Economics Unit 1. Name: Period: Teacher: Mrs. Povletich

Transcription

1 Economics Unit 1 Name: Period: Teacher: Mrs. Povletich

2 Ten Principles of Economics Principle What it is What it means 1 People face trade-offs 2 The cost of something is what you give up to get it. 3 Rational people think at the margin. 4 People respond to incentives. 5 Trade can make everyone better off.

3 6 Markets are usually a good way to organize economic activity. 7 Governments can sometimes improve market outcomes. 8 The standard of living depends on a country s production of goods and services. 9 Prices rise when the government prints too much money. 10 Society faces a shortrun tradeoff between inflation and unemployment.

4 WHAT IS ECONOMICS? Chapter 1, Section 1 KEY TERMS Want Resource Scarcity Opportunity Cost Trade-Off Production Possibilities Frontier Rationing Device Economics FOCUS QUESTIONS Why does scarcity exist? How is choice related to scarcity? How is opportunity cost related to choice? Why are rationing devices needed? What is the purpose of the production possibilities frontier? What activity determines how rationing devices are distributed?

5 UNDERSTANDING OPPORTUNITY COST List 5 items that you recently purchased or did List what you could have purchased or done instead of what you did What is the opportunity cost of the good you purchased or the activity you did? PRODUCTION POSSIBILITIES FRONTIER - One Diagram, Three Economic Concepts o o A PPF shows ALL possible combinations of TWO goods that an economy can produce in a certain period of time. Looking at the production possibilities curve, answer the following questions If this economy produces 40,000 skis per year, how many snowboards can it produce? If this economy produces 50,000 snowboards per year, how many skis can it produce? o Any point on the PPF itself (A-D in the example) is to us. o We can also have the combination of goods represented by any point the PPF, such as point. o Because resources are limited, we don t have enough to produce at point which is the PPF. o Continuing to use the example, answer the following questions about opportunity cost If we narrow our choices to only points B and C. Then we make a final decision to produce at point B, what is the opportunity cost of a set of skis over this range?

6 Applying the Principles Scarcity - CHAPTER 1, SECTION 1 GUNS OR BUTTER (Military vs. Consumer Spending) Economists often speak of the way a society allocates its resources between military and consumer spending as a method for choosing guns or butter. Of course, guns represent resources allocated to a nation s defense; butter represents resources allocated for consumer goods. Economists use the phrase guns or butter because scarcity mandates that we choose how to use available resources. Illustrate the relationship between guns and butter as directed in question Use the following data to draw a production possibilities frontier (PPF) on the grid shown. Guns Butter Use the graph you created in question 1 to answer questions Can this economy produce 6 units of guns and 12 units of butter? Explain. 3. Can this economy produce 11 units of guns and 11 units of butter? Explain. 4. What does this PPF represent? 5. How does this PPF illustrate the concept of scarcity? 6. How does this PPF illustrate the concept of opportunity cost? 7. If the economy is presently producing 0 units of guns and 15 units of butter, what is the opportunity cost of increasing the production of guns from 0 units to 3 units? 8. If the economy is presently producing 12 units of guns and 4 units of butter, what is the opportunity cost of increasing the production of butter from 4 units to 11 units?

