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Balancing a budget
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Our goal is to learn the nuances
of balancing a budget. In order to
do so, we must first learn some
basic economic principles. Use
this power point tutorial to help
master these principles.
Economic Principle #1: Resources
A resource in
anything that is
used to obtain
needs and wants.
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Examples of resources:
 Money to purchase a
snack
 Gas so you can travel in
your vehicle
 Education so you can
get a better job
 Employees to help work
at a restaurant
Economic Principle #2: needs v. wants
Need – This is generally
considered to be anything
necessary for physical
survival (food, clothing,
shelter)
Want – Anything that is
not a need (usually
considered luxury items)
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Rule of thumb – If
you will physically
die without it, it is
a need. If not, it is
a want
Let’s test your understanding on the
next few slides. Is the following a need
or want?
1. Water (click the correct picture)
NEED
WANT
Need or Want?
2. A high school diploma (click the correct picture)
NEED
WANT
Need or Want?
3. A car (click the correct picture)
NEED
WANT
Economics Principle #3: Scarcity
Scarcity – The lack of a
resource.
 Unfortunately, there is not
an infinite amount of
resources in existence.
 Because of scarcity, people
and countries are forced to
make choices concerning
their needs and wants.
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For people, this is part of
balancing a personal
budget. You will have to
make choices regarding
your money (resource)
and how you want to
spend it (scarcity).
This is what we call trade offs and
opportunity costs.
Economic Principle #4: Trade offs and
Opportunity Costs
Trade off – This is the
simple exchange of one
thing for another.
Examples:
Opportunity Cost – This
is what you give up when
making a decision.
Examples:
 Money for a soda
 A pencil for a pen
 Sleep for school
 The opportunity cost for buying a
soda is money.
 The opportunity cost for receiving
a pen was giving up your pencil.
 The opportunity cost for going to
school was giving up sleep.
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This goes back to resources and scarcity. Budgeting is all about
making choices. If you choose one thing, you must give up
something else.
On the next few slides, let’s test your understanding of
opportunity costs by answering some questions.
1. Which of the following
choices would be the
opportunity cost of
using a credit card?
Having the product you want
now instead of later
Losing the use of future income
Click the correct answer
You get to build a good credit
score
Opportunity Cost – Question 2
2. What is the opportunity
cost for not studying for
your final exam?
The opportunity to receive a
good grade on your exam.
Click the correct answer
The opportunity to spend more
time with your friends.
The opportunity to earn more
money at your part time job.
Opportunity Cost – Question 3
3. Which would be the
opportunity cost for
volunteering on the
weekend?
The satisfaction you would
receiving by helping others.
Your personal time
Click the correct answer
Receiving extra credit for class
Economic Principle #5: Revenue v.
Expenditures
Revenue – This is the
money (income) that you
are bringing in. Revenue
can be viewed as your
primary resource in
budgeting.
Expenditures – This what
you will be spending your
money on. Expenditures
can be viewed as your
bills when budgeting.

The plan for balancing your revenue
(resources) and expenditures is
called a BUDGET
If your revenue exceeds your expenditures, you have a surplus of money (money left over). If your
expenditures exceed your revenue, you will be in debt. This is why it is important to make good
choices regarding your resources…REMEMBER OPPORTUNITY COSTS!
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Economic Principle #6: Law of
Demand
The word demand means the amount
your are willing to buy.
Law of demand – This law says that
when price goes up, consumer
demand goes down. When price goes
down, consumer demand goes up.
Just think about when you want
to buy something. Would you
rather pay a high price or low
price?
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A demand curve slopes downward from
left to right. Notice that as the line slopes
down, price gets lower, but quantity
demanded gets higher.
An increase in demand causes curve to
shift right. A decrease in demand causes
curve to shift left.
Economic Principle #7: Law of
Supply
The word supply means the
amount that is available.
Law of Supply – This law says when
price rises, supply rises, and when
price lowers, supply lowers.
The law of supply is based on the
producer’s perspective, not the
consumer’s. The producer is trying to
make money (the consumer is trying
to save money)
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The supply curve slopes upward from left
to right. As you go up the line, you see as
price rises, quantity supplied also rises
(look at definition).
An increase in supply causes the graph to
shift right. A decrease in supply causes
the graph to shift left.
Supply and Demand together
 If you put supply and demand
curves on the same graph, you can
see how a change in one will
affect price.
 Where the supply and demand
curves cross is called equilibrium
price. This is where the consumer
agrees to buy and the producer
agrees to sell.
 Prices going up is called
inflation.
 Understanding why prices go up
and down is an important concept
in balancing a budget.
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Answer the questions on the next few slides to
check your understanding of supply and demand
1. There is only one
supplier of computers,
and they are required
for your college
course. Which of the
following is most
likely to happen?
The price will decrease
The supply will decrease
Click an answer
The price will increase
Question 2 – Supply and Demand
2. Which of the following
best explains why the
grocery store would put
hamburger meat on sale?
Click the correct answer
There is too much supply of
hamburger meat
There is high demand for
hamburger meat
The supply of hamburger is too
low
Question 3 – Supply and Demand
3. Which answer explains
why the equilibrium price
of swim trunks would
decrease in the Fall?
Click an answer
An increase in demand causes
the curve to shift left which
indicates a decrease in price.
An increase in supply causes
the supply curve to shift left,
indicating a decrease in price.
A decrease in demand causes
the demand curve to shift left,
indicating a decrease in price.
Congratulations! You have completed
the lesson on basic economic
principles. Now it is time to test your
knowledge and work on a real budget.
End Show
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