economics a internet research project: economic systems...

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Internet Research Project:

Economic Systems and Scarcity Economics A

Unit 1

Name _________________________________________ Date____________________________ Objective • Learner will investigate the economic concept of scarcity, and apply their knowledge by examining

the impact of economic systems. Background: Economic Systems – Mechanisms for Coping with Scarcity For years, the former Soviet Union directed its resources toward heavy industry, producing armaments such as tanks and fighter jets. During that same time, there was a shortage of food and other consumer goods. Generations of Soviet citizens lived without many of the products that people of other industrial countries took virtually for granted – automobiles, household appliances, and adequate housing. In addition, it was not unusual for Soviet citizens to line up for long hours outside stores to buy basic products, such as bread, which were not readily available. In contrast, during those same years, U.S. heavy industry was very productive, manufacturing armaments similar to those that the Soviet Union was producing, AND there was plenty of food and other consumer goods available. U.S. citizens rarely (if ever) had to wait hours to buy food and other provisions. What was the source of these differences between the former Soviet Union and the United States? Humans have always been faced with scarcity. Scarcity means that there is a limited quantity of something and more of this something is wanted or needed than we have available. We must choose how we want to use our scarce resources. Thus, scarcity presents people with dilemmas, forcing them to make difficult choices. These choices can be expressed in the three basic questions of economics:

1. What to produce? 2. How to produce? 3. For whom to produce?

An economic system is the way a country or society answers these basic economic questions. Thus, the difference between the former Soviet Union and the United States described above derived, at least in part, on the economic system each country adopted to cope with scarcity. There have been many different economic systems over time. Today, however, the world’s economies tend to be one of three general categories: traditional, command, or market. Of these, the last two, command and market, are the most common among modern industrialized countries. Most of the world’s countries have an economic system that is primarily command or market:

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A command economy is one in which a central controlling authority – usually the government of a region or country – answers the three basic economic questions by controlling what, how, and for whom it is produced. They are called command economies because the government orders or commands how the economy will work. Sometimes they are called “planned” economies because the government plans the production of goods and services and who is allowed to consume them. In a command economy, the government owns or controls all production resources, including labor. The only private property that exists is a person's private possessions (such as their clothes and household goods).

A market economy is one where the three basic economic questions are answered in the marketplace. In market economies, production resources are privately owned and all trade is voluntary. Individual people buying and selling in free, competitive marketplaces determine what goods and services are produced, how they are produced, and for whom they are produced. In a market economy, no single person or group of people coordinates all this market activity. The voluntary choices and motivations of people and firms acting in their own self-interest result in coordinating resources and production activities efficiently for the benefit of everyone.

Each of these systems has its advantages and disadvantages over which economists argue. One area of disagreement is called “distribution of goods and services.” Money tends to be distributed unequally among people in market economies because how much each person can earn depends on the value placed on that person’s ability to produce goods and services. Some people are highly paid because their abilities are valued highly, while the abilities of others are not in demand or they cannot work for some reason (age, caring for children, or a disability). Thus, there are extremes in income between the small number of people who are very wealthy and the larger numbers of people who are not as well off (and some are very poor). Advocates of command economies argue that market economies are unfair in distributing goods and services because the rich can afford to purchase large amounts of goods and services, while the poor cannot. These people argue that command economies are fairer than market economies because goods and services can be directed to whoever needs them in a command economy. They claim that the average person in a command economy will live better than the average person in a market economy. Defenders of market economies insist that what is lost in fairness is more than made up in efficiency. Advocates of a market economy argue that while ideally everyone gets what they need in a command economy, the reality is that this is not necessarily the case. Because command and market economic systems each have advantages and disadvantages, most of the world’s countries may have an economic system that is PRIMARILY one or the other, as mentioned, but their economies are usually a combination of each in order to obtain some of the advantages of each. Thus, in reality, no country has a purely command economy or a purely market economy. All countries today have some blend of the two, and so all economies are really mixed economies. Those that are mostly run by governments, we call "command" even though they are partly market economies. Likewise, those where the basic economic questions are

