High School Social Studies Economics Unit 01 Exemplar Lesson 02: Introduction and Basic Concepts: Circular Flow Model

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1 with Emphasis on the Free Enterprise System and Its Benefits Unit: 01 Lesson: 02 Suggested Duration: 3 days High School Unit 01 Exemplar Lesson 02: Introduction and Basic Concepts: Circular Flow Model This lesson is one approach to teaching the State Standards associated with this unit. Districts are encouraged to customize this lesson by supplementing with district-approved resources, materials, and activities to best meet the needs of learners. The duration for this lesson is only a recommendation, and districts may modify the time frame to meet students needs. To better understand how your district may be implementing CSCOPE lessons, please contact your child s teacher. (For your convenience, please find linked the TEA Commissioner s List of State Board of Education Approved Instructional Resources and Midcycle State Adopted Instructional Materials.) Lesson Synopsis The circular flow of economic activity is a simplified economic model of a basic market economy showing the relationships within the economy. Students learn about the Circular Flow Model through a PowerPoint and a simulation activity. TEKS The Texas Essential Knowledge and Skills (TEKS) listed below are the standards adopted by the State Board of Education, which are required by Texas law. Any standard that has a strike-through (e.g. sample phrase) indicates that portion of the standard is taught in a previous or subsequent unit. The TEKS are available on the Texas Education Agency website at E.8. The student understands the circular-flow model of the economy. The student is expected to: E.8A Interpret the roles of resource owners and firms in a circular-flow model of the economy and provide real-world examples to illustrate elements of the model. E.8B Explain how government actions affect the circular-flow model. E.8C Explain how the circular-flow model is affected by the rest of the world. Skills TEKS E.24 Social studies skills. The student uses problem-solving and decision-making skills, working independently and with others, in a variety of settings. The student is expected to: E.24B Use a decision-making process to identify a situation that requires a decision, gather information, identify options, predict consequences, and take action to implement a decision. GETTING READY FOR INSTRUCTION Performance Indicators Last Updated 04/30/2013 page 1 of 15

2 High School Unit 01 PI 02 Given a scenario (see examples below), draw and then interpret a circular flow model using call-out boxes and written paragraph(s). In the call-out boxes and paragraph(s), illustrate 1) the relationship between the two sectors- households and business firms, 2) how both sectors are buyers and sellers in this model, 3) the limited role government would play in this model, and 4) economic interdependence demonstrated in this model. Then explain how the rest of the world affects the model. with Emphasis on the Free Enterprise System and Its Benefits Unit: 01 Lesson: 02 Suggested Duration: 3 days Scenario Examples: (a) Kathleen applies for an after-school job at a local restaurant. (b) Kathleen uses some of her wages to buy new jeans. Government Role Examples: The government increases taxes it collects from households and businesses. What would happen in the other flows? Households have less money to buy goods and services, businesses would decrease production and decrease the resources they would buy, some people would lose their job. Standard(s): E.8A, E.8B, E.8C ELPS ELPS.c.4F, ELPS.c.5G Key Understandings The circular flow of economic activity illustrates the interdependent relationship between consumers and sellers within a market. What is a circular flow model? What is interdependence? Who are the consumers? Who are the sellers? What are producers or businesses? What is a market? Vocabulary of Instruction circular flow model markets sectors households business firms exchange economic interdependence resource product national income rent wages labor profit Materials Refer to the Notes for Teacher section for materials. Attachments All attachments associated with this lesson are referenced in the body of the lesson. Due to considerations for grading or student assessment, attachments that are connected with Performance Indicators or serve as answer keys are available in the district site and are not accessible on the public website. Teacher Resource: PowerPoint: 2-Sector Circular Flow Handout: Texasville Economy Instructions (1 per student) Teacher Resource: Cards Teacher Resource: Cards Teacher Resource: Cards Teacher Resource: Cards Teacher Resource: Money Cards Last Updated 04/30/2013 page 2 of 15

