Chapter 22: Cybernomics · Spanish Section Quizzes for Chapter 22 Spanish Chapter 22 Audio Program,...

You and your students can visit ett.glencoe.com—the Web site companion to Economics Today andTomorrow. This innovative integration of electronic andprint media offers your students a wealth of opportuni-ties. The student text directs students to the Web site forthe following options:

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Answers are provided for you in the Web ActivityLesson Plan. Additional Web resources and InteractivePuzzles are also available.

Use the Glencoe Web site for additional resources. All essential content is covered in the Student Edition.

ECONOMICS

Reading for the StudentBusiness Week, October 4, 1999. 70th Anniversary Issue,

“The Internet Age.” Issue focuses on the economic revolu-tion sparked by the Internet.

Reading for the TeacherTapscott, Don, Alex Lowy, and David Ticoll, eds. Blueprint

to the Digital Economy. NY: McGraw-Hill, 1998. Readingsfrom executives on how technology is changing business.

Additional Resources

Spanish Economic Concepts Transparency 3

Spanish Vocabulary Activity 22

Spanish Reteaching Activity 22

Spanish Section Quizzes for Chapter 22

Spanish Chapter 22 Audio Program, Activity, and Test

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Vocabulary PuzzleMaker Software

Interactive Tutor Self-Assessment Software

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Glencoe Skillbuilder Interactive Workbook CD-ROM,Level 2

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Audio Program (English or Spanish)

Technology and Multimedia

Assessment and Evaluation


PROCEDURE

1. On the chalkboard, copy the following topics:

• Business on the Internet• The Knowledge Economy• Protecting Privacy and Intellectual Property Rights

Have students brainstorm a list of telecommunications facts that they wish they had learned when they were inmiddle school. Record each item under the appropriate topic.

2. Organize the class into pairs of students. Explain that each pair will prepare a photo essay about one aspect ofcybernomics in the form of a children’s picture book. Direct each pair to choose a topic and create an outline ofthat topic. Then have the students use their outlines to create a draft layout of their books.

3. Suggest devices that will explain the topic of their book in a simple and clear way, so that primary school childrenwill understand. For example, books should contain pictures with simple captions that depict a business or industry after computer networks were introduced or a picture dictionary defining words associated with e-commerce. Distribute a variety of middle-school level books to give students models and additional ideas.

4. Suggest that students use photos cut from old magazines or computer copies to illustrate their books and useword processing and desktop publishing programs to produce their books.

Assessment

1. Have students act as book critics and write newspaper-style reviews of their classmates’ books focusing on theclarity and correctness of their information.

2. Instruct authors to make book jackets featuring excerpts from reviews of their books. Display the jackets in yourmiddle school library to generate interest among students there.

▼ BACKGROUND

Microchips in a network of interconnectedcomputers are changing how we communicate, produce, consume, educate, andentertain ourselves. We are all challenged tokeep pace with the changes.

▼ MATERIALS

Paper, magazines, computers or typewriters

▼ OBJECTIVES

After completing this activity, students will beable to• Understand changes and new vocabulary

associated with innovations in telecommunications.

• Explain these changes and vocabulary to a younger audience.

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RUBRICSphoto essay,newspaper article,display

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Performance Assessment Activity 26

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14. One of the reasons why competition on the Internet is fierce is that

a. sales can be made much more easily online.b. e-commerce takes place much more rapidly than regular commerce.c. both the market and the competitors encompass the whole world.d. entrepreneurs are willing to lose money to remain in business.

15. Development of new products, processes, and systems that affect a large population is known as

a. economic growth. b. invention.c. innovation. d. technology.

CRITICAL THINKING QUESTIONS

Directions: Answer each of the following sets of questions on a separate sheet of paper.Answer in short paragraphs.

16. Making Predictions Is the development of telecommunications likely to help or hurt developing countries?Explain.

17. Finding the Main Idea How has the rise of the Internet raised new questions about intellectual propertyrights?

APPLYING SKILLS

Using Graphs: Read the graph and answer the questions below.

18. In which part of the world is access to the Internet greatest?

19. In which two parts of the world is access to the Internet smallest?

20. How many people in the Middle East have access to the Internet?

Number of People with Internet Accessby Region, 1999 (millions)

Source: Nua, current as of June 8, 1999

Asia/Pacific27.0

15.8%

Europe40.1

23.4%

Middle East0.9

0.5%Canada & U.S.

97.056.6%

Latin America5.3

3.1%

Total: 171 million

Africa1.1

0.6%

Chapter 22 Test Form A

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C YBERNOMICS

RECALLING FACTS AND IDEAS

Multiple Choice: In the blank at the left, write the letter of the choice that best completesthe statement or answers the question.

11. E-commerce involves

a. providing electronic services over the Internet. b. trading stock over the Internet.c. providing e-mail over the Internet. d. doing business over the Internet.

12. Period of time when computer technology and telecommunications gave knowledge and intelligence sig-nificant economic value is known as the

a. Information Age. b. Technology Age.c. Knowledge Age. d. Communications Age.

13. The invention that helps people manage information is the

a. World Wide Web. b. Internet.c. microchip. d. personal computer.

A1. microchip

2. e-commerce

3. knowledge economy

4. World Wide Web

5. Web site

6. day trading

7. cybernomics

8. distance education

9. intellectual property

10. weightless economy

USING KEY TERMS

Matching: Match each item in column A with the items in column B. Write the correctletters in the blanks.

Ba. electronic World Wide Web location that stores information

to be viewed or downloaded

b. economy in which information is the key to growth

c. buying and selling securities directly over the Internet

d. education provided via telecommunications technology

e. economic system driven by Internet commerce

f. transactions made over the Internet

g. creations of a person’s intellect that are protected by copyright

h. tiny electronic circuit that processes and digitally transfersinformation

i. term used to identify an economy based on nonphysical products

j. part of the Internet used for communications among con-sumers, business, governments, and other organizations andindividuals

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13. Which of the following is not true about doing business over the Internet?

a. saves consumers timeb. provides consumers with more product information than they can find in storesc. allows consumers to compare prices of many different companies and retailersd. provides consumers with higher-quality products than they can find in stores

14. The Internet has

a. made it more difficult for companies to enter new markets because of the high cost of getting on tothe World Wide Web.

b. made it less difficult for companies to enter new markets because of the need for little or no inventory,a small staff, and only a modest outlay of capital for a server.

c. made it more difficult for people to misuse credit cards.d. made it harder to market products because of competition for advertising space.

15. Our economy is sometimes referred to as the digital economy because it is

a. based on microprocessors that store information.b. simpler and less complicated than economies of earlier eras.c. much more complicated than economies of earlier eras.d. based on information that is stored as digits.

CRITICAL THINKING QUESTIONS

Directions: Answer each of the following sets of questions on a separate sheet of paper.Answer in short paragraphs.

16. Determining Relevance List three ways the World Wide Web has affected or could affect your life.

17. Making Predictions How do you expect the Internet to develop in the next decade?

APPLYING SKILLS

Using Graphs: Read the graph and answer the questions below.

18. How many people in Europe have access to the Internet?

19. More than half of Internet users live in what area?

20. In which two parts of the world is access to the Internet the most limited?

Number of People with Internet Accessby Region, 1999 (millions)

Source: Nua, current as of June 8, 1999

Asia/Pacific27.0

15.8%

Europe40.1

23.4%

Middle East0.9

0.5%Canada & U.S.

97.056.6%

Latin America5.3

3.1%

Total: 171 million

Africa1.1

0.6%

Chapter 22 Test Form B

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C YBERNOMICS

RECALLING FACTS AND IDEAS

Multiple Choice: In the blank at the left, write the letter of the choice that best completesthe statement or answers the question.

11. E-commerce

a. involves business transactions that take place over the Internet.b. refers to advertisements that appear on the World Wide Web.c. is less risky than traditional commerce because it involves fewer expenses.d. is most important to high-tech companies.

12. Some economists believe that the information revolution will help developing countries because it will

a. make their products more competitive. b. help them catch up with other nations by letting them skip some stages of development.c. help them obtain labor and capital from more advanced nations.d. make all nations more equal economically.

A1. Information Age

2. innovation


4. microchip


6. e-commerce



9. Internet

10. Web site

USING KEY TERMS

Matching: Match each item in column A with the items in column B. Write the correctletters in the blanks.

Ba. term for an economy based on a nonphysical economy

b. period during which telecommunications and computer tech-nology gave information significant economic value

c. worldwide system of interconnected computers that store,process, and share information

d. electronic World Wide Web location that stores informationto be viewed or downloaded

e. tiny electronic circuit that processes and digitally transfersinformation

f. development of new products, systems, or processes thathave wide-ranging effects

g. business conducted over the Internet

h. education provided via telecommunications technology

i. creations of a person’s intellect that are protected by copyright

j. economy in which information is the key to growth

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Resource ManagerCHAPTER 22Application and Enrichment

YBERNOMICS

EVALUATING A WEB SITE

Directions: Consult with your teacher to select a Web site of a national or international “e-business” toinvestigate and evaluate. Use the questions below as a framework for your research.

Company Basics:

1. What is the name of the site and the product?

2. What is the market?

Site Evaluation:

3. Is the site easy to navigate and use generally? How might it be improved?

4. Is the design appealing? What, if anything, would you would change?

5. Does the site make any claims to protect customer information, such as secure ordering?

6. How much can you learn about the company or the staff from the site? Does the site publish a mission statement?

Revenues:

Consider each of the following methods for generating revenue. How does each apply to this site? How can you tell?

7. Advertising

8. Direct sales

9. Fees

10. Subscriptions

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Enrichment Activity 22

Teaching Transparency

Application and Enrichment

Review and Reinforcement

C HAPTER 22 CYBERNOMICSDirections: Complete each sentence by filling in the blanks with vocabulary terms from Chapter 22. Thenrearrange the letters marked by ❑ in the blanks at the bottom of the page to find the hidden term.

1. A ❑ is a tiny electronic circuit that can process and transfer

information digitally.

2. An economic system driven by Internet commerce is called ❑ .

3. ❑ are electronic locations on the World Wide Web that store information.

4. Electronic communications, or ❑ connects

people through technology.

5. An economy in which ideas and information are as important as tangible goods is called a

❑ economy.

6. Students can receive ❑ via

telecommunications technology.

7. ❑ is the creation of a person’s

intellect that is protected by copyright.

8. An economy in which information is the key to growth is a ❑ economy.

9. The ❑ is a worldwide system of interconnected computers that store, process, and

share information.

10. ❑ - laws give people the right to examine their

credit information.

11. This time period, in which information has significant economic value, is known as

the ❑ .

12. Buying and selling securities directly over the Internet is called ❑ .

Hidden term:

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Economic VocabularyActivity 22

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E VALUATING PRIMARY AND SECONDARY SOURCESPrimary sources are original records of events made by people who witnessed them. Theyinclude letters, journals, legal documents, surveys, drawings, photographs, and artifacts.Secondary sources are documents created after an event has occurred. They include informa-tion from many sources, which has been combined and incorporated to produce items such asbiographies and textbooks.

Directions: Read the excerpts below from a speech by Representative Martin Olav Sabo (D, MN), a formerchairman of the House Budget Committee, and answer the questions that follow on a separate sheet ofpaper.

To believe many headlines these days, you may think that we’ve done it—our economy couldn’t get any better. Ourbudget is nearly balanced. Unemployment is near an historic low. Inflation is under control. The stock market is boom-ing. All Americans are prospering, and everyone’s happy.

We are here to represent the millions of Americans who know this isn’t true—those who still struggle to live off theirpaychecks, who scrimp and save just to provide for their families, and those who know that our nation’s newfoundprosperity is not widely shared.

Instead of helping all Americans, the current economic boom has starkly shown that the income gap between the topand bottom of our society remains a fundamental problem. . . .

Americans have always believed that people should be encouraged to work, and that work should be rewarded.Millions of Americans get up in the morning and head to their jobs believing that their hard work is the ticket to a better life for them and their families. However, when workers start believing the economy serves only the wealthy, our democratic values of merit and equal opportunity are undermined, and the institutions we have foundedon those values are threatened. Indeed, I believe our nation faces terrible social consequences if we do not addressthe income gap.

