Transcript Economics - Desert View DECA

Economics
“Econ,
Econ”
Econ
Economics Activity
• Kit-Kat scarcity
Introduction to
Economics
I WON THE LOTTERY!
I’ll give you anything you want other than money.
What do you want?
Would your list ever end?
Why not?
Scarcity!!!
What is Economics?
choices
Economics is the study of _________.
• Scarcity means that we have unlimited wants
but limited resources.
• Since we are unable to have everything we
desire, we must make choices on how we will
use our resources.
In economics we will study the choices of
individuals, firms, and governments.
5 Key Economic Assumptions
1. Society’s wants are unlimited, but ALL resources
are limited (scarcity).
2. Due to scarcity, choices must be made. Every choice
has a cost (a trade-off).
3. Everyone’s goal is to make choices that maximize
their satisfaction. Everyone acts in their own “selfinterest.”
4. Everyone makes decisions by comparing the
marginal costs and marginal benefits of every
choice.
5. Real-life situations can be explained and analyzed
through simplified models and graphs.
Marginal Analysis
In economics the term marginal = additional
“Thinking on the margin”, or MARGINAL
ANALYSIS involves making decisions based on
the additional benefit vs. the additional cost.
Thinking at the Margin
# Times
Watching
Movie
Benefit
Cost
1st
$30
$10
2nd
$15
$10
3rd
$5
$10
Total
$50
$30
Would you see the movie three times?
Notice that the total benefit is more than the
total cost but you would NOT watch the movie
the 3rd time.
Scarcity
Analyzing Choices
Trade-offs and Opportunity Cost
ALL decisions involve trade-offs.
Trade-offs are all the alternatives that we give up
whenever we choose one course of action over
others.(Examples: going to the movies vs.
Tucson/Park Place Mall, Reid Park Zoo, staying
home, etc.)
Opportunity cost- The most desirable alternative
given up as a result of a decision is known as.
GEICO assumes you
understand opportunity
cost. Why?
Trade-offs and Opportunity
Cost
Example 1
• What are trade-offs of deciding to go to
college?
• What is your opportunity cost of going
to college?
Example 2
• What are trade-offs of deciding to
playing a sport?
• What is your opportunity cost of playing
a sport?
The 4 Factors of
Production
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The Four Factors of Production
•Producing goods and services requires the use of
resources- DUH!.
•ALL resources can be classified as one of the
following four factors of production:
Land
Labor
Capital
Entrepreneurship
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The Factors of Production
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Economic Systems
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Scarcity Means There Is Not Enough For
Everyone
Government must step in to help allocate
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(distribute) resources
Every society must answer three questions:
The Three Economic Questions
1. What goods and services should be
produced?
2. How should these goods and services be
produced?
3. Who consumes these goods and services?
The way these questions are answered
determines the economic system
An economic system is the method used by a
society to produce and distribute goods and
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services.
Economic Systems
• Market economy – there is no government involvement in economic
decisions
• Command economy – a system in which a country’s government
makes economic decisions and decides what, when and how much will
be produced and distributed
• Capitalism (Free Enterprise) – a political and economic philosophy
characterized by marketplace competition and private ownership of
businesses
• Communism - a social, political, and economic philosophy in which
the government controls the factors of production
• Socialism – a term that originally referred to a system on its way to the
communist ideal of a classless society (government tries to spread the
wealth)
Command Economies
(aka Communism)
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Communism
In communism the government…
1. owns all the resources.
2. answers the three economic questions
Examples:
Cuba, North Korea, former Soviet Union, and China?
Why do centrally planned economies face
problems of poor-quality goods, shortages,
and unhappy citizens?
NO PROFIT MEANS NO INCENTIVE TO
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WORK HARDER!!
Advantages and Disadvantages
What is GOOD about
Communism?
1. Low unemploymenteveryone has a job
2. Great Job Securitythe government
doesn’t go out of
business
3. Equal incomes means
no extremely poor
people
4. Free Health Care
What is BAD about
Communism?
1. No incentive to work
harder
2. No incentive to
innovate or come up
with good ideas
3. No Competition keeps
quality of goods poor.
4. Corrupt leaders
5. Few individual
freedoms
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Example of Communism
Example of why communism failed:
If consumers want computers and only one
company is making them…
•Other businesses CANNOT start making
computers.
•There is NO COMPETITION….
•Which means higher prices, lower quality, and
less product variety.
•More computers will not be made until the
government decides to create a new factory.
The End Result: There is a shortage of goods that
consumers want, produced at the highest prices
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and the lowest quality.
Free Enterprise System
(aka Capitalism)
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Characteristics of Free Market
1. Little government involvement in the economy.
(Laissez Faire = Let it be)
2. Individuals OWN resources and answer the three
economic questions.
3. The opportunity to make PROFIT gives people
INCENTIVE to produce quality items efficiently.
4. Wide variety of goods available to consumers.
5. Competition and Self-Interest work together to
regulate the economy (keep prices down and
quality up).
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Example of Free Market
Example of how the free market regulates itself:
If consumers want computers and only one
company is making them…
•Other businesses have the INCENTIVE to start
making computers to earn PROFIT.
•This leads to more COMPETITION….
•Which means lower prices, better quality, and
more product variety.
•We produce the goods and services that society
wants because “resources follow profits”.
The End Result: Most efficient production of the goods that consumers want,
produced at the lowest prices and the highest quality.
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Attacks Against Capitalism
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Sweatshops
"My concern is not that there are too many sweatshops, but
that there are too few." -Jeffrey Sachs, Harvard University
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Sweatshops
"My concern is not that there are too many sweatshops, but
that there are too few." -Jeffrey Sachs, Harvard University
Question: Who is to blame for these people being so poor?
Answer: Low productivity.
If a country doesn’t produce very much, it can afford to pay it’s
workers very much.
Why do these countries have such low productivity?
Corrupt governments, inadequate physical capital and
infrastructure, and underdeveloped human capital.
What does foreign investment bring to poor countries?
Jobs, money, technology, how to use resources
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Productivity Creates Wealth
3rd World Countries
Developed Countries
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The difference between North and South Korea at night.
North Korea's GDP is $40 Billion
South Korea's GDP is $1.3 Trillion (32 times greater).