Bonus Dates If you get your homework in before the actual due date I will give five bonus points for...

Bonus Dates• If you get your homework in before the

actual due date I will give five bonus points for the homework assignment for each chapter.

• Chapters 1 Bonus remains for Tuesday 9/13, Chapter 2 Bonus Friday 9/16.

• Otherwise all homework is due the day of the Unit Test set tentatively for the week of September 19-23.

I. What is Economics – The Language

• A. Definition – Social Science concerned with the efficient use of scarce resources to achieve maximum satisfaction of human material wants.

• HUH?!???????

I. What is Economics cont…?

• B. Unlimited Wants satisfied by Limited Resources and using those resources as efficiently as possible.

• Case example USA vs. USSR

• See this stuff is easy!!!

In the beginning…


• C. Scarcity and Choice

• 1. Because resources are scarce it forces individuals and countries to make choices.

• 2. Those choices always come with some sort of cost.

What is Economics?

Economics: the study of Unlimited Wants Satisfied by Limited Resources.

Unlimited v. Limited: Forces people, nations, & the world to deal with the

problem of Scarcity.

Scarcity forces Choice!

3. Economics is the study of Choice!!!

http://accuweather.ap.org/cgi-bin/apdownload.pl?4875636+Intl_Photos+accuweather.ap.org:80+++

No, you can't always get what you wantYou can't always get what you wantYou can't always get what you want


You can't always get what you wantYou can't always get what you wantYou can't always get what you wantBut if you try sometimes you might findYou get what you need


Economics, the study of choice!


• “There is no such thing as a free lunch.”• One of the most repeated quotes in all of

economics.• What does it mean??• Because resources are scarce and we must make

choices based on those limited resources, our choices ALWAYS come with a cost!

• Examples – Fill your gas tank lately?

Wants????

• Food, Clothing, and Shelter

• Cars, Concerts, and CD’s

• Primary v Secondary Wants

• Different people?• Different nations?• Different wants?


• C. Scarcity and Choice

• 4. Opportunity costs – the items you sacrifice in order to acquire what you want.

• - Explicit costs - $

• - Implicit costs – time, energy…

Economics, the study of choice!

Making a Choice Carries a Cost!

• Opportunity Cost• When one road is taken

an opportunity on another road is missed!

• In taking AP Econ, what did you not take?

• Going out for a sport means…..

• Buying a new outfit means…..

Basic Economic Questions

• $100 gift certificate and a trip to Mayfair Mall!

• Ever not buy something?

• Ever regret a purchase?

• Have a CD you hate?

Overview

• Because we have unlimited wants but limited resources we have to make choices and understand that our choices come with a cost.

• How do we get the greatest satisfaction for the lowest cost??

• “The most bang for the buck!”

I. What is Economics cont…

• D. Marginal

• 1. Economics seeks to compare the marginal benefit to the marginal cost.

• 2. Marginal = Additional or extra.

• (More commonly; is it worth it? Is the added effort worth the benefit you will receive both individually and in society.)

An example -

• Needed – 3 volunteers.

• You get to eat.

Do you think like an Economist – Yet??

• Can the government provide too much financial aid???

• What should you consider?

• Costs=

• Benefits=

• How do you measure it?

• That’s what the class is about.

II. Why Study Economics

• A. Economics has replaced politics as the avenue toward freedom.

• 1. Economics dominates political decisions.

• B. It will help you make better financial decisions.Academic not Vocational –

Accounting = VocationalAcademic = the skills to run a business better

III. Broad Economic Goals

• A. 8 Widely accepted goals of USA • 1. Growth – Higher Standard of Living• 2. Full Employment – Provide jobs for all citizens willing and able to

work.• 3. Efficiency – maximum fulfillment of wants with all available

resources.• 4. Price-level stability – avoid large swings in prices (inflation /deflation)• 5. Freedom – allow for choices.• 6. Equitable distribution of income – poverty v. wealth.• 7. Security – provide for those unable to provide for themselves.

• 8. Balance of Trade – keep a reasonable balance of goods and financial transactions.

