Transcript Chapter 2 - LRedmond

Chapter 2
Quiz Monday
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Review Key Terms on p25
Decision Making Model
Know laws and fallacies
Be able to graph a production possibility
curve, diminishing returns and increasing
returns to scale
Widget Game
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Profit = Revenue – Cost
Profit = Q x P – Cost
Price = $100 – Q
Cost = Q x $2
Q= ??????
Get your WIDGET ON!!
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First things first….what the heck is a
widget?
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Widget – a small mechanical device
Goal of the Widget Game
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You want to make the most profit you can
and beat your fellow competing teams.
Rules
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There are 6 Rounds
Each round is 3 minutes long
No calculators or phones with calculators
You cannot discuss business tactics with other teams
(until the 4th round and only the 4th round)
You must report and show your numbers to the teacher
at the end of every round
You may not use scrap paper to test different
combinations
You may not erase, cross out or change your numbers.
Any changes will result in 0 profit for that round
Any cheating and your team will be disqualified
Homework
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Answer the questions from the exercise
Study for quiz on Monday
Notes are on wikisite
lredmond.wikispaces.com
Answers from Questions from the
Widget Game
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At what level of production is sales revenue
highest for this industry?
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At what level of production is profit highest?
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How and when did your firm calculate its profit
potential
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How close did you come to realizing your fair
share of this competitive market?
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What prevented you from maximizing
your profits? Which decisions most
adversely affected your profits during this
game? What adjustments would you
make next time?
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Not understanding market conditions
represented by the formula $100-Q
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Incorrectly anticipating the moves of rival
teams
Overreacting to previous round results
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Competition reduces profit levels
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Who benefited most from your collective
decision as an industry?
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Consumers benefited most when market
prices were low and quantities available
were high
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Who would have benefited most if you
had conspired to fix production levels?
Why would the government not tolerate
this kind of activity?
Capitalism: A Love Story
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The film focuses heavily on a moral
condemnation of capitalism. Do you agree with
that approach?
Corporations repeatedly claim that cutting jobs
will allow them to save money and stay in
business. Why does this not seem to work
much in the examples detailed in the film?
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What did you find most troubling when
watching the film?
Of the four political models; captialism,
communism, socialism and fascism, which
do you think is best for western society?
Why?
Factors of Production
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Productive resources: Anything that can
be used to create or manufacture goods
or services
Land
Labour
Capital
Land
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Physical Space
Fertile Soil
Raw Materials
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Mineral Deposits
Ground Water
Fossil Fuels
Forests
Labour
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Human contribution to
production process
Physical Labour (TANGIBLE)
Mental Effort (INTANGIBLE)
 Entrepreneurship: Organise,
Assume Risk, Achieve Results,
Innovation
 Knowledge: Science, use and
creation of technology
 Environmental: Political
stability, social values
Capital
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Goods that aid in the production of other
goods
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Real Capital: Factories, Machines, equipment
Money Capital: Funds to acquire Real Capital
and other factors of production
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Example: Wages to acquire labour
Economics
 Economics
is the social science that
studies the production, distribution, and
consumption of goods and services
 Answers the questions:
What gets made?
 Who gets to have it?
 How do they get it ?
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 Economist:
economics
A person who studies
Economic Systems
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An Economic System is the
way government and
business work together to
provide goods and
services to consumers
Government: Public Sector
Business: Private Sector
Economic Systems
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Answers the questions
TO
PRODUCE
????
FOR WHOM
There are 3 economic systems
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1) Traditional Economy
2) Command Economy
3) Market Economy
Traditional Economy System
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Goods and services produced today are
the same as those produced in the past,
and in are produced the same fashion
Common in underdeveloped countries
Practices of the past determine what,
how and for whom we produce.
Traditional Economy
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What to produce:
 Same products as
in the past
 Same quantity –
subsistence
For whom to
produce:
 Own use
 Family
 Tribe
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How to produce:
 Traditional
Methods
 Skills passed from
parent to child
Bedouin of Sahara Desert
Traditional Economy
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Strengths
Little environmental
damage
Consumption and
waste are minimized
Focus on self reliance
Control price and
quantity
FREEDOM!!
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Weaknesses
No social
improvement
Limited planning
Limited choice of
products
Individualism
Discouraged
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Examples of Traditional Economic
Systems
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The Bedouin of the Sahara Desert
The Bushmen of the Kalahari Desert
The Mongols of the Gobi Desert
Command Economy
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All production decisions are made by a small
group of political leaders who have the power
to enforce their decisions throughout the entire
economy.
Supply and price are controlled by the
governement
What, how and for whom to produce are all
answered by the central authority
Command Economy
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What to produce:
 Decided by state
through central a
planning authority
 Capital Goods
For whom to
produce:
 Decided by state
through a central
planning authority
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How to produce:
 Decided by state
through central a
planning authority
North Korea
Cuba
Command Economy
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Strengths
Planning Promotes
Growth (Capital Goods
vs Consumer Goods)
Reduces waste
Equitable distribution of
wealth
Economic Stability
Needs are provided for
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Weakness
Bureaucratic and
inflexible
Limits individual choice
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Personal
Consumer goods
Quotas foster quantity
over quality
Little incentive
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To strive socially
To innovate
Command Economy
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Motivation in a command economy
Pure Market Economy
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Economic activity is coordinated by many
individuals who make independent decisions in
a free market
Supply and demand determine prices
The actions of individual buyers and sellers in
the marketplace answer what, how and for
whom goods and services will be produced.