7 The Production Possibilities Frontier and Efficiency The PPF represents what an economy can produce when it is using all its resources efficiently. As long as the economy is producing at a point on its PPF, it is producing at an efficient level and using all its resources. When an economy is already using all its resources efficiently, it cannot use the same resources to produce something beyond, or outside, its PPF. Therefore, economists say that a point outside an economy s PPF is unattainable. An economy can produce at a point inside its PPF. However, if an economy is producing at a point inside its PPF, then either the economy is not using all its resources or it is using them inefficiently. Economists label a point inside the PPF underutilization because such a point indicates that the economy is underutilizing its resources. X Y Z Efficiency, unattainability, and underutilization are shown on the PPF and Efficiency graph above. Use the graph to answer questions The point that represents an unattainable point is 10. The point that represents underutilization is. 11. An economy that is using all its resources efficiently is producing at point. A society makes choices that determine how it will allocate its resources between guns and butter. For each of the events in questions 12-16, circle either guns or butter to indicate whether the event would cause a shift along the PPF toward producing more guns or toward producing more butter. 12. After World War I, America pursues a policy of return to normalcy and defense spending is cut. 13. America enters World War II. Shift towards GUNS or BUTTER Shift towards GUNS or BUTTER 14. The Cold War escalates and the number of nuclear warheads increases. Shift towards GUNS or BUTTER 15. After the prosperous 1990s, the terrorist attacks of September 11, 2001, led the United States into wars in Afghanistan and Iraq and increased spending on homeland security. Shift towards GUNS or BUTTER

8 THE ECONOMIC WAY OF THINKING Chapter 1, Section 2 KEY TERMS Marginal Incentive Microeconomics Macroeconomics Theory FOCUS QUESTIONS How do costs and benefits affect decisions? Why are incentives important? Explain the difference between micro- and macroeconomics. Why do economists develop theories? Make a T-Chart reflecting the costs and benefits of continuing your education after high school.

9 The Story of a Broken Window Use the story to explain why it s important for economics to look at what would have been. ****************************************************************************************** Applying the Principles Incentives - CHAPTER 1, SECTION 2 Most of economics can be summarized in four words: People respond to incentives. -Steven Landsburg, economist Governments use economic incentives to influence the behavior of citizens in a way that benefits society. They create incentives through laws and through taxes. For example, a government could pass a law prohibiting children from purchasing a product meant for use by adults. Such a law would make it difficult for children to obtain the product. A government could also place a tax on a certain good to discourage its use. Such a tax would increase the cost of the good. For some people, the cost would then be greater than the benefit, and these people would decrease their consumption of the good. A government could give tax benefits to encourage an activity. For example, it might provide a credit by giving taxpayers back a portion of a tax, or it might provide a deduction by allowing taxpayers to subtract a certain amount from their income before calculating their taxes. Such a credit or deduction would reduce the cost of the activity. For some people, the benefit will then be greater than the cost, and these people would increase their participation in the activity. For each of the goals in questions 1-6, think of a government incentive that accomplishes the goal. EXAMPLE Goal: Decrease the consumption of alcohol. Incentive: The government taxes the manufacture and sale of alcohol. Such taxation increases the cost of alcohol. For some people, the cost is now greater than the benefit, and these people have decreased their consumption of alcohol. 1. Goal: Decrease smoking. Incentive: 2. Goal: Increase the level of education. Incentive:

10 3. Goal: Increase the rate of private home ownership. Incentive: 4. Goal: Decrease the consumption of fuel oil. Incentive: 5. Goal: Increase the rate of personal savings. Incentive: 6. Goal: Increase donations to charities. Incentive: Refer to the goals and incentives in questions 1-6 as you answer questions 7 and What is the trade-off of using tax benefits as incentives? 8. Could any of these incentives have unintended effects? Give a specific example.

11 BASIC ECONOMIC LANGUAGE Chapter 1, Section 3 KEY TERMS Tangible Intangible Goods Utility Disutility Services Land Labor Capital Entrepreneurship FOCUS QUESTIONS Choose an item in the classroom and list the materials/resources that were used to produce it. What are the different ways that economists talk about goods? What are the four types of resources or factors of production? Why are labor and entrepreneurship different categories of resources?

