economic systems packet

8/12/2019 Economic Systems Packet

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rotes: Comparing Economic SystemsNOTE: While we will discuss each system in detaB together, it is always helpful to read Chapter 2 in your textbook to

gnderstand them in more depthihe Background:

Some basic terms to understand:Sodety:

Government:

Resources:

Allocate:

Some basic questions:1.

3.

Which then leads to some practical questions:1.

2.

3.

The Solution: Societies must then develop t o tryto answer those questions.

S0000-an "economic system" is:

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Three B as i c Economic Systems

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Communism, Capi ta l i sm and Democracyr i n Ch in aProm Con sti tu tio nal Rights Foundation's Ri ll of Rights in Action Spring, 2008

DIRECTIONS: Afte r reading and outlining the article, answer these.Complete answers are requiredComplete sentences are NOT required.

The amount of space provided is NOT an indication of how long your answers should be... They could be shorter or longer :-)

Mao zedung and Conununism1. How did Mao re-allocate (re-distribute) farm resources? (land)

2. How did Mao re-allocate industrial resources? (capital)

3. How did Mao re-allocate human resources? (labor)

4. According to the article, why didn't MaoIs programs work?

Deng Xia opi ng and Capitali sm1. I n the 2 years between the death of Mao and the appointment of Deng what informal

changes began to happen in China's economy?

2. Why?

qt3. Describe some of the changes in the level of government control over the economy thattook place under Deng's leadership.

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Results of Capitalist Reforms

1 1

2. 2.

3. 3.

China and Democracy1. Label the scale below with an E for where you think China belongs in terms of how

much the government controls the economy.2. Label it with a P for where China belongs in terms of how much the government controlsthe people.

North Korea United StatesComplete Control R e l a t i v e l y little control

Explain your reasoning WITH evidence from the article.

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. C O N S T I T U T I O N A L R I G H T S F O U N D A T I O N

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Communism, Capitalism,and Democracy in ChinaIn recent decades, China's Communist Partyhas increasingly adopted capitalist models forits economy, and its economy has boomed. Willthe surprising success of capitalism in Chinaeventually lead to democracy?

F ollowing World War 1, China entered a longperiod of civil war. Fighting on one side werethe communists. Led by Mao Zedong, they sup-ported adapting the economic ideas of Karl Marxto China's mainly rural peasant society. On the oth-er side were the nationalists led by Chiang Kai-shek He favored a capitalist economic system.When the Japanese invaded China in World Warn,

Mao and Chiang agreed to an uneasy truce.(Mao and Chiang are family names. UnlikeWestern names, Chinese family namescome before given names.)

After the defeat of Japan, the Chinese civil war

resumed. Mao's experienced peasant fighters final-ly defeated the nationalist forces under Chiang,who fled with them to the large island of Taiwan.On October 1, 1949, Mao declared victory for theCommunist Revolution and proclaimed thePeople's Republic of China.

Mao Zedong and Communism

Mao Zedong concentrated all political power in theChinese Communist Party. He set up a regime sim-ilar to that established by Vladimir Lenin in the

Soviet Union, following the Russian CommunistRevolution.

Under Mao, China's Communist Party ruled as a democratic dictatorship in the name of the work-ers, peasants, and small merchants. CommunistParty leaders decided China's laws and policies.They also chose government officials and nominat-ed those who ran unopposed for seats in China'slegislature, the National People's Congress.

Modern high-rise buildings dot the skyline of the Pudong district in Shanghai,China'sfinancial center ('iStockphoto.com/DavidPedre)

Mao wanted to eliminate capitalism and its emphasis onproperty rights, profits, and free-market competition. Hefollowed the ideas of Karl Marx, who envisioned a com-

munist society where all would equally share in prosperity.Most Chinese were peasants, poor farmers who worked onland owned by wealthy landlords. Mao confiscated these

ReformThis edition of Bill of Rights in Aclion looks at issues relat-ed to reform the first article examines modern China andquestions whether its reform of its economy. will lead todemocratic reforms. The second article looks at Uptown

Sinclair's groundbreaking work The Jungle and its impacton the meat-packing industry at the beginning of the20th century The last article explores the pragmaticphilosophy of John Dewey and looks at his attempts toreform education and American democracy World History: Communism, Capitalism, andDemocracy in ChinaU.S. History: Upton Sinclair's The JungleGovernment : John Dewey and the Reconstruction ofAmerican Democracy -

(Continued on next page)

0 2043, Constitutional Rights Fowidation, Las Angeles. All Connitutional Rights Foundation materials and publications, including Bill of Rights in Acticn, ate protected by copyright Howevet we hereby grant toall recipients a license to reproduce all matericd contained herein for distribution to students. other school site personnel. and district administrators. (ISSN: 1534-9799)


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lands and executed thousands oflandlords who resisted. During the1950s, Mao formed collectivefarms, each worked by over 100families. The income of the fami-lies was in theory equal. But sincethe peasants worked for the collec-

tive rather than on their ownfarms, there was little incentive towork hard. Farm production fellunder this system.