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mostly answered in the markets, we call "market." However, all of these are really mixed economies. To understand why this blend evolved, consider the task of taking care of the poor. A purely command economic system would, first, tell farmers which crops to grow and how much of each. Second, they would set up a distribution system that allots each person a set amount of the production. A purely market system would rely on private charities to provide for the poor. However, neither of the two systems’ methods for taking care of the poor works over the long term. Countries that tried a command approach had problems in getting farmers to cooperate in their production of food crops because the farmers had no incentive to produce what they were asked to produce. Also, the distribution systems set up were flawed and subject to problems. Countries with market systems have not found that private charities are a very reliable way of helping the poor – they seldom have enough resources to provide for everyone in need. So, countries with command systems (such as the former Soviet Union) moved away from them, while many countries with market systems have decided to have more government involvement than what a purely market economy should have. Thus, some (including the United States) have incentives to increase the production of food (such as subsidies to farmers), as well as programs to help the poor buy food. The subsidies to farmers increase the supply of agricultural products and keep their prices low, while programs such as food stamps help people buy food.


Internet Research Primer How to Determine If an Internet Source Is Authoritative A lot of information is available on the Internet, but not all of it is reliable. One of the most important parts of Internet research is determining whether or not the information published on a Web site can be relied upon to be correct. The first step is to learn who publishes the Web site. Sometimes, the Web address of the site can give useful information: .gov indicates a site published by the U.S. government; .mil, the U.S. military; .edu or .ac (sometimes with a country code afterwards, for example, .ac.uk), an educational institution such as a college; and .int, an international organization. A Web address ending in a two-letter code such as .uk or .ca indicates that the Web site is based in a foreign country. Finally, .com, .net, .org, and .biz can be registered by any individual or type of organization. (Although .org is primarily used by nonprofit organizations, this is not strictly enforced.) In general, governments and international organizations are the most trustworthy, followed by educational institutions (particularly colleges and universities). Next in reliability are large nonprofit organizations and corporations. Least authoritative are Web sites maintained by small organizations or individuals. This is just a general rule. It is important that you determine the source of any Web site you want to use and decide for yourself how reliable it is. Almost any organization may be biased in terms of what information it decides to place on the Web site and how it presents that information – particularly if it wants to sell you a product or service or has a particular cause or issue to promote. For example, the National Rifle Association (NRA) is a very large legitimate organization – but also one with a specific issue to promote and publicize. Activities 1. The following questions are based on the CIA’s World Factbook available online at

https://www.cia.gov/library/publications/the-world-factbook/index.html.

a. Select Mexico from the “Select a Country or Location” dropdown list, then choose “Economy” from the list of Categories. Read the “Economy - overview” section. What kind of an economy does Mexico have? What percentage of the population lives below the asset-based poverty line? (You will need to scroll down the page.)

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http://www.worldviewsoftware.com/redirect.php?id=eco-a-1-1

b. Select North Korea (Korea, North) from the “Select a Country or Location” dropdown list, then choose “Economy” from the list of Categories. Read the “Economy - overview” section. What kind of an economy does North Korea have?

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2. Go to the U.S. Department of Commerce Bureau of Economic Affairs, located at http://www.bea.gov/. Select the tab marked “glossary,” then click on the letter “G.” What is the definition of “gross domestic product (GDP)”? How is that different from “gross national product (GNP)”?

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3. Go to the United Nations Statistics Division’s glossary, located at http://unstats.un.org/unsd/snaama/glossary.asp. Click on “GDP per capita.” What is the definition? What does it indicate about a country?

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Project Every year, the International Monetary Fund (IMF), the World Bank, and the United Nations publish lists that rank countries according to their per capita Gross Domestic Product (GDP). They also publish lists that rank countries according to the proportion of the population that lives below the poverty line. Go to the United Nations Cyberschoolbus Web site, http://www.un.org/cyberschoolbus. Select “World Hunger” from the Curriculum list; then click on the “Hunger in the World” link. Read the “Hunger and Malnutrition” section, then click on the “World Hunger Map” link.

