Transcript Economics - Mesa Public Schools

Economics
Essential Questions and Notes
Communism/
Command Economy
• Communism is a government control of the economy.
Including:
 what to produce
 how to produce
 price for goods
 government owns property
 government sets salaries
 Mother Russia, China, Cuba, etc. Good of Country is the
most important consideration.
 No competition
• Capitalism is private
ownership of production
with little or no government
control. Individual company
decides:
 what to produce
 how to produce
 price for goods
 salaries
• private property
• Free Enterprise
• Competition between
companies
• Limited government
involvement
• consumer choice
Capitalism/
Market
Economy
Property rights
• If your property belongs to you, its value impacts you.
• Incentive (the better you care for it, the more it is
worth.)
• Resale market or market prices (house, business)
• When property rights are not clearly defined, people
act in their own self-interest not in society interest.
– pollution
– graffiti
Eminent domain
• 5th Amendment
– allows the government to take private
property for public use.
– government must pay a fair price for what
it takes
• building a highway (Sunshine Acres)
• building a dam
• State and Federal Parks that border private
property
Demand
• Demand is the quantity of a good or
service that buyers are willing and able
to buy at all possible prices during a
period of time.
– The new Microsoft Vista comes out but the
company ships only 100. There is a huge line
outside to buy them. The price goes up
because the demand is high.
– No one wants to buy the old Mac’s the price
goes down.
Supply
• Supply is the amount of a good or
service that producers are willing and
able to offer for sale at each possible
price during a given period of time.
• The south has a hurricane and floods the peanut
fields. The crops are destroyed. Peanut butter
price goes up because of fewer peanuts.
• Wal-Mart buys 1,000 MP3 players because they
think there is a large market. No one buys the
MP3 players. The price goes down.
Supply and Demand
• Consumers wants and needs effect the
supply and demand of products.
• If there is a large demand for a product the
producers will produce more
• If there is no need or want the companies will
produce less of a product.
• If there is scarcity of a product the price can
be raised.
• If there is too much of a product the price will
most likely be lowered.
Scarcity
• Condition that exists because human
wants exceed the capacity of available
resources to satisfy those wants.
• How does scarcity influence your
personal choices?
What are the functions
of businesses?
• Businesses are economic units
that demand productive
workers from households
• Businesses supply goods and
services to households and
government agencies
• Any activity or organization
that produces or exchanges
goods or services for a profit is
a business.
• business decide:
– what to produce
– what prices to charge
– how to invest their capital
Businesses and Households are
two sectors of the circular flow.
• Businesses hire workers from households
• The payments for these workers represent
household income
• Households spend their income for goods and
services produced by the businesses
• Household spending represents revenue for
businesses
What are the functions of banks
(financial institutes)?
• Financial institute’s job is to move
money from savers to borrowers
• The industry is involved with
conducting financial transactions.
• Maintaining a checking or savings
account or obtaining a loan.
• Banks provide convenient ways for
clients to save--earning interest-• Clients borrow from banks and pay
interest.
• Savings are necessary to provide funds
for investment in capital goods.
• Investment helps an economy grow.
• Banks channel the savings of households
to businesses so capital goods can be
purchased for new investment projects
• Capital goods increase the production of
goods and services in an economy,
• improving the standard of living.
What are the functions of
government agencies?
• Government agencies establish a framework
or rules of the game in economic life.
• In the United States, this activity involves:
– preserving and fostering competition
– regulating natural monopolies
– providing information and services to enable the
market to work better
– providing certain public goods,
– offering some economic security and income
redistribution to individuals
– assuring a sound monetary system
– promoting overall economic stability and growth
– protecting the environment
– helping the poor
– providing national defense
• Labor Union
– an economic institution that
represents an organized group of
workers (by industry or by type of
worker regardless of the
industry) to negotiate with
management by means of
collective bargaining.
• Labor Force
– The people in a nation who are
aged 16 or over and are employed
or actively looking for work.
• Labor
– The quantity and quality of human
effort available to produce goods
and services.
What are the functions of labor
unions?
• sets wages
• decides the use of union money
• collective bargaining with owners of
companies
• negotiate observance of certain
holidays
• regulates working conditions and hours
• Corporations – are
key economic
institutions in a
market economy.
Corporation
• A legal entity owned by shareholders
whose liability for the firm's losses is
limited to the value of the stock they
own.
What are the functions
of corporations?
