Unit 1:“What is Economics” and Economic SystemsMr. Bammel

Economics is Dumb!! What’s the Point?

•Why is it important to take this course and at least be familiar with the basics?

The Fundamental Economic Problem

•The overlying problem that faces ALL people is trying to figure out if there is ever enough.

•When is enough, enough?•Scarcity exists throughout all of society;

scarcity is the condition that results from society not having enough resources to produce all the things people would like to have.

What is Economics?

•The study of how people seek to satisfy all needs and wants in society by making choices.

•Why must we make choices? Scarcity.•Is anything ever free?

▫No, everything will have some degree of a cost.

▫It can be free to one person, but there will always be a cost.

▫“There is no such thing as a free lunch”

Three Economic Questions

•What to produce Societies choices on production

•How to produce taking all resources and finding the best way to combine them.

•For Whom to Produce How will society distribute income

Resources: Factors of Production•I want every person in the room to

partner up and pick one thing between the two of you and list off all the things that were necessary in order to produce that product. Try to think of all things that go into making that product.

Factors of Production•Land “gifts of nature,” or all natural

resources•Labor people who use efforts, abilities, and

skills to produce the product•Capital tools, equipment, and other human-

made products used to create other products.•Entrepreneurs The brains who take the

resources and finds a way to combine them for a profit.

•Did you forget any resources used to make the product you and your partner examined?

Economics as a Social Science

•Deals with the behavior of people▫Description▫Analysis▫Explanation▫Prediction

The Logic behind Economic Concepts

• First, take 5 minutes to look at the following terms and write down a brief definition based off what you believe that concept is talking about. Write it in the 1st column, the boxes with the actual word in them.

• I will now divide you up into groups of 3…as a group, use the Play-Doh to sculpt something that represents the concept. Be ready to present and show off your sculpture to the rest of the class.

• In the second column, while the groups explain the concept, write down what that concept means.

•In the final column, give me an example, a different explanation, or draw a picture that makes sense to you. What will help you to understand it?

Basic Economic Concepts

•Economic Products – Goods and services the are useful, relatively scarce, and transferable.

•Goods – a physical economic product; Consumer goods and Capital goods.

•Service – Work that is performed for someone.

•Value – Worth expressed in dollars or cents

•Paradox of Value – necessities having little value and non-necessities having great value;

More Concepts…

•Utility – the capacity to provide use and satisfaction;

•Wealth – the accumulation of those products which are economic products;

Circular Flow Model

•Using the information given on pages 14 and 15 of your text books, give me explanations of all four sections of the diagram: What are the two groups, businesses and households? What occurs in both markets?

•Take 4 to 5 minutes to think of some real world examples(at least 3 for each) of transactions occurring in the factor market and in the product market.

Productivity and Economic Growth•Economic Growth – happens when the

total output of goods and services increases over time.

•Productivity – a measure of the total amount of output with a given amount of input.

•Division of Labor – work is arranged so that individual workers do fewer tasks than before.

•Specialization – when factors of production perform the tasks they can do relatively efficiently.

•Human Capital – investing in skills, abilities, and motivation of people.

•Economic Interdependence – Relying on others and them relying on us for goods and services.

Opportunity Cost

•We have talked about it before but discuss it one more time with another student in class: What does Cost mean?

The Production Possibilities Frontier

•Illustrates the concept of opportunity cost; it shows a representation of all the various combinations of goods and/or services an economy can produce when all productive resources are fully employed.

•In groups of 3 you will be asked to examine and interpret the production possibilities curve in more detail. I will get you started with the drawing of the curve.

Questions on the PPC• Using a different colored pencil than you used to draw the

graph, draw 3 dots on the actual curve and label what these dots represent.▫ Underneath your graph, write the number “1” and explain to

me in your own words what these points are telling us about an economy.

• With another different colored pencil, draw a dot somewhere INSIDE the curve and tell me what that dot represents.▫ Write number “2” and explain in your own words what this

point tells us about an economy. What is an example of this?• With a 3rd different color, draw a second line on the graph

which represents growth of an economy.▫ Write number “3” and tell me what are the ways in which an

economy is able to grow.

Critical Thinking on the Curve

•Write number “4” and tell me in a couple of sentences how the graph displays the concepts of opportunity cost and scarcity.

•Write number “5” and explain to me what you believe the reasons are for the line being curved and not straight. (Hint: think about resources in production of 2 products)

Final Concepts to Understand

•Cost-Benefit Analysis – comparing the costs received from an action to the benefits.

