Welcome to Economics!

Do Now: …think & write…..

What do you think we will be talking about in this class??

….and…. what do you hope to learn that will be useful to you in the “real world”?

What is economics??

Economics is the study of how a society uses its limited resources to satisfy its wants and needs

......wants and needs??

-- wants = luxuries--needs = necessities

Think…

…….wait……”limited .wait……”limited resources”….what’s that resources”….what’s that word……????word……???? Scarcity – limited amount of resources Scarcity – limited amount of resources

to satisfy unlimited wantsto satisfy unlimited wants

…….for this reason, individuals, businesses, .for this reason, individuals, businesses, and societies must make choices……..and societies must make choices……..

…………trade offs… trade offs…

Opportunity cost – the most desirable Opportunity cost – the most desirable alternative given up as a result of a alternative given up as a result of a decisiondecision

Guns or Butter??Guns or Butter??

Countries must make decisions about Countries must make decisions about how to use resources……how to use resources……

Example – a country that produces Example – a country that produces more military goods has fewer more military goods has fewer resources for consumer goodsresources for consumer goods

What are the What are the 3 key economic 3 key economic questionsquestions

that all societies must answer??that all societies must answer?? What goods and services should be What goods and services should be

produced?produced?

How should goods and services be How should goods and services be produced?produced?

Who consumes goods and services?Who consumes goods and services?

Economic SystemsEconomic Systems

What is an What is an economic economic systemsystem????

the method used by a society to produce the method used by a society to produce and distribute goods and servicesand distribute goods and services

reflects a society’s goals and valuesreflects a society’s goals and values

Ok…..so… how does a society choose Ok…..so… how does a society choose an economic system??an economic system??

5 Basic economic goals5 Basic economic goals guiding the choice... guiding the choice... 1) Economic efficiency 1) Economic efficiency

- making the most out of resources- making the most out of resources

2) Economic freedom 2) Economic freedom - who will control - who will control production and production and distribution of goods & services…distribution of goods & services…

… … people or government?people or government?- people having choices- people having choices

……. jobs, purchases. jobs, purchases

…….more goals…..more goals….

3) Economic security3) Economic security

- predictability- predictability

- goods & services will be available, - goods & services will be available, payments payments

will be madewill be made

- safety net – gov’t programs to protect - safety net – gov’t programs to protect

people during tough economic timespeople during tough economic times

4) Economic equity 4) Economic equity - Distribution of goods & services .....Distribution of goods & services .....

.....depends upon?.....depends upon?

....society’s values....society’s values- Jobs & pay???? Equity???Jobs & pay???? Equity???

5) Economic growth & innovation5) Economic growth & innovation

- to increase standard of living- to increase standard of living

What are the What are the 4 main kinds of 4 main kinds of economic systems?economic systems?

1. Traditional1. Traditional

- habit, custom, ritual- habit, custom, ritual

- subsistence farming- subsistence farming

- occupation of family- occupation of family

- Low social/economic mobility (poor stay - Low social/economic mobility (poor stay poor)poor)

2. Market2. Market

- individuals make decisions- individuals make decisions

- free market, capitalism- free market, capitalism

- free enterprise- free enterprise

- private ownership- private ownership

- competition- competition

- profit motive- profit motive

- supply & demand- supply & demand

Individuals make decisions- production – what, how, how much, cost- what to buy- jobs/businesses

Free Enterprise- individuals are free to operate businesses as they see fit to maximize profit- some govt regulation

Role of govt in free market economy:

- protection of workers and consumers

- disclosure laws – make buyers knowledgeable & safe …..

….”disclaimer” = fine print…..

Private Ownership

- private property – businesses privately owned

- individuals control factors of production -> resources used to make goods &

services - natural – raw materials

- human – labor

- capital – investment $, buildings, machinery

Competition

the struggle among various producers for the consumer’s business

regulating force in the marketplace - keeps prices low & quality high

- monopoly – when one company controls a particular market examples??

--> competition discourages monopolies

Profit Motive

the reason people own businesses in a market economy

......duh!!!........

incentive

Supply & Demand- supply – amount available- demand – amount consumers are willing

and able to buy

-> when prices are lower, people will buy more

-people make desires known to businesses by…

…buying stuff!!

Supply & Demand ….still….

the driving force in a market economy!! determines prices and quantity of most goods produced

low supply, high demand = high prices!

high supply, low demand = low prices!

