WARM UP (08/28)
• Take out your notebook (or a blank sheet
of paper if you don’t have one), and set
up the first page as follows:
\
Name
Course Title
Period
Three Goals:
1. Class related
2. School related
3. Personal Goal
Draw things that describe yourself on
this page. (ex: favorite food, class,
pets, family, hobbies, favorite movie
or book, etc.)
UNIT 1
ECONOMIC DECISION-MAKING
AND ECONOMIC SYSTEMS
CHAPTERS 1, 2 & 3
I KNOW WHAT YOU ARE
THINKING…
PAGE 1 – SCARCITY: THE
ULTIMATE PROBLEM
You have just found $1000. Make a list of possible uses for
that money.
•
•
•
•
•
New laptop
Tires for truck
New couch
65” television
Food for the next month
You just did a
Cost Benefit
Analysis!!
Now, draw up a plan for spending it, dividing it in any way
that you like. Write a paragraph explaining the trade-offs
involved in your choices.
Don’t use more than half of the page!
PAGE 1 – SCARCITY: THE
ULTIMATE PROBLEM
Scarcity: Problem that occurs when there are not enough
resources to satisfy demands.
Economics: The study of how individuals and societies satisfy
their unlimited wants with limited resources
Goods: Objects, such as food, clothing, and furniture
Services: Work that one person does for another
K
E
Y
T
E
R
M
S
PAGE 1 – SCARCITY: THE
ULTIMATE PROBLEM
Three Fundamental Economic Questions
QUESTION 3 – FOR WHOM
WILL IT BE PRODUCED?
How goods and services are distributed involves
two questions
• How should each person’s share be determined?
• How will goods and services be delivered to
people?
PAGE 2 – FACTORS OF
PRODUCTION
• Divide your sheet into four boxes. Each box should
contain one major factor of production (land, labor, capital
and entrepreneurship).
• Work with your neighbor to complete the following:
1. Define the term.
2. Provide at least 5 examples.
3. Include an illustration.
PAGE 2 – FACTORS OF
PRODUCTION
PAGE 2 – FACTORS OF
PRODUCTION
LABOR
• All the human time, effort, talent used to make products
- Physical and mental effort used to make a good or provide a service
PAGE 2 – FACTORS OF
PRODUCTION
CAPITAL
• A producer’s physical resources
•
•
Includes tools, machines, offices, stores, roads, vehicles
Sometimes called physical capital or real capital
• Workers invest in human capital – knowledge and skills
•
Workers with more human capital are more productive
PAGE 2 – FACTORS OF
PRODUCTION
ENTREPRENUERSHIP
• Vision, skill, ingenuity, willingness to take risks
• Entrepreneurs anticipate consumer wants, satisfy these in new ways
•
•
Develop new products, methods of production, marketing or distributing
Risk time, energy, creativity, money to make a profit
PAGE 3 –
OPPORTUNITY COST
The value of the next-best alternative a person gives up
- not the value of all possible alternatives
Example: Bill chooses to work for six months so he can
travel for six months.
What is the opportunity cost of this decision?
PAGE 3 –
OPPORTUNITY COST
• Cost-benefit analysis
- Examination of
costs, expected
benefits of choices
- One of the most
useful tools for
evaluating relative
worth of economic
choices
PAGE 3 –
OPPORTUNITY COST
• Economic models – simplified representations of economic forces
• Production possibilities curve (PPC) is one model
• Maximum goods or services that can be produced from limited
resources
• Also called production possibilities frontier
ECONOMIC SYSTEMS
While working with your group, discuss and answer the following
questions:
1. What will be produced? Be specific. How was this decided?
What input were employees and consumers given?
2. How will it be produced? Step by step instructions for production,
from beginning to end.
3. For whom will it be produced?
4. What parts of this activity were difficult? Why?
5. What parts of this activity were easy? Why?
Reflection:
Think about the benefits/costs of the alterative system. Which
system do you feel is superior? Why?
PAGE 4 – COMMAND
VS. MARKET
Two major economic systems are:
• Market (or Capitalist) System
• Command (or Planned) System
No economy can be purely market or purely command = All
economics are a mix
PAGE 4 – COMMAND
VS MARKET
Inside North Korea – please list at least 12 facts on the video
(45 minutes long) and think about the answer to the following
question:
In today's global economy, is a command or a market
economy more likely to succeed?
PAGE 5 – COMMAND
VS. MARKET
• Pure Market Economy
• No government involvement in economic decisions
• Government lets the people answer the three basic economic
questions
1. What? Customers decide through their purchases
2. How? This is left up to the individual business – Profit Motive
3. Who? People who have money can buy more – this
encourages hard work and investments
PAGE 5 – COMMAND
VS. MARKET
What? How?
• Pure Command
Whom?