Choose a country where a high proportion of people are undernourished, then a country where a low proportion of people are undernourished. Write a report that compares their economies. Why do you think that there is a difference in the proportion of undernourished individuals? Does the nature of the country’s economy have an effect? Why or why not? (Hint: You can use the United Nations Schoolbus Web site (http://www.un.org/cyberschoolbus) to identify the countries to study. You can also use this Web site to get information about the economies of the countries you select. You can also obtain country economic information by using the CIA World Factbook at https://www.cia.gov/library/publications/the-world-factbook/index.html, the International Monetary Fund’s Web site (http://www.imf.org/external/index.htm), the World Bank’s Web site (http://www.worldbank.org/), the Human Development Report of the United Nations Development Programme (http://hdr.undp.org/en/ ), in addition to other Web sites.)








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Internet Research Project:

Supply, Demand, and Price Economics A

Unit 2

Name _________________________________________ Date____________________________ Objective • Learner will study the relationship between market price, and demand and supply by looking at a

“real-life” example. Background: It Is All about Demand and Supply The winter of 2006-2007 was mild by historical standards. In the northern United States, temperatures stayed above normal, while snowfall was below normal. Yet Americans paid much more to heat their homes than the previous winter, and they paid more for gasoline for their cars. The reason? Skyrocketing heating oil and gasoline prices. Heating oil and gasoline are both produced from crude oil; and crude oil prices almost doubled in a year – from $38 a barrel in December 2005 to $75 a barrel in December 2006. Crude oil has long been considered a valuable resource – inspiring its nickname, “black gold.” Sudden and steep crude oil price increases are not a new phenomenon. In 1973, the Organization of Petroleum Exporting Countries (OPEC) arbitrarily raised their prices first 70%, then later 130%, in retaliation for support given to Israel in the Yom Kippur War that year. From the fall of 1973 to the spring of 1974, the price of crude oil went from $3.50 a barrel to more than $10. Since the United States at that time relied on OPEC members for a substantial portion of its oil, prices of gasoline and other oil-based products jumped substantially in the United States. A new energy crisis began in 1979, in the wake of the political instability caused by the overthrow of the shah of Iran. Americans were forced to wait on long lines to obtain gas for their automobiles. For the period from 1979 to 1981, crude oil prices rose from $10 to $36, before coming back to $10 in 1986. Crude oil is not the only product that has wide price swings. The prices of fresh fruits and vegetables and other agricultural products that people buy every day constantly fluctuates. In fact, the price of every commodity rises and falls over time. A commodity is anything of value to people that can be transported (moved) and traded, although the term is most commonly used with unspecialized bulk products such as corn, wheat, petroleum, and coal. Commodity price changes affect everyone who trades in them – those who buy the product and those who sell it. What determines the price of a commodity? Why do some commodities have higher prices than others? What causes their price to change over time? These questions are very old. Indeed, Adam Smith, who wrote the first comprehensive book describing economic systems, particularly market ones ("The Wealth of Nations," 1776), examined these issues. Smith said that the price of a product is linked to its supply – that is, the price of a commodity is determined by the cost to produce and supply it. Other economists disagreed with Smith and asserted that price is linked to demand – that is, the price of a commodity is determined by its perceived value to consumers. Today, economists agree that price is determined by both the market demand and supply for that commodity.