3 Teacher Resource: Cards with Emphasis on the Free Enterprise System and Its Benefits Unit: 01 Lesson: 02 Suggested Duration: 3 days Teacher Resource: Texasville Economy Factory Placard Teacher Resource: Texasville Economy Teacher Instructions Teacher Resource: (optional) Sector Circular Flow Model Resources None identified Advance Preparation 1. Become familiar with content and procedures for the lesson, including appropriate sections of your textbook and or other classroom resources available to support learning. 2. Refer to the Instructional Focus Document for specific content to include in the lesson. 3. Select appropriate sections of the textbook and other classroom materials that support the learning for this lesson. 4. Preview websites according to district guidelines. 5. Preview the game Texasville Economy and become familiar with the game. 6. Prepare attachment(s) as necessary Background Information The Circular Flow of economic activity is a simplified model of a basic market economy. This model allows students to see the relationship between households and business firms and it demonstrates how both sectors act as buyers and sellers. The model will demonstrate the economic interdependence of our economy; what happens in one flow will affect the entire economy. INSTRUCTIONAL PROCEDURES Instructional Procedures ENGAGE Circular Flow Model 1. Facilitate a discussion about employment opportunities for students and ask how many of them are currently employed. Continue the discussion by asking for student volunteers to respsond to the following question: What are some of the reasons for being employed. Most will say that they need to earn money. Ask students if they know the economic term for the money they earn. (wages) Notes for Teacher NOTE: 1 Day = 50 minutes Suggested Day 1-5 minutes Purpose: The discussion integrates a review of academic vocabulary from the previous lesson. It also serves as an introduction to the circular flow model by linking it to real world experiences. TEKS: E.8A, E.8B, E.8C 2. Review the production resources from the previous lesson (land, labor, capital and entrepreneurship). 3. Ask: Which resources are they selling and receiving payment as wages? (labor) 4. Discuss how they are selling their resources to a business firm and how business firms are making money payments back to them in the form of wages. Continue the discussion by providing an opportunity for students to share how they utilize the wages they earn. EXPLORE Circular Flow Model Suggested Day 1 (cont d) 30 minutes Last Updated 04/30/2013 page 3 of 15

4 with Emphasis on the Free Enterprise System and Its Benefits Unit: 01 Lesson: 02 Suggested Duration: 3 days 1. Explain to students that they will be viewing a PowerPoint that provides an explanation of the Circular Flow Model. 2. Provide a copy of the Handout: PowerPoint: 2-Sector Circular Flow for each student. When printing the PowerPoint for each student, print it as a notes/handout version with three slides per page. This will provide for student note-taking while viewing the PowerPoint. 3. Provide students with an explanation for each of the slides in the PowerPoint and provide examples. Facilitate a discussion when appropriate throughout the PowerPoint presentation and provide sufficient time for student notetaking. 4. The last slide is specific to E.8B and E.8C. EXPLAIN Circular Flow Model 1. Students explain how they function as both a buyer and seller in the economy. Some students will have jobs. If they are not currently employed, assign them a job at a local employer. 2. Provide students with a scenario: You are planning to go view a recently released movie. 3. Students explain how they will pay for the tickets to view the movie. (They use the wages they earn from their job.) 4. Students draw a circular flow chart/model with the information.they write their name in the place for household and the local employer for the business firm. ELABORATE Circular Flow Model 1. Students play the Circular Flow Game. 2. Preview game before hand so you understand the objectives of the game. 3. Read through Teacher Resource: Texasville Economy Teacher Instructions Materials: textbook (1 per student) Attachments: Purpose: Teacher Resource: Power Point: Sector Circular Flow Students gain a visual understanding of the Circular Flow Model in preparation for the performance indicator. TEKS: E.8A, E.8B, E.8C Suggested Day 1 (cont'd) - 15 minutes Purpose: This will allow students to see how they function as both a buyer and seller in the economy. TEKS: E.8A, E.8B, E.8C Instructional Note: Have students draw a circular flow model using this information. They will turn this in as they exit the room. Suggested Day 2 50 minutes Materials: Attachments: Game: Texasville Economy Handout: Texasville Economy Instructions (1 per student) Teacher Resource: Cards Teacher Resource: Cards Teacher Resource: Cards Teacher Resource: Goods and Services Cards Teacher Resource: Money Cards Teacher Resource: Cards Teacher Resource: Texasville Economy Factory Placard Teacher Resource: Texasville Economy Teacher Instructions Purpose: To actively engage students in learning activity so that they have a better understanding of the circular flow of economic activity. TEKS: E.8A, E.8B, E.8C; E.24B EVALUATE Circular Flow Model Suggested Day 3 50 minutes Last Updated 04/30/2013 page 4 of 15

