AP Econ F15
Week#2
Economics 9/14/15
http://mrmilewski.com
• OBJECTIVE: Demonstrate mastery of Chapter#1
and begin examination of Chapter#2. AP Micro-I.D
• Language objective: Write about basic economic concepts.
• I. Chapter#1 Test
-test on basic Economic concepts
• II. Notes#3
-draw the Circular Flow
• III. Homework
-Begin reading Chapter#2
Circular Flow
Economics 9/15/15
http://mrmilewski.com
• OBJECTIVE: Examine the types of Economic
Systems. AP Micro-I.D
• Language objective: Discuss economic systems.
• I. Notes#4
-Do now: Look at the chart on p. 32
-notes on economic systems
• II. Video: John Stossell
• III. Homework
-Continue reading Chapter#2
All societies face scarcity and must
answer the 3 basic questions:
• What to produce?
• How to produce?
• For whom to
produce?
http://www.swan.ac.uk/engd/production%20line.JPG
http://en.wikipedia.org/wiki/Image:Bakweri_cocoyam_farmer_from_Cameroon.jpg
Types of Economic Systems
Discussion Questions on Video:
Is America #1?
• 1.) What do you think is the most important
measure of success?
• 2.) Can wealth (jobs) be protected by the
government?
• 3.) How does the rule of law contribute to
wealth creation?
• 4.) Are freedom and democracy the same
thing?
Homework Tonight
• Continue reading
Chapter#2
Economics 9/16/15
http://mrmilewski.com
• OBJECTIVE: Examine the key points of a market
economy. AP Micro/Macro-I.D
• Language objective: SWBAT define the terms: private property, freedom
of enterprise, freedom of choice, self-interest, competition and market.
• I. Notes#5
-Review Chapter#1 Test
-Do now: Vocabulary words pertaining to markets
-notes on Specialization
• II. Homework –Answer questions 1-6 p.44
Do Now: Vocabulary
Define each of the following
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Private property
Freedom of Enterprise
Freedom of Choice
Self-Interest
Competition
Market
Specialization
• Market economies rely on specialization to create
efficient markets.
• It enables the use of resources to produce one or
a few goods or services rather than a bunch of
them.
• Example: Many farmers sell their milk to the local
dairy, but buy their butter from the grocery store
rather than making their own.
• Society learned long ago that by specializing in
what we produce, we are much more efficient
than being a “jack-of-all-trades”.
Advantages of Specialization
• Division of Labor (Human specialization)
– Individuals have different abilities and skills that
can be taken advantage of.
– If two people have the same skill, specialization
still works. Since the person is devoting time to
just one task, their skills at doing it will improve.
– Specialization saves time. By applying one’s efforts
to just one task, loss of time from shifting from
one job to another is avoided.
For these reasons, specialization increases output
• Geographic Specialization- It is possible to grow
oranges in Nebraska, but since the land, rainfall
and temperature are not ideal for it, the costs
would be much higher than growing them in
Florida.
• The conditions in Nebraska are ideal for wheat,
so they specialize in wheat.
• Both human and geographical specialization
increase the total output generated from limited
resources.
Use of Money
• Money actually performs many functions, but
first and foremost it is a medium of exchange.
• Specialization requires exchange. Throughout
history, exchange has occurred by bartering. This
is swapping one good for another, like wheat for
oranges.
• Unfortunately, this system can be a problem if
you are bartering with someone who doesn’t
need your product. This is why money is a better
form of exchange.
• See Figure 2.1 on page 34
Homework Tonight
• Answer questions 1-6
p.44
Economics 9/17/15
http://mrmilewski.com
• OBJECTIVE: Examine the Five Fundamental
Questions of a market economy. AP Micro-I.D
• Language objective: SWBAT answer and explain the Five Fundamental
Questions of a market economy through discussion and written answers.
• I. Notes#6
-Do now: Question #4 on page 44
-notes on the “Five Fundamental Questions”
• II. Homework –Questions #5 thru #9 on page 44 and
read pages 38-41.
Five Fundamental Questions
• What goods and services will be
produced?
• How will the goods and services be
produced?
• Who will get the goods and services?
• How will the system accommodate
change?
• How will the system promote progress?
What will be produced?
• Goods and services that make a continuing profit
will be produced and those that generate a loss
will be discontinued.
• Profits occur when Total Revenues (TR) exceed
Total Costs (TC). When this happens, the industry
expands. If TC > TR, the industry contracts and
firms either shrink in size or go out of business.
• In a market system, consumers are in command
and they determine the types and quantities of
goods produced. This is known as consumer
sovereignty or “dollar votes”.
How Will Goods and Services Be
Produced?
• In combinations and ways that minimize the cost
per unit.
• Competition will further help determine what will
be produced. Consumers prefer quality products
at the lowest possible price. This means if a firm
is using higher costs they will eventually be forced
out of the market by firms producing the same
product or good at lower costs.
• Basically: Competition eliminates high cost
producers.
• See Table 2.1 on page 36.
Who Will Get the Output?
• Consumers will get the output based on their
ability and willingness to pay.
• Their ability to pay is determined by their
income. Their willingness to pay is determined
by their desire for the good or service.
