UNIT 1:“FUNDAMENTALS OF
ECONOMICS” AND “ECONOMIC
SYSTEMS”
MR. SOUTHWARD
ECONOMICS IS DUMB!! WHAT’S THE
POINT?
• Why is it important to take this course and at least
be familiar with the basics?
THE FUNDAMENTAL ECONOMIC
PROBLEM
• The overlying problem that faces ALL people is
trying to figure out if there is ever enough.
• When is enough, enough?
• Scarcity exists throughout all of society; scarcity is
the condition that results from society not having
enough resources to produce all the things people
would like to have.
• We all have needs and wants…
• Needs?
• Food, Shelter, Water, etc.
• Wants?
• Everything else not in the category of a “need”
WHAT IS ECONOMICS?
• The study of how people seek to satisfy all needs
and wants in society by making choices.
• Why must we make choices? Scarcity.
• Is anything ever free?
• No, everything will have some degree of a cost.
• It can be free to one person, but there will always be a cost.
• “There is no such thing as a free lunch”
TICKET OUT
(AT THE END OF THE CLASS)
Think about the term scarcity as we have just learned
and now think about what is means to have a
shortage of something. Are they the same? Why or
Why not?
RESOURCES: FACTORS OF PRODUCTION
• I want every person in the room to partner up and
pick one thing between the two of you and list off
all the resources that were necessary in order to
produce that product. Try to think of EVERYTHING
that go into making that product.
FACTORS OF PRODUCTION
• Land “gifts of nature,” or all natural resources
• Labor people who use efforts, abilities, and skills to
produce the product
• Capital tools, equipment, and other humanmade products used to create other products.
• Physical (actual objects) and Human Capital (Acquired
Knowledge or skills)
• Entrepreneurs The brains who take the resources
and finds a way to combine them for a profit.
• Go back and look at your list and place them in the
four categories of Factors of Production.
ENTREPRENEURS
• What do they all have in common?
TRADE-OFFS
• The act of giving up one benefit in order to gain
another, greater benefit. They exist through-out all
individual, business, and government decisions.
• Turn to a partner:
• Individual Trade-off Examples?
• Business Trade-off Examples?
• Government Trade-off Examples?
OPPORTUNITY COST
• Every time we make a choice to do one thing, we
give up the opportunity to do something else. When
you do make the choice, you reject other
options…more importantly you reject the “next best
alternative”/ “the one of those alternatives which is
better than the rest.”
• Opportunity Cost basically represents the
value/benefits to you of what you were willing to
sacrifice.
• “Choosing is Refusing”
THINKING IN THE MARGIN
• Scenario:
• Let’s pretend you just got off of work from the best job
ever at SouthSubs, they make the best subs. in town. You
arrive home at 7:15pm. After settling in and eating
dinner yourself you realize that you have a really hard
test tomorrow in your economics class with Mr.
Southward during 1st period. OH NO!!!!
• At this point in time, thoughts of studying come to mind
and how much time you should dedicate to preparation
for your test tomorrow. Use the chart below to weigh the
benefits and the costs associated with the amount of
time you are thinking about studying. Only fill in the
benefits and cost columns at this time.
TABLE
Hours to Study
No Studying
1 Hour
2 Hours
3 Hours
4 Hours
5 Hours
Benefits
Marginal
Benefit
Costs
Marginal Costs
• What do you obviously recognize after each
progressive hour of studying?
• Marginal means to think about what changes as a
part of every extra unit that is considered (in this
case, it is the number of hours you plan to
study)…there are Marginal Benefits and Marginal
Costs. Using your own understanding of the topics,
write out an explanation for each of these below.
• Go back to the chart on the front page and tell
what the marginal benefit and marginal cost will be
for each successive units of hours you could plan to
study.
• Now think about the business SouthSubs, what
decisions do they have to make that require them
to “think in the margin?” Give a few examples as a
part of your explanation.
THE PRODUCTION POSSIBILITIES
FRONTIER
• Illustrates the concept of opportunity cost; it shows
a representation of all the various combinations of
goods and/or services an economy can produce
when all productive resources are fully employed.