12 Applying the Principles Resources - CHAPTER 1, SECTION 3 Use the following key to label each of the resources in questions 1-16 as land, labor, capital, or entrepreneurship. If a resource is land, identify it as either renewable or nonrenewable. If a resource is a capital good, identify it as either physical or human. (Hint: Physical capital is a tangible, human-made resource-such as tools or machinery-used to produce other goods and services. Human capital is the knowledge and skills a worker gains through education and experience. ) 1. coal 2. telephone 3. natural gas 4. computer 5. truck driver 6. accountant 7. forklift 8. oak trees 9. corn 10. education 11. Bill Gates 12. cotton 13. gold 14. hammer 15. Henry Ford 16. lawyer Ld-r = land (renewable) Ld-n = land (nonrenewable) Lbr = labor C-p = capital (physical) C-h = capital (human) E = entrepreneurship

13 The Three Economic Questions Chapter 2, Section 1 All nations in the world must decide how to answer three economic questions about the production and distribution of goods. How a society answers these three economic questions defines its economic system. Every society must answer the following questions: What goods will be produced? Because of scarcity, no country can produce every good it wants in the quantity it would like. How will the goods be produced? Will production decisions be made by individuals or by the government? Will producers use existing technology or new technology? For whom will the goods be produced? Will the government decide? Will price decide? Will goods be produced for the purpose of trade with other countries? Major Differences between Free Enterprise and Socialism Use pages in your textbook to complete the chart highlighting the characteristics of each economic system. When you are finished, answer the questions at the top of the next page. Free Enterprise Socialism Resources Government s Role in the Economy Economics Plans Income Distribution Controlling Prices Private Property

14 The United States is considered to have a free enterprise (capitalist) economy but why should it really be considered a mixed economy? Why are almost all countries Mixed Economies? The Index of Economic Freedom that is in your textbook is a bit outdated. Go online and look up the 2015 Index of Economic Freedom. Choose one country in each of the categories and then describe why that country earned the score that it did. Country Economic Characteristics (why did this country earn the score it received) Free Mostly Free Moderately Free Mostly Unfree Repressed

15 The Visions behind Free Enterprise and Socialism Use pages in your textbook to complete the chart. You can use the chart on page 39 to make sure you hit the key points. Adam Smith Karl Marx Place and year of birth Major Work (book) Economic system based on his ideas Ideas contributing to his visions Use the following key to label each of the statements as more like the free enterprise vision of Adam Smith or more like the socialist vision of Karl Marx. S = Adam Smith, free enterprise vision M = Karl Marx, socialist vision Resources are owned by private individuals Government decision makers write economic plans Private property is sacred. Government makes major decisions concerning the use of resources and the production of goods. Much attention is given to distribute income away from high earners toward low earners. Government owns and controls many resources. Government does not attempt to control prices. Government plays a small role in the economy. Government sets wages and the prices of goods. Government owns most property and uses it for the benefit of the people.

16 Chapter 2, Section 2 Outline Globalization What Is Globalization? Globalization is a process by which individuals and businesses in any part of the world are much more by events elsewhere in the world than they used to be. Globalization is also the growing of the national economies of the world to the degree that we may be witnessing the emergence and operation of a worldwide economy. What will globalization mean for countries that have a socialist economy? As globalization spreads, many countries are moving toward greater practices. In fact, the world is currently moving from of national economies toward large world economy. It now makes sense to speak of the economic system, and the economic system that best describes what is happening in the world economy is free enterprise or. Globalization didn t just happen overnight. It has happened over many, many years. The end of the brought some countries closer together, and advances in such as the steamship, the telephone, and the Internet have led to increased trade between people in different countries. Costs and Benefits of Globalization Benefits include expanded with new people and products. Income per person has in countries that have opened up their economies to globalization. In addition, developing countries have seen the benefit of reduced and labor, along with increased. Critics of globalization believe that it causes a greater discrepancy between nations and ones. In America, critics point out that many Americans are losing their jobs through a practice called where work is done for a company by persons other than the original company s employees in a country other than the one in which the company is located. Is offshoring bad for the United States? Although some Americans lose their due to globalization, jobs are always being lost and found in an economy responding to market. Even if the degree of offshoring in the United States were, people would still be losing old jobs and getting new jobs every day. Globalization does not everyone in the same way. o o Consider this: If an American worker loses her job due to offshoring, she may have a negative view of offshoring. Her company, on the other hand, may be getting the same level of work for significantly cost, and may see profits. There is also the possibility that prices for the company s products may go due to decreased production costs. The employee may find another job. Could this be a win-win situation for everyone involved?