Clearly, government alone cannot eliminate income inequality. However, federal policies should not widen the incomegap either. That is why I introduced the Income Equity Act.

Under current law, companies may deduct a “reasonable allowance for salaries or other compensation.” This deduc-tion is capped at $1 million, but the law contains no other definition of what is “reasonable.” Therefore, companiesreceive tax deductions for high executive salaries, even if they pay other employees poorly.

My bill would link the salaries of top earners with those at the bottom. It would redefine what is “a reasonableallowance” as 25 times the salary of the lowest paid full-time employee in a firm. This would ensure that the federalgovernment—and the American taxpayer—don’t subsidize excessive wage gaps. . . .

1. Is this document a primary source or a secondary resource? Why?

2. Who is the author of this document?

3. How might identifying the author improve your understanding of the article?

4. What other kinds of sources might you use to confirm the accuracy of some of the statements the authormakes?

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S YNTHESIZING INFORMATION ABOUT COMPUTERSAROUND THE WORLD

Synthesizing information involves combining information from two or more sources.

Directions: Study the following tables. Use the figures in the table to synthesize a third table that showsthe number of personal computers per thousand people in each country. List the name of the country withthe highest ratio of computers to population first and the country with the lowest ratio last.

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Country Name Number of Personal Computers in 2000

United States 154,000,000

Japan 45,000,000

Germany 28,000,000

United Kingdom 26,000,000

France 21,000,000

Canada 14,700,000

Countries with the Most Personal Computers

Country Name Number of Computers per 1000 People

Number of Computers Per 1,000 People in Countries with the Most Personal Computers

Country Name Population

United States 270,312,000

Japan 125,932,000

Germany 82,790,000

United Kingdom 58,970,000

France 58,805,000

Canada 30,675,000

Population in Countries with the Most Personal Computers(rounded to the nearest 1,000)

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C YBERNOMICS The rules for e-commerce are often different than economic rules in the past. For example, BlueMountain Electronic Greeting Cards, a Web site that allows visitors to choose and send freeelectronic greeting cards, produces no revenue. In spite of this lack of revenue, the companycalled Excite paid $780 million to acquire Blue Mountain. Excite is a search engine—a toolthat enables Internet users to find information and Web sites on the Internet. Like the servicesof Blue Mountain, the services of Excite are also completely free.

Even though some Internet sites, like Excite and Blue Mountain, offer their services for free,they can be worth a lot of money. For example, such Web sites may advertise other productsand charge fees for the advertisements. Many factors work together to make E-commerceextremely profitable.

Directions: Rate each of the following factors for its ability to explain the high sale price for the Web sitefor Blue Mountain. Use the following ratings:

I—Important V—Very Important U—Unimportant

1. We are in a new age in which economics will be driven by the Internet.

2. One Web site may have many links to other Web sites

3. The number of people who own personal computers is growing.

4. Dell Computer grew rapidly by allowing buyers to configure their own PCs.

5. Online advertising, only $1.3 billion in 1998, is expected to reach $15 billion by 2003.

6. Computers are powerful tools in tracking people’s buying behavior; they can track what you’ve bought, when,and at what price.

7. The best way to build a customer base is to establish a cyber community.

8. Fifty-two percent of on-line users have yearly incomes of over $50,000.

9. The real price of computing declined by 30 percent per year from 1985 to 1999.

10. A normal, healthy economy will probably never be in equilibrium.

11. E-commerce is extremely competitive.

12. Like “free” gifts that lure people into stores, free Internet sites attract people who might buy products and services that are not free.

13. On a separate piece of paper, write a short essay to explain at least two of your ratings. Why do you think Excitepaid $780 million for a free Web site?

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Critical Thinking Activity 26 Reteaching Activity 22

Reinforcing Economic Skills 17

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T IPS FOR SHOPPING ONLINEShopping online can save time and shoe leather, but it can also cause problems. A few simple tips, listed below, can help to avoid most of these problems.

a. Determine how much money you can spend before logging on to the Internet.

b. Do not shop at sites that require your social security number.

c. Avoid shopping at sites that do not give phone numbers or mailing addresses.

d. Before you order, check out the shopping site’s refund and return policies.

e. Ask if the site has a secure browser, which scrambles your credit card number and other information. If the answer is no, shop somewhere else.

f. Remember to copy and keep the confirmation number for your order.

g. Read each item on your monthly credit card statement, and immediately report any charges an authorized user did not make.

Directions: Match each dilemma below with the shopping tip that could have prevented the problem.

1. After several weeks, Pat still had not received the compact discs he had ordered online. Butwhen he logged on to complain, he had no way to identify his order.

2. Paloma had received the wrong size in a dress she ordered online, but the company had aliberal return policy. When Paloma tried to access the shopping site, it had disappeared andshe had no idea where to return the dress or where to ask for a refund.

3. Renee ordered her entire winter wardrobe online. She continued to make payments on thebill through the spring, summer, and fall.

4. All month Carlos shopped for groceries online. When his credit card bill arrived, it included$300-worth of meals charged at out-of-state restaurants he had never heard of.

5. All year Margo paid her bills, including online charges, without studying them. While doingher taxes, she looked over her monthly credit card statements and realized that a dozencharges made in June were unauthorized. She called the credit card company to complain. A representative told her she was ineligible for a refund.

6. Calvin ordered a calendar from an online company that promised to contribute half the saleprice to a shelter for homeless kittens. The company required his social security number so itcould report his tax-deductible contribution to the government. The following month, hereceived a bill for a store account that someone else had opened in his name.

7. When Yoko tried on her new online purchase, it looked less attractive on her than it did onthe Web site model. When she contacted the company to ask how to follow its return policy,the representative informed her there was none.

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C YBERNOMICSComputer sabotage means breaking into computer systems to steal information or to vandal-ize a network. Sabotage is the computer crime that grabs the headlines. But piratingsoftware—copying and selling works protected by copyright—is more widespread and costssoftware companies billions of dollars in lost sales. A recent study showed that 28% of all soft-ware sold in North America is pirated, 68% in Latin America, 80% in Eastern Europe, 43%in Western Europe, and 74% in the Middle East.

Directions: Use the data above to complete the pictograph below. (� � 5%; � � less than 5%) Then supply a title for the graph.

Title:

Below are suggestions to end software pirating. For each suggestion, check yes if you think it would be

effective or no if you think it would not be. Explain your choice.

Yes No

� � 1. A United States law outlawing attempts to bypass electronic anti-copying protection

� � 2. A United States law making Internet service providers liable if their users infringe copyrights

� � 3. International treaties forbidding the pirating of software with copyrights

North AmericaWestern EuropeLatin AmericaMiddle EastEastern Europe

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Economic Concepts 3

P RODUCTIVITYThis photograph shows people who are actively involved in producing a product to be sold in the market.

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The Image Bank © Peter Gruman

Economic Concepts Transparency 3

Consumer ApplicationsActivity 26

Free Enterprise Activity 26

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I NVESTING IN GLOBAL MARKETS

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One way of investing money is by buying stocks. Each share of stock represents a small piece of ownership in that company. Unlike saving accounts and certificates of deposit, however, stock investments are not guaranteed. Their prices are governed by the laws of supply and demand, which means they can go down. Over 10-year periods, though,stocks have consistently had better yields than other forms of investment.

A stock index tracks the price performance of a selected number of stocks to indicate how well the market in general is doing. The graphs below show how three international indexes performed during the year August, 1998, to August, 1999.

Because the indexes use different bases, their performances may be difficult to compare. One way to do this is to findthe percent of change for the year for each one. Use this formula:

Percent change � [(last August number � first August number) �1] � 100

For example, the change in the Japanese market was:

[(17,200 � 14,400) �1] � 100 � [1.194 � 1] � 100 � 19.4%

Since the change is a positive number, it represents an increase.

By what percent did the United States market change? (1) By what percent did the German market

change? (2) Which market showed a decrease? (3)Which of the three markets performed best during the year shown? (4)

During which periods of the year did the Japanese market decline? (5)The German market? (6)The U.S. market? (7)During which period did all three markets decline? (8)All three increase? (9)

Foreign markets tend to increase and decrease in different patterns from the U.S. market. So, by investing some

money in the U.S. market and some in foreign markets, you can avoid some of the dramatic ups and downs that

each individual market experiences.

Japan:Nikkei 225 Average

17,000

16,000

15,000

14,000

13,000

Aug'98

Nov'98

Feb'99

May'99

Aug'99

14,400

17,200

Germany:Xerta DAX Average

5100

5000

4900

4800

4700

Aug'98

Nov'98

Feb'99

May'99

Aug'99

5060

5020

United States:Dow Jones Average

10,400

9800

9200

8600

8000

Aug'98

Nov'98

Feb'99

May'99

Aug'99

10,700

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EXAMINING THE CARTOON

Multiple Choice

1. What is the basic message of the cartoon?

a. E-commerce is growing rapidly.b. Governments have little relevance in the twenty-first century.c. Governments are untroubled by the growth in e-commerce.

d. E-commerce growth is costing governments tax revenue.

2. Why might the cartoonist have chosen to portray e-commerce as spaceships?

a. to indicate its futuristic nature b. to indicate the power of the technology involvedc. to contrast it with “tax-paying” land vehicles d. all of the above

Critical Thinking

3. Analyzing the Cartoon Write a comment that the toll-booth operator might make to underscore the message of this cartoon.

4. Expressing Your Opinion Do you think that Internet sales should be taxed? Why or why not?

�

-COMMERCE: A WHOLE NEW WAY OF DOINGTHINGS

The growth in “e-Commerce,” or commerce conducted over the Internet, has been stunning. Atthe close of the twentieth century, e-commerce was a $109-billion business-to-business market.While this was good economic news, it posed a challenge for government revenue.

Directions: Study the cartoon below. Then answer the questions that follow.

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E

Jeff MacNelly

consumers did 76 percent of the online shopping in 1998,that amount will decrease to 55 percent in 2002. TheInternet economy may have been an American phenome-non so far, but the borderless nature of the Web

guarantees that in the future it will be as big as the worlditself.

Willmott, Don. “The Internet Economy Will Take Over.” PC Magazine,June 22, 1999.

52 Primary and Secondary Source Readings

ANALYZING THE READING

1. In what ways is buying on the Internet more beneficial to the consumer?

2. What effect has the Internet economy had on businesses?

3. Why does the author feel that we are heading toward a cashless society?

4. What are some alternatives to cash?

5. Based on the article, why do you think the Internet is economically successful? Do you think it is the future ofconsumer shopping? Explain your answer.

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Cooperative Learning Simulations and Problems 26

Primary and Secondary Source Reading 26

Math Practice for Economics Activity 26

Economic Cartoons Activity 26

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GROUP PROJECT

One product of the Information Age is e-commerce, or business conducted on the Internet.Through new ways of doing things, the Internet has created unique relationships amongorganizations, governments, businesses, and individuals, which in turn have contributed tothe growth of the global economy. The Internet has also created new challenges, however. Inthis activity, your group will explore the ways in which people use the Internet today and theways in which they may use it in the future.

▼MATERIALS:

Library resources, art materials, Internet access

1. Individual Work Stage 1: Students work individually. Review the information about theInternet in your textbook. Then do research in magazines, newspapers, the Yellow Pages, and onthe Internet itself to find out about one current andone future use or service of the Internet. Write aparagraph summarizing each use.

2. Group Work Stage 2: Students work in groups ofsix. Share and compare the summaries developed inStage 1 to select the three most interesting currentuses and the three most interesting future uses ofthe Internet collected by the group members. Thesesix uses of the Internet will be the basis of a displayabout current and future Internet services.

3. Paired Work Stage 3: Students work in pairs.Researchers should gather additional information asnecessary about the six Internet uses the group haschosen. Researchers organize their findings into anoutline for the designers. If researchers also locatesuitable illustrations that may be photocopied orredrawn for inclusion in the exhibit, they give themto the artists. Artists should use these materials andwhat they have gathered themselves to illustrateeach Internet use. Artists are also responsible forlabels and other print based on the researchers’findings. The designers decide how the researchers’

findings and the art will be presented in the two-part display labeled “The Internet Today andTomorrow.” Designers make a rough sketch of the display that incorporates the researchers’ and artists’ work.

