the study of choice under the conditions of scarcity. microeconomics-study of the behavior and...
TRANSCRIPT
What is Economics?
The study of choice under the conditions of scarcity.
• Microeconomics-study of the behavior and decision making by small units such as individuals and businesses.
• Macroeconomics-study of the behavior and decision making of large units such as governments.
What is Economics?
Scarcity and Shortage
Scarcity: The concept that there are limited resources for unlimited wants
Shortage: A condition that occurs when producers will not
or cannot offer goods and services at the current price.
What is the difference between scarcity and shortage?
Chapter 1, Section 2:“Choosing is Refusing”
Trade-offs- All the alternatives that we give up whenever we choose one course of action over another. • Individuals• Businesses• Governments
Opportunity Cost- The most desirable alternative given up as the result of a decision. The next best thing!!
Thinking at the Margin- Deciding whether to do or use one additional unit of some resource.
The Government Trade-Off: GUNS OR BUTTER?
Our Role in Funding the Government
We authorize the government, through the Constitution and elected officials, to raise money through taxes.– Must originate in the House (Ways and Means)– House-Senate-President
Taxation is the primary way that the government collects money.
Without revenue, or income from taxes, government would not be able to provide goods and services.
Power and Limits of Taxation
The Power to Tax Article 1, Section 8, Clause
1 of the Constitution grants Congress the power to tax.
The Sixteenth Amendment (introduced 1909, ratified 1913) gives Congress the power to levy an income tax.
Historical Context: Great Depression- Social Security Act (1935)- WWII – 80’s - Present
Limits on the Power to Tax1. The purpose of the
tax must be for “the common defense and general welfare.”
2. Federal taxes must be the same in every state.
3. The government may not tax exports.
Tax Structures
Proportional Taxes– A proportional tax is a tax for which the
percentage of income paid in taxes remains the same for all income levels.
Progressive Taxes– A progressive tax is a tax for which the percent
of income paid in taxes increases as income increases.
Regressive Taxes– A regressive tax is a tax for which the
percentage of income paid in taxes decreases as income increases.
Tax Activity
Person A (Low-Income)- $15,000
Person B (Middle-Income)- $75,000
Person C (High-Income)- $225,000
What is a “good” tax?
– Simplicity Tax laws should be simple and easily understood.
– Economy Government administrators should be able to collect
taxes without spending too much time or money.– Certainty
It should be clear to the taxpayer when the tax is due, how much is due, and how it should be paid.
– Equity The tax system should be fair, so that no one bears
too much or too little of the tax burden.
Types of Taxes Social Security Taxes
– This program is funded by the Federal Insurance Contributions Act (FICA). Most of the FICA taxes you pay go to Social Security, or Old-Age, Survivors, and Disability Insurance (OASDI)
Medicare Taxes– Medicare is a national health insurance program that helps pay
for health care for people over 65 and for people with certain disabilities. Medicare is also funded by FICA taxes.
Unemployment Taxes– Unemployment taxes are collected by both federal and state
governments. Workers can collect “unemployment compensation” if they are laid off through no fault of their own and if they are actively looking for work.
Other Taxes – Federal Income Taxes– Excise Taxes– Estate Taxes– Gift Taxes– Import Taxes
The Federal Budget:“Guns or Butter”
The Politics of Tax and Spend
Obama Defends Budget
Hannity on the Budget
Ron Paul on Government Spending
Spending Categories
Mandatory Spending Money that lawmakers are
required by law to spend Interest payments on the
national debt “Entitlement” programs
(Social Security, Medicare and Medicaid)
Makes up almost 2/3 of federal budget
Problem because Congress and the President cannot control much of spending.
Discretionary SpendingMoney that government planners can choose how to spend.
Defense EducationTrainingEnvironmental cleanupNational parks and monumentsScientific research
How the Money Comes In: Revenue
Individual Income Taxes;
Series1; 1164; 45%
Social Insur-ance
Payroll Taxes;
Series1; 870; 34%
Corporate Income Taxes; Series1; 370; 14%
Excise Taxes; Series1; 65; 3%
Other Taxes;
Series1; 100; 4%
Total Revenue: $2.57 Trillion
Individual Income Taxes Social Insurance Payroll Taxes Corporate Income Taxes
Excise Taxes Other Taxes
Where the Money Goes: Spending
Social Security; Series1; 581; 21%
Medicare; Series1; 371; 14%
Medicaid & SCHIP; Series1; 197; 7%
Other Manda-tory; Se-
ries1; 302; 11%
Net In-terest;
Series1; 237; 9%
Security Discretionary; Series1; 594; 22%
Non-Se-curity Discre-tionary; Series1; 448; 16%
Total Spending: $2.73 Trillion
Social Security Medicare Medicaid & SCHIP Other Mandatory
Net Interest Security Discretionary Non-Security Discretionary
Manda-tory;
Series1; 1451; 53%
Net In-terest;
Series1; 237; 9%
Security Discretionary; Series1; 594; 22%
Non-Se-curity Discre-tionary; Series1; 448; 16%
Total Spending: $2.73 Trillion
Mandatory Net Interest Security Discretionary Non-Security Discretionary
Conference Committee Meets to Resolve
Differences
The Budget Process
House Senate
Sent to the Floor
Full Committee Approves
Sent to the Floor
Appropriation Subcommittee Reports a Bill
Full Committee Approves
Appropriation Subcommittee Reports a Bill
Sent to President
What is the budget timeline?
Fall/Winter• Agencies send initial budget requests to the Office of
Management and Budget (OMB) February to August• President submits budget request to Congress• Congress debates budget requestSeptember• House-Senate resolve differences and agree on spending bills• President signs or vetoes final billsOctober 1st • Beginning of fiscal year
Guns or Butter?
Analyze the federal spending pie chart on page 371. Consider the difference between mandatory and
discretionary spending as described on pages 371-374.1. Create your own federal spending pie chart based on
your priorities. You may not “leave it the same”…think critically about what you think is the best way to spend our tax dollars! You can add and delete items!
2. Explain the rationale for your spending choices. Also, identify “winners and losers” with your additions.
3. If you had to maintain all mandatory categories how would your decisions have been different? Discuss.
Production Possibilities Graph: A graph that shows alternativeways to use an economy’s resources. The graph can only considertwo items at once and these items are each placed on an axis.
Chapter 1, Section 3: Production Possibility Graphs
Production Possibilities Frontier: The line on a productionpossibilities graph that shows an economy’s maximum possibleoutput of any two products.
What can we learn from looking at a Production Possibilities Graph/Frontier?
· Trade-Offs/Cost- Alternative given up as a result of a decision. Every point on the PPF indicates a cost in on item or another.
· Efficiency- Making the best possible use of resources (any point on the PPF)
· Underutilization/Inefficiency- Misuse or waste of resources (any point inside the PPF)
· Growth- Expanding an economy’s ability to produce (shift of the entire curve to the right or any point to the right of the PPF)
~New Technology/ Innovation
~Increase in Resources