Transcript Economics - Elkin City Schools

Economics
The study of why people make
one choice rather than
another when buying and
selling, spending and saving
In Summary
• The choices that people make every day
as buyers, sellers, workers, and business
owners are the concerns of economics.
• Economics is an area of study that tries to
find out why people make one choice or
another.
Why Study Economics
• To understand the world better
– You’ll begin to understand the cause of
many of the things that affect your life
• To gain self-confidence
– You’ll lose that feeling that mysterious,
inexplicable forces are shaping your life for
you
Why Study Economics
• To achieve social change
– You’ll gain tools to understand origins of social
problems and design more effective solutions
• To help prepare for other careers
– You’ll discover that a wide range of careers deal
with economic issues on many levels
• To become an economist
– You’ll begin to develop a body of knowledge that
could lead you to become an economist in the
future
Basic Economics
• Macro-economics- Studies how different parts of the
economy work together as a whole. Focuses on big
picture and ignores fine details.
• Micro-economics- Focuses on individual parts of an
economy, rather than the whole. Study of the
behavior of a nation’s, workers, and consumers,
individual households, businesses, and governments.
• Choices they make
Scarcity- #1 economic problem
• Scarcity- exists when the demand for a
good, service or resource is greater than
supply; no economy has an unlimited
supply of resources.
• All resources are limited.
• Scarcity makes consumers make choices
about how they will spend their money.
Scarcity continued…
• Because of Scarcity, we have to make
choices between wants and needs.
• Wants – things we would like to have
like a Ferrari.
• Needs – things we have to have like a
food, clothing, and shelter.
• Scarcity means
that there are
limited
resources, and
therefore, people
must make
choices. Look at
the pictures on
the right. Which
pictures show a
scarcity?
1)
2)
3)
Scarcity is a problem for all
economies because it forces the
3 BASIC Economic questions:
1. WHAT to produce?
2. HOW to produce?
3. FOR WHOM to produce?
Levels Of Economic Analysis
What to Produce?
Products would
still be in the
market if there
is a demand for
it.
Micro Level
High price due to
technology or cost
of materials;
Low priced may
mean low quality due
to mass production
& low quality
resources
How to
Produce?
For Whom to
Produce?
No money, no
goods!
Macro Level
The Economic Problem
• What goods and services should an
economy produce? – should the emphasis be
on agriculture, manufacturing or services,
should it be on sport and leisure or housing?
• How should goods and services be
produced? – labor intensive, land intensive,
capital intensive? Efficiency?
• Who should get the goods and services
produced? – even distribution? more for the
rich? for those who work hard?
•
1.
2.
3.
4.
Using your personal experiences answer the
following on a separate sheet of paper:
List 3 examples of items you had to have.
List 3 examples of items you had to do without
(scarcity!!!)
Why is scarcity the biggest problem faced by
all economies?
How does scarcity affect price and the
production and consumption of goods?
Basic Economics:
Goods and Services
• Goods- things that can be seen or touched.
Products that are purchased and eventually
used up.
• Services- actions such as haircutting, cleaning
or teaching which are used as they are
produced. Cannot be touched.
• Consumer- someone who buys goods and
services for personal use not resale.
• Look at the
pictures on the
right. Which of
these pictures
show goods and
which ones show
services?
1)
2)
3)
4)
PRODUCTION – producing goods and
services
What are the Factors of Production?
(resources used in the production of goods
and services)
•
•
•
•
Land (natural resources)
Labor (workers)
Capital (money)
Entrepreneurship (start a business)
Factors of Production
Land (Natural Resources)
Materials supplied by nature (such as land, water,
mineral deposits, and trees)
Labor (or Human Resources)
Physical and mental capabilities of people as they
contribute to economic production
Capital Resources
Funds needed to create and operate a business
enterprise
Types of Economic Resources
• Economic resources- the things that go into the
making of goods and services. There are 3 types:
natural,
Natural Resources
human,
Human Resources
capital.
Capital Resources
Types of Economic Resources
• Natural Resources- things that nature has
provided. Examples:
Air, water, iron ore, coal, oil, vegetable
products-trees, plants, grains, and fruits,
solar power.
What are renewable and non-renewable resources?
Renewable - a natural resource that replaces
itself unless overused.
Non-renewable – a resource that cannot be
replaced once used.
Examples of Renewable
Resources are:
Water
Oxygen
Timber
Fruit and vegetables
Meat from animals
Examples of
Nonrenewable Resources
are:
Fossil fuels like coal, oil
and gas
Minerals like copper
Types of Economic Resources
• Capital goods- property such as tools,
machines and buildings used to produce
other goods and services.