Economy
• Government controls
factors of production and
makes all decisions
• Government is
responsible for
answering the three
economic questions
PAGE 5 – COMMAND
VS. MARKET
What? How?
Whom?
• Mixed Economy
• Laws and regulations
• Labor Laws, Minimum Wage
• Social programs for those who need help
• Medicare, welfare
• All are mixed = classified based on amount of government
involvement
CONTINUUM OF ECONOMIC
SYSTEMS
PAGE 6 – COMMAND
VS. MARKET
• Capitalism
• Private ownership of businesses and marketplace
competition PRIVITIZATION
• Government concerned about its people and takes
care of those who cannot care for themselves
• The political system is a democracy with leaders
elected by the people
PAGE 6 – COMMAND
VS. MARKET
• Socialism
• Increased government involvement
• Main goal = low prices / low
unemployment
• Government runs key industries and
makes economic decisions more social
services for all
• Free or low cost medical
PAGE 6 – COMMAND
VS. MARKET
• Communism
• Government runs everything
(Totalitarian government)
• One political party
• All people able to work are assigned
jobs – there is virtually no
unemployment!
• Government assigns housing and
schools
• Little to no economic freedom
PAGE 6 – COMMAND
VS. MARKET
• Economies in
Transitions
• Breakup of the
Soviet Union
• State owned
industries
privatized
(government
owned businesses
are sold to private
citizens)
CRASH COURSE –
CAPITALISM AND
SOCIALISM
Crash Course Video
With your group, answer the following questions:
1. What is a joint stock company? How did it minimize
risk? Give an example.
2. What is industrial capitalism? How did war encourage
this?
3. List three negative aspects of capitalism.
4. Who was Karl Marx? What was he most famous for?
5. Explain the idea of class struggle, and the problem
between capitalists and workers.
6. According to Green, in what areas are capitalism and
socialism still competing? (P.S. The gov’ts role in…)
PAGE 7 – ECONOMIC
SYSTEMS
• Answer the following questions using the provided
resources.
• You must either answer the question in complete
sentences OR copy each question. An answer with no
question will not help you study for the test!
PAGE 7 - SUPPORTING
CAPITALISM
1. Locate and define two unfamiliar words from the article.
2. The Founding Fathers believed in which three fundamental
rights? From where, or from whom, were these rights granted?
LIFE, LIBERTY, PROPERTY – “CREATOR”
3. According to the Founders, what was the ultimate purpose of
government, and what were they afraid of?
PROTECT INNATE RIGHTS – TOO MUCH POWER
4. According to the author of the article, how does the
government currently interfere with capitalism? What is the
result of this interference?
REGULATIONS, TAXES, LICENSE LAWS, REGISTRATION FEE,
UNION RULES, MINIMUM WAGES, ETC. =
MASSIVE UNEMPLOYMENT AND UNDEREMPLOYMENT
PAGE 7 - CRITICIZING
CAPITALISM
5. Locate and define two unfamiliar words from the article.
6. Explain the statement: “Business does fine but the people
suffer.”
“PROFITS ARE MADE BY GETTING WORKERS TO PRODUCE
MORE IN VALUE THAN THEY RECEIVE IN WAGES.”
7. According to the author, why is argument “the productivity of
the corporations creates mass prosperity” false?
“PROSPERITY MAKES FORTUNES FOR THE FEW…”
8. How did coal-mining companies in the Appalachian
Mountains hurt the local economy?
“SWINDLING THE APPALACHIANS OUT OF THEIR LAND,
UNDERPAYING THEM, FORCING THEM TO WORK UNDER
INHUMANE CONDITIONS, DESTROYING THEIR COUNTRYSIDE.”
PAGE 8 - COMPARE AND
CONTRAST CHINA AND
THE U.S.
9. Identify the similarities and differences between the two economies.
CHINA = LARGER POP., SMALLER GDP, SLIGHTLY LOWER
UNEMPLOYMENT AND POVERTY RATE
10. What does GDP stand for?
GROSS DOMESTIC PRODUCT = ALL GOODS AND SERVICES
PRODUCED WITHIN A COUNTRY
11. What might the GDP reveal about the lives of citizens in China and
the United States?
CHINESE PROBABLY LIVE MORE MODESTLY (LESS BELONGINGS AND
SMALLER SPENDING HABITS)
12. Why do you think so many Chinese remain poor in an economy that
is so large and growing so rapidly?
LARGE POPULATION = NOT ENOUGH RESOURCES TO MEET
DEMANDS OF POPULATION
13. What impact do you think the economic changes and rapid growth
of China’s economy will have on the Chinese and on the world?
INCREASED TRADE WITH NEARBY COUNTRIES, INCREASED
STANDARD OF LIVING FOR CHINESE, COMPETITIOR WITH U.S.