• B. Debatable, complementary, and may involve trade-offs.

End of Chapter 1

• Economics Defined• Unlimited wants vs.

limited resources.• Scarcity leads to choice.• Choice is made by

evaluating what is going to give the most satisfaction for the lowest cost.

• Bonus for chapter 1 work Tuesday September 13.

AP Macro Outline – 2005-2006 I. Basic economic concepts 8 – 12 % Chapters 1, 2, 3, 4, 5 & parts of 20 A. Scarcity, choice and opportunity costsB. Production possibilities curveC. Comparative advantage, specialization and exchangeD. Demand, supply, and market equilibriumE. Macroeconomic issues: business cycle, unemployment, inflation, growth II. Measurement of economic performance 12 – 16 % Chapters 4, 5, 7, 8A. National Income Accounts (4-6%)1. Circular flow2. Gross Domestic Product3. Components of GDP4. Real versus Nominal GDPB. Inflation measurement and adjustment (4-5%)1. Price indices2. Nominal versus real values3. Costs of inflationC. Unemployment (4-5%)1. Definition and measurement2. Types of unemployment3. Natural rate of unemployment

Do you think like an economist yet?Let’s See

Chapter 2

• I. The Economizing problem.• A. Society’s material wants are unlimited yet

resources are scarce?• 1. On the one hand we deal with the

desires of consumers. • 2. Consumers seek those items that give

them the greatest utility (pleasure/satisfaction).• 3. Business and Gov’t also have wants

such as satisfying production goals or helping the citizenry.

BUT LIMITED OR SCARCEBUT LIMITED OR SCARCEPRODUCTIVE RESOURCES!PRODUCTIVE RESOURCES!

THE FOUNDATION OF ECONOMICSTHE FOUNDATION OF ECONOMICS

SOCIETY HAS VIRTUALLYSOCIETY HAS VIRTUALLYUNLIMITED WANTS....UNLIMITED WANTS....

Wants????

• Food, Clothing, and Shelter

• Cars, Concerts, and CD’s

• Primary v Secondary Wants

• Different people?• Different nations?• Different wants?

I. The economizing problem cont…

• 4. On the other hand we deal with all of the natural, human and manufactured resources.

• B. Resource Categories• 1. Land – All gifts of nature.• 2. Capital – machinery, tools etc…• 3. Labor – physical and mental talents

of individuals.


• 4. Entrepreneurial Ability – an innovator who takes the risk of trying to produce new products, new techniques, or forms of business organizations.

• Try to remember CELL

Resource Categories

• Land• Labor• Capital (is not money but

is new machines and factories)

• Entrepreneurial

Skills(CELL – a pneumatic device)


• C. Resource markets• 1. The place where resources or the services

of resource suppliers are bought and sold.• 2. Business demands the 4 categories of

resources to make their goods and services.• 3. In return business must pay for those

resources.• 4. Those resource payments are in the form of

Rent, Interest, Wages and Profits/losses. (weasel puss is red!)

Business/Owners Business/Owners Decisions based on…Decisions based on…$$$$$$

LANDLAND

CAPITALCAPITAL

LABORLABOR

RENTRENT

INTERESTINTEREST

WAGESWAGES

ENTREPRENEURENTREPRENEUR PROFIT &PROFIT &LOSSLOSS

5.

6. Simple Circular Flow

Page 37 in book.

Circular Flow ModelCircular Flow Model

BUSINESSESBUSINESSES


BUSINESSESBUSINESSES HOUSEHOLDSHOUSEHOLDS


RESOURCERESOURCEMARKETMARKET

RESOURCESRESOURCES INPUTSINPUTS





$ COSTS$ COSTS $ INCOMES$ INCOMES


LUXURIES vs. NECESSITIESLUXURIES vs. NECESSITIESSecondary vs. Primary WantsSecondary vs. Primary Wants

Consumer Choices are based on...Consumer Choices are based on...Consumer Choices are based on...Consumer Choices are based on...

