AP Economics
1/12/2015 & 1/13/2015
Warm Up—Warm Ups will be graded weekly as a daily grade. Every
Thursday/Friday I will walk around and check off that you are doing
your warm ups.
Warm Up #1:
-3 Sentences
-What does economics mean to you?
Announcements
• New Year, New YOU! (And me)
• Remind: Text @waisecon to 81010
• January Calendars
• Supplies: Binder w/ graph paper, Dividers, Spiral
• Texts: Naked Economics By Charles Wheelan
• Money Skill: moneyskill.org
• Grades
• 50%: Tests/Projects
• 30%: Quizzes
• 20%: Daily Grades
• Your group is building a new zoo.
• You have to decide what animals to have.
• Space is limited. You get 25 acres.
• Take 8-10 minutes to make your selections,
based on the next slide.
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Lion - 2 acres
Turkey - 1/10 acre
Giraffe -1 acre
Seal - 1/2 acre
Camel - 1/2 acre
Cheetah - 1 acre
Cow - 1/3 acre
Monkey - 1/2 acre
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Asian Elephant - 1 acre
African Elephant - 1.5 acres
Reptile House - 5 acres
Hammerhead Shark - 1/2 acre
Kangaroo - 1/2 acre
Tiger - 1 acre
Whales - 3 acres
House of Birds - 5 acres
*Numbers are acres required for ONE animal (hint: they don’t like being alone!)
[If you had 2 of each, it would take over 34 acres–so you will have to make choices.]
Lion - 2 acres; Turkey - 1/10 acre; Giraffe -1 acre; Seal - 1/2 acre; Camel - 1/2 acre;
Cheetah - 1 acre; Cow - 1/3 acre; Monkey - 1/2 acre; Asian Elephant - 1 acre;
African Elephant - 1.5 acres; Reptile House - 5 acres; Hammerhead Shark - ½ acre;
Kangaroo - 1/2 acre; Tiger - 1 acre; Whales - 3 acres; House of Birds - 5 acres.
*Numbers are acres required for ONE animal (hint: they don’t like being alone!)
[If you had 2 of each, it would take over 34 acres – so you will have to make choices.]
Principles of Economics
1. People Face Trade-Offs
• “There ain’t no such thing as a
free lunch”
• “Guns and Butter”
• Clean Environment and a high
level of income
• Efficiency and Equality
2. The Cost of something is What you Give up
to Get it
• What is the real cost of going to college?
• Opportunity Costs: Whatever must be given up to obtain some item
• Professional Athletes opportunity costs in college is higher than Ms.
Speight’s.
VS.
3. Rational People Think at the Margin
• Marginal Change: small incremental
adjustment to a plan of action
• 200 seat plane costs airline $10,000 to
fly across United States. How much
should each seat cost?
• What is the marginal cost of selling a
ticket at $300?
• Why is water so cheap when diamonds
are so expensive?
• Rational decision makes takes action IF
AND ONLY IF the marginal benefit of the
action exceeds the marginal cost. ($300
or a bag of peanuts?)
4. People Respond to Incentives
• Incentive: something that induces a person to act
• Seatbelts in the 1960s and the incentive to drive faster
• Just how much does GAS affect you?
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“As Gas Prices Soar, Buyers are Flocking to Small Cars”
“As Gas Prices Climb, So Do Scooter Sales”
“Home Buying Practices Adjust to High Gas Prices”
“Gas Prices Drive Students to Online Courses”
“Increased Gas Prices Increase Celebrity Sitings”
• Tax on Gas in Europe vs. America
• Incentives for middle class?
5. Trade Can Make Everyone Better Off
• Ford vs. Toyota
• Apple vs. Sony
• Your family vs. Other Families
• Trade allows each person to
specialize in the activity he or she
does best! (Farming, sewing, or
homebuilding)
6. Markets are Usually a Good Way to Organize
Economic Activity
• Communism or Central Planners vs. Market
Economy
• Market Economy: an economy that allocates
resources through the decentralized
decisions of many firms and households as
they interact in markets for goods and
services
• Adam Smith: “Invisible hand”
• Prices: Supply and Demand
• Smith: When the Government prevents
prices from adjusting naturally to supply and
demand, it impedes the invisible hand’s
ability to coordinate the decisions of the
households and firms that make up the
economy
7. Governments Can Sometimes Improve
Market Outcomes
• Property Rights: individuals can own
and control scarce resources
• A farmer won’t grow food if he
expects his crop to be stolen
• A restaurant won’t serve meals
unless it is assured that customers
will pay before they leave
• Entertainment companies won’t
produce DVDs if too many potential
customers avoid paying by making
illegal copies
8. A Country’s Standard of Living Depends on
Its Ability to Produce Goods and Services
• United States: $47,000
• Mexico: $10,000
• Nigeria: $1,400
• Productivity: the quantity of goods and
services produced from each unit of labor
input
• Increased productivity increases standard
of living
• How do we raise productivity?
9. Prices Rise When the Government Prints
Too Much Money
• Inflation: an increase in the overall level of prices in the economy
• January 1921: German Newspaper cost .30 marks.
• November 1922: Same newspaper cost 70,000,000 marks
• Gerald Ford: “Inflation is public enemy number one.”
10. Society Faces a Short-Run Trade-Off
between Inflation and Unemployment
• Increasing the amount of money in the economy stimulates the
overall level of spending and thus the demand for goods and services
• Higher demand may over time cause firms to raise their prices, but in
the meantime, it also encourages them to hire more workers and
produce a larger quantity of goods and services
• More hiring means lower unemployment
• Business Cycle: Fluctuations in economic activity, such as
employment and production
Terms to know by next class and forever
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Economics
Scarcity
Efficiency
Equality
Opportunity Cost
Marginal Changes
Incentive
Market
Productivity
Inflation
Trade-Off
Principles of Economics Quiz: Next Class