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In a market economy, commodities are bought and sold through markets. A market is defined as the mechanism, process, or means by which buyers and sellers are brought together – that is, the bargaining between those who are producing the product and those who want to consume it. Two things are determined by this bargaining: how much will be bought and sold (the quantity) and at what price. The price is the point at which the quantity demanded equals the quantity supplied. This price is called the “market price” or "equilibrium price." ("Equilibrium" means that a state of balance exists between two things.) However, the supply and demand of commodities can change over time, and therefore the prices of commodities change over time, reflecting changes in the demand and/or supply of these commodities. The changes in demand and supply may be caused by changes in consumer preferences, production costs, weather conditions, among other factors. For example, the prices of fresh fruits and vegetables go up or down depending on their availability. Their availability can be influenced both by their seasonal nature and factors affecting their production – such as floods, drought, and unseasonable freezes. If Florida experiences freezing temperatures, this can directly affect the price of oranges in the United States. The crude oil market is an international market because supply and demand is affected by producers and consumers in many different countries. Oil-producing countries like Canada, Iran, Iraq, Mexico, Nigeria, Norway, Russia, Saudi Arabia, the United States, and Venezuela provide the supply of crude oil. Crude oil is used to produce electricity, fertilizer, gasoline, home heating oil, laundry detergent, plastics, and many other products. Thus, consumers throughout the world who use these products are the ones who ultimately create the demand for crude oil when they purchase the products produced from crude oil. The demand for crude oil has been increasing. One major reason is that the economies of some of the oil-consuming countries are growing fast. Thus, these countries are increasing their use of crude oil and the products created from it in their industries, infrastructures, and lifestyles. China, for example, has a fast-growing economy. It is increasing its consumption of crude oil because its industries are expanding tremendously in response to a worldwide demand for Chinese-made products, as well as increased consumer demand for automobiles and the gasoline to power them as consumer income increases. What is occurring in China is also occurring in India. The major demand factor behind the increase in oil prices in 2007 was the increase in the quantity demanded by rapidly developing countries such as China and India. The availability of oil (supply) also affects price. If the number of suppliers decreases – or the amount each supplier provides decreases – prices could increase to reflect this smaller available quantity. The major supply factors behind the increase in oil prices in 2007 included problems in oil-producing countries: the continued turmoil in Iraq, an Iranian government that is viewed as both unreliable and hostile to non-Muslim countries, a Marxist-leaning president in Venezuela, and political turmoil in Nigeria. Industrial accidents or natural disasters, such as Hurricane Katrina (2005), could also disrupt supplies, and result in higher prices.


Internet Research Primer Basic Internet Searching The Internet contains a vast amount of information, but there is no index or table of contents like a book. In order to find information on your topic, you must use what is called a search engine. There are many different search engines available, including AltaVista, Ask.com, Google, Live Search, Yahoo, and many others. Google is currently the most popular, but many of the techniques described here can be used with most search engines. The first step in using a search engine is to collect a list of terms and phrases for your topic that can be used by the search engine to find Web pages in which you are interested. One technique that helps is to use words or phrases that are unique to the topic. When entering multiple words or phrases in a search engine’s search box, it is helpful if you connect them with what are called “Boolean operators.” Boolean operators are named after the English mathematician, George Boole (1815-1864). They are words that help the search engine determine if a Web page is likely to have what you are interested in. The most commonly used Boolean operators are AND and OR. With Google, the Boolean operator AND is the default – if you enter multiple words with nothing but a space between them, it is assumed that the word AND is between them. So, for example, if you entered oil price in the search box, Google would search for both “oil” and “price” and would list Web pages in its search results that contain both the word “oil” and also the word “price.” If you entered oil OR price, Google would list Web pages in the search results that contain either the word “oil” or the word “price” – and some Web pages would have one word but not the other. Note that if you entered either oil price or oil AND price, the Web pages in the search results would contain both the word “oil” and also the word “price.” However, these Web pages would not necessarily include the specific phrase “oil price” with the words next to each other and in that order. In order to search for the phrase “oil price” you should enter "oil price" with the quotation marks around the phrase. This would cause the search engine to return only pages that contain the phrase “oil price.” You can include Boolean operators and phrases together in one search. For example, if you entered "oil price" 2008 in the search box, Google would return pages with the phrase “oil price” and the date “2008.” You can also use more than one Boolean operator in a search, but you should include parentheses when you do this, so that the search engine knows exactly what you want to search for. The search (2008 OR modern) "oil price" will return a list of Web pages that includes the phrase “oil price” and also includes either the date “2008” or the word “modern.” While AND and OR are the two most commonly used Boolean operators, there is another Boolean operator that can also be used – NOT. The NOT Boolean operator limits the search results to those Web pages without the word or phrase that follows the NOT. With Google searches, the Boolean NOT operator is represented by the - (minus) symbol and must come right before the word or phrase to be excluded (no space allowed). For example, if you keyed "petroleum production" -Texas in Google’s search box, Google would return all Web pages that included the phrase “petroleum production” except those which also had the word “Texas.” The NOT operator can also be applied to a phrase to exclude Web pages that have that phrase from the search results. If you want to exclude Permission is granted to instructors to copy and distribute this worksheet for instructional purposes only. Copyright © 2008 WorldView Software, Inc. All rights 3reserved. WorldView® is a registered trademark of WorldView Software, Inc.