• In groups of 3 you will be asked to examine and
interpret the production possibilities curve in more
detail. I will get you started with the drawing of the
curve.
• I would like for each of you to spend 7 to 8 minutes
reading individually about the Production
Possibilities Curve before you are given your task as
a group.
QUESTIONS ON THE PPC
• Using a red colored pencil or marker, draw 3 dots on the
actual curve and label what these dots represent.
• Underneath your graph, write the number “1” and explain to
me in your own words what these points are telling us about an
economy.
• With a blue colored pencil or marker, draw a dot
somewhere INSIDE the curve and tell me what that dot
represents.
• Write number “2” and explain in your own words what this point
tells us about an economy. What is an example of this?
• With a green colored pencil or marker draw a second
line on the graph which represents growth of an
economy.
• Write number “3” and tell me what are the ways in which an
economy is able to grow.
CRITICAL THINKING ON THE CURVE
• Write number “4” and tell me in a couple of
sentences how the graph displays the concepts of
opportunity cost and scarcity.
• Write number “5” and explain to me what you
believe the reasons are for the line being curved
and not straight. (Hint: think about resources in
production of 2 products)
3 QUESTIONS TO ANSWER
• All economic systems (structure of methods and
principles a society uses to produce and distribute
goods and services)must ask themselves 3 basic
economic question;
• In your Groups of 3, assign each of the questions to
a group member. Each person needs to read
about/examine one of these questions to explain
an report their notes to the rest of the group.
• What goods and services should be produced?
• How should these goods and services be produced?
• Who consumes these goods and services?
ECONOMIC AND SOCIETAL GOALS
• In the U.S. there are many economic goals we strive for
on a weekly, monthly, and yearly basis. In your groups,
you will be asked to examine one of these goals and
create a billboard representing/advertising it. Be
Creative in your drawings and really think about what
this goal means in an economics. Please keep in mind
that bill boards aren’t meant to convince the consumer
of their product being the best option.
• Also, on your billboard, you will need to have some kind
of statement about the goal to help viewers understand
the goal.
• You will be presenting these to your class mates.
ECONOMIC GOALS OF SOCIETY
•
•
•
•
•
Economic Efficiency
Economic Freedom
Economic Security
Economic Equity
Economic Growth
Note: each of these says “Economic” for a reason;
please don’t give me a billboard that does not
emphasize these in an economic sense of the
concept.
ECONOMIC SYSTEMS
• Reminder: a structure of methods and
principles a society uses to produce and
distribute goods and services.
• 4 Major Types:
• Traditional
• Free Market
• Command/Centrally Planned
• Mixed Market
TRADITIONAL ECONOMIES
• A system that relies on habit, custom, or ritual to
answer the three basic economic questions;
CHARACTERISTICS
• Revolves around the family unit which could extend
the several generations;
• Work is divided among gender lines along with the
occupations;
• Relatively small and close knit communities;
• All people work to support everyone in the
community, not just individual needs;
• Not really willing to adopt new ideas
• Examples: tribes in the Arctic region, in North
America and eastern Russia, have maintained their
traditional economy
TWO EXTREMES: FREE MARKET AND
CENTRALLY PLANNED ECONOMIES
• Each of you will be partnered up. Your job
will be to examine one of the two economic
system extremes using the provided
diagram.
• After both students have had plenty of time
to read and understand the major points of
their specific economies, you will each take
turns explaining/discussing the two types of
economies to fill in the opposite side of the
diagram.
KEY POINTS TO FREE MARKET
• Specialization
• Circular Flow
• Adam Smith (self-interest and competition
lead to the “invisible hand”)
• Advantages
• Efficient responses to change
• Choice
• Growth and innovation
• Consumer sovereignty
KEY POINTS TO COMMAND
ECONOMIES
No Consumer Sovereignty
Socialism (even distribution of wealth)
Communism (government ownership and control)
Authoritarian (strict obedience)
The Soviet Union (1928 – 1991) and China (1949 –
late 70s)
• Disadvantages
• Expensive to run/lacks flexibility
• Social good, not individual
• No reward for innovation, very little growth
• Government chooses income, no equity
•
•
•
•
•
MIXED ECONOMIES
• Is there any nation today that falls into
a purely free market or a purely
command economy?
