BASIC ECONOMICS FOR TODAY S CONSUMERS

Transcription

1 BASIC ECONOMICS FOR TODAY S CONSUMERS

2 BASIC ECONOMICS FOR TODAY S CONSUMERS UNIT OVERVIEW How Economic Activities Define a Culture (1 day) Basic Economic Concepts and Economic Systems (3 days) The U.S. Economy (3 days) International Trade, the Global Economy, and You (2 days)

3 General Economic Concepts ECONOMICS: the study of how goods and services are made, delivered, and used in a society Economics is about PRODUCTION (making) and CONSUMPTION (using) of goods and services. It s also about buying and selling these goods and services, or the process of DISTRIBUTION. GOODS: tangible items that result from production; things people have made SERVICES: nonphysical results of production that must be consumed as soon as they are produced; things people do for someone else WANTS: goods and services that people desire; things which make people happy and provide greater comfort of mind and body NEEDS: goods and services that people must have PHYSICAL NEEDS: things necessary for life COLLECTIVE NEEDS: things that protect the group s health and provide protection/safety from danger

4 GOODS & SERVICES PIZZA PANTS COOK DENTIST SHIRT SEWING SHIRTS CHAIR SHOE REPAIRING PAPER CLIPS GROCERY CLERK SELLING SHIRTS TELEVISION TV SHOW DVD PLAYER MECHANIC CAR WATCHING A MOVIE PRO FOOTBALL GAME BREAD

5 WANTS / PHYSICAL NEEDS / COLLECTIVE NEEDS VIDEO GAME FIRE DEPARTMENT DESIGNER JEANS SPORTS CAR AIR FREE GOVERNMENT HEALTH INSURANCE CLOTHING BREAKFAST EYEGLASSES WATER SEWER SYSTEM SHELTER HOUSE POLICE NATIONAL MILITARY SOCKS LIFE INSURANCE EDUCATION COMPUTER

6 More General Economic Concepts THE PRODUCTION PROCESS: the activities that lead to the creation of goods and services. To obtain the goods and services they want, people must engage in production. Entrepreneurs (producers) take the initiative and risk to purchase PRODUCTIVE RESOURCES and use them to produce the goods and services they think consumers will purchase. The PRODUCTIVE RESOURCES are classified into three basic groups: 1. LAND (Natural Resources) ex. oil, water, trees 2. LABOR & HUMAN CAPITAL (Human Resources) ex. people and their work, ideas, energy, skills 3. REAL CAPITAL (People-Made Resources) ex. computers, machinery, tools payed for by FINANCIAL CAPITAL (investments, money loaned to buy real capital) PRODUCTION LAND + LABOR + CAPITAL (Inputs) = GOODS & SERVICES (Outputs)

7 PRODUCTIVE RESOURCES COMPUTER OIL MACHINIST FOREST TRACTOR SOIL AUTO MECHANIC ACCOUNTANT SEWING MACHINE RICE FARMER BOOK TEACHER SCHOOL IDEAS

8 The Basic Economic Problem: SCARCITY SCARCITY: the lack of enough resources to produce all of the goods and services that people want. Scarcity exists when needs/wants are greater than the available resources, goods, or services. Consumers cannot have and producers cannot make everything they want because of scarcity. What is scarce is different at different times and in different places. Scarcity requires consumers and producers to make CHOICES. OPPORTUNITY COST: the value of the next best thing given up when a scarce resource, good/service is used in a certain way. Every time an economic decision is made, something is chosen and something is given up. The things given up are called TRADE-OFFS. The value of the single best alternative not chosen is the OPPORTUNITY COST. Producers have opportunity costs when they make choices about how to use their resources in production. Consumers have opportunity costs when they choose one good or service over another.

9 About how long does it take to get your meal after ordering it at McDonald s? Why is it necessary to make the food so quickly at a fast food restaurant like McDonald s? How do they prepare the food so quickly? What are the disadvantages? What are the benefits of such rapid preparation and delivery?