UTILITY or Opportunity costUTILITY or Opportunity cost





PRODUCTPRODUCTMARKETMARKET

GOODS &GOODS &SERVICESSERVICES








PRODUCTPRODUCTMARKETMARKET



$ CONSUMPTION$ CONSUMPTION$ REVENUE$ REVENUE

How Does an Economy Work?

The Circular Flow Model

1995 Essay:

Draw, Label, & Explain the Circular Flow!

7. Full vs. Allocative Efficiency

• Full – using resources and producing goods in the least costly way.

• Allocative – using the resources and producing goods in the least cost way but also how society deems appropriate.

II. How do nations decide how to best use those resources?

A. 3 Basic Questions for any nation:

1. What?

2. How?

3. For Whom?To answer these questions, economic systems were created.

These economic systems vary greatly in how they use their scarce resources.

In the USA we used our scarce resources to produce $29,000 per person of goods and services.

In Zambia scarce resources were used to produce $900 per person of goods and services.

B. Economic Systems

• 1. Traditional

• 2. Command

• 3. Market

• 4. Mixed

Each system answers: what, how, and for whom differently.

Economic v Political Systems

• All nations fall economically into Traditional, Command, Market, or Mixed systems

• Nations politically can be Capitalist, Socialist, Communist, Dictatorship, or Fascist

C. Traditional Systems

• 1. Barter System• 2. Low Productivity• 3. Third World

Countries• Saukville

D. Command Systems

• 1. Government controls the economy

• 2. Government determines:– What to produce– Who will produce it– How it will be

produced– For whom it will be

produced

E. Market Systems

• 1. Laissez Faire role of government

• 2. Private ownership of the means of production

• 3. Markets determine price and allocate resources

F. Mixed Economic Systems

• 1. Most national economies today

• 2. Market economies dominate with varying degrees of government regulation and manipulation.

Goals of Macroeconomists:

1. Economic Growth

2. Stable Prices

3. Full Employment


“ISMS”

• Capitalism• Socialism• Communism• Imperialism• Nationalism• Fascism• Nazism

Capitalist Systems - USA

• Limited role of government

• Private ownership of the means of production

• Markets determine price and allocate resources

Socialist Systems• An expanded role of

government• Government & Private

ownership of the means of production

• Government & Markets determine price and allocate resources

In most European countries& in Canada health care isPROVIDED by the Government.Governments own and run airlines and railroads in some countries too!

Communist Systems

• Government controls the economy

• Government determines:– What to produce– Who will produce it– How it will be

produced– For whom it will be

produced

Imperialism v. Nationalism

• Nationalism is waving the flag and being patriotic!

• Imperialism is planting the flag in another country and claiming it for political or economic gain!

Dictatorships

• Mussolini’s Fascism– Control government

– Control the economy

– Allow some freedoms

• Hitler’s Nazism– Total control of a

person’s life

– Total control of the nation

A Quick Check

• Answer T for traditional, C for Command or M for Market.• 1. This economy has no money in its exchanges.• 2. In this economy consumers decide what will be produced.• 3. In this economy, government decides what will be produced.• 4. In this economy, government has only a minor role.• 5. This economy sees the greatest potential for productivity.• 6. J. Stalin, A. Hitler, F. Castro A. Hilts use this system today.• 7. In this economy the people decide who will receive the goods produced by

using money.• 8. The pilgrims• 9. Airbags and seat belts• 10. McRib, Mcgrafton• Take a look at the first three questions for your chapter two homework. You

should be able to answer them.

Production Possibility Curves

Understanding Efficiency and Choice

III. PPC Curves • A. Simplistic way of illustrating the consequences

of choice in an economy.• B. 4 Assumptions • 1. Full employment and productive efficiency.• 2. Fixed resources.• 3. Fixed Technology• 4. Two goods – consumer goods and capital

goods.• C. A PPC table lists the different combinations of

two products that can be produced with limited resources.

• D. A PPC curve is a 2 dimensional graph of the goods.

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIES

Assumes....Assumes....EfficiencyEfficiency

Fixed ResourcesFixed ResourcesFixed TechnologyFixed TechnologyTwo ProductsTwo Products

PIZZPIZZAA

for example...for example...

for example...for example...