17 Applying the Principles Globalization Economics - CHAPTER 2, SECTION 2 Benefits of Globalization For each of the following benefits of globalization, describe how it is a good thing. Use your book to help find the answers. BENEFIT: Increased Trade DESCRIPTION: BENEFIT: Higher Standard of Living DESCRIPTION: Costs of Globalization For each of the following costs, describe the major costs put forth by critics of globalization. Then summarize the response that supporters of globalization might offer for each cost. Use your book to help find the answers. COST: Increase in Income Inequality DESCRIPTION: RESPONSE: COST: Loss of American Jobs DESCRIPTION: RESPONSE: COST: More Power to Big Corporations DESCRIPTION: RESPONSE:

18 Examine the arguments of the critics and the supporters of globalization. Do you agree with the critics or the supporters? Would you like to see more or less globalization in the future? How will globalization affect you personally? How will globalization affect your local economy? Write an 8-10 sentence paragraph expressing your ideas and arguments about globalization.

19 Free Enterprise Chapter 3 Section 1: Characteristics of Free Enterprise I. How Does Free Enterprise Answer the Three Economic Questions? A. will produce the goods that consumers want to buy. For example, General Motors and Ford Motor Company decide what style and make of cars they will produce based on what they think the car-buying public wants to buy. B. The individuals who and the business firms decide how goods will be produced. C. Goods are produced for those people who are and to buy them. For example, a person may have $1,000 to spend on a new computer, but be unwilling to replace his or her old computer. In this case, the potential buyer is able, but not willing, and a sale will not take place. II. Five Features of Free Enterprise A. PRIVATE PROPERTY Private property can be described as any good that is owned by an or a business, such as a car, a house, or a piece of machinery. Any good that is owned by the government is referred to as property. Sometimes the government may have a need for private property. Under the right of, the government can take ownership of private property even without the consent of the owner. In such cases, the government will owners for their loss. Eminent domain has been used to obtain private land for such uses as building new schools, highways, and government buildings. B. CHOICE (or Freedom to Choose) have the right to choose what work they want to do and whom they will work for. have the right to choose the products they will produce and offer for sale. Likewise, have the right to choose the products they will buy. C. VOLUNTARY EXCHANGE In free enterprise, individuals have the right to make exchanges or that they believe will make them. Trading $10 cash for a book is an example of a voluntary exchange. D. COMPETITION Consumers are likely to benefit from competition between. Workers can also benefit from competition. The competition between employers for labor services will often result in wages. E. ECONOMIC INCENTIVES Under free enterprise, acts as an incentive to produce. If you produce goods and services that people are willing and able to buy, you receive money in return.

20 III. IV. Laws, Institutions, and Regulations A. A country s system determines, to a large degree, how free enterprise operates. B. Legal systems and institutions can either help or hinder free enterprise. The Circular Flow A. The circular flow of economic activity in the U.S. economy shows the among the key players in the economy. B. sell resources to businesses, and businesses pay for these resources. C. sell goods and services to households, and households pay for these goods and services. D. Households pay taxes to, and provides goods and services to households, such as roads, schools and national defense. E. Businesses pay to government, and government provides and to businesses. The circular diagram is useful because it helps us see how a in one economic activity (such as paying taxes) will lead to a change else in the economy (such as the amount households spend on goods and services produced by businesses).