4. Group Work Stage 4: Students return to theiroriginal groups. Designers show the sketch to thegroup for approval. Group members should critiquethe proposed display and incorporate changes.If further research or more art is thought to be necessary, pairs return to sources to complete theassignment. The designers assemble the groupexhibit on the bulletin board.

5. Group Work/Analysis Stage 5: Students work inoriginal groups. Groups give a brief presentation oftheir exhibits. Each pair should explain the positiveand negative aspects of each particular Internetuse. Groups should answer questions from the class.

Group Process QuestionsWere the goals of the assignment clear?

Did the group agree on the assignment of tasks?

Did members work well together?

Did all members contribute ideas to the discussion?

COOPERATIVE GROUP PROCESS:

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C YBERNOMICS: THE INTERNET TODAYAND TOMORROW

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Resource ManagerCHAPTER 22

hat is the Internet economy? It’s Priceline.com,where you name your own price for airline tickets. It’seBay auctions, where close to 2 million items are up forbids. It’s Amazon.com, where 8 million people haveshopped for discounted books and music so far. It’s theonline brokerages that currently manage $400 billion inassets, and it’s your online banking setup. It’s groceriesdelivered via FedEx to your doorstep, and it’s prescriptiondrugs arriving in the mail. And it’s just getting started. The180 million Web-connected Americans who will spend$41 billion online in 2002—up from $7 billion last year—have much to look forward to.

The Internet is proving so successful at copying andthen improving on the ways people shop and the waysbusinesses work that soon—sooner than any expert pre-dicted—the Internet economy will be the single biggestpart of the global economy’s infrastructure. The novelty willwear off, and the online distinction will simply disappear.

The most important change is that you, the customer,will have access to much more information about goodsand services than you ever imagined possible. Access toreal-time information about prices leads to more efficientmarket places, where the price you pay better reflects actu-al demand. Online auctions are, of course, the best exampleof that phenomenon. If the Internet is good for anything,it’s good for managing databases and sharing information.

Buyers and sellers have opened up lines of communi-cation that are cutting out layers of middlemen and cuttingdown—or in the case of a company like Dell Computer, allbut eliminating—costly inventories. The result: lower pricesall around and more customization of the things you buy,whether those items are PCs or pajamas.

And that’s the other, less obvious, impact of theInternet economy. The people who do the selling are find-ing that their world is turning inside out. Whether they sellin malls, through catalogs, or at discount warehouses,they all realize that selling and dealing with their chain of

suppliers online are efficient, cost-cutting ways to getthings done. Imagine how much money L.L. Bean will savewhen someday, perhaps not too long from now, the com-pany stops printing and mailing catalogs.

The Internet economy may have

been an American phenomenon so

far, but the borderless nature of the

Web guarantees that in the future it

will be as big as the world itself.

What’s the role of good old paper money in theInternet economy? Are we headed for a cashless society?Some might argue we’re already getting there. Many of uspay bills online automatically each month, and mostonline consumers are no longer afraid to type in theircredit card numbers. Secure electronic transactions makecredit card fraud very rare on the Web, and security willonly get tighter as we move ahead.

Digital/Compaq, IBM, and Microsoft have tried tolaunch “digital wallet” initiatives. Digital wallets let youstore money on the Web and use it in “microtransactions”to read an article for 25 cents, download a song for 49cents, or the like. So far, Compaq’s MilliCent andMicrosoft’s Wallet have gotten more attention outside theU.S. than they have in it.

The smart card is another trend that hasn’t quite takenoff here. Storing cash on the Internet and deducting it ontosmart cards to be used at places like coffee shops and news-stands may be popular in Europe, but not here—yet.

Who knows? Shoppers from around the world mayend up showing Americans how it’s done. Though U.S.

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Primary and Secondary Source Readings 51

Name Date Class

T HE INTERNET ECONOMY WILL TAKE OVERSince its inception, the Internet has been increasingly used as a resource for finding infor-mation, products, and services quickly and easily. The enthusiasm with which manyconsumers use the Internet has led to a whole economic system that could affect the futureof the global economy. At least that is the trend seen by Don Willmont, a writer for PCMagazine, as he describes the future of the “Internet economy.” As you read the article, consider how you have used the Internet as a consumer, and how that impacts the future ofbusiness and the economy. Then answer the questions that follow.

26

W

http://ett.glencoe.com

Block Schedule

Activities that are particularly suited to use within the blockscheduling framework are identified throughout this chapterby the following designation: BLOCK SCHEDULING

Block Schedule

Use Glencoe’s Presentation Plus!,a Microsoft PowerPoint® application, to teach Cybernomics. With this multimedia teacher tool, you can cus-

tomize ready-made presentations. At your fingertips areinteractive transparencies, on-screen lecture notes, audio-visual presentations, and links to the Internet and to otherGlencoe multimedia.

Interactive Lesson PlannerPlanning has never been easier! Organize your week, month, semester, or year with all the lesson helps you need to make teaching

creative, timely, and relevant—the way it is meant to be. TheInteractive Lesson Planner opens Glencoe’s Chapter 22resources, helps you build your schedule, and tracks yourprogress.

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■


Teaching strategies have been coded for varying learning styles and abilities.L1 BASIC activities for all studentsL2 AVERAGE activities for average to above-average

studentsL3 CHALLENGING activities for above-average students

ENGLISH LANGUAGE LEARNER activitiesELL

Key to Ability Levels

Easy Planning and Preparation!

564D

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■


564C

Blackline Master

Transparency

Software

CD-ROMVideodisc

Audiocassette

Videocassette

Reading Objectives Reproducible Resources Technology/Multimedia Resources

Section 1The Growth of E-Commerce• How is the Internet affecting the way

companies do business?• Why are marketers collecting

information about your purchases?• How does e-commerce benefit the

consumer?

Section 2A New Economy?• What changes caused the new

environment called the InformationAge?

• How does the knowledge economydiffer from the industrial economy?

• How does innovation affect economicgrowth?

Section 3Issues in Cybernomics• Why is some trading on the Internet

considered risky?• How is intellectual property being

stolen?• What is being done to protect

consumers’ privacy?

Reproducible Lesson Plan 22-1Daily Lecture Notes 22-1Guided Reading Activity 22-1Reading Essentials and Study Guide 22-1Daily Focus Activity 95Section Quiz 22-1*

Reproducible Lesson Plan 22-2Daily Lecture Notes 22-2Guided Reading Activity 22-2Reading Essentials and Study Guide 22-2Daily Focus Activity 96Section Quiz 22-2*Reinforcing Economic Skills 17

Reproducible Lesson Plan 22-3Daily Lecture Notes 22-3Guided Reading Activity 22-3Reading Essentials and Study Guide 22-3Daily Focus Activity 97Section Quiz 22-3*

Daily Focus Transparency 95

Economic Concepts Transparency 3Vocabulary PuzzleMakerInteractive Tutor Self-Assessment SoftwareMindJogger Videoquiz

NBR's Economics & You*Presentation Plus!


Daily Focus Transparency 96Vocabulary PuzzleMakerInteractive Tutor Self-Assessment SoftwareMindJogger VideoquizPresentation Plus!


Daily Focus Transparency 97Vocabulary PuzzleMakerInteractive Tutor Self-Assessment SoftwareMindJogger VideoquizPresentation Plus!


*Also available in Spanish

Section Resources

Ann TappSouthern Baptist

Educational CenterOlive Branch, Mississippi

Adopt a BusinessHave students “adopt” a local business and track its

activities for one semester. The business’s local office firstmust be contacted by the student and apprised of the proj-ect. Students work with their business contacts to obtaininformation on how local, national, international, and tech-nological events affect the business’s commerce. In partic-ular, students should focus on how the business utilizes theInternet in its organizational structure.

Ask students to collect documentation of their research—letters, E-mail communication, newspaper and magazinearticles, and so on—in notebooks. Toward the end of thesemester, students can make a videotaped interview of theirbusiness contact in front of the business location. Invite thebusiness representatives to attend a “Business Fair,” inwhich the information and interviews are shared.

ACTIVITYFrom the Classroom ofACTIVITYFrom the Classroom of

Voluntary Standards Emphasized in Chapter 22Content Standard 14 Students will understand thatentrepreneurs are people who take the risks of organizingproductive resources to make goods and services. Profit isan important incentive that leads entrepreneurs to acceptthe risks of business failure.

Content Standard 15 Students will understand thatinvestment in factories, machinery, new technology, and thehealth, education, and training of people can raise futurestandards of living.

Resources Available from NCEE• Capstone: The Nation’s High School Economics Course• Entrepreneurship in the U.S. Economy• MCG: Economics and Entrepreneurship

To order these materials, or to contact your StateCouncil on Economic Education about workshops andprograms, call 1-800-338-1192 or visit the NCEE Web siteat http://www.nationalcouncil.org

http://www.nationalcouncil.org

565

565Cybernomics

Terms to Know• microchip• cybernomics• Internet• World Wide Web• Web sites• e-commerce• frequency marketing

Reading Objectives 1. How is the Internet affect-

ing the way companies do business?

2. Why are marketers col-lecting information aboutyour purchases?

3. How does e-commercebenefit the consumer?

READER’S GUIDE

M ost people have 20 digits, better known as fingers andtoes. Numbers, also called digits, are so vital to our livestoday that people have labeled our era “the digital age.”

We identify ourselves by credit card numbers, PINs (personalidentification numbers), and Social Security numbers. Numbersmeasure and track everything from blood pressure to nationalopinion, from personal checking accounts to the federal debt.

The invention that brought us the digital age also helps insti-tutions manage all this information. The microchip, or inte-grated circuit—smaller than a thumbnail—is one of the mostremarkable inventions of our lifetime. This chapter will explain

1

microchip: a tiny electronic cir-cuit that processes and digitallytransfers information

BUSINESS WEEK, MARCH 22, 1999

In certain Levi Strauss & Co. stores, you can plug inyour measurements at a Web kiosk and have custom-madejeans delivered to your home in about two weeks. On cable-TV’s Disney Channel, little bug-like creatures called Zoogs

tell kids to log ontoDisney’s Web site tosend fan mail to theirfavorite stars. What isgoing on here? Bothcases illustrate a combi-nation of traditional andcyberspace marketing.

CHAPTER 22SECTION 1, Pages 565–569


Reproducible MastersReproducible Lesson Plan 22–1Reading Essentials and Study Guide 22–1Guided Reading Activity 22–1Section Quiz 22–1Daily Focus Activity 95Daily Lecture Notes 22–1

MultimediaDaily Focus Transparency 95Economic Concepts Transparency 3Vocabulary PuzzleMakerInteractive Tutor Self-Assessment Software

ExamView® Pro TestmakerMindJogger Videoquiz

NBR’s Economics & YouPresentation Plus!

SECTION 1 RESOURCE MANAGER

OverviewSection 1 discusses the nature of

business on the Internet, explainshow consumers benefit from e-commerce, and examines the mar-keting revolution brought about by this development.

Answers to the Reading Objectivesquestions are on page 569.

Preteaching VocabularyHave students read the

Glossary definitions of each of theTerms to Know. Then ask them torestate each definition in theirown words.

Vocabulary PuzzleMaker

READER’S GUIDE

564

Why It’s ImportantElectronic communica-tions enable us to accessinformation, purchase goodsand services, and share ideasinstantly around the globe. Newtechnologies continue to acceleratethe rate of economic change. Thischapter will help you understand the new economic environment.

To learn more about howcybernomics affects economic theory andpractice, view the

Economics & You Chapter 28 video lesson: Technological and SocialChange and the Economy

Chapter Overview Visit the Economics Today and Tomorrow Web site at ett.glencoe.com and click on Chapter 22—Chapter Overviewsto preview chapter information.

IntroducingCHAPTER22

564

Chapter OverviewChapter 22 explains the nature

and growth of e-commerce, dis-cusses whether e-commerce consti-tutes an economic revolution, andexamines the challenges created bythe development of cybernomics.

CHAPTER LAUNCH ACTIVITY

IntroducingCHAPTER22

Use MindJoggerVideoquiz VHS to previewChapter 22 content.

