Basic Economics Study of how people meet their wants and needs. What goods and services should be made? How should the goods and services be made? Who consumes those goods and services?
Introduction: Island Survivors Imagine that your class is flying to Hawaii for a trip and suddenly the plane goes down. Luckily everyone survives the crash and swims to an uncharted island. The island is small and has a limited amount of fresh water, trees, animals and other natural resources. Three weeks pass and there is no sign of rescue. These natural resources need to be used wisely in order to survive for a long amount of time.
Basic Economics I wanted to buy 3 Hummers and give them to some students in the class. But I didn’t have the money to buy 3 Hummers.
Not Enough Resources • Producers rely on different types of resources to make goods and services. • The amount of resources is limited. • As a result, the goods and services that can be made are also limited. • However, what we want and need is not limited.
Basic Economics Scarcity: the conflict between peoples unlimited desires and limited resources n Basically you can’t get everything you want because you don’t have enough time, money or resources. n What are some scarce things in the world? Fresh water( water you can drink) Food
Economics Supply- amount of good or service https: //www. youtube. c om/watch? v=Npd. ZSdzymk Demand – desire for a certain item.
Making Decisions As a result of scarcity, people must make decisions. Consumers must decide which products to buy. Producers must choose which products to make. Other choices are given up when one choice is made. The next best choice given up when you make a decision is the opportunity cost. © 2014 Created by Sally Camden ~ The Reflective Educator ~ www. thereflectiveeducator. com
Opportunity Cost Opportunity cost is not how much money you spend to buy something. It is what you gave up instead. Suppose you have $20 to spend. While shopping, you notice a sweater you like and a new book by your favorite author. They each cost $17. You cannot buy them both. What will you decide? If you buy the sweater, then the opportunity cost is the new book. You gave up the book so you could have the sweater. https: //www. youtube. com/watch? v=8 QLkhmsv. KLo
More Than Money Not all decisions involve money. What if your friend invited you to a birthday party but you already had a camping trip planned that day? If you decide to go to the party, the opportunity cost (what you gave up) was the fun you would have while camping. Opportunity cost is the value of the next best choice.
Making Goods and Services Producers- people that make and sell the products Consumers- people that buy or consume products.
A Web of Decisions Consumers and producers make decisions that affect each other in many ways. If you buy the sweater instead of the book, the clothing store gets your money. The book store doesn’t. The clothing store now has money to pay the sales clerk who sold you the sweater. The sales clerk gets paid and spends her income on other products. Every decision affects other people and businesses.
Economic Process Goods and services are exchanged in a market. Business want to make a profit. Product costs to make is $3. 00 It Sells to consumer for $5. 00 Business makes $2. 00 profit
Making a Profit Companies try to reduces expenses and increase revenue. Prices of resources and expenses can increase or decrease revenue and profit. Competition – Companies compete for your business. Think of your favorite commercial. Advertising increases the demand.
Candy Plan I can’t give you hummers, but I can give some candy bars to some of my students But the problem is I’m not sure what type of candy bars and who I should give them to. I want you to decide what candy bars and how the bars should be distributed.
Candy Plan You will create a plan that decides what type candy bars and how the candy bars are distributed (given) to students. Then all the students will vote on which method is the best. n If your method is chosen then you automatically get 1 of the four Candy Bars. We will use a distribution method that is chosen. Candy Bars to be Selected How do the Candy Bars get to our Students? ?
Candy Plan Students will be able to suggest a plan and the class will vote and write down the top four plans. Then the class will vote again, but only on the top 4 plans to pick a winning plan. Example: Plan: Kit Kat Bars: Only for the students who were never late to class. Teacher will randomly draw those students names from a jar. Plan 1: __________ Plan 2: __________ Plan 3: __________ Plan 4: __________
Candy Plan What have you created when you thought of a candy bar and a way to distribute the candy bars? Economic System: How do we decide what to make, how to make it and for whom? n Traditional Based on tradition, custom or culture n Market Individuals have businesses (free market or capitalism) n Command Based on a powerful government telling people what to do. n Mixed Based on producers and sellers but there is a little government control.
