Week 20: 2/1-2/5
App 1 – College or not
1. What is the marginal cost of getting a 4 year
Bachelor’s degree rather than a 2 year Associate’s
degree?
2. According to the first graph, what are some of the
opportunity costs of investing in education?
3. What level of education seems to give you the
most financial utility (best monetary return for
your investment)?
4. If this data is accurate, why would anyone choose
to get a Bachelor’s degree? What are the
costs/benefits not covered in this data?
Economic Systems
• How a society chooses to use scarce resources to
satisfy people’s wants
– Traditional
– Command
– Market
Economic Systems
• Traditional Economy
– Simplistic system structured around customs and
survival
– Hunter/gatherer societies
– Good of the group takes precedence over individuals
Economic Systems
• Command Economy
– Centrally-planned system
– Govt owns means of
production
– Communism/Socialism
Economic Systems
• Market economy
– Laissez-faire (leave-alone, or hands off), free enterprise
– Competition
– Producers specialize
– Private property
– Consumer sovereignty: consumers direct economy by
“voting” for products with their wallets
App 2: Traditional, Command, Market
Tell me whether each of these describes a traditional, a
command, or a market economy:
1. Johnny finds an apple tree. He picks lots of apples and
shares them with everyone.
2. Johnny finds an apple tree. He puts a fence around it
and starts charging people for the apples.
3. Johnny finds an apple tree. The government takes it
and distributes the apples evenly amongst everyone.
4. Sally spends most of her time working hard to make
herself more wealthy.
5. Sally’s wages are the same as everyone else around
her no matter what types of job she does.
6. Sally spends most of her time looking for food or
shelter.
Circular Flow Model of a Market Economy: allows you to
visualize how elements of market economies fit together
Product
Market
Households
Businesses
Factor
Market
Application 3: Create a circular flow model
• Choose a product/company and show how it fits into
the circular flow model.
• Ex:
Product
Market
Ex: Dick’s
Sports
Joe
NIKE
Factor
Market
Ex: Rubber
Economic Systems
• Mixed Economies: combine elements of traditional,
command, market
– Most common
• Some industries nationalized – controlled by govt.
– Others are privatized: left in private ownership
US Economic System
• USA = Modified free enterprise system
– Private/public partnership
– Government is both a producer and a consumer
Circular Flow Model of US System
spending
products
Product
Market
taxes
resources
Businesses
products
taxes
spending
products
Govt.
Households
Factor
Market
App 4: Circular Flow Model of U.S.
Create another circular flow model similar to
your last one, however, this time show how it
would look in the US.
US Economic System
• Existence of market failures
– When people who are not part of a market interaction
either benefit or pay its costs
• Ex. Free riders = those who do not pay for goods/services but
benefit anyway
– Ex. Fireworks display, traffic lights
Market Failures, cont.
• Externality = side effect of a transaction that
affects someone other than producer or
consumer
– Can be negative (pollution), or positive (neighbor’s
flower garden)
US Economic System
• Public Goods: when govt. provides a product or
service, fixes a market failure
– No one is excluded from benefits
– One person’s use of product does not reduce its
usefulness to others
– Ex: street lights
– Private companies can’t compete
Application 5: Public Good, Y or N
• For the products below, write Y if it is a public good
and N if it is not. If not, explain WHY not; which
criteria is missing?:
1.
2.
3.
4.
5.
6.
7.
8.
Roads
Public Schools
Welfare
National Defense
Public pool
Banks
Sewer Systems
Fireworks displays