Introduce students to chaptercontent and key terms by havingthem access Chapter 22—ChapterOverviews at ett.glencoe.com

Call on students who have made a purchase on the Internet to detail this experience.Ask them to address such questions as: What advantages does this method of shoppinghave over traditional methods? What disadvantages does it have in comparison to tradi-tional shopping methods? Why did you decide to make a purchase on the Internet in thisinstance? Do you prefer Internet shopping or traditional methods of shopping? Why?Conclude by mentioning that this chapter looks at the nature and growth of e-commerceand explores some challenges resulting from this new development.

ECONOMICS & YOU

Technological and SocialChange and the Economy

!9u~2" Chapter 28 Disc 1, Side 2

ASK: What activities would beimpossible to perform withoutthe modern technology wehave today? Answers shouldshow the significance of technol-ogy on students’ lives.

Also available in VHS.

Project Daily FocusTransparency 95 and have students answer the questions.

This activity is also availableas a blackline master.

Daily Focus Transparencies

C OMMUNICATION TECHNOLOGY AND THE GLOBAL ECONOMY

1. What types of communication technology are being used in thesephotographs?

2. How does communication technology affect international business?

9595

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BELLRINGERMotivational Activity



567

567Cybernomics

e-commerce: electronic com-merce on the Internet (alsoreferred to as e-business)

have spent years building their customer bases. Business Weekmagazine called e-commerce, or electronic business, “perhapsthe most sweeping transformation of the corporate landscape in decades.”

E-commerce is both enticing and risky. Companies with intelli-gent e-commerce plans can reap huge profits, while less thought-ful business planners may waste billions of dollars and precioustime. Planners must decide among a bewildering array of possi-ble business models. Various combinations of advertising, sub-scriptions, commissions, fees, and direct sales can generateincreased electronic business revenue—or cause huge losses.What works well for one company may be the wrong choice foranother. Competition is fierce because both the market and thecompetitors encompass the whole world.

Spread of Technology It took about 95 years for 90 percent of American households to owna telephone. About how long did it take for 30 percent of American households to own anautomobile? A television? A personal computer?

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120

Perc

en

t O

wn

ers

hip

100

90

80

70

60

50

40

30

20

10

0

Years Since Product InventedSources: Bureau of the Census; The World Almanac; Cellular Telecommunications Industry Association

The Spread of Products Into American Households

Internet

Electricity

CellPhone

PC

VCR

Automobile

Television

TelephoneRadio

Microwave

FIGURE 22.2FIGURE 22.2



Project Economic ConceptsTransparency 3 and have studentsdiscuss the accompanying questions.



566 CHAPTER 22

cybernomics: an economic sys-tem driven by Internet commerce

Internet: a worldwide system of interconnected computers that store, process, and shareinformation

World Wide Web: part of theInternet, used for communicationsamong consumers, business,governments, and other organizations

Web sites: electronic WorldWide Web locations that storeinformation to be viewed ordownloaded

how microchips in a network of interconnected computers arechanging how we communicate, produce, consume, educate, andentertain ourselves. See Figure 22.1. Some economists believewe have entered the age of cybernomics—economics driven by ahuge digital machine, the Internet.

Business on the Internet The Internet is a network of computers that enables people

everywhere to access and exchange information instantaneously.Its growth has been remarkable. Figure 22.2 shows how thespread of computer and Internet use compares to the spread ofearlier technologies.

Use of the Internet accelerated as the prices of computers andInternet access fell. Meanwhile, the store of information on theWorld Wide Web—the most popular use of the Internet—grewboth in the amount of information available and the number ofWeb sites. Web sites are electronic locations on the World WideWeb that store information which may be viewed or downloadedonto another computer.

E-Commerce Web sites connecting businesses, private organi-zations, government offices, and educational institutions makelocating information and global communication extraordinarilyeasy. The Internet provides businesses in particular with theopportunity to directly reach suppliers and consumers. By 1998total electronic business-to-business sales were about $8 billion.Experts projected that by the year 2005 such sales would in-crease to an astounding $327 billion in the United States and perhaps $1.3 trillion around the world.

The entire business landscape is changing. Companies that havepainstakingly built their supply chains suddenly find that anyoneusing the Web can bypass their chains. New companies spring upnearly overnight, competing with well-known businesses that

Microchips Microchips, the building blocks of our electronicage, are made up of tiny rectangles of silicon circuits constructedwith thousands, perhaps millions, of transistors. An electronicmarketplace is made possible by millions of microchips, shownbeing manufactured here. Why is our economy sometimescalled a “digital economy”?

22.122.1

566

Answer: because numbers and thecomputer are vital to life today

L ECTURE LAUNCHER

22-1

LWhile consumer e-commerce is growing worldwide, its growth in Asia is limited by severalfactors. For example, most Asians do not have credit cards and prefer to shop face-to-face. Infact, ActionAce.com a Hong Kong toy company has to process its orders in America becauselocal banks would not handle the credit card orders. What is cybernomics?

I. Business on the Internet

A. The Internet is a network of computers allowing people to access and exchange infor-mation instantaneously.

B. The World Wide Web is the most popular use of the Internet, and has grown both inthe amount of information and the number of Web sites.

C. E-commerce is a way of purchasing products and dealing with businesses more directlyand quickly than before, via computer.

D. The question for companies today is not whether they should go on-line but how theywill market themselves on-line.

• Discussion Question

What type of balance, if any, do you think will occur between traditional, hands-onshopping and shopping on-line? (Answers may vary. Students should realize that there isstill a place for seeing and touching the product that the Internet cannot replace. However,they may disagree as to what extent this market will continue to exist.)

PAGES 566–568

Daily Lecture Notes 22–1

Learning Disability Students who have difficulty concentrating as they read will experi-ence greater problems—and considerable frustration—if they are asked to read and takenotes. For these students, completing the reading first and then reviewing the text to takenotes may be a more productive approach. Have students read Section 1. As they read,have them use a signal—removable highlighting tape, for example—to mark importantpoints. Then have them review the text to take notes.

Refer to Inclusion for the Social Studies Classroom Strategies and Activities forstudents with different learning styles.

Meeting Special Needs

Economic Connectionto... TechnologyEconomic Connectionto...

Internet Users In 1999 about131 million people worldwidewere connected to the Internet.More than half of these peoplelived in the United States.

Answer: Automobiles: about 65years; Television: about 26 years;Personal computers: about 18 years

Name Date Class

For use with the textbook pages 565–569

T HE GROWTH OF E-COMMERCE

FILLING IN THE BLANKS

Directions: Use your textbook to fill in the blanks using the words in the box. Some words may be usedmore than once.

Web site e-Commerce frequency marketingMicrochip Cybernomics InternetWorld Wide Web competition buyermarket comparison shopping virtual communitiesdigital age consumers

Introduction/ Business on the InternetThe invention that brought us the 1 __________________________ helps institutions manage information. The

2 __________________________ , or integrated circuit, is one of the most remarkable inventions of our lifetime. Some

economists believe that we have entered the age of 3 __________________________—economics driven by huge a

huge digital machine, the 4 __________________________. Today, many business transactions are done on the

5 __________________________—a network of computers that enables people everywhere to access and exchange

information. The store of information on the 6 __________________________—the most popular use of the Internet—

has grown immensely in the amount of information available. The number of 7 __________________________ , or

electronic locations on the World Wide Web has also grown rapidly in recent years. The Internet provides businesses

in particular with the opportunity to directly reach suppliers and 8 __________________________. Some are calling

9 __________________________ the most sweeping transformation of the corporate landscape in years.

10 i l i i fi b h 11

22-1

Guided Reading Activity 22–1

ECONOMICS & YOU



ASK: What types of jobs domost people in America havetoday? Most Americans havejobs in which they provide ser-vices to other people.

Also available in VHS.

Organize students into groups, and have groups search library resources and theInternet to locate statistics on e-commerce. Suggest that groups find such statistics as thenumber of people connected to the Internet, the uses to which people put the Internet, thedollar amount of e-commerce conducted, and so on. (If students have difficulty locating infor-mation, inform them that various types of data are available on the Emarketer Web Site atwww.emarketer.com) Direct groups to present their findings in a collage titled “E-Commerce:By the Numbers.” The collages should include charts, graphs, and other appropriate visualmaterials. Encourage groups to display their collages around the classroom.

Cooperative Learning

Guided PracticeL2 Writing News Articles Havestudents rewrite Section 1’s headingsas newspaper headlines. Then tellstudents that these are headlines forarticles on e-commerce in a specialedition of the local newspaper.Direct students to write short articlesto accompany the headlines.

http://www.emarketer.com

569

569Cybernomics

site automatically suggests a list of books based on the types ofbooks the customer ordered the last time he or she visited thesite. More than ever before, marketing is consumer driven.

Cybercommunities Is e-commerce a new kind of self-servicethat creates an impersonal relationship between buyer and seller?Not necessarily. Savvy Web managers are finding that the bestway to build a customer base is to establish a cybercommunity.People around the world are beginning to associate in virtualcommunities on the Web. Assembling people with common inter-ests and needs, and serving those needs, is the new direction forbusinesses, especially those that add a personal touch to selling.Companies are also developing creative ways of responding tocustomer E-mail, providing answers to questions, and offeringcustomers technical assistance.

For example, The Home Depot has become a virtual serviceprovider as well as a store that offers home supplies. It givessmall contractors access to its Web site where they can ordermaterials, tell the supplier when and where to deliver them, finda plumber or an electrician, and learn how to schedule work.

Understanding Key Terms1. Define microchip, cybernomics, Internet, World

Wide Web, Web sites, e-commerce, frequencymarketing.

Reviewing Objectives2. How is the Internet affecting the way companies

do business?

3. Why are marketers collecting information aboutyour purchases?

4. Graphic Organizer Create a diagram like theone below to explain how e-commerce benefitsthe consumer.

Applying Economic Concepts5. Market Structure E-commerce has helped

the consumer in many ways, particularly byreducing the time it takes to comparison shop.Another benefit is lower prices. Why is it lesslikely that businesses can control the prices ofgoods or services when they sell on theInternet?

6. Making Comparisons Select three well-known retail stores in which you haveshopped. Search the Internet to find out ifthey are using the Web for advertising, pro-motions, or sales services. Make a chart rat-ing the Internet services for all three. Shareyour chart with the rest of the class.

Critical Thinking Activity

Practice and assesskey skills with

Skillbuilder InteractiveWorkbook, Level 2.

1

Benefits ofE-Commerce



ReteachHave students use the Terms to

Know to write a paragraph thatsummarizes section content.

1. All definitions can be found in the Glossary.2. It allows businesses to directly reach sup-

pliers and consumers.3. to determine what consumers want and

how often they want these goods; Thisinformation can be stored and used to buildcustomer loyalty by providing the precisegoods and services consumers demand.

4. Answers may include: Instead of spendinghours comparison shopping, Web shopperscan quickly gather information; With somuch competition, buyers can order supe-rior products to be delivered quickly; Withso much information, buyers save moneyby finding best bargain on the Internet;Buyers can deal directly with producers.

5. In the world of cybernomics, the buyer isruler. If one seller cannot provide a qualityproduct at a competitive price, the buyercan move to another of the many sellers onthe Internet.

6. Encourage students to share and discusstheir charts.

Have students discuss what theythink are the advantages and disad-vantages of e-commerce for them asconsumers.

Name Date Class

22, 1

microchip A tiny electronic circuit that processes and digitally transfers information (page 565)

cybernomics An economic system driven by Internet commerce (page 566)

Internet A worldwide system of interconnected computers that store, process, and share information (page 566)

World Wide Web Part of the Internet that is used for communication among consumers, business, gov-ernments, and other organizations (page 566)

Web site An electronic location on the World Wide Web that stores information for Web users to view ordownload (page 566)

E-commerce Electronic commerce on the Internet (E-business) (page 567)

frequency marketing Marketing directed by stored information about the frequency of a customer’s useof a product (page 568)

For use with textbook pages 565–569


DRAWING FROM EXPERIENCE

Have you ever spent part of a day or an evening looking for a present for a relative or friend? Youtrudge from store to store at the mall, or even drive to stores around town, searching for the perfect gift. Perhaps you would have been better off to have stayed at home and shopped on theInternet. But what if the recipient does not like your present? How would he or she exchange agift bought on the Internet for something else?

