the change in supply based on the story, and

explain why supply changed.

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Supply and Demand at Work

• Markets bring buyers and sellers together.• The forces of supply and demand work

together in markets to establish prices.• In our economy, prices form the basis of

economic decisions.


• Supply and Demand Schedule can be combined into one chart.

Price per Widget ($) Quantity Demanded of Widget per day

Quantity Supplied of Widget per day

$5 2 10

$4 4 8

$3 6 6

$2 8 4

$1 10 2


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$1

$2

$3

$4

$5

$6

Supply and Demand for Widgets

Demand CurveSupply Curve

Quantity of Widgets

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• A surplus is the amount by which the quantity supplied is higher than the quantity demanded.– A surplus signals that the price is too high. – At that price, consumers will not buy all of the

product that suppliers are willing to supply. – In a competitive market, a surplus will not last.

Sellers will lower their price to sell their goods.


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$1

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Quantity of Widgets

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•Suppose that the price in the Widget market is $4.

•At $4, Quantity demanded will be 4 Widgets

•At $4, Quantity supplied will be 8 Widgets.

•At $4, there will be a surplus of 4 Widgets.

Surplus


• A shortage is the amount by which the quantity demanded is higher than the quantity supplied

– A shortage signals that the price is too low. – At that price, suppliers will not supply all of the

product that consumers are willing to buy. – In a competitive market, a shortage will not last.

Sellers will raise their price.


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$1

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Quantity of Widgets

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•At $2, Quantity supplied will be 4 Widgets

•At $2, Quantity demanded will be 8 Widgets.

•At $2, there will be a shortage of 4 Widgets.

Shortage


• When operating without restriction, our market economy eliminates shortages and surpluses. – Over time, a surplus forces the price down and a shortage

forces the price up until supply and demand are balanced. – The point where they achieve balance is the equilibrium price.

At this price, neither a surplus nor a shortage exists.• Once the market price reaches equilibrium, it tends to stay

there until either supply or demand changes. – When that happens, a temporary surplus or shortage occurs

until the price adjusts to reach a new equilibrium price.


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Quantity of Widgets

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•At $3, Quantity supplied will be 6 Widgets

•At $3, Quantity demanded will be 6 Widgets.

•At $3, there will be neither a surplus or a shortage.

Supply and Demand Practice Answers

1 2 3 4 5 6 7 8 9 10 11$0

$2

$4

$6

$8

$10

$12

Supply and Demand for Boomerangs

DemandSupply

Quantity of Boomerangs

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Surplus

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$2

$4

$6

$8

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$12


DemandSupply


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6

1 2 3 4 5 6 7 8 9 10 11$0

$2

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DemandSupply


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Market Equilibrium

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Original DemandSupplyNew Demand


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1. The income of the Chapel Hill townies declines

after an early loss during March Madness.

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2. Chapel Hill is named one of the most beautiful towns in North Carolina and tourism doubles

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3. The price of blue ties decreases. (Blue ties are a substitute good for purple ties)

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4. The Federal government has been warning the public about the possibility of a recession and job loss in the RDU area. (Think

expectations!)

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5. The price of purple striped shirts decreases (Purple striped shirts are a complement to purple ties)

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6. The price of silk increases (ties are made with silk).

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7. The government adds a subsidy to tie production.

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8. After the release of Alan Greenspan’s first jazz flute album, purple tie producers are expecting a huge increase in demand and thus an increase

in the price.

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9. Congress enacts new tax on the production of purple

ties.

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10. As the popularity of purple ties sweeps the greater Orange County area, new producers enter the purple tie market.

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11. Purple ties are named by GQ magazine as a “must have” for all young professionals. At the same time, a new textile

machine decreases the cost of producing purple ties.

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12. The price of pink ties (a related good that most purple tie producers also produce) rises as spring approaches. Tie consumers in Chapel Hill begin to expect

purple ties to be put on sale since spring is coming, so they put off purchasing.

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Do Now

• define cycle. – What are some events that occur in cycles?– What do all of these events have in common?

• The economy of a nation also moves in a cycle. Sometimes the economy grows and other times the economy shrinks.

• Three important economic measures relate to these alternating periods of growth and decline.

1. Gross Domestic Product: measure of the size of the economy. It is the total value, in dollars, of all final goods and services produced in the country during a single year. Final goods are goods sold to their users.

• GDP is expressed in terms of money. This enables us to compare the relative worth of goods and services, which is more meaningful than simply numbers of products– Current (nominal) GDP Measured in inflation distorted ‐ ‐

dollars– Real GDP Converts nation’s annual output into constant ‐

dollars by taking out inflationary increases in prices.• When prices increase, GDP would go up even if the economy

was not growing. • To avoid this false impression, economist use real GDP.

2. Unemployment Rate The percentage of people in the civilian ‐labor force who are not working but are looking for jobs. The civilian labor force includes all civilians 16 years or older who are either working or looking for work.

Four Types of unemployment1. frictional: involves people who are temporarily between jobs2. structural: caused by a mismatch between job seekers and job openings; technological: form of structural unemployment caused by extensive use of technology in many industries3. seasonal: temporary unemployment due to conditions that prevail during certain seasons of the year4. cyclical: unemployment caused by lack of overall demand in the economy

3. Inflation: is an increase in the general price level. – Measuring Inflation: Consumer Price Index To ‐

track inflation, the government samples prices every month for about 400 products commonly used by consumers. The rate of inflation is the change in the average level of prices as measured by the CPI

“The Story of Inflation”

Hunger In America

• http://www.pbs.org/moyers/journal/04112008/watch.html

http://www.pbs.org/moyers/journal/04112008/watch.html

http://www.pbs.org/moyers/journal/04112008/watch.html

• The business cycle (or economic cycle) refers to the short term fluctuations of economic activity along its ‐long term growth trend. Project the attached business cycle visual before discussing phases of the business cycle. There are four phases to the business cycle:– 1. Expansion Real GDP (production) growing and ‐

unemployment rate usually falls.– 2. Peaks Highest point of expansion. Economists can only ‐

measure once contraction begins.– 3. Recession Real GDP (production) decreases for 6 ‐

consecutive months; unemployment rate usually increases. An extended recession is called a depression.

– 4. Troughs Lowest point of the recession. Economists can ‐only measure once expansion begins

Intro to Economics Civics & Economics M. Teal. Do Now What is the difference between a want and a...

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