Fixed ResourcesFixed ResourcesFixed TechnologyFixed TechnologyTwo ProductsTwo Products

ROBOT

ROBOT ARMSARMS

What if we could only produce ...What if we could only produce ...10,000 Robot Arms10,000 Robot Arms

oror



oror

400,000 Pizzas400,000 Pizzas


Using all of our resources, to Using all of our resources, to get some pizza, we must giveget some pizza, we must give

up some robot arms!up some robot arms!

Using all of our resources, to Using all of our resources, to get some pizza, we must giveget some pizza, we must give

up some robot arms!up some robot arms!

for example...for example...for example...for example...


oror

400,000 Pizzas400,000 Pizzas


PIZZAPIZZA 00 11 22 33 44(in hundred thousands)(in hundred thousands)

RobotsRobots 1010 99 77 44 00(in thousands)(in thousands)

in table formin table form





in graphical formin graphical formR

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Pizzas Pizzas (hundred thousands)(hundred thousands)






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III. PPC Curves cont…

• E. If an economy is at full employment and full efficiency it must sacrifice some of one good in order to get more of another good.

• F. The amount of other products that must be sacrificed to obtain additional units of another good is the – OPPORTUNITY COST!





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III. PPC Curves cont…

• 1. Law of increasing opportunity costs - the opportunity cost of each additional unit is greater than the previous one.

• - When you continue to add to Pizzas it is going to cost you marginally more in robots.

• - why? – it is not an equal trade off. There comes a point when transfer of resources is more costly than an equal trade off.

• - That is why PPC curves are concave.• - Converting capital goods or military good to

consumer goods is not an equal trade off.





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Total versus MarginalOpportunity costs.

Limited Resources meansLimited Resources meansa limited output....a limited output....


Limited Resources meansLimited Resources meansa limited output....a limited output....

At any point in time, a full-At any point in time, a full-employment, full-productionemployment, full-productioneconomy must sacrifice someeconomy must sacrifice someof product of product XX to obtain more to obtain moreof product of product YY..


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14141313121211111010 99 88 77 66 55 44 33 22 11

1 2 3 4 5 6 7 81 2 3 4 5 6 7 8


A B

C

D

E

W

Attainablebut

Inefficient

UnattainableUnattainable

Attainable andAttainable andefficientefficient

G. Allocative Efficiency 1. Society must decide on some point along the frontier MB = MC

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A B

C

D

E

W

Attainablebut

Inefficient



Notes....

The amount of other products which must beforgone or sacrificed to obtain some amount of a specific product is called the opportunity cost of that good.

LAW OF INCREASINGOPPORTUNITY COSTS

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A B

C

D

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W

Attainablebut

Inefficient



Notes....

This means that a graph ofthe production possibilitiescurve will be CONCAVE - bowed out from the origin.


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14141313121211111010 99 88 77 66 55 44 33 22 11

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A B

C

D

E

W

Attainablebut

Inefficient



Notes....

This means that a graph ofthe production possibilitiescurve will be CONCAVE - bowed out from the origin.

Economic resources arenot completely adapt-able to other uses.


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14141313121211111010 99 88 77 66 55 44 33 22 11

1 2 3 4 5 6 7 81 2 3 4 5 6 7 8


UU

Unemployment &Unemployment &Underemployment Underemployment Shown by Point Shown by Point UU

H. Unemployment and under- utilization ofresources.Shown inside the curve.

PRODUCTION POSSIBILITIESPRODUCTION POSSIBILITIESQ

Q

Cap

ital

Go

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apit

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Consumer GoodsConsumer Goods

A

B

a

Economic LimitsAlong

PPC Frontier


Economic Growth

Q

Q

A

B

C

D

a

b

Cap

ital

Go

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Consumer GoodsConsumer Goods

I. Growth brought on by an increase in resource supplies or advances in technology. Shifts the Curve to the Right.

12

10

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02 4 6 8 10 12

PPC – Constant Cost Graph

12

10

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6

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02 4 6 8 10 12

What if the Axis'sWere labeled wheat & oil?