This section focuses on how computers the Internet and the World Wide Web are changing the

KEY TERMS

Reading Essentials and Study Guide 22–1



568 CHAPTER 22

frequency marketing: marketingdirected by stored informationabout the frequency of a cus-tomer’s use of a product

By the late 1990s, many businesses began to realize that theyreally did not have a choice whether to go online. A competitoron the Web could grab customers, causing investors to flock tothe more innovative company and sending the rival company’sstock into a tailspin.

The Customer WinsWhether it is a business-to-business trans-

action or a retail sale, e-commerce shifts thebalance of power to the customer. This hap-pens because the Web reduces distances.Instead of spending hours driving aroundcomparison shopping, a Web shopper canquickly gather information about productsand vendors almost anywhere.

Businesses have found that the virtualdistance between producers and consumershas disappeared. In this new world ofcybernomics, the buyer is ruler. If oneseller cannot deliver a superior product at a competitive price in real time, anotherseller will. The realization that any busi-ness can directly reach a final consumer ischanging the relationships among produc-ers, wholesalers, distributors, retailers,and consumers. Buyers are driving thischange, skipping agents, dealers, and dis-tributors to deal directly with producers.

A Marketing RevolutionTechnology is generating a marketing revolution. Many produc-

ers are bypassing regular channels of trade and reaching out to cus-tomers directly. Dell Computer, for example, grew twice as fast as other personal computer manufacturers by allowing buyers to customize their own PCs online.

Marketing Changes Today computers help companies serveconsumers through frequency marketing. By tracking our pur-chases, company computers determine what we want and howoften we want it. Marketers can then use such information storedin databases to build customer loyalty by providing the precisegoods and services we demand. For example, Amazon.com’s Web

Job Description■ Solve computer

problems andenable com-puter technol-

ogy to meet the

individualneeds of anorganization

■ Involved with“networking,” or

connecting all

the computers

in an individual

establishment

Qualifications■ Bachelor’s

degree in com-

puter science

■ Ability to think

logically andmake decisions

—Occupational Outlook Handbook, 1998–99

Salary: $43,000–60,000

Job Outlook: Excellent

CAREERS

Systems Analyst

568

Business Week publishes a quar-terly supplement for corporatedecision makers who want tokeep up with developments in e-commerce.


Multiple Choice: In the blank at the left, write the letter of the choice that best completes the statement or answers the question. (10 points each)

6. What invention brought about the digital age?

a. computer b. PINc. microchip d. cybernomics

7. Electronic locations that store information to be viewed or downloaded are called

a. microchips. b. Web sites.c. World Wide Web. d. e-commerce.

8. E-commerce shifts the balance of power to the

d b t il

SCORE

A1. microchip

2. cybernomics

3. Internet

4. e-commerce

5. frequency marketing

Ba. worldwide system of interconnected computers that

store, process, and share information

b. marketing directed by stored information about thefrequency of a customer’s use of a product

c. tiny electronic circuit that processes and digitallytransfers information

d. electronic commerce on the Internet

e. economic system driven by Internet commerce

Matching: Place a letter from Column B in the blank in Column A. (10 points each)

Name Date Class

22, 1

Section Quiz 22–1

Organize students into groups, and direct groups to identify a business that they thinkwould be successful on the Internet. Have groups write a brief report describing the busi-ness and explaining why it is suited to the e-commerce environment. Then ask groups todesign a Web page for their business. Call on group representatives to display and dis-cuss their business Web pages. BLOCK SCHEDULINGELL

Free Enterprise Activity

IndependentPracticeL2 Understanding Ideas Organizestudents into groups of three. Informgroups that they are research panelslooking into the possibility of theircompany entering e-commerce byestablishing a Web site. Tell groupsto write a report detailing the risksand benefits of e-commerce. Call ongroup representatives to presenttheir reports to the class.BLOCK SCHEDULING

Meeting LessonObjectives

Assign Section 1 Assessment ashomework or an in-class activity.

Use Interactive Tutor Self-Assessment Software to review Section 1.

569

571

571Cybernomics

Terms to Know• telecommunications• Information Age• knowledge economy • weightless economy• innovation

Reading Objectives1. What changes caused the

new environment called theInformation Age?

2. How does the knowledgeeconomy differ from theindustrial economy?

3. How does innovation affecteconomic growth?

READER’S GUIDE

During the nineteenth century, the Industrial Revolutionbegan to dramatically change society, especially in theWestern world. The introduction of steam power pro-

duced both a social and economic revolution.In the 1900s, discoveries and inventions in telecommunications,

or electronic communications, brought us radio, television, satel-lite uplinks, and cable access. The computer revolutionized infor-mation storage and manipulation. When telecommunications andcomputer technologies began to merge, the immediate resultswere dramatic. Will the new environment, now being called theInformation Age, have as great an effect on human life as didthe Industrial Revolution? Many people believe it will.

2

telecommunications: com-munications over long distances,assisted by technology

Information Age: the periodwhen telecommunications andcomputer technology gave infor-mation significant economic value

BUSINESS WEEK, OCTOBER 4, 1999

When we try to comprehend something as vast, amor-phous, and downright scary as the Internet, it’s no won-der we grope for familiar historical precedents—therailroads, the interstate highway system, the telephone

network. But none of those really captures theInternet’s earthshakingimpact on the business world.

. . . In the five years sincethe World Wide Web madethe Internet usable by mere

mortals, everything we thoughtwe knew about business seemsquestionable.




MultimediaDaily Focus Transparency 96Vocabulary PuzzleMakerInteractive Tutor Self-Assessment Software


Presentation Plus!


OverviewSection 2 describes the develop-

ment of the Information Age and itsimpact on the economy, and dis-cusses if the development of thisnew economy constitutes a revolu-tion or simply a change.


Preteaching VocabularyOrganize students into pairs.

Have one partner read aloud aterm and its meaning from the text.Have the other partner explain themeaning of the term in his or herown words. Direct partners tochange tasks after each term.


READER’S GUIDE

SPOTLIGHT

570 CHAPTER 22

SPOTLIGHT ON THE ECONOMY

You may not have realized it, but you’veprobably used digital-signal processing

chips a dozen times today. Listening to acompact-disk over breakfast was one instance.So was using a modem to check your E-mail.Driving your car involved several electronic sys-tems powered by these specialized chips. Theyare also found in cell phones, personal-computersound systems, digital cameras—and the listgoes on.

But that’s nothing compared with what’scoming. Industry experts predict that by 2005,the convergence of computers, telecommunica-tions, and consumer electronics will pushdemand for digital-signal processing (DSP) to 10times what it is today. These chips will then beat the heart of almost every electronic gadgetyou touch, from new stereo systems andsmart home appliances to office machinesand factory equipment. DSP chips that canunderstand speech will replace touchpads andpush-buttons on all kinds of products—

including VCRs that you can program by telling them what to record.

What makes these chips so special? Well,DSP could stand for digital sensory perception,because these slices of silicon are the nervecells that connect electronic devices to the realworld. They’re honed to deal with things likesounds, images, pressure, temperature, electri-cal currents, and radio waves. They chop theseanalog signals into digital bits, then performspecialized operations, such as compressing thebits gushing through telephone lines. And theydo this at blinding speed. —Reprinted from November 30, 1998 issue of Business Week by special

permission, copyright © 1998 by The McGraw-Hill Companies, Inc.

Think About It1. What will cause the demand for DSP chips to

increase dramatically in the next few years?

2. Why, according to the article, could DSP stand fordigital sensory perception?

Check It Out! In this chapter you learned how comput-ers, using microchips, are affecting industry, com-merce, and economic choices. In this article, read tolearn how digital-signal processing chips will soonaffect the convergence of computers, telecommunica-tions, and consumer electronics.

Chips That Mimicthe Human SensesChips That Mimicthe Human Senses

570

Answers to Think About It

The latest generation of DSPchips has processing speeds of1,600 MIPS (millions of instruc-tions per second). Several chipmakers plan to release DSPchips with speeds up to 3,000MIPS. And a 5,000-MIPS chip—essentially a computer on achip—will soon be on the market.

1. the convergence of computers, telecommunications, and consumer electronics2. because essentially they are the nerve cells that connect electronic devices to the real

world

To find up-to-date news andanalysis on the economy, busi-ness, technology, markets,entrepreneurs, investments,and finance, have studentssearch feature articles and spe-cial reports on the BusinessWeek Web site.www.businessweek.com

Inform students that four U.S.companies—Texas Instruments,Lucent Technologies, Motorola, andAnalog Devices—control more than95 percent of the world’s DSP busi-ness. Even so, new chip-makingcompanies continue to enter themarket. Ask students why theythink this is so. Students probablywill suggest that it is a proven prof-itable market. They may also notethat DSP is a relatively new industryand is constantly changing, so a com-pany that introduces new technologymay be able to command a largerpart of the market.




A NEW ECONOMY?

1. Which technology was developed earliest? Most recently?

2. What technologies could be added to the diagram?

Telephone(1876)

Radio(1895)

Television(1929)

Communications Satellite(1960)

World Wide Web(early 1990s)

Cellular Telephones(1980s)

TelecommunicationsTechnologies are Fundamental

to the Information Age

Photography(1826)

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573

573Cybernomics

innovation: development of newproducts, systems, or processesthat have wide-ranging effects

had fuller employment without inflation in the 1990s. They pointout that periods of rapid growth in productivity have generallyaccompanied fundamental innovations. The harnessing of elec-tricity and the inventions of the automobile, radio, and televisioneach spurred a period of expansion, for example.

Most economists do agree that innovation is a significant fac-tor in the world’s changing economy. Innovation is the introduc-tion of new products and/or delivery systems that dramaticallyaffect large segments of the population. See Figure 22.3.

Waves of Innovation For years economists assumed thatthe output of an economy could be measured by the effect oftwo basic inputs—capital and labor. The exception was the lawof diminishing returns—at some point adding more inputsgave a smaller and smaller increase. Yet, this explanation didnot account for several large bursts of economic growth dur-ing certain periods of history. Until recently, economists hadnot included innovation in their equation of economic output.Innovation intrigues economists because it can affect nationalgrowth and GDP in unpredictable ways. Forinstance, who would have guessed before 1920 that the automobile would change America’s eco-nomic and social environment the way that it did?

Schumpeter Cycles Economist Joseph Schumpeterwas the first to suggest that a normal healthy econ-omy would never be in equilibrium because entrepre-neurs would sometimes disrupt it by innovations.Schumpeter studied the history of long business cyclesand concluded that each new cycle starts when a setof innovations comes into general use. Each upswingstimulates investment and expansion, as shown inFigure 22.4 on page 574.

The significance of the knowledge economy may be measured by its effect on individuals and nations.Information and communications technology firms are the growth leaders in the United States economy.The Bureau of Labor Statistics forecasts that computer-related jobs will average more than a 100 percentincrease in a ten-year period. Whether the “new econ-omy” is really revolutionary or simply the old economyplus the innovation factor, however, economists todayface compelling challenges. You will learn more aboutthese challenges in Section 3.

Innovation Highly trained techni-cians create products that contribute toa growing economy. How do innova-tions affect economic growth?

22.322.3



IndependentPracticeL2 Creating Time Lines Have stu-dents research the cycles of innova-tion shown in Figure 22.4 on page574. Have them use their findings tocreate an illustrated and annotatedtime line titled “Innovation and theEconomy.” Call on volunteers to dis-play and discuss their time lines.

BLOCK SCHEDULINGELL



knowledge economy: economyin which information is the key togrowth

weightless economy: termcoined to identify an economybased on products that are nottangible

The KnowledgeEconomy

New terms are springing up to describethe economic changes that we see today.The “knowledge economy” and the“weightless economy” describe an environ-ment in which ideas and information are atleast as valuable as more tangible goods.There are many elements in this new econ-omy: information and communicationstechnology; intellectual property, such aspatents and brand names; technical infor-mation, such as biotechnology and engi-neering; and stored data in libraries,databases, and videos.

Knowledge Products What are the dif-ferences between the knowledge economy

and the industrial economy? First, knowledge products are notused up physically by consumers. Unlike a candy bar or a pair ofshoes, computer software is not consumed by use. In fact, the moreoften it is used, the more valuable it may be to the consumer.