10 Specialization & Division of Labor A Exercise in Productivity and Efficiency Words to Know PRODUCTIVITY the amount of good and services produced from a given amount of productive resources in a given period of time EFFICIENCY the production of as many good and services from the fewest possible resources DIVISION OF LABOR process whereby workers perform only a single or very steps in the production of a good or service (e.g., factory assembly line) SPECIALIZATION work in an occupation that calls for a variety of related skills gained through special training, education, or experience (e.g., engineering, nursing, accounting) INTERDEPENDENCE the way in which people, businesses, and countries specialize and rely on each other to get the goods/services they do not produce themselves

11 Specialization & Division of Labor A Exercise in Productivity and Efficiency ACTIVITY GUIDELINES 2 production groups: one assembly line (fast food joint), one non-assembly line (specialty/upscale restaurant) each group led by a crew chief who directs production three rounds of production (5 minutes each) in each round, groups produce as many hamburgers according to given specifications (see next slide) as it can poor quality products will not be counted toward team totals at the end of each round

12 Specialization & Division of Labor A Exercise in Productivity and Efficiency HAMBURGER GUIDELINES Two Buns (1.5 inches in diameter) Sixteen Sesame Seeds on Top Bun Three Dabs Ketchup on Patty Three Dabs Mustard on Patty Two Pickles on Patty One Meat Patty (1.5 inches in diameter)

13 Specialization & Division of Labor A Exercise in Productivity and Efficiency DEBRIEFING THE ACTIVITY 1. What are some ADVANTAGES of the assembly line? 2. What are some DISADVANTAGES to the assembly line? 3. When might you as a consumer want to pay a little more and/or wait a little longer for your good/service to be delivered to you? 4. What are some real-life examples of both types of production? 5. How are division of labor and specialization different when it comes to producing a good or service cheaper and faster? 6. How are these concepts of specialization and division of labor related to productivity and efficiency?

14 Specialization & Interdependence in Warren County Applying Key Concepts List at least three (3) jobs in Bowling Green and Warren County that you think require some sort of specialized knowledge or training. In 1-2 paragraphs, explain how these individuals are interdependent with each other.

15 MONEY: The Convenient Alternative in Trade EXCHANGE (TRADE): the act of giving or taking one good or service for another either by barter or through the use of money Exchange is a way of distributing the output of specialized production. BARTER: the direct trade of one good or service for another good or service without the use of money MONEY: something that is widely accepted as immediate payment for goods and services. Money makes trade easier and more convenient than bartering.

16 MONEY: The Convenient Alternative in Trade Trade Scenario 1 TRADER HAS WANTS A 2 highlighters 3 pencils B 3 pencils 1 pack of notecards C 1 pack of notecards 1 scissors D 1 scissors 2 highlighters What made trade difficult in this scenario?

17 MONEY: The Convenient Alternative in Trade Trade Scenario 2 TRADER HAS WANTS A 2 highlighters + 1 Bukobuck 3 pencils B 3 pencils + 1 Bukobuck 1 pack of notecards C 1 pack of notecards + 1 Bukobuck 1 scissors D 1 scissors + 1 Bukobuck 2 highlighters How did the Bukobucks make trade easier in this scenario?

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20 Are there forms of exchange that do not include bartering and do not use money? YES! CREDIT CARDS FOOD STAMPS OTHER EXAMPLES??? sample

21 MARKET PRICE

22 MARKET PRICE MARKET the place where people buy and sell things (e.g., gas station, mall, grocery store) also involves the interactions of buyers and sellers (e.g., a child selling cookies at a bake sale, buying of stocks and other securities on the New York Stock Exchange) PRICE the amount of money people pay in markets when they buy a good or service MARKET PRICE is determined by the forces of SUPPLY and DEMAND and represents the MARKET VALUE of a good or service.

23 THE DEMAND SIDE OF PRICE DEMAND the amounts of a good or service consumers are willing to buy at a given price LAW OF DEMAND Consumers will buy more goods and services at a low price than they will at a high price. DEMAND

24 THE SUPPLY SIDE OF PRICE SUPPLY the amounts of a good or service producers are willing to sell at a given price LAW OF SUPPLY Producers will supply more goods and services when they can sell them at a higher price. SUPPLY

25 THE GOAL OF MARKET PRICE EQUILIBRIUM PRICE the price at which all the SUPPLY is sold and everyone s DEMAND is satisfied the state in the market where SUPPLY=DEMAND goal for both producers and consumers because: producers have no surplus or shortages consumers get exactly what they want at the price they are willing to pay everybody is happy MARKET EQUILIBRIUM