PPC – Constant Cost Graph

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Quantity of OilIn millions of barrels

What is this now anOutput or Input PPC?

12

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02 4 6 8 10 12

PPC – Constant Cost Graph of

OutputsQ

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12

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PPC – What happens if output increases?

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Fixed ResourcesFixed Resources



Fixed ResourcesFixed ResourcesFixed TechnologyFixed Technology

FULL EMPLOYMENTFULL EMPLOYMENT

STABLE PRICESSTABLE PRICESECONOMIC GROWTHECONOMIC GROWTH

ALLOCATIVE EFFICIENCYALLOCATIVE EFFICIENCY

PRODUCTIVE EFFICIENCYPRODUCTIVE EFFICIENCY

The Role of GovernmentThe Role of Government



Fixed ResourcesFixed ResourcesFixed TechnologyFixed Technology

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14141313121211111010 99 88 77 66 55 44 33 22 11

1 2 3 4 5 6 7 81 2 3 4 5 6 7 8


UU

Unemployment &Unemployment &Underemployment Underemployment Shown by Point Shown by Point UU

More of either orMore of either orboth is possibleboth is possible

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Notes....ECONOMIC GROWTHECONOMIC GROWTH

The ability to producea larger total output -a rightward shift of the production possibilities curve caused by...

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Notes....

1 - Increases in resources -

2 - Better resource quality -

3 - Technological progress

ECONOMIC GROWTHECONOMIC GROWTH

Economic Economic GrowthGrowth

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1 2 3 4 5 6 7 81 2 3 4 5 6 7 8

A’A’

B’B’

C’C’

D’D’

E’E’


Two Examples of Two Examples of Economic GrowthEconomic Growth

Go

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Fu

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FAVORINGFAVORINGPRESENT GOODSPRESENT GOODS

CURRENTCURRENTCURVECURVE

FUTUREFUTURECURVECURVE

CONSUMPTIONCONSUMPTION


Goods for the PresentGoods for the Present

Two Examples of Two Examples of Economic GrowthEconomic Growth

Goods for the PresentGoods for the Present Goods for the PresentGoods for the Present

Go

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FAVORINGFAVORINGPRESENT GOODSPRESENT GOODS

FAVORINGFAVORINGFUTURE GOODSFUTURE GOODS








Basic Review – Chapter 2

• 5 point Bonus Chapter 1 for Monday 9/13; 10 Point Bonus Chapter 2 Wednesday 9/15

• Unlimited wants v limited resources

• Primary v Secondary

• Land, Labor, Capital, Entrepreneurial

• Choice

• Scarcity

• Opportunity Cost

• Absolute & Comparative Advantage

• What, How, and For Whom

• Economic Systems: Traditional, Command, Market, and Mixed

• Construction of a Circular Flow & PPC curves

• Efficiency????

Applications....Applications....• Wartime ProductionWartime Production• DiscriminationDiscrimination• Land-Use ControversiesLand-Use Controversies• Destruction from WarDestruction from War• Growth: Japan vs. United StatesGrowth: Japan vs. United States• Famine in AfricaFamine in Africa• Emerging TechnologiesEmerging Technologies


On the back of your quiz:

• Draw a simple circular flow with Households & Businesses, The Factor Market with CELL & WPiR, & the Product Market with Goods & Services and Cash Flow.

• Draw and Label PPC curves on a single graph for Pesto and Pasta Lands labeling: Absolute Advantage(AA) and Comparative Advantage(CA) – Pesto land produces 40 Lasagna and 20 Pizzas

– Pasta land produces 30 Lasagna and 30 Pizzas

The Macro Economy • Consumer Purchases

• Business Investments

• Government Purchases

• Exports

• Imports

• GDP = C + I + G + X – M (demand side)

• GDP = W + i + R + P + Inbt + Dep (income side)

Bonus Dates If you get your homework in before the actual due date I will give five bonus points for...

Documents

Transcript of Bonus Dates If you get your homework in before the actual due date I will give five bonus points for...