In the cities, Mao began to put fac-tories and other businesses understate (government) ownership.The state set production goals,wages, and prices. Most city workers became employ-ees of these state-owned enterprises. The state guaran-

teed workers a job along with benefits like health carefor life. Chinese workers called this the iron ricebowl. But again workers had little incentive to be effi-cient, productive, or even care about the amount orquality of their work. Consequently, industrial produc-tion declined.

By the late 1950s, Mao had banned free markets in ruralChina, where peasants used to sell farm products fromlittle household plots. In the cities, the state owned andoperated most factories and other businesses. Only afew remnants of private enterprise, what communistscalled the rattail of capitalism, still existed in China.

Dissatisfied with the progress of the economy toward afully Marxist system, Mao turned to a more intensiveapproach he called the Great Leap Forward. In 1958, Maoabolished household farm plots and reorganized collec-tive farms into communes, each with about 5,000 fami-lies. The government sent young people from the cities tothe communes to learn farm skills The communes notonly operated huge farms but also factories, trade net-works, banks, schools, and militias. People lived in dormi-tories and ate meals in common mess halls.

The Great Leap Forward ended in disaster in 1961.Crop and industrial production plummeted and a famineresulted, causing millions of deaths. (Estimates of thenumber of deaths have ranged from 2 million to 50 mil-lion.) Finally, the worsening situation forced the gov-ernment to reduce the -size-of the communes, restorefamily farm plots, and put into place work bonuses andother incentives.

Bill flights ihAction (24:1)10011ConstitutionalItiahtsFoundation

Deng laaoping (1904-1997), who led China from1978 until his death, adopted capitalist methods toreform China's economy. (Raimedia Commons)

Five years later, Mao decided thattoo many were betraying theCommunist Revolution by leadingChina back down the road to cairtalism. He launched the CulturaiRevolution. This mass movementattacked anyone who failed to sup-

port Mao's ideas about creating anideal communist society.

Mao unleashed millions of youngpeople, called Red Guards, toenforce communist revolutionarypurity. Carrying the Little RedBook of Mao's sayings, they zeal-ously denounced anyone suspected

of capitalist leanings. (Red is the traditional color ofrevolutionary communism.)

For nearly 10 years, a reign of terror gripped China. TheRed Guards assaulted, tortured, persecuted, and forcedmillions from their jobs. With so many people's livesdisrupted, the economy suffered severe declines in foodand industrial production.

The Cultural Revolution ended when Mao died in 1976.China's economy was again in crisis. But even moretroubling to Mao's successors, many Chinese had lc'faith in the Communist Party.

Deng Xiaoping and CapitalismThe death of Mao set off a power struggle within theCommunist Party. Reformers wanted to change the par-ty. Hardliners sought to continue on Mao's path to com-munism. While this struggle in Beijing was going on,however, people in many parts of the country were tak-ing matters into their own hands.

Even before Mao died, peasants were abandoning col-lective farming and producing food on their own to sellat rural free markets. Throughout China, many becamepeddlers, bike repairers, shoemakers, and other privateentrepreneurs, working for a profit. Private moneylen-ders offered loans to these budding capitalists to finance'their businesses. Wherever private enterprises emerged,they seemed to flourish.

None of this activity was legal. But local officials usual-ly ignored the lawbreakers. The Beijing governmentjudged local officials on how well they ran their townsand cities. These officials discovered that privat(owned businesses reduced unemployment, cut pric?s,


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provided better consumer goods and services, increasedtax revenues, and tamped down social unrest.

-.Thus, local officials were motivated, with an occasionalJribe thrown in, to bend or even break government reg-ulations and laws. Sometimes they even registered aprivate enterprise as a collective or state-owned busi-ness. Thus, a private entrepreneur seemingly (but not

literally) wore a red hat. There were an estimatedhalf-million red hat capitalists, including evenCommunist Party officials, operating private enterpris-es in China by the mid-1980s.