PAGE 8 - ADAM SMITH
ARTICLE (PAGE 30)
• How does Smith believe individual self-interest and profits
benefit all of society?
WHEN TWO BARGAIN, EACH GETS WHAT HE OR SHE WANTS/
HIGHEST QUALITY GOODS FETCH HIGHEST PRICES
• What do you think is the “invisible hand” that Smith
mentions?
FORCE THAT GUIDES INDIVIDUALS TO MAKE CHOICES THAT
ULTIMATELY BENEFIT SOCIETY AS A WHOLE
• According to Smith, why do monopolies and governments
slow down progress? How have the roles of government and
monopolies changed in our modern economic societies?
MONOPOLIES RESTRICT FLOW OF GOODS TO DRIVE UP
PRICES / GOV’T ATTEMPTS TO SERVE PEOPLE BUT
ULTIMATELY ONLY SERVES ITSELF
PRODUCTION
POSSIBILITY CURVE
PAGE 9 – SOUTH
KOREA
• With your group, or partner, answer the following
questions using the provided resources.
• You must either answer the question in complete
sentences OR copy each question. An answer with no
question will not help you study for the test!
PAGE 10 – MARKET
ECONOMIES
KEY TERMS
• Private property rights – rights to own businesses and resources
• Market – place or situation where people buy and sell goods, services
• There are five major features.
PAGE 10 – MARKET
ECONOMIES
FEATURE 1: Private Property
• Private property rights must be defined and protected by law
• Buyers and sellers must be protected
PAGE 10 – MARKET
ECONOMIES
FEATURE 2: Private Enterprise
• Laissez faire – government
should not interfere in economy
• Capitalism – system having
private ownership of factors of
production
• Producers will create
products consumers
demand
• All market economies have some
government involvement.
PAGE 10 – MARKET
ECONOMIES
FEATURE 3: Profit Motive
• Voluntary Exchange – traders believe they get more than
they give up
• Most trade involves exchange of product for money
• Profit – financial gain from business transaction
PAGE 10 – MARKET
ECONOMIES
FEATURE 4: Competition and Consumer Sovereignty
• Competition – sellers’ efforts to get business by offering
best deal
• Consumer sovereignty – buyers choose products, control
what is produced
How does competition
benefit businesses?
And the consumer?
PAGE 10 – MARKET
ECONOMIES
FEATURE 5: Specialization
• Specialization – people concentrate their efforts in the
activities they do best
PAGE 10 – MARKET
ECONOMIES
Compare and contrast the advantages and disadvantages of
a market economy. Pick the most important of each side:
share?
Advantages
• Individuals free to make economic
choices, pursue own work interests
• Less government control means
political freedom, less bureaucracy
• Locally made decisions mean better
use of resources, productivity
• Profit motive ensures resources used
efficiently, rewards hard work
Disadvantages
• Pure market economy has no way to
provide public goods and services
• Does not give security to sick or aged
• During U.S. industrial boom, business
owners rich, workers low pay
• Businesses did not address problems
caused by industrialization
• Industrialized societies adopt some
government control of economy
PAGE 11 – CIRCULAR
FLOW MODEL
• Working with a partner, research the circular flow model in
your book (pg. 53) and draw a diagram on page 11 in your
notebook.
• Be sure to include the following:
• Color (use book as reference)
• Terms – factor market, product market, households,
businesses, inputs, resources, goods, revenue,
consumption, costs, income and government.
• Pictures to represent each term
Only use half the page for your diagram!
PAGE 11 – CIRCULAR
FLOW MODEL
Answer these three
questions on the bottom
half of Page 11:
1. What does the circular
flow model illustrate?
2. What is a product
market?
3. What is a Factor market?
PAGE 11 – CIRCULAR
FLOW MODEL
1. What does the circular flow model illustrate?
Circular flow model shows how market economies operate
- Outside arrow shows flow of money
- Inside arrow shows flow of resources and products
2. What is a product market?
Product market – market where goods and services bought and sold
• Includes all purchases by individuals from businesses
3. What is a factor market?
Factor market – market for the factors of production (land, labor, capital,
entrepreneurship)
- Individuals own all factors of production
- Own some outright, such as labor; some indirectly, such as stocks
- Individuals are producers; businesses are customers
PAGE 12 – AMERICAN
FREE ENTERPRISE
Directions – Working with a partner, use Ch. 3 to complete the
following:
1. Define the following terms IN YOUR OWN WORDS:
a)
b)
c)
d)
e)
f)
Open opportunity
Legal equality
Free contract
Market failure
Public goods
Free rider
g)
h)
i)
j)
k)
l)
Infrastructure
Positive externality
Negative externality
Subsidy
Safety net
Public transfer payment
2. Why is the U.S. economy sometimes referred to as a modified
free enterprise system?