Economics 9/12/11
http://mrmilewski.com
• OBJECTIVE: Examine the production possibilities
frontier.
• I. Journal #4 pt. A
-answer the question to the caption on p.21
• II. Quiz #2
• III. Journal #4 pt. B
-notes on trade-offs, opportunity costs, & the PPF
• IV. Journal #4 pt.C
• V . Homework due Tomorrow!
1.) Chapter#1 sections(1-3)
-Section Review questions
2.) Chapter#1 Review
• NOTICE: Chapter#1 Test Tomorrow!
Division of Labor
• Division of Labor – work is arranged so
individuals do fewer tasks than before.
• Specialization – factors of production
perform tasks more efficiently than others.
• Human Capital – the sum of the skills,
abilities, health, and motivation of the
people.
Production Possibilities Frontier
http://www.harpercollege.edu/mhealy/eco212/lectures/econgrow/econgrow.htm
• PPF is a diagram that
represents various
combinations of
goods and/or services
an economy can
produce when all
productive resources
are fully employed.
• P.23
Trade-offs & Opportunity Costs
• Trade-offs – alternate choices
• Opportunity costs – the cost of the next
best alternative use of money, time, or
resources when one choice is made rather
than another.
Alternate choices in Mr. Milewski’s Class
• Example: “I have three passes for the
quarter. If I don’t use them, I get 25 extra
credit points. If I use one pass I get 15
extra credit points.”
• Question: What is the opportunity cost of
using a pass in Mr. Milewski’s class?
Graphing Choices
• Passes
Remaining
3
2
1
0
Extra Credit
Lost
0
10
20
25
Production Possibilities Frontier
• PPF is a diagram that represents various
combinations of goods and/or services an
economy can produce when all productive
resources are fully employed.
• P.23
PPF
Measuring Opportunity Costs
• Opportunity costs are measured in terms of
what you give up.
• The cost of using a pass in Mr. Milewski’s
class is the extra credit you lose.
• The cost of increasing gun production is
the butter you give up.
Opportunity Cost on the PPF
What the PPF Line Represents
• The line of the PPF shows what is possible
if all of the factors of production are fully
employed.
• So, if you have unemployment are you on
the PPF?
• What could cause the PPF to shift
outward?
Economic Growth on the PPF
TINSTAAFL
• There is no such thing as a free lunch
Other terminology:
• Inverse relationship – as one number goes
up, the other number goes down
• Direct relationship – as one number goes
up, so does the other number.
Econ U.S.A. episode #1
• Please answer the following questions:
1.) Why were American’s standing in long
lines for gas during the 1970’s?
2.) Why did Congress debate the fate of the
Alaskan Wildlife Refuge?
3.) How did the United States increase
production of both guns and butter during
WWII?
Economics 9/13/11
http://mrmilewski.com
• OBJECTIVE: Demonstrate mastery of Chapter #1
and begin examination of world economic systems.
• I. Administrative Stuff
-attendance
-explanation of test procedure
• II. Chapter#1 Test
• III. Journal #5 pt. A
-Read “The Global Economy” p.35
-Answer questions (1-2) p.35
• IV. Journal #5 pt. B
-notes on economic systems
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
• Traditional – tribal
law
• Market – democratic
societies
• Command –
dictators, communist
gov’t
http://www.horizonsunlimited.com/forwood/images/uzbepho5.jpg
Types of Economic Systems
Goals of the American Economy
•
•
•
•
•
•
•
•
Economic freedom
Economic efficiency
Economic equity
Economic security
Full employment
Price stability
Economic growth
(Future Goals)
Economic freedom
• In the United States, people place a high value on the
freedom to make their own economic decisions.
– People like to choose their own occupations, employers,
and uses for their money.
– Business owners like the freedom to choose where and
how they produce.
• The belief in economic freedom, like political freedom, is
one of the cornerstones of American society
Economic efficiency
• Productive resources (land, labor, capital &
entrepreneurs) are scarce and must be used
in a way that the benefits of their use are
greater than their costs.
Economic equity
• Americans have a strong sense of justice,
impartiality, and fairness.
• Examples:
-equal pay for equal work
-illegal to discriminate
-advertisers are not allowed to make false claims
-lemon laws (hold producers responsible for faulty
products)
Economic security
• Americans desire protection from such adverse
economic events as layoffs and illnesses.
• Examples:
-unemployment insurance
-workman’s comp.
-social security
Economics 9/14/11
http://mrmilewski.com
• OBJECTIVE: Examine the Goals of the
American Economy.
• I. Journal #6 pt. A
-Read “Critical Thinking Skill” p.40
-Answer questions (1-3) p.40
• II. Quiz#3
• III. Return of Chapter#1 Test
• IV. Journal #6 pt. B
-finish notes on goals
• V. Journal#6 pt. C
-questions on Econ U.S.A. episode#7
Full employment
• When people
work, they
earn income
for
themselves
while
producing
goods and
services for
others.
http://www.publicradio.org/columns/marketplace/whiteboard-blog/Employment-Jan-2011CORRECTED.jpg
Price stability
• Price stability adds a degree of certainty to the future.