Pure Market System
Also called Free market, Free Enterprise, Capitalist system
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What to produce:
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What will sell at the
most favourable
price - Market
For whom to
produce:
 Consumers
WILLING and
ABLE
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How to produce:
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As efficiently as
possible to keep
costs/price low
Pure Market System
Also called Free market, Free Enterprise, Capitalist system
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Strengths
Freedom of choice
Variety of goods
Competition =
quality, innovation,
better prices
Profit motivates
Flexibility
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Weakness
Poor distribution of
wealth
Boom and Bust
cycles (hurt)
Large producers can
manipulate prices
Waste and over
consumption
Modern Mixed Economy
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Business and government answer questions
Business and Government each are
responsible for production and distribution of
different goods and services
Public Sector: Parts of the economy run by
the government
Private Sector: Parts of the economy run by
business
Modern Mixed Economy
What would they produce
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Public Sector:
Law enforcement
Health Care
Public swimming pools
Garbage Collections
Education
Public Transit
Post
National Defence
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Private Sector:
Food
Water
Clothing
Phones
Hot tubs
Computers
Cars
Etc
Modern Mixed Economy
Almost all countries are mixed economies.
 They exist on a spectrum
 The roll of government and business
change over time
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Understanding Political
Economies
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Economics works within a governmental
framework
Some examples of how government has
affected the economy
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Ex New government rules regarding housing
and mortgages
Ex Trade agreements - NAFTA
GOVERNMENTS SET THE RULES OF THE
GAME
How would tax cuts affect our
economy?
Tax Cuts
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 Good
Saving
High enough
Lower taxes will
allow people to
spend more
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 Bad
Fewer public services
Lower quality public
services
Increase government
debt
Political Orientation
Democracy
Moderate Left
Moderate Right
Socialism
Capitalism
Command
Economy
Market
Economy
Communism
Fascism
Extreme Left
Extreme Right
Dictatorship
Political Economies
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Democracy:
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Freely elected government
Represents majority of citizens
Limited term in control
Open to other political views
Checks and balances can make system inefficient
Dictatorship
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Single person or group absolute control
No way for citizens to change their leadership
Not hindered by checks and balances
Find an Example
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Communism: Cuba, North Korea
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Socialism: Sweden, Norway, Denmark
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Capitalism: US
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Fascism: Nazi Germany, Argentina (19701980s)
Communism
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Command economy + Dictatorship
Based on the theories of Karl Marx,
Friedrich Engels and Vladimir Lenin
Under Communism
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Private Property & Free enterprise are
abolished
Strong central government
Examples: Cuba, North Korea
Socialism
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Command Economy + Democracy
Based on public ownership or control
Allows democratic and peaceful methods
Claims that free enterprise is inefficient and wasteful
Labour movement – co-operation and worker solidarity
Equitable distribution of goods
Examples: Scandinavian Countries (Free enterprise
socialism)
Socialism = Happiness??
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Top 10 Happiest Countries
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Norway, Denmark, Finland, Sweden, Switzerland and
Netherlands
In Norway…
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Free universal health care
Free post-secondary education
1 year paid maternity leave/4 week mat leave
16 days paid sick leave
Unemployment rate ~2%
Poverty rate 1.7%
So Why Doesn’t Every Country Adopt a
Socialist Political Economic Model?
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High cost
Less entrepreneurships
Big governement
Communism???
Capitalism
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Market Economy + Democracy
Based on the theories of Adam Smith
Focuses on the accumulation of capital
resources as a means to greater wealth
Private ownership is key
Producers are driven by Profit
Examples: Canada, US
Fascism
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Market Economy + Dictatorship
Based on the theories of free market
economy with a non democratic with
authoritarian form of government
Do not tolerate political opposition
Ex Nazi Germany, Chile under Pinochet
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Homework
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Come up with 2 pros and cons for each
political model (capitalism, fascism, socialism
and communism)
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Fill in the political economic model
Capitalism
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Pros
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Promotes economic
growth
Econcomic freedom
Decentralized=more
competion=better prices
People who work hard are
rewarded…sometimes
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Cons
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It’s all about the za
benjamins
Wasteful=Depletion
of resources
Wealth inequality
Booms and busts
Socialism
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Pros
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EQUALITY
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Medical
Social
Economic
Political
no man/woman left
behind
Cons
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Higher cost
Less
entrepreneurship
Government has
more power
Free ride
Little incentive to be
all that you can be
Communism
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Pros
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Efficiently distribute
resources
Focus is on cooperation of
resources
Incentive to participate
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Cons
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Difficult to maintain a
common goal
Block out external culture
and
competition=weakening
of their economic system
Fascism
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Pros
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Strong military
Unity
Laws can be passed
quickly
Opportunities for
private business and
property
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Cons
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Corrupt
Controlling
Promotes war and
violence