Productivity
• measures how many goods or services
are produced per worker in a specific
period of time.
• Output > Input
- High productivity is the result of using
resources efficiently!
Inputs: The resources that are used to produce
goods and services.
Outputs: The goods or services that results
from the production.
Division of Labor
• Breaking down of a job into smaller tasks
performed by different workers.
Specialization - process by which different
workers specialize in specific tasks over time
Assembly line - Generally low skilled workers
use machinery to produce large
numbers of products
Mass production - the method of producing goods
in large quantities at low cost
per unit.
Job Specialization
• Workers who specialized became
much more skilled at their specific
tasks
• Increasing job specialization
increases efficiency and leads to
higher levels of production.
Human Capital
• Sum of the skills, abilities, and motivation of
people who make goods and services.
- How much workers can produce depends on
incentives (reason to work hard):
• Training
• Health care
• Higher pay
• Promotion – advance to a higher position
- Investing in your work force is good for a company:
The more productive a work force the more money a
company makes.
Employee Benefits
Employee benefits: Rewards such as retirement plans,
health insurance, vacation, and tuition reimbursement
provided for employees either entirely or in part at the
company’s expense
• Typically account for 30 percent of total employee
compensation.
Flexible Benefits
•Employees provided a range of benefits options among
which they can choose.
• “Family-friendly” benefits such as flexible hours, and
dependent care accounts
Flexible Work
• Allow employees to adjust their working hours and
places of work to accommodate their personal needs.
26compressed workweek job sharing program
•Flextime
Increasing Production
Technologies Increase production by finding a cheaper,
quicker way to produce a product
Robotics
Invention
Advanced automation, using robots
The creation of something new
Inventions and technological advances that
Innovation increase economic productivity
Automation Use of machinery instead of people to
perform work
Quiz
What term do we use to describe items that are
necessary for our survival?
A.Scarcity B. Shortage
C. Need D. Want
Computers, trucks, hammers, and other man-made
materials would be with factor of production?
A.Capital B. Entrepreneurship C. Labor D. Land
Logan starts a restaurant using his own money to purchase a
building and cooking supplies such as ovens and grills.
This is an example of which of the following economic
terms?
A. Entrepreneurship
B. Productivity
C. Specialization
D. Investment
Which of the following best describes factors of
production?
A. The resources necessary to produce goods and
services
B. The number of steps it takes to make a product
C. The mathematical equations that determine GDP
D. The goods and services that a country produces
A purchase of four new pairs of a highly sought-after shoe
could be described as fulfilling a:
A. Good
B. Service
C. Want
D. Need
Of the following, who would most likely earn the
highest wage/salary?
A. An unskilled blue collar worker
B. A skilled white collar worker
C. Someone who graduated from high school and has
little additional training
D. Someone who works as a hired hand on a farm
Production
Factors of Production
Land
(resources)
Labor
(workers)
Capital
(money)
Semiskilled
Unskilled
Skilled
Unskilled, Semi-Skilled and Skilled Work
– What Do These Terms Mean?
Unskilled work – the least complex types of
work. Jobs are unskilled when persons can
usually learn to do them in 30 days or less.
Examples of unskilled jobs are:
clerk/typist
surveillance system monitor
hand packer
circuit board assembler
restaurant dishwasher
Semi-skilled work – more complex than
unskilled and simpler than skilled types of
jobs. They require more judgment than do
unskilled occupations. Require more than
30 days to learn. Some work may be little
more than unskilled. Examples :
chauffer
room service waiter
carpenter
nurse's aide
administrative assistant
Skilled work –more complex and varied.
They require more training and often higher
level of education. Abstract thinking in
specialized fields may be required.
Examples:
chemists
architects
school band directors
physicians (doctors)
attorneys
CEO of a business
Blue vs. White Collar
A blue-collar worker performs manual labor
(use their hands). They get dirty. Examples:
factory and construction workers, auto
mechanics, bus drivers, etc.
White collar workers do work which can be
done while wearing a white collar shirt
without it getting dirty. Examples: office
workers and salespeople.
Compensation
• Wages Compensation based on an hourly pay rate or the
amount of output produced – Blue collar
• Salary Compensation calculated on a periodic basis, such
as weekly or monthly – White collar
Most firms base compensation decisions on five factors:
• Salaries and wages paid by competing companies
• Government legislation - minimum wage - amount
employers are required to pay per hour ($7.25).