• If inflation–a rise in the general level of prices–occurs,
workers need more money to pay for food, clothing, and
shelter.
• How inflation works:
-Wendy’s Jr. Cheese Deluxe
-Cost $.99
If you make $5.00
• How many Jr. Cheese’s
can you buy per hour?
• 5, so your purchasing
power is 5 burgers per
hour
• Next year you get a raise
of $1, is your purchasing
power higher this year
than it was last year or
lower?
• You can’t answer the
question until you
know the price of the
Jr. Cheese.
• If the price of the Jr.
Cheese goes to $1.50,
what is the change in
your purchasing
power?
• Decreased by 1 burger
Inflation Example
Year 1
Year 2
Year 3
1.00
1.50
1.50
Your salary 5.00
6.00
7.50
Burger
price
Your
5 burgers 4 burgers 5 burgers
purchasing
power
Fixed Income
• People who live on a fixed income–an income
that does not increase even though prices go up–
find that bills are harder to pay and that planning
for the future is more difficult.
Economic growth
• Growth is needed so
that people can have
more goods and
services.
• Since the nation’s
population is likely to
grow, economic growth
is necessary to meet
everyone’s needs.
http://change-production.s3.amazonaws.com/photos/wordpress_copies/uspoverty/2010/10/2010-10-29econf1-250x174.jpg
Econ U.S.A. episode#7
• 1.) What did Kennedy do in 1963? What was the goal of it?
Did it work?
• 2.) What happened in 1965? How did the White House
make it worse?
• 3.) What happened when consumers and government
continued to buy?
• 4.) How can inflation help some people?
• 5.) What is inflationary psychology? How did it hurt
businesses?
• 6.) How are senior citizens affected by inflation?
• 7.) Why did workers go on strike? How did it effect
inflation?
• 8.) How did President Nixon try to control inflation?Did it
work?
• 9.) What happened to inflation by the late 1970’s?
Economics 9/15/11
http://mrmilewski.com
• OBJECTIVE: Examine the characteristics of
capitalism and the Consumer Price Index.
• I. Journal #7 pt. A
-Examine Figure 2.1 p.38
-Answer the caption question p.38
• II. Quiz #4
• III. Journal #7 pt. B
-notes on capitalism & CPI
• IV. Math Practice with CPI
-constructing a CPI
The Characteristics of Capitalism
• In capitalism private citizens own the
factors of production.
• Free enterprise means that competition is
allowed to flourish with minimum
government interference.
Competition & Free Enterprise
• Economic freedom –
-people can choose their jobs, employers, and how
to spend their money.
-businesses may choose what to sell and how
much to charge.
• Voluntary exchange –
-buyers and sellers freely engage in market
transactions.
• Private property rights –
-people may control their possessions as they
wish
• Profit motive –
-people and organizations may improve their
material well-being by making money
• Competition –
-producers and sellers compete with each other
for consumers while lowering costs.
-consumers compete with each other to obtain the
best products at the lowest prices.
Roles
• Entrepreneur –
-organizes land, labor, and capital in order to make
a profit
• Consumer –
-determines what is made “the customer is always
right”
• Government –
-protector of private property, enforcer of
contracts, and definer of fairness
-provider of services like defense, education, and
public welfare
-consumer of goods
-regulator charged with preserving competition
-promoter of national goals
CPI
• Consumer Price Index – an index used to
measure price changes for a basket of frequently
used common items.
• The CPI reports on price changes for 90,000
items in 364 categories from 85 geographic areas
of the country and are compared to their 1982-84
base year prices.
• Produce Price Index – measure price changes
paid by domestic consumers for their inputs and
is based on a sample of about 100,000
commodities and uses 1982 as the base year.
CPI & PPI
• Higher prices for
inputs normally
results in higher
prices for consumer.
http://money.cnn.com/2005/07/14/news/economy/cpi/cpi_corecpi_july05.gif
Midwest urban CPI
Year
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
CPI
148.4
153.0
156.7
159.3
162.7
168.3
172.8
174.9
178.3
182.6
188.4
• Source:
 U.S. Department of Labor
Bureau of Labor Statistics
• Base Year
 1982-84=100
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=dropmap&series_id=CUUR0200SA0,CUUS0200SA0
Midwest Urban CPI 1967-2005
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet
Midwest Urban CPI 1988-2005
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet
Economics 9/16/11
http://mrmilewski.com
• OBJECTIVE: Examine the effect of inflation
on the economy.
• I. Journal #8 pt.A
-Read “Profiles in Economics” p.266
-Answer question#1 p.266
• II. Journal#8 pt.B
-notes on ideas
• III. Constitution Day
• IV. Finish Math Practice with CPI
• V. The Commanding Heights
-Film about Economic Systems
Types of Economic Systems
• Market – democratic
societies
• Command –
dictators, communist
gov’t
• Traditional – tribal
law
• Market – Capitalist
• (Socialist)
• Command Communist
The Battle of Ideas
• The 20th Century began with a Communist
Revolution, and ended with a Capitalist
Revolution.
• In the West the battle of ideas was between
Keynes v. von Hyeck.