Transcript money - theevanthompson

MONEY
Why do we need money?
►Key
Economic Concepts:
►Barter
►Exchange
►Markets
►Price
► Task:
Make a list of things you would
like to sell on Ebay.
► Think
about your room at home:
 Are there items in their closet that
you never use?
 Have your parents been telling you
to "get rid of that ..."?
Barter
►Next
make a list of things you would
like to buy on Ebay--using the
proceeds from the sale of the items
you have listed above.
Barter
►Barter
depends on a "double
coincidence of wants."
►It
only works when one trader is
willing to exchange his product for
something the other trader has
and the second trader
wants what the first
trader has.
Barter
► The
barter system can work when
there are limited goods for sale;
Barter
► However,
as economies developed and
people had more goods to trade (ceramics,
beads, arrows, bows, etc.), finding a good
to trade became more difficult.
?
Barter
► Barter
also requires that an exchange rate
be set.
=1.56
= 100.605
Conclusion:
► Money
is important in an economy.
Transactions for goods and services are
very difficult to complete without
money that serves as:
1. A
medium of exchange
2. A unit of account
3. A store of value.
Market Place - Activity
► Finally,
setup a marketplace for these
goods in your classroom.
► There is no money in this economy.
► Draw pictures of these items onto the
paper sheets provided.
► Then use them for the activity.
Market Place - Activity
► In
this activity everything must be
purchased via barter and trade. The
buyers and sellers will have to work
out prices between them.
Eg if one student wants a new video
game that another student is selling,
and the prospective buyer is offering
old baseball cards, the buyer and seller
will have to decide how many cards
must be exchanged for one video game.
►Back
in the real world, as people
developed more and more goods
and trade became more difficult,
buyers and sellers began to use
certain goods for money.
►If
a trader could not find a good
that he or she wanted personally,
some good with market value
could be accepted instead.
► Examples
might be corn, salt (among
the Romans), gold or wampum
(polished strings of shells used in
Colonial America).
►A
doctor who is hungry might want to
exchange his or her medical services to
a farmer for food
► But
if the farmer is feeling fine and has
no need for the doctor's medical
services, what would make that farmer
want to give up his food?
► This
is where money becomes useful.
In the example of the doctor and
farmer, the doctor could simply give
the farmer money instead of medical
services. The farmer would accept
money more readily than the doctor's
services because money is always
valuable.
Money
► In
order to be useful, money must
satisfy three important functions:
1.It must serve as a medium of exchange. In
other words, it must be generally
accepted as a means of payment by all
parties. Did you ever wonder why a
restaurant owner is willing to give you a
pizza for a piece of paper with a picture
on it?
Money
2.
It must serve as a unit of account.
In other words, it must provide a
common unit for measuring the
value of every good and service.
This allows those who are selling
to set prices.
Money
3.
It must serve as a store of value. In
other words, it must retain its
purchasing power over time. People
do not want to make purchases every
time they sell something. You can see
that items like corn, or other goods
that spoil, are not very good
substitutes for money because they
cannot function as a store of value.
►
In your opinion would the in-school
market be better if the buyers and
sellers could use money in their
transactions.

►
Explain your answers.
Would the market have been more
efficient with money?
Specialization
►In
the earlier periods of history,
families produced all they
consumed and consumed all they
produced. There was no need for
money. But this changed once
began to specialize.
Specialization
►When
some people became hunters
and others became farmers, for
example, they often made
transactions by trading or bartering.
This was relatively simple at first
because the number of goods being
traded was so limited.
Specialization
►For
instance, a farmer might want
some meat for his family and a
hunter might want vegetables for
his family. The most logical means
for both men to obtain what they
want is to trade what they have.
Specialization
► The
hunter gives the farmer part of
animal he just hunted and in return
the farmer gives the hunter a basket
full of fruit & vegetables.
► But the barter system has flaws.
Monopoly
►A
monopoly is defined as a persistent
market situation where there is only
one provider of a product or service, in
other words a firm that has no
competitors in its industry. Monopolies
are characterized by a lack of economic
competition for the good or service that
they provide and a lack of viable
substitute goods.
Oligopoly
► An
oligopoly is a market form in which
a market or industry is dominated by a
small number of sellers
Economic Equilibrium
Economic equilibrium is simply a state of
the world where economic forces are
balanced and in the absence of external
influences the (equilibrium) values of
economic variables will not change
Price of Market
Balance
*P - price
*Q - quantity of good
*S - supply
*D - demand
*P0 - price of market balance
*A - surplus of demand - when
P<P0
*B - surplus of supply - when
P>P0
Supply and Demand Model
►
The price P of a product
is determined by a
balance between
production at each price
(supply S) and the
desires of those with
purchasing power at
each price (demand D).
The graph depicts an
increase in demand
from D1 to D2, along
with a consequent
increase in price and
quantity Q sold of the
product.
Cartel
A cartel is a formal (explicit) agreement among
firms. Cartels usually occur in an, where there
are a small number of sellers and usually
involve the same or similar products.
Cartel members may agree on such
matters as:
► price fixing,
► total industry output,
► market shares,
Cartel
►allocation
of customers,
►allocation of territories,
►bid rigging,
►establishment of common sales
agencies,
Cartel
►and
the division of profits or
combination of these.
►The aim of such collusion is to increase
individual member's profits by reducing
competition.
►Competition laws forbid cartels.