Advantages of Free Market Economy

variety of goods and services

profit

choices

3.Centrally planned3.Centrally planned

- Command- Command

- Government makes all decisions- Government makes all decisions

- public ownership- public ownership

- fewer choices for individuals- fewer choices for individuals

- Communism- Communism“A theoretical economic system characterized by the collective ownership of property and by

the organization of labor for the common advantage of all members.”

““An economy that combines elements of An economy that combines elements of capitalism and and socialism, mixing some individual ownership and , mixing some individual ownership and regulation. Some capitalist countries, regulation. Some capitalist countries, France, for , for example, employ what is often called state capitalism. example, employ what is often called state capitalism. In this form of a mixed economy, the state becomes a In this form of a mixed economy, the state becomes a major shareholder in private enterprises. An alternative, major shareholder in private enterprises. An alternative, employed in Great employed in Great Britain (more in the past than now), (more in the past than now), is for the state to own some industries while leaving is for the state to own some industries while leaving others in private hands.”others in private hands.”

4.Mixed economy4.Mixed economy- combination- combination- some gov’t control, some capitalism- some gov’t control, some capitalism- most developed nations today- most developed nations today

Socialism:Socialism:

“An economic system in which the production and distribution of goods are controlled substantially by the government rather than by private enterprise, and in which cooperation rather than competition guides economic activity. There are many varieties of socialism. Some socialists tolerate capitalism, as long as the government maintains the dominant influence over the economy; others insist on an abolition of private enterprise. All communists are socialists, but not all socialists are communists.”

FEATURES OF SWEDISH FEATURES OF SWEDISH SOCIALISMSOCIALISM

Combination of private ownership of industry and Combination of private ownership of industry and government funded welfaregovernment funded welfare

When a child is born, parents entitled to combined 450 When a child is born, parents entitled to combined 450 days of parental leave with ¾ paydays of parental leave with ¾ pay

Several months of government paid sick and vacation Several months of government paid sick and vacation leave each yearleave each year

If unemployed, workers receive 80% of their pay from If unemployed, workers receive 80% of their pay from government and sponsored retraininggovernment and sponsored retraining

While government claims 5% unemployment, While government claims 5% unemployment, government bureaucracy and government sponsored government bureaucracy and government sponsored employment raises true number to 10%employment raises true number to 10%

Employers responsible for first four days of sickness, no Employers responsible for first four days of sickness, no documentation necessarydocumentation necessary

More Features Swedish SocialismMore Features Swedish Socialism Medical costs are mostly paid by governmentMedical costs are mostly paid by government Cost of system – Swedish workers pay 55% of their income Cost of system – Swedish workers pay 55% of their income

in taxes plus a value added tax (sales tax) of 25%, in taxes plus a value added tax (sales tax) of 25%, compared to max. of 28% for married couples in US earning compared to max. of 28% for married couples in US earning < $ 200,000 and 8.25% sales tax in Orange County< $ 200,000 and 8.25% sales tax in Orange County

Results in loss of consumer spending and loss in Results in loss of consumer spending and loss in productivityproductivity

Swedish suicide rates are moderately high for men and Swedish suicide rates are moderately high for men and very high for womenvery high for women

In Oslo, Norway, neighboring country and similar In Oslo, Norway, neighboring country and similar economically, shortage of police officers, medical and economically, shortage of police officers, medical and school supplies. Significant drug addiction, and delivery of a school supplies. Significant drug addiction, and delivery of a pizza from Oslo’s most popular pizza joint runs from pizza from Oslo’s most popular pizza joint runs from $ 34.00 to $ 48.00, including delivery charges and sales $ 34.00 to $ 48.00, including delivery charges and sales tax. Gas is $ 6.00 per gallon (2005) tax. Gas is $ 6.00 per gallon (2005)

SOVIET RUSSIANORTH KOREA

SWEDEN

COMMUNISM SOCIALISM CAPITALISM

TOTALGOVERNMENT

CONTROL

MODERATEGOVERNMENT

CONTROL

MINIMAL GOVERNMENT

CONTROL

COMPARATIVE ECONOMIC SYSTEMS

COMMAND FREE

U.S.A.

Traditional small village in Africa

Market – capitalism US

Mixed - varying degrees of capitalism & socialism

England, France, India & Sweeden *China - mixed, but more command Centrally Planned – command,

communism North Korea, former USSR

What to review for the test ?????

function of economic systems types – def & examples supply & demand – importance in market

economy, effect on prices creating demand opportunity cost “guns or butter” competition profit role of govt in market economy advantages of free market