21 Chapter 3, Section 1 Applying the Principals 1 1. What economic activities flow from businesses to households? 2. What economic activities flow from households to businesses? What economic activities flow from government to households? 4. What economic activities flow from households to government? 4 5. What economic activities flow from government to businesses? 6. What economic activities flow from businesses to government? In questions 7 16, identify the part of the circular flow diagram in which the economic activity listed occurs. Write 1, 2, 3 or 4 in the blanks provided. 7. Mycah attends a public school. 8. Travis buys a new car. 9. Mikayla works 20 hours a week at Burger Barn. 10. Trish does research at a large corporation. 11. Microsoft relies on the Justice Department to enforce copyright laws. 12. Dianne drives on County Road 1 to get to work. 13. Bruce leases his commercial building to Widgets, Inc. 14. Dawn buys a computer from her local office supply store. 15. Vanh buys a lawn mower from Home Depot. The following questions relate to the circular flow diagram. 16. If a recession causes households to reduce spending, how might businesses be affected? 17. If government raises taxes on businesses how might households be affected? 18. If government cuts taxes on households, how might businesses be affected?

22 Section 2: Profit and Loss in Free Enterprise I. Profits and Losses A. Profit equals total (price of a good times the units of the good sold) minus total (average cost of a good times the number of units of the good sold). B. Profit is the amount of money left over after all the costs of production have been paid. Profit exists whenever total is greater than total. C. A occurs when total cost is greater than total revenue. TOTAL REVENUE = TOTAL COST = PROFIT = LOSS = For example, suppose you sell 10 sets of headphones at $100 each, for a total revenue of $. If it costs you an average of $70 each to produce those head phones, your total cost to produce 10 head phones is $. Do you have a profit or a loss on your sale of 10 head phones? Answer: of $ II. Profit and Loss as Signals A. In a free enterprise economy, some businesses are earning profits and some are taking losses. Profits and losses are to the firms actually earning the profits or taking the losses, and signals to firms standing on the B. A firm on the sidelines will see what product is profitable and possibly that market. C. A firm may a product that is producing losses, and its resources to a profitable product. D. Resources flow profit and from losses. Chapter 3, Section 2 Applying the Principals Scenario: Bryan sells gadgets at a price of $7 apiece. His average cost is $5 per gadget. On Monday, Bryan sold 10 gadgets; on Tuesday, he sold 7 gadgets; on Wednesday, he sold 9 gadgets; on Thursday, he sold 11 gadgets; and on Friday, he sold 13 gadgets. 19. What was Bryan s told revenue for the week? 20. What was Bryan s told cost for the week? 21. Did Bryan have a profit or a loss for the week? 22. What was the dollar amount of Bryan s profit or loss for the week? Section 3: The Ethics of Free Enterprise I. Ethics and Free Enterprise A. Ethics consists of the principles of CONDUCT, such as right and wrong, morality and immorality, and good and bad. B. An ethical economic system should have four characteristics. Supporters of free enterprise say that the free enterprise economic system has these characteristics. 1. Allow individuals to their own occupations or professions. 2. Produce the goods and services preferred by both the majority and the. 3. (or ) producers according to how well (or poorly) they respond to the preferences of the buying public. 4. Provide people with numerous, including the freedom to work where they want to work, the freedom to start their own businesses if they want, the freedom to acquire property, the freedom to buy and sell the goods they want to buy and sell, and even the freedom to.