26 SUPPLY, DEMAND, & PRICE An Exercise in Market Changes YOUR GUIDELINES 5 production groups three rounds of production (5 minutes each) in each round, groups produce as many baskets of apples, cups and saucers, hammers, and/or shirts as it can groups do not have to make a certain number or even one of each good; any combination of items produced is acceptable each good produced must be close to the same size as the given example (see sample items) poor quality products will not be counted toward team totals at the end of each round

27 SUPPLY, DEMAND, & MARKET PRICE DEBRIEFING THE ACTIVITY (write these in your notes) 1. What patterns do you see in the SUPPLY, DEMAND, & MARKET PRICE CHART? in each column, price decreases as supply increases; in column 2, a decrease in demand always causes price to fall; and in column 3, an increase in demand always causes price to rise 2. In a market, what two things are necessary for a price to be determined? a supply and demand for a good/service 3. What caused price to change? a change in supply, demand, or both 4. How did the price of a good influence your production decisions? a high price was an incentive to produce more; a low price was an incentive to produce less 5. How did the other groups affect your strategy and plans? they also produced a lot when the price was high causing the price to then drop; had to guess what the other groups were producing and try to produce something else in order to make money

28 SUPPLY, DEMAND, & MARKET PRICE (see handout) * PRICE tells how scarce a good/service is. PRICE is determined by supply and demand. * PRICE goes UP when SUPPLY is LOW and DEMAND is HIGH. * PRICE goes DOWN when SUPPLY is HIGH and DEMAND is LOW. * EQUILIBRIUM PRICE* the price at which all the SUPPLY is sold and everyone s DEMAND is satisfied; the point where SUPPLY and DEMAND are EQUAL

29 FACTORS INFLUENCING SUPPLY & DEMAND Factors which influence the LEVEL OF SUPPLY 1. changes in the cost of productive resources: The higher the cost of productive resources, the lower the supply the producer will be able to put on the market because the raw materials needed to produce it are too expensive. 2. changes in technology: New technologies such as assembly-line production and mechanized labor (machines) may lower production costs, making it easier to produce more goods for sale at a lower price. 3. new producers in the market: Supply usually increases when suppliers enter a market and decrease when suppliers leave a market.

30 FACTORS INFLUENCING SUPPLY & DEMAND Factors which influence the LEVEL OF DEMAND 1. what people want--tastes and preferences: When a product is in fashion, demand is high. When people s tastes change, the demand for that product decreases. 2. consumer income--how much money people have to spend: In general, people spend more money on goods and services when they have more money to spend. 3. the price of substitute products: If alternative products are available at a lower cost, then the demand for a product will go down.

31 Before we move on... Now that you ve been introduced to some of the basics of economics (e.g., scarcity, opportunity cost, production, supply, demand, price, etc...), what do you do with this knowledge? YOU INTERPRET IT. But why? So you can make informed choices with your TIME, your MONEY, your CAREER, your STUFF, your VOTE, your LIFE...so you can benefit yourself and your community. And how? By using the tools of economists which include: statistics economic models charts and tables graphs And by looking at economic behavior through two different lenses : MICROECONOMICS MACROECONOMICS see Chapter 1 Section 4 in ECONOMICS: Concepts and Choices

32 The Economist s Toolbox STATISTICS information in numerical form often displayed in charts, tables, and graphs clearly show the relationships among sets of data

33 The Economist s Toolbox ECONOMIC MODELS take statistics and help explain why things are the way they used to make predictions future economic activity based on past experiences use words, graphs, and/or equations examples of economic models E-COW-NOMICS EXPLAINED

34 The Economist s Toolbox A Sample Model for Time Management You have a total of 6 hours to spend each afternoon and evening from the time you get home until the time you go to bed (4 p.m.-10 p.m.). You will spend 30 minutes per class completing homework if you have assignments to complete in any class. Maximum Homework Time Homework Dinner/Hygiene Unwinding 50% 17% 33% You will spent 1 hour total eating dinner and tending to matters of personal hygiene. You will spent any remaining time unwinding from my day (3-5 hours). Minimum Homework Time 83% 17%

35 The Economist s Toolbox MICROECONOMICS involves the study of individual players in an economy such as individuals, families, and businesses used to explain prices, costs, profits, competition, behavior of consumers and producers on a small-scale. specialized topics studied include agricultural economics, business organization, labor markets, environmental issues