The success of this grass-roots capitalism persuadedreform-minded leaders, anxious to restore confidence inthe Communist Party, to adopt capitalist methods to stimu-late economic growth. Deng Xiaoping, a veteranCommunist Party leader, headed this economic reformeffort after he emerged as the main leader of China in 1978.

Deng broke up the communes and permitted families tolease, but not own, farmland. The families had to sell aset amount of their farm production to the state at afixed price. The rest they could sell on the free marketfor whatever price they could get. In addition, ruralindustries, owned collectively by a village, sold their

IR'\ roducts on the free market as well.

Deng's reforms also legalized private enterprises ownedby individuals, partners, and shareholders. Stock mar-kets opened. Deng scaled back the government's settingof prices and wages in favor of supply and demand onthe free market. Because of all these reforms in the1980s, the red hats began to come off, and increasingnumbers of Chinese became red capitalists.

Deng faced big problems in reforming the state ownedenterprises (SOEs). These were industries and otherbusinesses owned and operated by the government.They ranged from small silk factories to huge steelmills. The reform of SOEs went much slower than inother parts of the., economy. Early reforms gave moreindependence to managers over wages, prices, and pro-duction methods. But the SOEs had to compete with

private enterprises.

Supposedly, if an SOE could not make a profit, it wouldhave to go out of business. But this would mean mass

or14,ayoffs and ending the iron rice bowl. While private_ Atrepreneurs and worker shareholders bought out someSOEs, the government still keeps many of them operat-ing even though they continue to lose money.

Bill of Righu lit Action (24: I )02008, Constitutional Rights Foundation

In another radical break with the past, Deng createdSpecial Economic Zones. Located in the east-coastprovinces of China, these zones attracted foreign invest-ment by offering low-cost labor and tax breaks.Foreigners invested in manufacturing exports such asclothing, shoes, and toys. The economic boom drewhuge numbers of migrant workers from all parts ofChina, seeking jobs and higher wages.

Results of Capitalist Reforms

When Deng Xiaoping died in 1997, Jiang Zeminreplaced him and continued Deng's capitalist reforms.He introduced amendments to China's Constitution thatdeclared private enterprise a major component of the socialist market economy. Under Jiang, t heCommunist Party also began to recruit Chinese capital-ists as members.

By 2006, private enterprises accounted for half of China's

economic output (Gross Domestic Product or (3DP) andtwo-thirds of industrial production. Private enterprises,owned by Chinese and foreign capitalists, continue to mul-tiply and fuel China's rapid GDP growth rate, which morethan doubled the U.S.'s growth rate in 2007.

China is struggling, however, with many economicgrowth pains. The greatest improvements in Chineseincome and standard of living have occurred mainly inthe eastern coastal provinces and cities where DengXiaoping established the Special Economic Zones. Inthe rural western provinces, millions lost their lifetimejobs because of the breakup of the communes, the lackof investment in these provinces, and the closing downof some state-owned enterprises. Masses of workershave migrated to eastern cities.

Outside the booming city Shenzhen near Hong Kong,foreign and Chinese investors built hundreds of flimsy three-in-one factories, containing assembly lines,warehouses, and worker dormitories. Accidents andfires are frequent. Competition among these businessesis fierce, often causing managers to cut costs by anymeans, even cheating workers out of overtime pay anddisregarding worker and consumer safety.

Despite government anti-corruption campaigns, factoryowners often bribe local government officials and policeto ignore building, labor, and pollution-law violations. Here it is not the government but the bosses who controleverything, remarked one female worker.

Families work most farms today and sell what they pro-duce on the free market. But they still cannot own the

(Continued on next page)


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land they farm. Farmer protests have gotten increas-ingly violent over real estate and other developersbribing local officials to force farmers off the land formore profitable enterprises.

Clearly, China has become a more prosperous nationby unleashing private enterprises that are more effi-cient and productive than state-run businesses andfarms. But the new economic wealth is uneven amongthe Chinese people. Private entrepreneurs, investors,city workers, and the families of Communist Partyofficials have benefitted the most from the emergingcapitalist economy. An estimated 1 percent of Chinesehouseholds control over 60 percent of China's wealth.Some wonder if Marxism with its goal of economicequality is finished in China.