Candy Plan How would the different economic systems distributed the candy? Traditional n n n Maybe only the boys or girls get to eat the candy. Maybe the oldest students get to eat the candy. Maybe only the first born get to eat the candy Command n Maybe the only the principal decides who gets the candy.
Candy Plan Mixed Economy n Maybe the principal tells me that I can only sell them to students who have never been tardy to class. (Command) n Then I decide that I will only sell it to those students for $1 (Free Market)
Traditional 1. What goods/services will be produced? 2. How will goods/services be produced? 3. Who will consume the goods/services? Command Market
Economic Systems Each country has a limited supply of natural resources. Every country needs to create an organized way to have goods made and services provided to customers. If there isn’t an organized system of producing goods and services, then the citizens of a country will fight over natural resources like little children.
Economic Systems 1. 2. 3. There are basic Economic question for any nation: What are we producing/servicing? For Whom are we producing/servicing? How are we producing/servicing? To answer these questions, economic systems were created.
Economic Systems 1. 2. 3. 4. Each economic system answers the 3 economic questions differently: Traditional Command Mixed Market economy
Traditional Systems Social roles and cultures (the way of life) determines what, for whom and how goods and services are produced; based on how things have been done in the past Example: Some countries may say that your family are to be only farmers and that you are to farm using hand tools Example: Only males can be hunters and females can only cook meals
Traditional Systems Third World Countries: poor countries in Asia, Africa and Asia usually have a traditional system Low Productivity: they don’t make a lot of things n In these countries you usually wont find things like IPods or TVs in these areas and there are no Wal-marts or Best Buys
Traditional Systems Barter System- trading for goods and services, no money is involved when buying or selling thing n Like trading food at lunch The community owns the goods in the village or city, no personal ownership
Problems with Traditional System Individuals don’t have the right to choose their job; the past culture decides what you do. The village or country is usually very poor and have people have bad health. Women are usually discriminated against based on past culture.
Command Systems Government determines what, for whom and how goods and services are produced Example: you may build a factory to make expensive shoes, but later the government may tell you to start making coats at a low price. Example: The government may forbid its citizens from selling candy because the government think candy is bad for its citizens’ teeth.
Command Systems Countries with a command economy usually have a government that is communist: n government completely controls the economy and government (no political freedom like voting and speech) North Korea Cuba
Problems with Command System Individuals don’t have the right to run their business the way they want to The government may be bad at deciding what and how to make things Government Corruption: government stealing money or taking bribes Command Economies are usually found in poorer countries
The Economic Continuum command Cuba Market Russia Germany UK US Australia
Reflection: If you had to choose between living in a country with a traditional or command economic system, which country would you choose and why? Why would you choose one over the other? Write your answer down and be prepared to share with your “elbow partner” and class.
Market System Producers and Consumers make decisions Capitalism- free market Encourage entrepreneurs to establish new business Economic freedom
Mixed System Individuals determines what, for whom and how goods and services are produced with little government control Individuals decide: n n n What to sell Whom to sell to How to produce or service
Mixed Systems Individuals own the machines and tools that make the good or provide a service Producer + Consumer = Free Market determines the price n Price goes down if no one buys a good/service n Price goes up if there is high demand for a good/service
Mixed Systems Most democratic countries realize they want individual freedom to run their business but realize that there needs to be some laws to protect it citizens from bad business Most national economies today are Mixed economic system. n Mixture of individual and government control
Mixed Economic Systemsor Example: Government may allow businesses to sell alcohol cigarettes but they cant legally sell it to children because the government passed an age requirement law. Example: The government says you can sell milk, but you can’t sell it if you know that it is contaminated or has a high level of germs.
Mixed Economic Systems Even though most countries have a mixed economy, many mixed economies are called the following in the real world: n Market Economy n Free Enterprise Economy
Youtube Link Teacher Directions: Click on the link below to have students watch a report on Mayor Bloomburg’s Soda Tax Questions to the clip are on the next slide Preview the clip. Check for any inappropriate side videos or comments before putting it up on the screen. Put it in Full Screen Mode to minimize other content http: //www. youtube. com/watch? v=MTY 0 q. MTMSl 4
New York City Soda Law What are your thoughts on this law? What were arguments for and against the law? What type of economic system is shown by this law? Explain why. Do you think the government should regulate drink sizes? Explain why or why not?