Second, a knowledge product knows no spatial boundary orgeographical distance. Two people on opposite sides of the globecan simultaneously be using the same software transmitted by asatellite circling high above the earth. Third, knowledge productsconsist of both the product and the idea behind it. When you buya database program, for example, you are purchasing both thedisk (the product) as well as the computer programming thatallows you to organize your data into fields and records (the idea).

Finally, the development of knowledge products requires creative minds and highly trained technicians. After the prototype

or original is built, however, thousands ofcopies are easily and cheaply reproduced.

A Change or aRevolution?

A number of leading economists believethat the “new” economy is not really so revo-lutionary. They believe that other factors,such as shifts in the labor market and declin-ing wages, explain why the United States

Student Web Activity Visit the Economics Today and Tomorrow Web site at ett.glencoe.comand click on Chapter 22—Student WebActivities to learn more about the knowledgeeconomy.

572 CHAPTER 22

Although the United States led the world in Internetusage in 2000, many American companies face cul-tural, legal, and linguistic challenges in setting up Websites in other countries. Experts note that manyEuropeans feel that American sites have too many dis-tracting “bells and whistles.” European sites are moreplain and consumer-oriented. Something as simple asthe colors used on the Web sites could turn off users.In America, for example, red is the color of love. InSpain, however, it is associated with socialism. ■

Web Site Challenges

572

See the Web Activity LessonPlan at ett.glencoe.com for anintroduction, lesson description,and answers to the Student WebActivity for this chapter.

Language Disability Practice is an essential component of learning for all students.Those with weaker reading skills require guided practice, which can be phased out asmastery of the skill is achieved. In Section 2, have students restate sentences using com-mon language. Listen to each student to ensure that he or she is not simply rearrangingthe words in the sentence. Stress that students should state the idea of the sentence intheir own words.






Answer: Innovations stimulate economic growth.


A NEW ECONOMY?

RECALLING THE FACTS

Directions: Use the information in your textbook to answer the questions.

1. What are four inventions in telecommunications?

2. What is the Information Age?

3. How would one describe the “knowledge economy” and “weightless economy”?

4. What are the differences between knowledge products and other products?

a.

b.

c.

5. Why do some leading economists not consider the Information Age to be revolutionary?

Name Date Class

22-2


The Knowledge Economy The significance of the knowledge economy may be meas-ured by its effect on individuals and nations. Information and communications technologyfirms are the growth leaders in the United States economy. The information technologyshare of the GDP nearly doubled between 1985 and 1999. And, according to Bureau ofLabor Statistics (BLS) forecasts, computer-related jobs will average a more than 100-percent increase over the next few years.

Extending the Content

Guided PracticeL2 Illustrating Ideas Call on vol-unteers to describe the industrialeconomy and the knowledge, orweightless, economy. Note theirresponses on the board. Thenorganize students into severalgroups, and have groups develop an illustration—cartoon, poster, orgraphic organizer—that demon-strates the differences between thetwo economies. Call on groups todisplay their illustrations. ELL

L ECTURE LAUNCHER

22-2

LThe Internet has brought many changes to American culture. Children can now write to Santaon-line via Santa.com. They also receive e-mail responses from Santa. To what extent do youexpect technology to change the way you live and work?

I. The Knowledge Economy

A. “Knowledge economy” and “weightless economy” are new terms used to describe anenvironment in which ideas and information are at least as valuable as tangible goods.

B. Knowledge products are not used up physically by consumers because they have nospatial boundaries or geographical distances; they consist of both the product and theidea behind the product.

C. New economic rules and concepts may be necessary to handle this new era in worldeconomy.


Explain why ideas and information are so valuable today, especially as comparedwith past generations. (In the past, the amount of information available was much morelimited. Today, information is not only vast but it can bring power. Information helps determine the quality of a person’s life.)

PAGE 572

PAGES 572–574



Critical

Thinking Skills

575

575Cybernomics

Primary sources are original records of events made by people who witnessed them. They include let-ters, journals, legal documents, drawings, photographs, and artifacts. Secondary sources are documentscreated after an event occurred. They pull together many sources and provide an overview of events.

Critical Thinking Skills

“The Fair helped change Americans’ reactions to tech-nology. It became the vehicle for the hopes and dreams ofAmericans, as they saw in it a reflection of their own pro-gressive nature and bright future. . . . Visitors were meantto see that one of the most potent agents of change in theirsociety—electricity—was not to be feared, but celebrated.”—World’s Columbian Exposition, xroads.virginia.edu

“Men who . . . had never touched an electric battery—never talked through a telephone, and had not the shadowof a notion what amount of force was meant by a watt . . .had no choice but to sit down on the steps . . . ashamed of[our] childlike ignorance. . . . Chicago asked in 1893 forthe first time the question whether the American peopleknew where they were driving.”—Henry Adams, The Education of Henry Adams, 1907

1. Which document is a primary source? Why?2. Which document is a secondary source? Why?3. How does each source view technology?

Application Activity

Look through the letters to the editor in your localnewspaper. Summarize any primary sources cited.

• Identify the author of thedocument.

• Identify when and where the document was written.

• Read the document for itscontent.

• Identify the author’s opin-ions and bias.

• Determine what kind ofinformation the documentprovides and what ismissing.



Learning the Skill

To interpret primary and secondary sources, followthe steps listed on the left.

Practicing the Skill

Read these excerpts about the Chicago World’s Fairof 1893, then answer the questions below.

Evaluating Primary andSecondary Sources

Evaluating Primary andSecondary Sources

Call on students to read aloudthe guidelines for interpreting pri-mary and secondary sources. Thenhave students imagine that a friendattends a concert. Ask studentswhich of the following is a primarysource of the friend’s experiencesand which is a secondary source:the friend’s letter describing theconcert (primary source); a newspa-per article about the group’s con-cert tour (secondary source);photographs of the concert takenby the friend (primary source); aninterview with the friend conductedby a television reporter at the con-cert (primary source).

Glencoe SkillbuilderInteractive Workbook,Level 2

This interactive CD-ROM rein-forces student mastery of essen-tial social studies skills.

Answers to Practicing the Skill

1. the second, because it is an eyewitness account of the event 2. the first, because it is a compilation of facts from a number of sources3. The first source views technology as positive. The second source views technology

with some skepticism, wondering if the American people knew what they were get-ting into.

Application Activity Encourage students to share and compare their summaries.

E VALUATING PRIMARY AND SECONDARY SOURCESPrimary sources are original records of events made by people who witnessed them. Theyinclude letters, journals, legal documents, surveys, drawings, photographs, and artifacts.Secondary sources are documents created after an event has occurred. They include informa-tion from many sources, which has been combined and incorporated to produce items such asbiographies and textbooks.

Directions: Read the excerpts below from a speech by Representative Martin Olav Sabo (D, MN), a formerchairman of the House Budget Committee, and answer the questions that follow on a separate sheet ofpaper.

To believe many headlines these days, you may think that we’ve done it—our economy couldn’t get any better. Ourbudget is nearly balanced. Unemployment is near an historic low. Inflation is under control. The stock market is boom-ing. All Americans are prospering, and everyone’s happy.

We are here to represent the millions of Americans who know this isn’t true—those who still struggle to live off theirpaychecks, who scrimp and save just to provide for their families, and those who know that our nation’s newfoundprosperity is not widely shared.

Instead of helping all Americans, the current economic boom has starkly shown that the income gap between the topand bottom of our society remains a fundamental problem. . . .

Americans have always believed that people should be encouraged to work, and that work should be rewarded.Millions of Americans get up in the morning and head to their jobs believing that their hard work is the ticket to a better life for them and their families. However, when workers start believing the economy serves only the wealthy, our democratic values of merit and equal opportunity are undermined, and the institutions we have foundedon those values are threatened. Indeed, I believe our nation faces terrible social consequences if we do not addressthe income gap.

Clearly, government alone cannot eliminate income inequality. However, federal policies should not widen the incomegap either. That is why I introduced the Income Equity Act.

d l d d bl ll f l h h d d

Name Date Class

17

Reinforcing Economic Skills 17



Schumpeter’s Waves Schumpeter’s waves or cycles included the innova-tions of waterpower for producing textiles (1785); the age of steam locomotives(1845); and the introduction of electricity accompanied by the internal-combustionengine (1900). After he died in 1950, other economists using Schumpeter’s modeladded two more waves—the age of petrochemicals, electronics, and aviation(1950) and the current convergence of telecommunications and computers (1990).

Pace

of

Inn

ovati

on

60Years

55Years

50Years

40Years

30Years

SteamRailSteel

ElectricityChemicalsInternal- combustion engine

PetrochemicalsElectronicsAviation

1785 1845 1900 1950 1990 1999 2020

FirstWave

SecondWave

ThirdWave

FourthWave

FifthWave

Digital networksSoftwareNew media

Water powerTextilesIron

FIGURE 22.4FIGURE 22.4

574 CHAPTER 22

Understanding Key Terms1. Define telecommunications, Information Age,

knowledge economy, weightless economy,innovation.

Reviewing Objectives2. What changes caused the new environment

called the Information Age?

3. How does the knowledge economy differ fromthe industrial economy?

4. Graphic Organizer Create a chart like theone below, then list and give examples of“products” of the knowledge economy.

5. How does innovation affect economic growth?

Applying Economic Concepts6. Knowledge Economy What evidence sug-

gests that the knowledge economy will have asignificant impact on United States GDP?




2

7. Drawing Conclusions Develop a ques-tionnaire concerning the significance of theknowledge economy to your future. Forexample, you might ask such questions as:How will the knowledge economy affectcareer choices in the future? How will itaffect entertainment and transportation?Survey your classmates with the question-naire, then enter the results into a database.What conclusions can you draw from theresponses you received?

Knowledge Product Example(s)

574

ReteachHave students write summary

paragraphs noting the differencesbetween the knowledge economyand the industrial economy, andthe relationship between innovationand economic growth.

1. All definitions can be found in the Glossary.2. the development and merging of telecommuni-

cations and computer technologies3. Products in the knowledge economy differ from

industrial economy products in the followingways: They are not used up physically by con-sumers. They are not limited by spatial or geo-graphic boundaries. They consist of both theproduct and the idea behind it.

4. Information and communications technology:the Internet; Intellectual property: patents and

brand names; Technical information: biotech-nology and engineering; Stored data: informa-tion in libraries, databases, and videos

5. Rapid growth in productivity generally accom-panies fundamental innovations.

6. Most students will point out that since innova-tions usually usher in periods of rapid growth inproductivity, the knowledge economy will havea significant impact on GDP.

7. Review students’ questionnaires to ensure thatthey are clear.

Have students discuss the follow-ing: Do you think the new econ-omy constitutes a revolution? Whyor why not?

Name Date Class

22, 2

telecommunications Communications over long distances which are assisted by technology (page 571)

Information Age The period when telecommunications and computer technology gave information sig-nificant economic value (page 571)

weightless economy An economy in which information is the key to growth (page 572)

knowledge economy An economy based on products that are not tangible (page 572)

innovation Development of new products, processes, or systems that have wide-ranging effects (page 573)


A NEW ECONOMY?


Have you visited the Economics Today and Tomorrow Web site? You may have downloaded someof the materials that you found there. However, despite your use of them, these materials remainavailable to you and to students across the nation. Your textbook will wear out from use, but theinformation on the Web site can be accessed over and over without being used up. This is justone way the Internet has changed how we measure the value of a product.

This section focuses on how innovation has affected economic growth.

ORGANIZING YOUR THOUGHTS

Use the chart below to help you take notes as you read the summaries that follow Think about

KEY TERMS


Name Date Class

22, 2

A NEW ECONOMY?


6. The Information Age came about as a result of the merger of computer technologies and

a. transportation. b. economy.c. industry. d. telecommunications.

7. Unlike other products, knowledge products

a. cannot be reproduced. b. have spatial and geographic boundaries.c. are not used up physically by consumers. d. become less valuable each time they are used.