• The cost of living
• The firm’s ability to pay
• Worker productivity
Business Costs
Annual Income Comparisons
Unemployment Rate
Unemployment Rates 2006
8
7
6
5
4
3
2
1
0
Master's degree
Bachelor's degree
High School Diploma
No Diploma
Note: Data are 2006 annual averages for persons age 25 and over. Earnings are for full-time wage and salary workers.
Source: Bureau of Labor Statistics
Compounded Impacts of High School
Drop-Outs
Individuals
Lower Lifetime Earnings
Decreased health
status, higher mortality
rates, more criminal
activity
Higher rates of teen
pregnancy and single
motherhood
Less voting and
volunteering
The Community
Reduced buying power,
reduced tax revenues, and
less economic growth
Higher health care and
criminal justice system
costs
Higher public services
costs
Less community
involvement
Source: Levin, H et al 2007
Opportunity Cost
• What was given up in making a choice.
Ex. The item you DID NOT choose!
- giving up something of better value for
something of lesser value.
By spending amount A, we are giving up the opportunity
to have B.
What are opportunity cost decisions you make?
What is the difference between trade-off
and opportunity cost?
Trade-off: you give up something for
something else. If you exchange some item
with someone for something of equal value,
you have made a trade-off.
In opportunity cost you are forced to make
an alternate choice; you could not afford it,
wasn’t what you thought, etc. But, you are
not happy with the choice
A plot of land could have
several possible uses:
• develop a shopping center
Cost – $30 million
• develop office building
Cost - $7 million
• develop private housing estate
Cost - $23 million
The land owner estimates that he can make the
following profit each year from each option:
shopping center = $10 million
office building = $5 million
housing estate = $8 million
Q: What is the best economic use for the land?
Q: What is the opportunity cost associated with
this use?
Types of Business Costs
Fixed Business costs that do not depend on the
level production or quantity of goods
produced.
Cost
that
varies
with
the
level
of
Variable
production or quantity of goods
produced.
Total
Marginal
Fixed and variable costs together
The cost of production to make an
additional item
What are examples of Fixed
Costs?
•
•
•
•
•
rent or mortgage
loan payments
certain salaries
a part of utilities
property taxes
Total Fixed cost curve
TFC
Q
0
What are examples of Variable
Costs?
• worker’s wages
• raw materials
• some utilities
• some taxes
Total Variable Cost Curve
TVC
Q
0
What is
Marginal Cost?
• The change in total cost
generated by a change
in the quantity of a
good produced
Marginal cost at each level of
production includes any additional
costs required to produce the next unit.
If producing additional vehicles
requires building a new factory, the
marginal cost of those extra vehicles
includes the cost of the new factory.
Economies of Scale
• The larger the company, the more efficient.
Cost to produce a good or service is lower.
- The advantages of large scale production that result in
lower costs per unit.
Economies of Scale
Capital
Land
Labor
Output
Total Cost
Av. Cost
Scale A
5
3
4
100
57
0.57
Scale B
10
6
8
300
164
0.54
•Doubling the scale of production (a rise of 100%) has led to an
increase in output of 200% - therefore cost of production
•PER UNIT has fallen
•Don’t get confused between Total Cost and Average Cost
•Overall ‘costs’ will rise but average costs can fall
•Why?
What can cause economies of
scale?
• Increased specialization – investment in
work force (training, incentives)
• Specialized capital equipment –
automation/robotics
Downsizing: Process of reducing the
number of employees within a firm by
eliminating jobs.
•Two most common reasons:
1. Cut overhead costs
2. Streamline organizational structure
Why Downsize?
• Increase or maintain profits
Outsourcing: Contracting with another
business to perform tasks or functions
previously handled by employees staff
members.
• Reflects the competitiveness of
businesses in the Free Market.
What industries in NC have been effected:
Textiles, and Furniture
PACED Criteria
Healthcare – Choosing a hospital
What steps would you use to make a
decision about which hospital to have
surgery?
• Producers SUPPLY goods and services and
consumers DEMAND them. Prices in the market
are determined by the interaction of supply and
demand.
• An ENTREPRENEUR is someone who takes the
risk to develop a new product or start a new
business.
• PROFIT is the difference between the money
people make when they produce and sell a good
or service and all their costs of production.
Economic specialization: Focusing on one product or
service to make them better than anyone else.
Economic interdependence: Two or more people
depending on each other for goods and services.
Economic specialization and interdependence in the present
NC is known for its’ tobacco. (Specialization)
NC sells its tobacco to other countries but depends on other
countries for oil. (Interdependence)