EconomicsEconomicsGoals 7 - 9Goals 7 - 9

Textbook referenceUnit 6 (Ch. 17 – 21)

7.01 Describe the factors of production 7.01 Describe the factors of production and their impact on economic activityand their impact on economic activity

Economics stems from satisfying peoples needs and wants

The basic economic questions1. What to make?2. How much to make?3. How to make it?4. Who gets what is produced?

The answers help us decide how to use the factors of production

Factors of productionFactors of production

EntrepreneurEntrepreneur

CapitalCapital

LaborLabor

LandLand

FactorsFactorsOf Of

ProductionProduction

Examples?

7.02 Explain how scarcity influences producers & 7.02 Explain how scarcity influences producers & consumers to make choicesconsumers to make choices7.03 Examples of tradeoffs & opportunity costs7.03 Examples of tradeoffs & opportunity costs

UnlimitedUnlimited needs & wantsneeds & wants

Goods & Goods & ServicesServicesProducedProduced

DistributionDistributionFactorsFactors

OfOfProductionProduction

ConsumptionConsumptionLimitedLimited

resourcesresources

TradeoffsTradeoffs

OpportunityOpportunity

costscosts

7.04 Explain the impact of specialization, division of 7.04 Explain the impact of specialization, division of labor, & consumption and production increaseslabor, & consumption and production increases

We are not self sufficient. We specialize in our economic activities

We break down activities into smaller parts – Division of labor Result: we are more productive & it create a need for

markets Invention, innovation, & new technology

usually increase productivity What is the effect of these on price?

7.05 The impact of investment7.05 The impact of investment

Labor forceLabor force

Investment in Investment in Human capitalHuman capital

Investment inInvestment in physical capitalphysical capital

Increased labor productivityIncreased labor productivity

Increased outputIncreased output

Increased wagesIncreased wages Increased demandIncreased demand

7.06 Compare and contrast different 7.06 Compare and contrast different economic systemseconomic systems

Traditional Driven by custom, centered on the family unit Slow to adapt

Command Government owns & controls the factors of production Quota driven

Market Private ownership. Individuals own the factors of

production Driven by self interest

8.02 How the free market system encourages 8.02 How the free market system encourages private ownership and promotes initiativeprivate ownership and promotes initiative

The right to own property is one of the most important individual rights Protected by the 5th and 14th Amendments

Our market system depends on individual decisions and actions Private ownership and seeking profit leads to

production of goods, services, wealth, & investment

8.02 (cont)8.02 (cont)

Governments role in a free market economy: Maintain the health of the economy

Patents and copyrights Ensure competition

Antitrust laws

8.03 Explain the circular flow of 8.03 Explain the circular flow of economic activityeconomic activity

Businesses Households

Factors of ProductionFactors of Production

Goods and ServicesGoods and Services

IncomeIncome

Consumer SpendingConsumer Spending

8.04 Illustrate how supply and demand 8.04 Illustrate how supply and demand affect pricesaffect prices

Law of Demand - As the price of goods and services fall, the quantity demanded will rise.

Law of Supply - As the price of goods and services rise, the quantity supplied will rise.

Market Price - That price at which the quantity demanded is exactly equal to the quantity supplied. Also called equilibrium price.

8.05 Predict how prices change with 8.05 Predict how prices change with shortages or surplusesshortages or surpluses

Price Quantity

Demanded Supplied

5.00 10 60

4.00 15 50

3.00 25 40

2.00 40 30

1.00 55 10

8.06 Explain how changes in competition 8.06 Explain how changes in competition can affect price and outputcan affect price and output

Number ofFirms

Variety ofGoods

Control ofPrices

Barriers toEntry

Perfect Competition

Many None None None

MonopolisticCompetition

Many Some Little Low

Oligopoly A Few Some Some High

Monopoly One None Complete Complete

8.07 Describe the roles & functions of economic 8.07 Describe the roles & functions of economic institutions and business organizationsinstitutions and business organizations

BusinessForm

Advantages Disadvantages

Sole Proprietorship 1. Ease of formation2. Direct control3. Keep all profits

4. Unlimited liability5. Hard to raise capital6. May not have mgt

expertisePartnership 1. More avail capital

2. Complementarybusiness skills

3. Unlimited liability4. Interpersonal

conflicts5. Difficult to dissolve

Corporation 1. Limited liability2. Ease of raising

capital3. Professional mgt

4. Heavy taxation5. Cost of formation6. Government

restrictions

8.08 Evaluate the investment decisions 8.08 Evaluate the investment decisions made by individuals, business, & govt.made by individuals, business, & govt.