China and Democracy

Some democratic reforms have taken place in Chinasince the death of Mao Zedong in 1976, but theChinese Communist Party still holds a monopoly onpolitical power. Decisions are made by a few eliteleaders chosen from the Communist Party.

Even so, significant political reforms lave occurred atthe local levels of government. Election reform lawsnow require the number of people running for local gov-ernment councils to exceed the number of seats avail-able. In addition, over 50 percent of the voters must vote

for a candidate for him or her to win a seat Political cam-paigning, primary elections, and absentee ballots arebecoming more common. The Communist Party hasapparently introduced these local democratic electionreforms mainly to improve its trust among the people,eliminate corrupt local officials, and deter social unrest.

People have more freedom today to discuss publicmatters openly and even criticize the government, butonly up to a point. The government comes down hardon individuals and groups that even appear to threatenCommunist Party rule or social stability.m.The army opened fire on pro-democracy demonstra-tions in TiEmanmen Square in 1989. Since that time,the government has acted quickly to smother attemptsto establish independent student organizations andlabor unio Lnt Chinaihas even- outlawed the Falun

l i b m o i

Gong, a seemingly harmless group that conducts phys-ical exercises based on Buddhist spiritual practices.The government calls the group a cult that threatenspublic order.

Bill ofitights in Action 24:1)2011R. Constitutional Rights Foundation

The Chinese have wide access to newspapers, TV, andeven talk radio. But certain topics are off limits One dis-senter was arrested recently for endangering the statewhen he tried to organize a We Want HumanNot the Olympics petition. The government censor,.books, videos, and newspapers. It also blocks Internetsites and closes down blogs and chat rooms if they dis-

cuss topics such as democracy and famine in China.Public demonstrations, some of them violent, havebeen increasing in recent years. Unemployed factoryworkers, farmers pushed off the land, and people fedup with corrupt officials have taken to the streets sincethey have few other ways to voice their grievances tothe government.

Particularly disturbing to the government have beenriots and uprisings by ethnic gimps seeking indepen-dence. In the months leading up to the 2008 SummerOlympics in Beijing, the government harshly sup-pressed protests in Tibet, which China annexed by mil-itary force in 1951.

China today may be trying to define democracy on itsown terms: democracy with Chinese characteristics,in the words of an official document. For example, theCommunist Party stresses group rights like health carover Western-style individual rights such as freedon,of speech.

China's current top leader, Hu .lintao, has spoken about greater participation by the people. But party leadershave not given much serious discussion to expandinglocal competitive elections to China's provinces, letalone to the national level. They want democracy tobelong to the party, not to belong to the people, saidan anonymous retired party official.

Will the surprising development of capitalism in Chinalead to democracy? Political scientists had longassumed that as capitalism improved the wealth of asociety, an expanding middle class would demanddemocratic rights. But some scholars have recentlychallenged this assumption as nations like Russia andChina have adopted capitalism without democracy.

A number of recent surveys indicate that after 30 years ofcapitalist reforms in China, private entrepreneurs aremuch more interested in running their enterprises andmaking money than demanding democracy. As longthe Communist Party continues the program of free mar-ket reforms and keeps the country stable, China's new


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capitalist middle class seems to be content to go alongwth' vith the current regime, at least for now.

As new economic opportunities arise, more Chinesemay finally begin to enjoy the prosperity that MaoZedong could never achieve. Some experts estimatethat by 2025 China will have the world's largest mid-dle class. A wealthier and more confident China mayyet evolve to become a democracy.

For Discussion and Writing1. Why do you think Mao Zedong failed to achieve

his Marxist communist goals of economic equalityand prosperity?

2. Why did Deng Xiaoping launch a program ofcapitalist reforms?

3. Do you think China will ever become a democracy?Why or why not

For Further Reading

Denoon, David B. H., ed. China, ContemporaryPolitical Economic and International Affairs. New

York: New York pniveisity Press,2007. ../.0Kellee S. Capitalism without Democracy The

Private Sector in Contemporary China. Ithaca N.Y.:Cornell University Press, 2007.

Major Characteristics of Communist and Democratic SystemsCommunist Democratic

2

Marxist Economy Capitalist Economy.,' 1. Farms, industries, and other enterprises owned

in common by the people and operated by thegovernment,

Farms, industries, and other enterprises mainlyowned and operated by private entrepreneurs andshareholders seeking profits.

2.Government economic plans set productiongoals, wages, and prices. Production, wages, and prices set by free marketsupply and demand.