• Review Budget Line graph on page 9, Figure
1.1.
How Will the System Accommodate
Change?
• Market economies are dynamic: Consumer
preferences, technology and supplies of
resources are always changing.
• What is selling now might not be selling in the
near future.
• The market system is a huge communication
system. It is told what to do by the demands of
the consumer, or by consumer sovereignty.
• Discuss the fruit juice/milk example on page 37.
How Will the System Promote
Progress?
• Technological Advance: Technology provides the ability to
produce goods and services at lower costs which leads to
lower prices for the consumer and greater profits for the
firm.
• Firms that are innovative and use new technologies put
pressure on their competition to keep up. If they do not,
they could go out of business.
• In some cases, the result of this is known as creative
destruction. Firms that do not change with the times,
and stick to their old ways of doing business, will be left
behind and most likely fail. For example, CD’s replaced
vinyl albums and now digital technology is replacing CD’s.
Homework Tonight
• Complete questions on
page 44, # 5-9
• Read pages 38-41
Economics 9/18/15
http://mrmilewski.com
• OBJECTIVE: Examine the three types of business
structures. AP Micro-I.D
• Language objective: Write about business types.
• I. Notes#7
-on business types
• II. Homework: Answer questions (7-12) P. 44 and
Complete problems 1-3 p. 44-45
The “Invisible Hand”
• In 1776, Adam Smith wrote the book The Wealth
of Nations. One observation that he made was
the relationship between private interests and
social interests in the market.
• He realized that firms build and improve products
to increase profits and that these enhanced
products increase society’s well-being.
• At the same time, firms use only the scarce
resources in the most efficient way which “frees
up” scarce resources to produce other products
that society desires.
Virtues of a Market System
• The “Invisible Hand” ensures that when firms maximize
profits and resource suppliers maximize profits, then
society maximizes their output and income.
• Efficiency- A market system promotes efficiency in
production and encourages more and better ways to
produce.
• Incentives- A market system encourages hard work,
innovation and the desire to improve resulting in
higher income.
• Freedom- A market system encourages personal
freedom. Also, freedom of enterprise and choice.
Circular Flow Model
• Illustrate on board and explain the Circular
Flow .
Sole Proprietorship
• Sole proprietorship – a business
owned and run by one person.
Advantages/Disadvantages
of Sole Proprietorships
Advantages:
-easy to start
-flexible
-$ is all yours
-own boss
-easy to shut down
Disadvantages:
-unlimited liability –
you are responsible for
everything
-hard to borrow money
-expensive inventory
-limited management
experience
-hard finding qualified
employees
-limited life – business
dies when you die
Partnerships
• Partnerships – business jointly owned
by two or more persons.
• There are two types of partnerships:
*general partnership – all partners
actively run the business
*limited partnership – at least one
partner is not active in daily operations
(probably just contributed $).
Advantages/Disadvantages
of partnerships:
Advantages:
Disadvantages:
-easy to start
-easy to manage
-share profits
-can attract financial
capital
-easier to attract
qualified employees
-responsible for other
partners actions
-when a partner dies, a
new partnership
agreement has to be
drawn up
-conflict between
partners
Corporations
• Corporation – a form
of business organization
that is recognized by the
law as having all the
legal rights of an
individual.
• They have the right to
buy & sell property,
enter into legal
contracts, and to sue &
be sued.
Advantages of Corporations
• Easy to raise financial capital
• Hire professional managers
• Limited liability – shareholders only lose
money invested if something goes terribly
wrong.
• Unlimited life – the firm doesn’t die when
a shareholder does.
Disadvantages of Corporations
• Difficult to start.
• Shareholders have little say.
• Double taxation – the firms profits are
taxed and then the profit that is
distributed to shareholders is also taxed.
• Government regulation.
Homework Tonight
• Finish Reading
Chapter#2
• Complete questions 1-7
on page 44.
• Complete problems 1-3
page 44-45.
Economics 9/12/14
• OBJECTIVE: Examine the concepts of the Invisible
Hand and The Circular Flow Model. AP Macro-2.A
• Language objective: SWBAT read and discuss the Circular Flow Model and
write the answers to questions and problems regarding Circular Flow.
• I. Journal#8 -Review Homework
-Do now: Question #10 on page 44
-notes on the Invisible Hand and Circular Flow
• II. Video on the “Invisible Hand”
• II. Homework –Questions #11 and #12 on page 44 and
problems #1, 3, and 4 on page 44 and 45.
Homework Tonight
• Finish reading Ch#2
2013 FRQ question#2
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Assume that the country of Fischerland produces only consumer goods and capital goods.
(a) The graph above shows the production possibilities curve for Fischerland. The production of
which of the
following exhibits increasing opportunity costs: consumer goods only, capital goods only, both
goods, or
neither good?
(b) Redraw the graph given above. Show a point that represents fully employed and efficiently used
resources
on the redrawn graph and label it A.
(c) Assume there is a recession in Fischerland. On your graph in part (b), label as C a point
representing the
recession.
(d) Identify a fiscal policy action that the Fischerland government can take to address the recession.
(e) Assume instead that no discretionary policy actions are taken. Will short-run aggregate supply
increase,
decrease, or remain the same in the long run? Explain.