• Corporations allow people to limit the
economic risks they face in forming a
business and make it easier to obtain
financial capital when large
investments in factories and
equipment are needed.
• These advantages have contributed
to the growth and development of
many large businesses in market
economies, and to the overall level of
production and income in those
economies.
1. How does a Bank and a Corporation
relate to one another?
2. Now include the government agency,
How could it relate to the bank and
the corporation?
3. How does a Labor Union relate to a
corporation?
Market Incentives
• When a product becomes popular, producers
usually want to produce more than they did
before.
• Businesses borrow money to buy raw
materials, hire more workers, and perhaps
even buy more capital goods.
• Buyers can prevent the business from raising
the price too high by not buying the goods.
• Business can also lower the prices provide
coupons or discounts to encourage buyers to
buy their goods.
Microsoft v
Apple
• Apple company and Microsoft were
computer competitors.
• Each wanted to be the sole distributor
of computers.
• Microsoft gained the business market.
• Apple gained the education market.
• Both companies began to make faster
and better computers to keep up with
the competition.
Competition
• Competition encourages more variety,
better quality, and cheaper products.
– Sam’s Club and Costco
– Wal-Mart and Target
– Wal-Mart grocery and Safeway, Bashes,
Albertsons
– Apple and Microsoft
Competition
• People also are affected by competition
–
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Grades in school
college admission
jobs
scholarships
Entrepreneurs
• People who have created successful
businesses that have enriched our lives.
– Bill Gates-Microsoft operating system
– Martha Stewart-Business magnate, author,
editor, etc.
– Oprah Winfrey-Television talk-show host,
actress, and producer.
– Ted Turner-founder of cable television
network CNN and Time Warner
Broadcasting
– Donald Trump-Real Estate
Income
• Income is the monetary payment received for
goods or services, or from other sources, as
rents or investments.
• Consumers make decisions in the marketplace
including personal money management based
on their income.
• Economists often say that “Consumer vote
with their dollars”
• People tend to regard one’s own self interest
or advantage with disregard for others when
their income is involved.
Scarcity of Professions
• When a career area has few
professionals in that field and there is a
large demand, the salary is usually
higher.
–
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–
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doctors and lawyers
computer fields
engineer
in the next few years teachers
Human Capital
• The quality of labor resources which can
be improved through investments in
education, training, and health; skills
and knowledge.
• On average, individuals with higher
educational levels tend to have larger
incomes, while those with lower
educational levels make less money.
How can the level of
education impact your
future?
Benefit Personal
Budget
• People earn an income.
• People must make choices about how to spend
and save their income.
• If people do not make a personal budget they
can find themselves in debt.
• Some people loose their house or car if they
do not make a budget.
• When you have a budget you can invest your
money and make more money.
Fixed Expenses
• Expenditures that are the same from
week to week or month to month.
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mortgages
rent payments
car payments
personal loan
Variable Expenses
• Expenditures that change from week to
week or month to month.
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food
clothing
recreation
entertainment
credit card payments
Types of Credit
• Mortgage-fixed payment with lower
interest, and the house is collateral.
• Personal loan-fixed payment, fixed limit,
no collateral, good credit score lower
interest rate, bad credit higher
interest rate.
• Auto loan-fixed payment, good credit
score lower interest rate, bad credit
higher interest rate, and the car is
collateral.
• Revolving-fixed limit, monthly payment
varies based on balance and interest.
good credit score lower interest rate,
bad credit higher interest rate.
Student Loans
• Federal Stafford loans are fixed-rate, low
interest loans available to undergraduate
students attending accredited schools at
least half time.
• Stafford loans are the most common source
of college loan funds.
• A Federal Perkins loan is a low interest (5%)
loan for undergraduate and graduate students
with “exceptional” financial need.
Private Student Loans
• Private loans provide additional
funding at a higher rate after a
borrower has maximized his or
her federal loan eligibility. You
can get them from your school or
from private financial
institutions.
• Depending on the lender, private
loan (alternative loan) terms can
vary considerably based on your
credit history.
Consumer
credit
• Consumers are people who consume or
use goods and services.
– check-note that gives a bank permission to
make a payment. No interest is charged.
– Debit card-gives the bank permission to
make a payment electronically. No interest
is charged
– Money Order-a form of cash bought for a
specific amount and signed over by the
purchaser to the person or firm named on
the money order. you must pay a fee for a
money order.