3. Goods and services to be shared equally by all. Goods and services distributed according to one'sability to pay.

Leninist Government Democratic Government

I. Communist Party alone rules as a democraticdictatorship.

Multiple political parties compete in fair elections torule.

2. Only those chosen by the party run unopposedin elections for government offices.

Competitive elections for offices at all levels ofgovernment.

3. Persons in power dictate laws and how courtswill rule. Elected leaders must obey the laws and courtdecisions ( rule of law ).4. No guarantee of civil or political rights; dissent

against the party and government suppressed.Individuals guaranteed civil and political rights,including dissent against the government.

Marxist 0 1 2EconomyLeninist 0 1 2

Bill ofilights tu Action (24:1)02008, Constitutional Rights Foundation

A C T I V I T Y

Capitalism and Democracy in ChinaStudents in small groups should first review the chart

titled Major Characteristics o f Communist andDemocratic Systems. The students should use thesecharacteristics and the information from the article todiscuss where to place today's China on the two scalesbelow. Each group should then list evidence to defendits placement of China on the two scales.

3 4 5 6 7 8 9 10 CapitalistEconomy

3 4 5 6 7 8 9 10 DemocraticGovernment G o v e r n m e n t

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Communism:

Socialism:

Authoritarian:

Karl Marx: Philosophy of Communism...

Why do communism and extreme government control go together so well?

How are the goals of socialism met by allowing both government ownership/controland Ovate ownership/control of resources?

How would you describe the relationship between the government and the economy inChina today?

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Name:

gives'you theA right to a n d i t .Profit would be . _ - - - - - - -without the right to own property.

('Property ,:ilere_means both tangibleand land.)

Incentives/Self -Interest

People's owftPI motivates theftt to produce, in the hope

of making S e l f - interest is' a l s o a n i n c e n t i v e f o r 1 0 1 1 . = .

who seek to fulfilt their a n dat the best price possible.

Producers w i t h eachother for b y trying to

produce goods and services that will be7;\ most t o consunlerS.

This leads to innovationand better

Markets E) Prices

Buyers and sellers freelygoods and services on the

The matte forces ofand

determine what _ will be.

People are free to _ - _ whatto a n d what to

- The choices

producers and consumers makedetermines what a n d

are available..

' The d o e s not make'-, rules about a n d

gets produced. The government's mainrole is to make sure the market isand producers have a

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Note-taking Worksheet


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The Market EconomyThe Economy

You've probably heard people say things like, "The economy is down," or,"Such-and-such would be good for the economy." Maybe you've figured outthat the economy has something to do with money. But what is this big, scary"economy" everyone's always worried about? And how can you avoid it?

That was a trick question. You can't avoid the economy An economy is theway goods and services are produced and consumed. Everyone is involved inthe economy both by producing goods or services and by consuming them.There are different kinds of economies, and the kind of economy a countryhas determines how resources get distributed to the people.

Are You Motivated Yet?

So, why would anyone decide to produce and sell something? You guesseditmoney Profit is the financial gain received by selling something for morethan it cost to make it. Producers are motivated by the profits they expect togain from the goods or services they offer. Their incentive to producethething that motivates themis the idea that consumers will want or need whatthey are offering. Thus, someone who thinks people want phones thatrespond to voice commands has an incentive to produce such phones becausethey expect they will profit from selling them to lots of consumers.

Goods & Services

Name:

Consumers Producers and the Market

Have you ever bought anything or paid someone to do something for you?Then you are a consumersomeone who acquires goods and servicesfor his or her own personal use. Have you ever worked babysitting,walking dogs, or making fast-food tacos? Men you are a producer, toosomeone who makes goods or offers services to others. In a marketeconomy, producers are free to decide what to produce, and consumersare free to buy whatever they need and want. Unlike some economies,the government does not tell producers what to make or limit (for themost part) what consumers may buy. This selling and buying takes placein the market, which is not a physical place, but instead refers to theentire activity of buying and selling that takes place out in the world.

But what about when two or more producers are offering the same goods orservices? This results in competitionproducers battling over who can makethe most profit. Competition is a big motivator. Here's what can happen:

Better Stuff. Competition leads to innovation which is the process ofdeveloping newer, better things. Think of 'Phones, Android phones, andWindows phones: The producers constantly come out with new versions thathave newer, better capabilities. Why? Because each producer wants you tospend your money on its phone instead of the other guys' phones.