5 High School Unit 01 PI 02 Given a scenario (see examples below), draw and then interpret a circular flow model using call-out boxes and written paragraph(s). In the call-out boxes and paragraph(s), illustrate 1) the relationship between the two sectorshouseholds and business firms, 2) how both sectors are buyers and sellers in this model, 3) the limited role government would play in this model, and 4) economic interdependence demonstrated in this model. Then explain how the rest of the world affects the model. with Emphasis on the Free Enterprise System and Its Benefits Unit: 01 Lesson: 02 Suggested Duration: 3 days Purpose: Students sketch the circular flow model with all the components required in the performance indicator based on acquired information from the two-day lesson. TEKS: E.8A, E.8B, E.8C; E.24B Scenario Examples: (a) Kathleen applies for an after-school job at a local restaurant. (b) Kathleen uses some of her wages to buy new jeans. Government Role Examples: The government increases taxes it collects from households and businesses. What would happen in the other flows? Households have less money to buy goods and services, businesses would decrease production and decrease the resources they would buy, some people would lose their job. Standard(s): E.8A, E.8B, E.8C ELPS ELPS.c.4F, ELPS.c.5G Last Updated 04/30/2013 page 5 of 15

6 The Texasville Economy HOUSEHOLDS In an economy, individuals function as both buyers and sellers. Households or individuals act as a consumer when they buy goods and services from business firms. These exchanges take place in the product market. When you buy tickets to the movie, this is an exchange in the product market. As the owners of the resources, households are the sellers of the resources in the resource market. They sell the productive resources to the business firms. Examples of these exchanges would be individuals selling their labor resource and receiving wages in return, landowners receiving rent for renting their natural resources, and interest paid on loan for capital equipment. BUSINESS FIRMS firms also function as both buyers and sellers in our economy. es buy resources from households in the resource market. They take these resources and turn them into products. A product can be a good or a service. es sell these products to households in the product market. es want to sell their products for more than their costs of production. They want to earn a profit. In order to earn profits, businesses must produce what the household or individuals want to buy and sell them at competitive prices. If businesses do not produce what households want to buy and keep their costs of production low enough to compete with other producers in their industry, the business will have losses. If a business continues to incur losses, it will eventually go out of business. INSTRUCTIONS FOR THE TEXASVILLE ECONOMY SIMULATION In this game, you will be assigned the role of either a household or a business firm. Read carefully about both roles, then your teacher will assign your role. Households: Your first goal is to sell your productive resources (land, labor, and capital) to the business firms. You will start the game from selling these resources. The income on land is rent, on labor it is wages, and on capital it is interest. This makes up what we call national income. Households will then use the income they earn to buy products in the product market. Products can be goods or services. These products are all of the things produced in our economy. Your goal is to accumulate as many products as you can. This equates to your standard of living. You will be given a mixture of 15 resource cards. Some resources may be scarcer than others. You may not want to sell all of your resources immediately because the price of resources may change as the game goes on. You do want to sell all of your resources by the end of the game because at the end of the game you want to have as many goods and services as you can acquire; this is equal to your standard of living. You do not want money or resources. Firms: firms, your goal is to make a profit. You started the game with a loan of $1,000.00, so you need to earn more than $1, to make a profit. You earn a profit by selling the products to the households. To be able to produce one unit of products you must have one unit of labor resources, one unit of capital resources, and one unit of land or natural resources. You must buy these resources from the households at the very best price you can negotiate. Once you have acquired one unit of each of the resources, you will then take these resources to the TEXASVILLE factory and exchange them for 1 unit of products. You are free to sell the TEXASVILLE products to any household for the best price. To earn a profit, you must sell the product for more than your costs of production or more than the resources cost you. This would be the wages you paid for the labor resource, the rent you paid for the land resource and the interest you paid for the capital resource. Your goal is to buy as many resources as you can so you can produce as many TEXASVILLE products as possible and sell them for a profit. You have $1, to start the game. At the end of the game you want money, more than $1, , TESCCC 04/30/13 page 1 of 1