• Credit card-allows consumers the
privilege of buying something now and
paying for it later. A credit card
charges interest on the amount
borrowed if not paid off.
Advantages of Checks
• Takes the place of cash. So it is safer
than carrying cash.
• People have a record of purchases made
with checks.
Disadvantage of Checks
• Some businesses may not accept checks because of
cost and problems when accounts have insufficient
funds.
• People forget to enter information about the check in
the register and , as a result, may spend more than
the amount in their account
• It takes a while to write a check when you make a
purchase.
• It may be inconvenient to carry the checkbook around
with you.
• If the checkbook is lost or stolen, others may try to
write checks on your account.
Debit Card Advantages
• A debit card is small so it is convenient and
easy to carry around.
• Using a debit card is a fast and easy way to
make a purchase.
• It is safer than carrying cash or checks since
there is a limit on the amount lost if stolen.
• A debit card is secure. A PIN (Personal
Identification Number) is needed to use the
card.
Debit Card Disadvantages
• People forget to enter the amount in
the account register and, as a result,
lose track of the amount in the account.
• It can be lost or stolen.
Money Order Advantages
• There’s no need for any type of bank
account.
• A money order is safe to send through
the mail. It is not safe to send cash
through the mail.
Money Order Disadvantages
• People must pay a fee for each money
order they buy. This can be expensive.
• It is inconvenient to go to a store/bank
to buy a money order each time a bill
must be paid.
Credit Card Advantages
• Credit cards are easy to carry and use
• Consumers can purchase things now for
which they pay in the future.
• Credit cards are safer to use than cash
or checks since there is a limit on loss if
stolen.
Credit Card Disadvantages
• It is easy to forget that each time a
credit card is used, debt is created; too
much debt might be difficult to repay.
• Fees are charged for the use of credit
cards.
Personal Investment
• Saving Accounts- When you are beginning to
save, you should place your money in
investments that are as safe as possible.
– In addition, you will likely always have at least
some of your money in short-term investments.
– Bank savings accounts are such an investment.
– The federal government backs these accounts with
what is known as Federal Deposit insurance
Corporation (FDIC) Insurance.
• Money Market Account:
– These are accounts offered by banks.
– In these accounts the bank typically pays
you a higher rate of interest than a savings
account.
• CD or Certificate of Deposit:
– The bank holds your money for a set period
of time.
– Usually one to six months, or one to five
years.
– Unlike a normal savings account, you may
not withdraw your money at any time.
– If you do, you will be subject to withdrawal
fees.
• Money Market Funds:
– Similar to bank savings accounts are money market
funds.
– Money market accounts are available from mutual
fund companies.
– They are similar, but you usually get a better
return with money market funds.
– These funds are not held with a bank, they are not
FDIC insured.
– They are invested in very short-term bonds, which
tend to be less risky than longer-term bonds and
invest in safe government investments, corporate
commercial paper, and other related investments.
– They are regulated by the U.S. Securities and
Exchange commission.
– Those money market mutual funds that invests
exclusively in U.S. government securities have very
little risk, while giving you better rates of return
then typical bank savings accounts.
• Retirement accounts– Roth IRA - contributions are made with after-tax
assets, all transactions within the IRA have no tax
impact, and withdrawals are usually tax-free.
Named for Senator William Roth.
– Traditional IRA - contributions are often taxdeductible (often simplified as "money is deposited
before tax" or "contributions are made with pretax assets"), all transactions and earnings within
the IRA have no tax impact, and withdrawals at
retirement are taxed as income (except for those
portions of the withdrawal corresponding to
contributions that were not deducted).
– SEP IRA - a provision that allows an employer (typically a
small business or self-employed individual) to make
retirement plan contributions into a Traditional IRA
established in the employee's name, instead of to a pension
fund account in the company's name.
– SIMPLE IRA - a simplified employee pension plan that allows
both employer and employee contributions, similar to a 401(k)
plan, but with lower contribution limits and simpler (and thus
less costly) administration. Although it is termed an IRA, it
is treated separately.
– Self-Directed IRA - a self-directed IRA that permits the
account holder to make investments on behalf of the
retirement plan.
• Stock Market-is an “auction market”
where competition among buyers and
sellers determines stock price.
• stock- The capital invested in a
corporation and represented by shares
of ownership.
• Stockholders have a share in the wealth
of the corporations of which they are
part owner.
• Anyone can buy stocks.
• People can make money or lose money by
buying stocks.
• Some stocks are safer than others.