Good Deals. Competition drives prices down. For a while, iPad was basically theonly tablet on the market. Apple didn't have to worry about people buying other

f tablet s because there weren't any real choices. But when other tablets came onthe market at prices lower than iPad, Apple began to lower its price in order tocompete. But deals have limits: Producers have no incentive to offer somethingfor less money than it cost to make it.

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The Market EconomyA. Review. Read each scenario. Match each label with the example that illustrates it.

I VI CS

B. Motivated? For each example, circle ca) ifthe person or business has an incentive to act andcircle e if they don't.

1. Jason is thinking of getting some raspberries, butthey're out of season and cost 6 for a tiny box.q I

2. Acme, Inc. is thinking of making touch-screencomputers. It can make computers for 500 eachand sell them for 2,000 each.

?

3. Beta, Inc. is thinking of making cars that run onwater. It will cost 100,000 to make one car, butpeople won't pay more than 40,000 to buy one.

4. Ann's house needs a new roof. She is thinking ofdoing the project this weekend, and roof shinglesJust went on sale for half price.

5. Dr. Smith is thinking of opening a dentist office inCenterville. Right now the nearest dentist is inthe next town, 40 miles away. ire ceo

Name:

1) Marla goes to the store and buys a new backpack.

2) Tyler mows lawns and does yard work for 10 per hour.

3) Gas Station A sells gas for SIM/gallon. Across the street,Gas Station B sells it for 3.74. Gas Station A lowers its priceto 3.74.

4) Liam spends 1.0 on lemonade mix and ice. On a hot day, he setsup a lemonade stand in his yard. At the end of the day, he hassold 20 worth of lemonade.

5) A car company made thousands and thousands of cars this year,but people haven't been buying as many cars. The car dealerlots are full.

6) Erin could make 24 this afternoon babysitting, or she couldattend her grandma's birthday party. She decides to attendthe party. She doesn't get the money, but her grandma isthrilled.

7) It's holiday time, and the hottest toy of the year sells out.People are paying ten times what it's worth online.

C. A Circular Flow. Mere is a circular flow ofinteraction between consumers and producers inthe market. Draw an arrow at one end of each linein the circle to show which way the thing describedon that line is flowing.

Worksheet p.1


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D. What s the Opportunity Cost? For each situation, write the opportunity costwhat the persongave up by making the decision. (Hint: Don t worry about math. Describe the cost in words.)

A. The government decides what should be produced. G. Producers decide what to make based on consumerB. The need to survive motivates people to hunt,

gather, or farm. H.demand.

Private individuals own the property.C. Producers don't compete because everyone worksto meet the community's survival needs.

1. The community's customs and traditions determinewhat is produced.

D. The government sets wages, so people aren't J. Most property is shared by the community.motivated by profit. K. The hope of profit motivates producers to developE. Producers compete with each other to make profits new things.from customers. L. There is no competition because the government is

F. The government owns the property. the only producer.c

The Market Economy

1) Clink or swim?

Sam's boss called to offerher an extra shift tonight.Sam wanted the money, butshe's got a big swim meettomorrow and 'laded sleep.She told her boss to offerthe shift to someone else.

The opportunity cost was:

i

' . ; , 4 - 4 . ; r 4 ; 4 , ; . : , 4 . . F . " 7 , . . . W 1 4 .

E. Three Kinds of Economies. You already know about market and command economies. A traditionaleconomy exists in primitive cultures where most activity is focused on providing food. People follow themethods and traditions their ancestors have always used. Think about this, and read the statements below.Organize them into the comparison chart by writing the letter of each statement where it should go.

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2) An Interest- ing Choice

It Jason can put his money in a savings account and earn1 about 12 cents in interest

this month, or he can loan itto Matt, who says he'll

t return the money plus $1 at the end of the month. He

loans it to Matt.I The opportunitycost

Name:

3) Risky Business

' Lacey designs dresses. She, can keep designing casual; dresses that bring $65 but

are easy to sell, or she coulddesign formal gowns that sellfor $500 but must be highfashion. She. takes a risk onformal gowns.The opportunity cost is:

4) An airy hard decision

I f Zephyr, Inc. spends $2million buying out its maincompetitor, it can earn $3, million in new sales. If itisperlds $2 million designing anew airship, it might make $4million if It can sell 10 ships.It buys the competitor.

), The opportunity cost is:

Worksheet p.2


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