8 According to economist Joseph Shumpeter business cycles are determined by

SCORE

A1. telecommunications

2. Information Age



5. innovation

Ba. communications at a distance, assisted by

technology

b. economy in which information is the key to growth

c. development of new products, systems, or processesthat have wide-ranging effects

d. period when telecommunications and computertechnology gave information significant economicvalue

e. economy based on nonphysical products


Section Quiz 22–2

577

Students in Australia’s outback have foryears learned via radio waves. The vast

distances in Australia and sparse populationin the outback prevented typical schoolsfrom operating. At one time, this type ofschooling seemed highly unconventional.

Today, however, online learning hasspread throughout the United States and

other countries. The number of people takingundergraduate and graduate courses onlineis expected to increase to 2.23 million in2002, accounting for 15 percent of all higher-education students. For people who don’thave the time for in-class learning, or wholive across the country from their favoriteuniversity, online learning is the answer. ■

Learning Knows No BoundariesLearning Knows No Boundaries

Economic Connection to... GeographyEconomic Connection to...

577Cybernomics

news of unscrupulous dealings spreads rapidly across the Web andinto the electronic media.

One of the fastest-growing forms of online trade is in securi-ties, because electronic brokers have substantially lowered thecost of such trade. Securities trading on the Internet can be veryrisky, however. The urge to gamble by purchasing stock onlinehas led people into financial trouble.

The term that describes rapid, high-tech stock trading going onin cyberspace is day trading. Unlike brokerage firms, day-tradingfirms do not really execute customer trades. Instead they set upInternet connections and computers that let the clients come totheir “offices” and trade among themselves. Day-trading firms get acommission on all sales, so they encourage people to make trades.

Some people can make money fast. Many others, however, losemoney fast. The Securities and Exchange Commission receiveshundreds of complaints about online investing, including thoseof discouraged small investors who lost student loan money orretirement funds. The government must balance the consumer’sright to a free market with the need for consumer protection.

Protecting Intellectual PropertyCopyright laws are supposed to protect intellectual property—a

creation whose source is someone’s intellect, rather than physicalproperty. Recorded music is an example of intellectual propertythat has been difficult to protect. Pirating of recorded CDs has beenwidespread. Some people pirate intellectual property for profit,while other Internet users share software and music at no charge.

day trading: buying and sellingsecurities directly over theInternet

intellectual property: creationsof a person’s intellect that areprotected by copyright; for exam-ple, written works and music






MultimediaDaily Focus Transparency 97Vocabulary PuzzleMakerInteractive Tutor Self-Assessment Software


Presentation Plus!


576 CHAPTER 22

Terms to Know• day trading • intellectual property• consumer-credit laws• distance education

Reading Objectives1. Why is some trading on the

Internet considered risky?

2. How is intellectual propertybeing stolen?

3. What is being done to pro-tect consumers’ privacy?

READER’S GUIDE

T oday’s policy makers face momentous issues that will deter-mine our future economic environment. Many of theseissues are the result of rapidly changing technology.

Ensuring Safe Internet TradeThe Internet has reduced the cost of entry for companies will-

ing to sell goods electronically. Little or no inventory, a smallstaff, and a modest outlay of capital for the server is all it takes tostart a business. How can you trust startup companies that youknow only through the Internet? Internet users themselves mayprovide the best answer. Because of the ease of communication,

BUSINESS WEEK, APRIL 5, 1999

A Manhattan mother of two got a new laptop com-puter and began to browse the Internet. She boughtjeans, and registered for an online publication. Whatshe did not realize was that herspree had left muddy footprints allover the Net. Hidden files called“cookies” were deposited on hercomputer. Software programsbegan to track and analyze heronline behavior. When a friend toldher how much personal informationshe had given away, she was angryand confused. Where had her rightto privacy gone?

You AreAbout to LoseYour Privacy

You AreAbout to LoseYour Privacy

3

576

OverviewSection 3 outlines the steps

being taken to ensure safe Internettrading, to protect intellectual prop-erty rights, and to protect consumerprivacy.


Preteaching VocabularyDirect students to locate the

definitions of the Terms to Knowin the Glossary. Then call on vol-unteers to use each term correctlyin a sentence.


READER’S GUIDE

L ECTURE LAUNCHER

22-3

LAs e-commerce becomes more competitive, mergers and acquisitions become more common.For example, CDnow Inc. and N2K Inc. merged so that they could effectively compete againstAmazon.com in the on-line retail music business. Do we have a choice as to where the digitalage will lead us? What are the most significant issues in cybernomics today?

I. Ensuring Safe Internet Trade

A. News travels quickly among Internet users, and companies that take advantage of customers may quickly be exposed.

B. Electronic brokers (securities) are one of the fastest-growing forms of e-commerce.

C. Day trading on-line is another form of e-commerce that encourages the clients totrade among themseleves.


What criteria might you use to be sure that you are not taken advantage of by an on-line company? (In many ways, I would use the same criteria as I do with “live” companies. Pay attention to the news and other information about the company. Try to deal with companies that have been around on-line for some amount of time.)

II Protecting Intellectual Property

PAGES 576–577

PAGES 578–577


Writing Disability Students with writing problems often copy answers directly from thebook and have difficulty when faced with questions that require interpretation. Practice“reading between the lines” in the text to help students make interpretations. Thisapproach is also useful in helping students recognize bias.



Guided PracticeL1 Organizing Ideas On theboard, write the title “Issues inCybernomics.” Below this title, drawa two-column chart with “Issues”and “Solutions” as column headings.Organize students into two groups,and ask one group to identify themajor issues created by the new eco-nomic environment. Ask the othergroup to note the possible solutionsto these issues. Write responses inthe appropriate columns. Encouragestudents to copy the chart and retainit for review purposes.

Name Date Class

22-3


I SSUES IN CYBERNOMICS

OUTLINING

Directions: Locate the heading in your textbook. Then use the information under the heading to help youwrite each answer.

I. Ensuring Safe Internet Trade

A. Introduction—How has the Internet reduced the entry for companies willing to sell goods online?

B. Securities Online

1. How has the Internet made buying and selling securities more accessible?

C. Day Trading

1. What is day trading?

2. In relation to buying and selling online, what must the federal government keep in balance?

II. Protecting Intellectual Property Rights

A. Introduction—What is intellectual property?






1. Write a one-sentence summary of the graph.

2. What do you think accounts for the discrepancy among thesegroups?

American Househo ds with Computers, by Income

0

10

30

50

60

70

80

90

100

20

40

Under$25,000

Source: U.S. Census Bureau, Current Population Survey, October 1997

$25,000 to$49,999

$50,000 to$74,999

$75,000and over

Notreported

15.6%

38.8%

60.6%

75.9%

26.4%

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579579

579Cybernomics

The wide gap in schooling between developing and industrial-ized nations, however, is dramatic in the area of computer educa-tion. In addition, developing nations often have little appreciationfor intellectual property rights. These facts support those econo-mists who believe that the information revolution will widen thedivergence between developing and industrialized countries.

It is vital that we keep up with the issues discussed in this section, because an informed citizenry affects leadership. TheInformation Age provides us with a way to do this. The new tech-nology allows us to keep in touch, both with the issues and withour leaders to influence the critical decisions that will create achallenging cybernomic future.

Privacy When you visit the doctor or go to school,personal data are collected. New laws may regulate thedistribution of such data. How could a file of personaldata be misused against an individual?

Understanding Key Terms1. Define day trading, intellectual property,

consumer-credit laws, distance education.

Reviewing Objectives2. Why is some trading on the Internet considered

risky?

3. How is intellectual property being stolen?

4. Graphic Organizer Create a diagram like the one in the next column to explain ways that government and business are helping toprotect consumer privacy.

Applying Economic Concepts5. International Growth and Stability Do

you think the gap between rich and poor nationswill widen in the future? Why or why not?



6. Making Predictions What do you thinkwill be the privacy issues of the next fewyears as telecommunications and computingpower increase?


ConsumerPrivacy

Government

Business

22.522.5

3



1. All definitions can be found in the Glossary.2. The urge to gamble by purchasing stock online

has led some people into financial trouble.3. by the pirating of recorded CDs and offering

down-loadable copies of software and recordedmusic free of charge

4. Government enacts legislation; businessespolice themselves.

5. Some students may suggest that the gap willclose, because information and communicationstechnologies will enable developing nations to“leapfrog” stages of development. Others maysuggest that the gap will widen, noting the widegap between industrialized and developingnations in computing and computer education.

6. Answers will vary. Ensure that students provideexplanations for their answers.

Have students discuss the follow-ing: Which of the issues discussedin Section 3 will present the great-est challenge in the early years ofthe twenty-first century? Why?

Name Date Class

22, 3

day trading Buying and selling securities rapidly over the Internet (page 577)

intellectual property Creations of a person’s mind, such as writings and music, that are protected bycopyright laws (page 577)

consumer-credit laws Laws passed to protect consumers by giving them access to their credit records (page 578)

distance education Education provided by telecommunications technology (page 578)




Are your course grades, standardized test scores, and other school records in paper files at yourschool or does your school keep this information on a computer database? Which form of record-keeping do you think provides the most protection from theft, destruction, or unauthorizedchanges to your permanent record?

This section focuses on the social, economic, and political issues raised by the growth of comput-ers and the Internet.

ORGANIZING YOUR THOUGHTS

Use the diagram below to help you take notes as you read the summaries that follow. Thinkb t h th W ld Wid W b d E il h l ti ’ t d it l t

KEY TERMS




578 CHAPTER 22

consumer-credit laws: lawspassed to protect consumers bygiving them access to their creditrecords

distance education: educationprovided via telecommunicationstechnology

In 1999 a coalition of more than 110 music, computer, andconsumer-electronics firms published a standard for future play-ers of online music files. The standard blocks the playing of illegal copies of newly released songs and does not allow theirdistribution over the Internet.

A future digital-rights system could let the publisher decidewhat rights go with the product. The controls would be both inthe software and hardware. For example, digital “tags” in thesoftware represent certain rights, such as the right to transferthe information to another device. Future personal computers—hard-wired with a copyright chip—would interpret the “tag.”

Protecting Consumer PrivacyThe computer has invaded people’s privacy. Advances in com-

puting have made it possible for institutions to collect all kinds ofpersonal information that used to be unrecorded, such as creditcard or bank debt, telephone calls, items bought at particularstores, and the movement of one’s automobile. Hospitals andschools are constructing vast databases with information rangingfrom your report card to your DNA. See Figure 22.5.

The potential abuses of databases are troubling. Who is watch-ing out for your privacy? National and state government privacystatutes have been in place for many years. Consumer-creditlaws gave individuals the right to examine their credit beginningin the 1970s, for example. Today an entire industry is growingaround security. Software programs are being developed to keephackers and thieves from infiltrating Web bank accounts, E-mails,and corporate purchasing networks.

Developing Nations How will the information revolution affect developing

economies? Some economists believe that information and communications technologies can enable developing countries to “leapfrog” stages of development, thus narrowing the gapbetween rich and poor.

For example, many countries are rapidly expanding cellulartelephone and wireless technology, thereby shortening the timethat might have been required to reach rural areas via wirednetworks. Developing countries can also take advantage ofdistance education, which connects teachers to studentsthrough telecommunications. Wireless technology can bringeducation to remote areas much more quickly and economicallythan traditional systems.

578

IndependentPracticeL2 Analyzing Ideas Have studentssearch newspapers and magazinesfor articles on the challenges ofcybernomics. Direct students toselect three articles. For each article,have students write a summary not-ing the challenge and possible solu-tions. Encourage students to sharetheir summaries with the class.

In a survey of Internet usersconducted in 1999, 80 percent ofrespondents said that that theywere concerned about threats totheir privacy while online.



6. Companies that want to sell goods electronically need

a. large inventory. b. large staff.c. name recognition. d. modest outlay of capital.

7. Securities trading on the Internet is

a. one of the fastest growing forms of b. limited to local markets.online trade.

d

SCORE

A1. day trading


3. digital-rights management

4. consumer-credit laws


Ba. laws passed to protect consumers by giving them

access to their credit records

b. education provided via telecommunications technology

c. systems that strengthen the power of publishers toprotect intellectual property rights

d. exchanging securities rapidly over the Internet

e. creations of a person’s intellect that are protected bycopyright


Name Date Class

22, 3

Section Quiz 22–3

The Problem of Privacy Part of the privacy dilemma on a global scale is that differentsocieties have different rules of law. The United States, for example, tries to promote thefree flow of information and expects business to police itself. Europe, on the other hand,restricts the flow of information through more extensive government regulation. Becausethe Internet serves a global community, a policy that meets the needs of diverse societiesmust be developed.