•Standard of Living – the quality of life and the goods and services which make life easier.

•Rational Thinking – We must all be selfish…taking the things that have greater value and giving up the things with lesser value.

Economic Systems• We briefly mentioned that our 3 economic

questions are answered in order to determine which type of economic system to operate as.

• Around the room are 3 labeled pieces of paper with each of the 3 economic systems on them: Traditional, Free Market, and Command economies.

• Each of you will be given a slip of paper to place on one of these pieces of paper if you believe that your slip of paper applies to that type of economy.

Discussion of the Economic Systems

• As a large group, read through all the slips of paper to develop the commonalities/characteristics of the economy. Make sure that all slips do belong together on that type of economy.

• Pick two other students to have a small group discussion about your paper. What are the Advantages and the disadvantages of that economy? Write them on the paper provided.

• Come back together as a large group and write down all the advantages and disadvantages your group has come up with on the large paper.

Individual Understanding

•Work your way around to the other groups papers in order to have sufficient understanding of each type of economy.

•Refer to your text on any extra pieces of information needed to understanding these systems.

Economic and Societal Goals• In the U.S. there are many economic goals we

strive for on a weekly, monthly, and yearly basis. In your groups, you will be asked to examine one of these goals and create a billboard representing/advertising it. Be Creative in your drawings and really think about what this goal means in an economics.

• Also, on your billboard, you will need to have some kind of statement about the goal to help viewers understand the goal.

• You will be presenting these to your class mates.

Capitalism

•An economy where private citizens, many of whom are entrepreneurs, own the factors of production; Also called Free Enterprise.

5 Important Characteristics of Free Enterprise•1. Economic Freedom the ability to

choose everything economically to embark upon: occupation, what to purchase, what to sell, etc.

•2. Voluntary Exchange The act of buyers and sellers freely and willingly engaging in market transactions. The desire is that both buyer and seller will believe themselves to be better off from the transaction than what they began.

•3. Private Property Rights The privilege that entitles people to own and control their possessions as they wish; provides incentive of people to want to succeed knowing that all they achieve is theirs to do as they please.

• 4. Profit Motive the driving force that encourages people and organizations to improve their material well-being; the idea that what we have will be better off than what we started with.

•5. Competition the struggle among sellers to attract consumers while lowering costs. The idea that producers will do what they need to do to compete for the money of consumers.

Roles of Branches•On the handout are 3 columns of groups of

people who have specific roles in our economy. I am going to have you work with 3 different sets of partners to examine the 3 groups of people working to make our economy function.

•You will have 10 minutes per partnership before I ask you to rotate to a new partner to examine the next group.

• (What should these groups roles be? Question and discussion)

Examining the International Spectrum

•Chapter 17 Sections 1 and 2;

Trade•Based off the fact that one country may be

better suited to produce a product than another country: Specialization;

•Specialization of a country is always based off the resources that can be obtained (factors of production)

•Exports-The goods and services that a country produces and then sells to other nations

•Imports-goods and services that one country buys from another country.

US Imports (Oil)

US Exports

Basis for Trade

•Absolute Advantage when a country can produce a product more efficiently than another country

•Comparative Advantage when a country can produce a product at a lower opportunity cost.

Comparative Advantage

China has a absolute advantage in both shoes and cloth.WHY?

Comparative Advantage•Ask yourself, how much does it

“cost” China to produce shoes instead of cloth?

•Ask the same question for India?

The Gains from Trade

•People will be better off producing the product that has a lower “cost” to them.

Restricting International Trade

•Tariffs a tax placed on imports to increase their price in the domestic market;

•Protective Tariff a tariff high enough to protect less-efficient domestic industries;

•Revenue Tariff a tariff high enough to generate revenue for the government without prohibiting imports;

Quotas

•A limit place on the quantities of a product that can be imported; again, to protect domestic producers;

•Also, prevent dumping, or selling products abroad at lower than cost to produce them at home;

•WHY would a business lose money by “dumping?”

Protectionists• Favor trade barriers that protect domestic

industries:▫National Defense – we do not want to become too

dependent on other countries;▫Promoting Infant Industries – new companies

should be protected from foreign industries;▫Protecting Domestic Jobs – against the cheap

foreign labor;▫Keeping money at home – have our money count

towards our GDP;▫Helping Balance of Payments – helps balance the

amount of money going out that is coming in

Free Trade Movement

•Fear that tariffs and quotas will cause disputes amongst countries, bringing retaliation;

•If all countries use free trade then the world resources will be used more efficiently and will be less costly across the world;