• No.
• There will always be some individual
choices along with some
governmental need…but, to what
degree.
REASONS FOR GOVERNMENTAL
INVOLVEMENT
• Some needs can’t be met without central
authority: national defense, highway
systems, etc.
• Government desires for the goal of equity to
exist: school systems, travel, etc.
• Protecting the rights and property of people:
Stealing physical property and intellectual
property
• In general, to make things fair.
ECONOMIC GOALS DRIVING DEGREE
TICKET OUT
• The degree of mixed market
economies is really based off the
societies desires in terms of their
economic goals;
• Why? Provide general examples.
THE CIRCULAR FLOW MODEL IN A
MIXED ECONOMY
• Draw a picture to represent the
government in the middle of the
diagram and then write in the
government’s functions in the
factor market, the product market,
and even the transfers of money.
(page 44)
MIXED ECONOMIES TODAY
• Many nations are in a period still of
economic transition, a period in which a
nation moves from one economic system to
another.
• In China’s case, they are dealing with
privatization, the process of selling
enterprises that were once government
owned to individuals and then allowing
those enterprises to compete in the market
place.
THE US ECONOMY
• Label a section in your notes “The US Economy” and
underline it so it is easy to find.
• Begin reading at the bottom of page 45 and finish on
page 46;
• After reading, write a brief paragraph (4 to 6 sentences)
in your own words explaining in general the US Economy
as a mixed market economy. Be sure to discuss the roles
of government and individuals in your paragraph.
*inform me upon completion of the
assignment so that I can enter your
grade for the assignment*
BENEFITS OF FREE ENTERPRISE
• In a group of 3 or 4 you will create a bubble map
with all the details of a free enterprise system.
• You will find this information in Topic 2 Section 5
(pages 48 – 54)
• You will use this diagram as a part of your next
assignment so please make sure it is very thorough
in the details of a Free Enterprise System.
• I also ask that you incorporate all bold concepts in
the text and highlight/underline them on the bubble
map; there are 15 of them.
• I would also like for you to pick 3 of the major
concepts of Free Enterprise and draw pictures
around the paper somewhere.
10 STATEMENTS
• Look over your group bubble map you just made.
Read over every part of a free enterprise system
one more time.
• I would like for each of you to label a section in
your notes “10 Statements of a Free Enterprise
System” and number off 10 well thought out
statements about the free enterprise system.
• Try to make them the most important things about
Free Enterprise.
• I would like for this to be done completely on an
individual basis.
TRADE – TOPIC 10, SECTIONS 1 & 2
• Based off the fact that one country may be better
suited to produce a product than another country
• Specialization of a country is always based off the
resources that can be obtained (factors of
production)
• Exports-The goods and services that a country
produces and then sells to other nations
• Imports-goods and services that one country buys
from another country.
BASIS FOR TRADE
• Absolute Advantage  when a
country can produce a product
more efficiently than another
country
• Comparative Advantage  when
a country can produce a product
at a lower opportunity cost.
THE GAINS FROM TRADE
•People will be better off
producing the product
that has a lower “cost” to
them.
RESTRICTING INTERNATIONAL
TRADE
• Tariffs  a tax placed on imports to
increase their price in the domestic market;
• Protective Tariff  a tariff high enough to
protect less-efficient domestic industries;
• Revenue Tariff  a tariff high enough to
generate revenue for the government
without prohibiting imports;
QUOTAS
•a limit placed on the
quantities of a product
that can be imported;
again, to protect domestic
producers
PROTECTIONISTS
• Favor trade barriers that protect domestic industries:
• National Defense – we do not want to become too
dependent on other countries
• Promoting Infant Industries – new companies should be
protected from foreign industries
• Protecting Domestic Jobs – against the cheap foreign
labor
• Keeping money at home – have our money count
towards our GDP
• Helping Balance of Payments – helps balance the
amount of money going out and that is coming in
FREE TRADE MOVEMENT
• Fear that tariffs and quotas will cause
disputes amongst countries, bringing
retaliation
• If all countries use free trade then the
world resources will be used more
efficiently and will be less costly across
the world