7 Cards 2012, TESCCC 04/16/12 page 1 of 1

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10 Cards 2012, TESCCC 04/16/12 page 1 of 1

11 Money Cards $100 $100 $100 $100 $100 $100 $100 $100 $100 $100 $100 $ , TESCCC 04/16/12 page 1 of 1

12 Cards 2012, TESCCC 05/09/12 page 1 of 1

13 Texasville Economy Factory Placard Texasville Factory Clipart: Microsoft. (Designer). (2010) 2012, TESCCC 04/01/13 page 1 of 1

14 Texasville Economy Teacher Instructions Divide each class into halves; one half will be Households and one half will be Firms. You will need to duplicate enough resources for half of the class to have a mixture of 15 resources each. For example, if you have a class of 30, one half (or 15) will be households and you will need 225 resources, 75 labor, 75 land, and 75 capital resources. Duplicate the handout sheets; you may want to laminate them so they will last. Cut the handout sheets into individual resources. It is not desirable to give each student 5 labor, 5 land and 5 capital resources. Give each student a mixture; it can be 9 labor, 4 capital, and 2 land, or any combination that adds up to 15. You want students to see that some resources are more scarce or harder to get. Put 15 resources into envelopes and label these HOUSEHOLDS. For the business firms you will want to duplicate enough $100 bills for each business owner to have ten, or $1, You may want to laminate them so they will last longer. Cut the sheets into individual bills. Put ten $ bills into each envelope and label these envelopes BUSINESS. You will also duplicate enough badges for each business owner to have a badge; the business owner will attach the badge to their person with tape or some other method. This will allow you to identify owners when they come to the Texasville Factory. Only business owners are allowed to turn in resources for goods and services. Texasville Factory: duplicate the sign for the Texasville Factory and tape it or attach it to a table or desk where the teacher will exchange 1, 1, and 1 resource for a card. Instructions to Students: Explain to students that people participate in the economy in many ways. People make decisions when they purchase goods and services. This can be when they purchase clothes or get a haircut. Households also act as a seller when they sell resources to business firms such as their labor or any natural resource they own. Households can also save money. This money becomes available for businesses to borrow and use to invest in capital goods. This simulation will allow students to improve their understanding of the relationship between households and business owners in a market economy. Give each student a copy of the instructions for Texasville Economy and instruct students to read the directions very carefully. Review these instructions with students, emphasizing the roll of households and business owners. Divide the class in half and assign each student a roll of Household or Owner. Hand out the envelopes marked Households and owners to students. Tell Households that they should have a total of 15 resources. It does not matter the mix of resources; they should just have a total of 15. owners should have ten $ bills in their envelope. Tape the Texasville Factory sign to a table or desk in the room. This should be to the side accessible for the business owners. 2012, TESCCC 04/30/13 page 1 of 1

15 2-Sector Circular Flow Model goods and services Product Market Resource/ Factor Market Use the information from the scenario below and fill in the appropriate spaces in the chart above. In a short paragraph, explain the relationship between the two sectors. Explain how the two sectors are both buyers and sellers in this model. (a) Kathleen applies for an after-school job at a local restaurant. (b) Kathleen uses some of her wages to buy new jeans. 2012, TESCCC 04/30/13 page 1 of 1