Economic Development Measuring Economic Development n Developed countries-20% of the world United States Japan China Developing countries- lower standards of living Haiti Jamaica
GDP is the total value of all the goods and services produced in that country in one year. It measures how rich or poor a country is. It shows if the country’s economy is getting better or worse. Raising the GDP of a country can
Economic Growth • Economic growth in a country is measured by the country’s Gross Domestic Product (GDP) in one year. o It measures only what has been produced within the country--this doesn’t include products that are imported. o It is much better for the economy of a country to produce its own goods and services (this increases the country’s GDP). • Measuring the GDP each year can: • Compare one country’s economy to another
Economic Growth The more goods a country has, the more goods & services they are able to produce. If a business is to be successful, it cannot let its equipment break down or have its buildings fall apart. New technology can help a business produce more goods for a cheaper price. • Money is NOT a capital good, but rather a medium of exchange!
Standard of Living • The higher a country’s GDP, the better standard of living for the people within the country. • In order for a country to have an increasing GDP, it must invest in human capital through education & training, and it must produce goods that have value to be sold within the country or exported.
International Trade • This involves the exchange of goods or services between countries. • International trade is described in terms of: o Exports: the goods and services sold to other countries o Imports: the goods or services bought from other countries • Countries trade goods because no country has all the resources necessary
What is a Trade? Exchange of goods and services in a market Exports- made within a country sold outside that country Import – made outside a country and brought into that country
What is a Tariff? A tariff is a tax put on goods imported from other countries. The effect of a tariff is to raise the price of the imported product. It makes imported goods more expensive so that people are more likely to purchase lower-priced items produced domestically.
Tariffs are taxes charged for goods that leave or enter a country. • In order to get a product from another country, you have to pay extra for it. • It is the same concept as sales tax that is put on items your purchase at the store. Think of how many goods the United States imports. • How do you think tariffs might affect the economy? • How do you think this affects world
Free Trade Vs. Trade Barriers With free trade, nothing hinders or gets in the way of two nations trading with each other. Countries sometimes set up trade barriers to restrict trade because they want to produce and sell their own goods: • Trading is difficult because things get in the way. There are costs and benefits related to free
Physical Trade Barriers Natural barriers can slow down trade between nations by making it harder and more expensive to move goods from place to place. Example: The Swiss Alps make it difficult for northern Italy to trade with Switzerland. The countries are building tunnels through the mountains to help make trade easier. Example: The Sahara Desert makes it extremely hard for countries in Northern Africa to trade
Costs of Trade Barriers Tariffs increase the price of imported goods. • The tax on imported goods is passed along to the consumer so the price of imported goods is higher. Less competition from world markets means there is an increase in the price of goods.
Money Management Budget- income should be more than budget wages – bills = savings Saving –setting money for future use Interest- cost for using the bank’s money Credit-an arrangement with the bank saying you will pay it back
Making your own money Investing-using money to make a profit Stock-share of ownership Bond- company promising to pay you interest
Economic Growth Entrepreneurship creates jobs and lessens unemployment. It encourages people to take risks, and in doing so, they’ve created better healthcare, education, & welfare programs. The more entrepreneurs a country has, the higher the country’s GDP will be.
Entrepreneurship • People who provide the money to start and operate a business are called entrepreneurs. • These people risk their own money and time because they believe their business ideas will make a profit. • They bring together natural, human, and capital resources to produce foods or services to be provided by their businesses.
Entrepreneurship • Entrepreneurs have 2 characteristics that make them different from the rest of the labor force: • 1. innovative (have creative ideas) • 2. risk taker (use limited resources in an innovative way in hopes that people will buy the product) • It can be several things: • Starting your own business • Inventing something new • Changing the way something was previously done so that it works better
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