23 II. III. Economic Principles in Key Documents A. The Bill of Rights shows a high regard for property. The Bill of Rights notes that private property [shall not] be taken for public use, without just. B. The Declaration of Independence encourages free - an essential ingredient of free enterprise. The Declaration of Independence lists against the king of Great Britain, George III. One complaint is that the king prevented the 13 colonies from with all parts of the world. C. The Constitution preserves an important feature of free enterprise by denying states the right to tax each other s goods. Article 1, Section 8, of the U.S. Constitution states that no tax or duty shall be laid on articles from any State. To preserve competition, it was important to allow the free trade of goods state lines. Economic Rights and Responsibilities in a Free Enterprise Economy A. People in a free enterprise economy usually share three sets of rights and responsibilities: 1. The right to sell an item comes with the responsibility to disclose any relevant facts about the item in question. 2. One has the right to use private property as one wishes, within the limits of the law. 3. The responsibility attached to the right to compete is that one must compete in a truthful, legitimate manner. Section 4: Entrepreneurs I. Imagine Being an Entrepreneur A. An entrepreneur is a person who has a special talent for out and taking of new business opportunities. B. Entrepreneurs play an important role in society by taking to develop new products or new ways of doing things that the public. Most people are not entrepreneurs; entrepreneurs are a tiny of the population. II. Entrepreneurs, Profit and Risk A. People will not risk their time and money to develop new products unless they can potentially earn a. B. Not all entrepreneurs are. C. However, a few end up as millionaires and even billionaires, and it is the prospect of such that entrepreneurs. Critical Thinking Questions 33. Bill Gates, Steven Jobs and Elon Musk are entrepreneurs whose work has made them among the wealthiest people in the world. Why is it necessary to allow entrepreneurs to benefit from their work? 34. How do we all benefit from the work of entrepreneurs?

24 Section 5 I. Government as of Contracts A. A contract is an agreement between two or more people to do something. Government people who break their contracts. In other words, the government enforces contracts. Without government to enforce contracts, the of going into business would be too great for many people. B. Could the free enterprise system function without a government to enforce contracts? Probably not as well, because the risks of going into business would be too. II. Government as Provider of Nonexcludable Goods A. Goods are categorized as two major types: private goods and public goods. A good is a good in which one person s consumption takes away from another person s consumption. Examples include food and gas. A good is a good in which one person s consumption does not take away from another person s consumption. An example would be a movie in a movie theater. A public good can be excludable or non-excludable. 1. An excludable public good is a public good that individuals can be excluded (physically prohibited) from. An example would be a college lecture, which is available only to enrolled students of the college. 2. A non-excludable public good is a public good that individuals cannot be from consuming. An example would be national defense. are people who receive the benefits of a good without paying for it. B. Who will want to produce a nonexcludable public good? Economists say that in a free enterprise system, will want to. After all, people will not pay for something they get anyway. However, even in a free enterprise economy, people want non-excludable public goods, such as national defense or flood protection (dams). Who will produce these goods? The will provide non-excludable public goods and pay for them with. C. One way for people to communicate what nonexcludable public goods they want is through the process. III. Externalities A. There are two kinds of externalities: negative and positive externalities. A negative externality is an side effect of an act that is felt by others. A positive externality is a side effect of an action that is felt by others. B. Some people argue that generates positive externalities. What you learn at school will not only help you earn a living, but also help you become a better citizen and a more informed voter. Following that argument, if the public from your education and the education of others, then the should pay for that education. Some people argue that should pay for all activities that generate positive externalities for society. C. When it comes to negative externalities, some might say that the role of government is to the negative externalities. Government can reduce the negative externalities through the following: the,, and. 1. If you have a against a negative externality, the courts are available to hear your case and find a resolution. 2. The government regulations, such as speed limits and pollution standards, to deal with negative externalities.

25 Chapter 3, Section 5 Applying the Principals Use the following key to label each of the goods in questions 8-15 as a private good (P), an excludable public good (E), or a nonexcludable public good (N). 35. fireworks display 36. public radio 37. cell phone 38. dam 39. toll road 40. national defense 41. rock concert 42. hamburger Use the following key to label each of the situations described as a positive externality (P) or a negative externality (N). 43. Your neighbor has loud parties late into the night, keeping you awake. 44. Your neighbor has a large oak tree that shades your yard. 45. Your neighbor does not take care of his house; the house is literally falling apart. 46. Your community has excellent schools. 47. The person sitting next to you in a restaurant is talking loudly on a cell phone. 48. A factory in your town spews pollution into the air. 49. Your state requires children to get vaccinated for common diseases. 50. People in your community shoplift at local stores.