8.09 Describe the role of money in 8.09 Describe the role of money in trading, borrowing, & the governmenttrading, borrowing, & the government

What is it? Anything that serves as a medium of exchange,

a unit of account, and a store of value. Six characteristics:

1. Durable 2. Portable3. Divisible 4. Uniform5. Limited supply 6. Acceptable

Why is it valuable?

BankingBanking

Safely hold peoples money, pay them interest, and loan money to others at a higher rate of interest

Banks are the “fuel” that run the economy. They make money available for investment to help the economy grow

Started with goldsmiths in the middle ages

Banking servicesBanking services

Storing money FDIC Safe deposit box

Saving money1. Checking account 2. Savings account3. Money Market fund 4. Certificate of Deposit

Loans Fractional Reserve banking

Credit cards (Debit cards) ATM

9.01 Identify phases of the business cycle 9.01 Identify phases of the business cycle & economic indicators used to measure& economic indicators used to measure

Predicting the business cyclePredicting the business cycle

Leading indicators (change coming) They come before major changes in the cycle

Building permits Coincident indicators (change here)

How the economy is doing at the present time Rise in income

Lagging indicators (how long will it last) Signs that follow major changes in the cycle

New business applications

9.02 The impact of government 9.02 The impact of government regulation on economic activityregulation on economic activity

Protecting consumers and workers FDA, OSHA, CPSC, FDIC

Promoting competition FTC

Supervising labor-management relations NLRB

Protecting the environment EPA

Ensuring Economic Stability Fiscal Policy Monetary Policy

9.03 The impact of the movement of human 9.03 The impact of the movement of human & capital resources on the U.S. economy& capital resources on the U.S. economy

Decline of manufacturing Loss of jobs Need to retrain for new jobs Shift overseas where labor is cheaper

Population shifts Rust Belt to Sun Belt Increased immigration

9.04 The impact of current events on decisions 9.04 The impact of current events on decisions of consumers, producers, & governmentof consumers, producers, & government

New technological advances MP3, Blueray, microtechnology

War on terrorism Mobilization of the military Homeland Security Department

Subprime home loans Collapse of mortgage industry Federal government bailout of financial industry

9.05 The impact of international trade & global 9.05 The impact of international trade & global productsproducts9.06 How are domestic & international economies 9.06 How are domestic & international economies interdependentinterdependent The world is flat

We are increasingly interdependent with other countries We spend more on imports than we make on exports

(trade deficit) Equals about 25% of our GDP

Free trade The United Nations WTO NAFTA Helping developing countries (foreign aid)

9.07 The effects of Fiscal & Monetary 9.07 The effects of Fiscal & Monetary policy on the economypolicy on the economy

Fiscal Policy The use of government spending and revenue

collection (taxes) to influence the economy Conducted by Congress

Monetary Policy Actions the Federal Reserve System (the Fed)

takes to regulate the money supply Conducted by the Federal Reserve Board

Monetary policyMonetary policy

Fedactions

To fightinflation

To fightrecession

ReserveRequirement

Increase Decrease

DiscountRate

Increase Decrease

OpenMarketOperations

Sell Bonds Buy Bonds

Fiscal policyFiscal policy

Fiscalactions

To fightinflation

To fightrecession

Taxes Raise taxes Cut taxes

Spending Cutspending

Raisespending

9.08 The influence of environmental factors, economic 9.08 The influence of environmental factors, economic conditions, & policy decisions on individual economic conditions, & policy decisions on individual economic activitiesactivities

Visual summary . . . . . . . EconomicsVisual summary . . . . . . . Economics

P. 470 Mkt. principlesP. 512 Types of banksP. 515 Money supplyP. 525 Social securityP. 528 Spend & save

P. E28 Economic glossary

P. 540 Bus. CycleP. 550 Econ. ChallengesP. 557 Supply & demandP. 559 Circular flowP. 571 Global economy