• Stock broker is the person who can sell
stock and they take a percentage of
what your profits.
• How does the rise and
fall of the stock market
affect people?
Opportunity
cost
• What you must give up to obtain something
else, the second-best alternative.
– “Opportunity lost”
– If you decide rent an apartment instead of buying
a house.
– Buying a house is your opportunity cost (lost)
• You make many opportunity costs in financial
decisions.
• Can you name some decisions you have
made lately and what was your
opportunity cost?
Trade-off
• the exchange of one thing for another
of more or less equal value, esp. to
effect a compromise.
• How would trade-off affect your
financial decisions?
Capital Resource (goods)
• Are goods produced and used to make
other goods and services. These include
tools, equipment, and building.
Physical Capital
– refers to human–made items used
to produce and distribute good
and services.
• Some examples are:
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machines
transportation equipment.
factories
medical advancements
new technologies
Human Resource
• The amount and quality of human
efforts used to produce goods and
services.
Natural Resources
• The natural wealth of a
country, consisting of land,
forests, mineral deposits,
water, etc.
Developing Countries
• Scarcity of resources affect
governments by not being able to
produce enough goods and
services to satisfy everyone with
food, clothing, housing,
education, recreation, and
medical care.
• This also causes a low standard of living.
Personal choice
• The more scarce a resource is, the more
expensive it will be and the less likely it
is that you will have the opportunity to
have it.
• OR you can stand in line for days to buy
the next shipment.
Example of Business
choice
• If iron ore became scarce, it would
cost too much to produce steel a
product of iron ore.
• Businesses will have to find an
alternative to steel.
• OR the price of steel and products
made of steel will increase.
Describe two examples that
shows how personal choices are
based on available resources?
Describe two examples that show
how business choices are based
on available resources?
Technology, Transportation, and
Communication
• Better technology, transportation, and
communication resources a country has
the more attractive they are to
investors who want to start a business
which will provide jobs and money for
the population.
• Countries that have and are able to
provide technology, good transportation,
and good communication are able to
attract investment capital which
provides jobs and money for their
people; therefore, they can invest more
in technology, transportation, and
communication.
• Countries that are lacking in these
areas are not attractive to investors.
• Their people can’t make the money they
need.
• The government does not have the
money it needs and can not provide the
technology, transportation,
communication services needed.
• Countries with unstable governments or
corrupt governments also have problems
allocating their resources.
Wastes
• Anything
unused,
unproductive,
or not
properly
utilized.
Ecosystem
An ecosystem is a system formed by the
interaction of a community of plants and
animals with their environment.
Ecosystem
ecosystem
Ecosystem
Environment
The environment is air, water, minerals,
plants, and animals, organisms, and all other
external factors surrounding and affecting
people at any time.
Marsh Environment
Water
Table
• underground
surface
where the
soil or rock,
are saturated
with water.
Modify ecosystems
• cut down rainforest for
farming
• destroy grasslands for
farming
• cut down trees for
houses and cities
• dam rivers
The Three Gorge Dams is the largest dam
in the world, as wide as the Golden Gate
Bridge and twice as tall, capable of
generating 18 gigawatts of hydro-electric
power.
• destroy wet lands for houses and
farming
• change river channels to avoid flooding
or make room for houses and highways
• pollute rivers, air, and land
changing river channel
Global warming
• An increase in the earth’s average air
temperature that causes changes in
climate and that may result from the
greenhouse effect.
Natural disasters
• Any event or force of nature that has
catastrophic consequences, such as
avalanche, earthquake, flood, forest
fire, hurricane, lightning, tornado,
tsunami, and volcanic eruption.
How can changes in the
natural environment
hurt people?
Name three was
technology can positively
affect the environment.
Name three ways
technology can negatively
affect the environment.
Deforestation
• Pros and Cons
Alaska Oil Drilling-War over
Arctic
• Pro and Con
Wetlands
• Pros and Cons
Forest v spotted owl
• Pros and Cons
Desertification
• Pros and Cons
FACTORS CONTRIBUTING TO
LONG-TERM ECONOMIC
GROWTH
• High investment levels in:
– physical capital
– human capital
• •Greater economic freedom including:
– lower taxes
– fewer government regulations
– sound monetary policy
– protection of property rights
– decentralized decision-making in most
sectors of the economy
– Strong incentives to save, invest, and
increase productivity (including property
rights)
– Competitive markets
– Low inflation
– Political stability
– Free trade