36 The Economist s Toolbox MACROECONOMICS studies the behavior of the economy as a whole involves such topics as inflation, unemployment, and other group statistics. used to address issues such as the effect of widespread joblessness (unemployment) and the rise of prices in all areas of an economy (inflation) used to direct national fiscal and monetary policies as well as international trade (more on this later!) MACROECONOMICS

37 The Economist s Toolbox POSITIVE ECONOMICS studies economic behavior as it is uses the scientific method to observe data, hypothesize, test, refine, and continue testing results in statements that can be tested against real-world data can be proved (strongly supported) or disproved (strongly questioned) Will raising the tax on cigarettes in Kentucky increase state revenues OR will it lead to a decrease in the sale of tobacco products and reduce the income of tobacco farmers in the state? Positive economists would study the effects on revenues and income of farmers in other states that raised taxes on tobacco products.

38 The Economist s Toolbox NORMATIVE ECONOMICS involves judgments of what economic behavior ought to be based largely on the values of individuals or groups results in statements that are often very divisive with no clear-cut right or wrong answer often based on questionable data that supports only one particular point of view and proposes a set of policy solutions that are politically biased

39 The Economist s Toolbox THE VALUE OF STATISTICS AND OTHER DATA...to POSITIVE ECONOMICS can be used to show how things works

40 The Economist s Toolbox THE VALUE OF STATISTICS AND OTHER DATA...to NORMATIVE ECONOMICS can be used to support or challenge economic policy proposals and/or those already put into action DEMOCRATS believe the economic policies of Obama are responsible for gradually reducing unemployment since taking office in January 09. REPUBLICANS blame the economic policies of Obama for not reducing joblessness enough since taking office in January 09.

41 Connecting Economics to Politics Answer each of the following questions on a separate sheet of paper. 1. How much influence should a government have in running a country s economy? 2. Are there parts of the economy that should be controlled or operated SOLELY by the government? 3. Are there areas of the economy in which the government should NOT interfere?

42 ECONOMIC SYSTEMS Who Makes the Decisions? ECONOMIC SYSTEM: a way a country organizes to make economic choices and decision for the well-being of the group or society The type of economic system a country has depends on how it answers some basic economic questions: 1. Who owns and controls the basic resources needed to produce goods and services? 2. Who makes the basic economic decisions? a) What is to be produced? b) How is it to be produced? c) For whom is it to be produced?

43 ECONOMIC SYSTEMS Who Makes the Decisions? There are three basic models for economic systems: * TRADITIONAL ECONOMIES * COMMAND ECONOMIES * MARKET ECONOMIES

44 ECONOMIC SYSTEMS IN PRACTICE Item of Comparison Traditional Economy Command Economy Market Economy 1) Ownership of Capital the family or tribe (small groups in the community) government producers/ private business owners 2) Ownership of Land & Resources the family or tribe (small groups in the community) government producers/ private business owners 3) Who Decides Which Jobs People Have? parents decide what their children will do government decides based on group s needs individuals choose their own careers 4) Who or What Decides What Is Produced? custom... what s always been made government producers AND consumers 5) Who or What Decides Price? custom keeps price the same government sets prices at affordable levels supply AND demand 6) Role of the Consumer to buy what is available to buy what government allows to be produced to create demand; influence supply and price 7) Role of the Government to support/reinforce customary practices controls every aspect of the economy does not interfere with the economy; stays out of it 8) Advantages * predictable *everyone has a role in the economy; all are included * everyone s basic needs are usually satisfied * consumers have choice *producers have choice * workers choose jobs 9) Disadvantages * no choice * changes come very slowly * no incentives to work hard * shortages are common * no protection for workers OR consumers * businesses fail & jobs get lost

45 Create your Own Economic Model With a partner, create an economic model for running an economy that you think would benefit the most people in a society. Your plan should include 7 slides as follows: 1. Create an original and descriptive title for your plan. 2. How will producers and businesses be protected in your economy? 3. How will workers protect their own interests? 4. How will consumers be protected? 5. What role, if any, will the government have in this economy? 6. Describe at least 2 problems that may arise in an economy based on your model. 7. Explain three reasons your economic model is better than the traditional, command, and market economy models.