a phrase, the NOT operator should be placed in front of the quotation marks that surround the phrase – for example, -"petroleum production". There are other search techniques that do not involve Boolean operators. One of the most common is to use a symbol called a “tilde” (~). A tilde is used in a search box to search for a word or any of its common synonyms. Like the minus symbol used for the NOT, the tilde must appear right before the word you want it to work with (no space allowed). For example, if you key ~help, the search engine will not only search for the word “help,” but will also search for the words “guide,” “manual,” “faq,” “support,” “tutorial,” “helping,” “tips,” and “problems.” Another technique that does not involve Boolean operators is to use what are called “proximity” operators, such as “adjacent,” “near,” and “with.” In general, proximity operators are similar in use to the AND Boolean operator. They ensure that two terms or phrases will be on the Web pages returned in the search results. If you use the AND Boolean operator to link these terms or phrases, the two could be in two completely different places on a Web page – not near each other. The difference with proximity operators is that the two terms or phrases must be somewhat close together or the Web page will not be included in the search results. Many search engines allow the proximity operator to be followed by a number (with no space) to specify the maximum separation. For example, if you keyed Franklin with2 Roosevelt, the search results would include only those Web pages that contained BOTH “Franklin” and “Roosevelt” with only two words (or less) between them. Thus, Web pages with “Franklin Roosevelt,” “Franklin-Jacques Roosevelt,” and “Franklin Jacques Roosevelt” would all be included in the search results. However, Web pages with “Roosevelt, Franklin” would not. Activities 1. The following questions are based on the Department of Energy Web site available at

http://www.energy.gov.

a. Place your mouse pointer over the “Energy Sources” link for a list of further choices. Click on the “Fossil Fuels” link. What fuels are identified as fossil fuels? What percentage does the Department of Energy say fossil fuels provide of the energy consumed in the United States?

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b. Place your mouse pointer over the “Science and Technology” link for a list of further choices. Click on the “Climate Change” link. What strategies does the Department of Energy say its Office of Fuel Energy is pursuing to reduce carbon emissions that contribute to global climate change?

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c. Place your mouse pointer over the “Prices and Trends” link for a list of further choices. Click on the “Energy Statistics” link, which will take you to the Web site for the Energy Information Administration, a statistical agency of the Department of Energy. Under “Energy Sources,” click on the “Petroleum” link. Under the “Imports/Exports & Pipelines” section of the “U.S. Data” column, click on the “U.S. Imports by Country of Origin” link. Select “Annual-thousand Barrels” from the “Period-Unit” dropdown list. Scroll down the list of countries. From which country did the United States import most of its oil in the most current year listed?

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2. Go to the Fuel Facts Web site of the American Petroleum Institute (an organization supported by the oil industry), at http://www.factsonfuel.org. In the “Home Fuels” section in the left column, click on the “Natural Gas” link. Read the section on “Natural Gas Supply and Demand.” According to the Web site, what is currently affecting the price of natural gas?

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Project The United States imports a great deal of crude oil that is used to make gasoline. Make a poster that answers the following questions: From where does the crude oil come? How much does the United States import? How much crude oil does the United States produce itself? What factors, in addition to the price of crude oil, affect the price of gasoline? (Hint: Among other sources, use the following Web sites: http://www.factsonfuel.org, maintained by the American Petroleum Institute; http://www.energy.gov, maintained by the Department of Energy; and http://www.fpa.org, maintained by the Foreign Policy Association [for this one, key in “Analysis: The Price of Oil” in the search text box]).




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