Answer: Student responses mightinclude: credit card numbers mightbe stolen or health and other per-sonal information might be usedagainst a person when he or sheapplies for insurance or a job.




ReteachOn sheets of paper, write the

major issues of cybernomics—oneissue per sheet. Make sure that eachstudent has one issue sheet by mak-ing duplicates as needed. Distributethe sheets and have students writean explanation of their assignedissue.

581

581Cybernomics

The Growth of E-Commerce

• Numbers, also called digits, are so vital to our livestoday that people have labeled our era “the digitalage.”

• Microchips in a network of interconnected comput-ers are changing how people communicate, pro-duce, consume, educate, and entertain themselves.

• Some economists believe we have entered the ageof cybernomics—economics driven by a huge digi-tal machine, the Internet.

• Web sites connecting businesses, private organiza-tions, government offices, and educational institu-tions make locating information and globalcommunication extraordinarily easy. The Internetprovides businesses in particular with the opportu-nity to directly reach suppliers and consumers.

• E-commerce is expanding rapidly, affecting bothbusiness-to-business relationships and consumers.

• In this new world of cybernomics, the buyer is ruler.If one seller cannot deliver a superior product at acompetitive price in real time, another seller will.

• Marketers can now track purchases electronicallyand organize cybercommunities of people whoseneeds they serve.

A New Economy?

• The Information Age may be as significant as wasthe Industrial Revolution in affecting human society.

• The knowledge economy includes communicationstechnology, intellectual property, and stored data.

• Some economists believe that new concepts areneeded to explain how the knowledge economy dif-fers from earlier economic concepts and principles.

• Most economists agree that innovation affectseconomic growth cycles.

Issues in Cybernomics

• Cybernomics has raised important issues.Decisions being made by policy makers today willhelp determine your economic future.

• Among the important issues today are ensuringsafe Internet trade, securing intellectual propertyrights, protecting consumer privacy, and helpingdeveloping nations catch up with the rapidly chang-ing global economy.

• Communications technology provides access toknowledge and distance education, but we mustmake wise choices that help create a better eco-nomic future.

SECTION 3

SECTION 2

SECTION 1

C H A P T E R

Chapter Overview Visit the Economics Today and Tomorrow Web site at ett.glencoe.comand click on Chapter 22—Chapter Overviewsto review chapter information.

22

Use the Chapter 22 Summary to preview, review, condense, orreteach the chapter.

Preview/ReviewVocabulary PuzzleMaker Soft-

ware reinforces the key terms usedin Chapter 22.

Interactive Tutor Self-Assess-ment Software allows students toreview Chapter 22 content.

CondenseHave students listen to the

Chapter 22 Audio Program (alsoavailable in Spanish) in the TCR.Assign the Chapter 22 Audio Pro-gram Activity and give students theChapter 22 Audio Program Test.

ReteachHave students com-

plete Reteaching Activity 22 in theTCR (Spanish Reteaching Activitiesare also available).

C H A P T E R 22

ECONOMICS & YOU



If you do not have accessto a videodisc player, theEconomics & You programs arealso available in VHS.

Cybernomics Ask students to search the business section of a newspaper for one weekto locate stories about e-commerce. Have students note the positive and negative aspectsof e-commerce discussed in the articles. Also, direct students to record any predictionsabout e-commerce that are made. At the end of the week, ask students to use the infor-mation they have recorded to write a brief essay about the present and future trends in e-commerce.

Economics Journal

580

■ Hollywood’s mostsuccessful directorand producer: cred-its include Jaws,Star Wars, Raidersof the Lost Ark, E.T.The ExtraTerrestrial,Jurassic Park, TheColor Purple, Backto the Future,Schindler’s List,Saving Private Ryan

■ Attended CaliforniaState University atLong Beach

C ombining advances in tech-nology with a great gift for

storytelling has made StevenSpielberg an extraordinarily suc-cessful entrepreneur and resultedin millions of happy moviegoers.He attributes many of his biggestmovie hits to early childhoodmemories. Spielberg’s movieClose Encounters of the Third Kindwas inspired by watching ameteor shower with his father, a fervent science-fiction fan.Reflecting on his creative gift,Spielberg explains:

“Once a month the sky falls on my head, I come to, and I seeanother movie I want to make.Sometimes I think I’ve got ballbearings for brains; these ideas areslipping and sliding across eachother all the time. My problem ismy imagination won’t turn off. Iwake up so excited I can’t eatbreakfast. I’ve never run out ofenergy. . . . I got it from my mom.”

Spielberg’s interests, however,are not limited to movies. Muchof Spielberg’s attention today is focused on DreamWorks SKG, a studio that he createdwith Jeffrey Katzenberg andDavid Geffen. DreamWorks created a joint venture with Sega and Universal Studios tosatisfy Spielberg’s interest invideo arcades. At age 52, StevenSpielberg draws inspiration fromhis seven children:

“There are films that I feelthat I need to make, for a varietyof reasons, for personal reasons,for reasons that I want to have fun,that the subject matter is cool, thatI think my kids will like it.”Checking for Understanding

1. What personal characteristics make Steven Spielberg a successfulentrepreneur?

2. As part of the “knowledge economy,”how may movies affect futureinnovation?

Steven SpielbergENTREPRENEUR (1947—)

580

BackgroundPoint out that Steven Spielberg

started making movies at an earlyage. When he was just 13, he wonan award for a short film he made.Firelight, a movie about aliens thatSpielberg made at age 16, wasshown at his local theater. After col-lege, he started working atUniversal Studios—even though hedid not have a job! He simplyshowed up every day, using a con-verted closet as an office. When hismovie Amblin won several film festi-val awards, Universal signed him toa contract. Today Spielberg makesmore than $200 million a year andis worth about $1 billion.

Answers to Checking for Understanding1. his imagination and his gift for storytelling2. Answers will vary. Students might mention that movies could fire the imaginations of

viewers, leading them to come up with new and creative ideas.

Call on volunteers to read aloudthe statements by Steven Spielberg.Then ask students to discussSpielberg’s description of the cre-ative process and his reasons forcontinuing to make movies after allhis success.

CHAPTER 22Assessment and ActivitiesCHAPTER 22

Assessment and Activities

583

583Cybernomics

3. Categorizing Information On a table likethe one below, rank the four issues pre-sented in Section 3 according to the levelof their importance to you. Then rank thesame issues according to how they affectthe global economy.

ApplyingEconomic ConceptsThe Role of Government Choose one of thefollowing areas and write a short positionstatement on what, if anything, the federalgovernment should be doing about it:■ Assuring personal privacy■ Regulating telecommunications■ Protecting intellectual property■ Regulating securities trading on the

Internet

CooperativeLearning Project

Scarcity of resources means that evengovernments must consider trade-offs andopportunity costs. Organize into four groups,each representing a congressional committeecharged with addressing one of the fourissues mentioned in Section 3 of this chapter.Prepare an argument supporting your issueand seeking resources to study and resolve it.Present your arguments to the class.

Reviewing SkillsEvaluating Primary and Secondary SourcesRead the excerpt in the next column, thenanswer the questions that follow.

“In 1984, when I got a job as a field servicemarketing manager for a large computer manu-facturer, I thought I was the only dummy on theblock, that everyone else was a genius. But Ifound out that a lot of people in techie jobs hadnontechnical backgrounds—just like me.

Unless you’re designing software or are inresearch and development, where technicaldegrees are necessary, you can find good jobs in technology. Fear of technology is a waste oftime. Dump the fear.”—William A. Schaffer, European development manager for

software and technology at Sun Microsystems, 1999

1. Is this a primary or a secondary source?How do you know?

2. When was this document written?3. What was the general feeling of the person

who wrote this document?4. What kind of information is missing from

this passage?

Technology ActivityUsing the Internet Probably the most informa-tion about privacy for Internet users is to befound on the Net itself. Use a search engine tofind out what is being written. Key in privacyand/or encryption and scroll down throughthe articles. Make a list of the kinds of sitesand news articles that are available.

Visit the United Nation’s UNESCO Website. Open the Yearbook and click on“Culture and Communications.” Referencetables here will help you compare theprogress of communications technologyaround the world. Print out a chart, study it,and write a summary report.

Issues as they affect me Issues as they affect the global economy

1. 1.2. 2.3. 3.4. 4.

Applying EconomicConcepts

Position statements will vary.Ensure that students’ suggestionsare practical.

CooperativeLearning Project

After arguments have been pre-sented, have the class act as theCongress and debate and vote onproposals.

Reviewing Skills1. Primary source—it is the writer’s

personal experience of an event.2. 19993. Positive—it encourages readers

not to be afraid of technology.4. statistics that support the

writer’s statements

Technology ActivityLists will vary. Encourage students

to share and compare their lists.

Analyzing theGlobal Economy

Summaries may vary. Ask stu-dents to discuss if they were sur-prised by any information in thetables.

ASK: What is the Internet? Howis it related to cybernomics?The Internet is a network of com-puters that enables people every-where to access and exchangeinformation simultaneously. It isthe basis of cybernomics.

Chapter BonusTest Question

13. Some economists feel that the informa-tion revolution will help close the gapbetween developed and developingnations, because information and com-munications technologies will enabledeveloping nations to “leapfrog” stages ofdevelopment. Other economists feel thatthe information revolution will widen thegap because of the vast advantage in com-puting and computer education held byindustrialized nations.

Thinking Critically1. because new companies sprang up

overnight on the Internet, competing withestablished businesses who had spentyears building their customer bases

2. Answers may vary. Ensure that studentssupport their answers with valid reasons.

3. Rankings will vary. Call on volunteers topresent and justify their rankings.

CHAPTER 22Assessment and ActivitiesCHAPTER 22

Assessment and Activities

Identifying Key TermsWrite a paragraph about cybernomics using allof the following terms.

■ microchip■ cybernomics■ Internet■ World Wide Web■ e-commerce■ intellectual property■ frequency marketing■ innovations

Recalling Facts and IdeasSection 11. Why is e-commerce on the Internet con-

sidered both enticing and risky?2. How has e-commerce shifted the balance

of power to the customer?3. How do computers help marketers know

what products you want?

Section 24. What revolution changed people’s way of

life in the nineteenth century?

5. What elements are included in theknowledge economy?

6. Why are knowledge products calledweightless?

7. How does the use and consumption ofknowledge products differ from tradi-tional products?

8. Over what issues do economists study-ing the information revolution disagree?On what do most economists agree?

9. How did economist Joseph Schumpeterexplain the several large bursts of eco-nomic growth during certain periods ofhistory?

Section 310. Give an example of intellectual property

that has been difficult to protect.11. Who is most at risk in day trading on the

Internet?12. How has the computer invaded people’s

privacy? 13. What are the two positions that econo-

mists have taken regarding how theinformation revolution will affect devel-oping economies?

Thinking Critically1. Understanding Cause and Effect Why did

many businesses feel compelled to go onthe Internet in the 1990s?

2. Making Generalizations Write a para-graph expressing whether you believethe Information Age will have as far-reaching effects on society as did theIndustrial Revolution.

22

Self-Check Quiz Visit the Economics Today and Tomorrow Web site at ett.glencoe.comand click on Chapter 22—Self-Check Quizzesto prepare for the Chapter Test.

582 CHAPTER 22

582

Identifying KeyTerms

Paragraphs will vary, but shoulduse all the key terms correctly.

Recalling Facts and Ideas1. Companies with intelligent

e-commerce plans can reap hugeprofits, while less thoughtfulbusiness planners may wastebillions of dollars and precioustime.

2. The Web reduces distances.Consumers do not have to drivefrom store to store to compari-son shop. Rather, they canquickly gather informationabout products and vendorsalmost anywhere.

3. Through frequency marketing,computers track consumer pur-chases, determining what prod-ucts consumers want and howoften they want these products.

4. Industrial Revolution5. information and communica-

tions technology, intellectualproperty, technical information,and stored data

6. because they consist of ideasand information rather thantangible materials

7. Unlike traditional products, knowledgeproducts are not used up physically byconsumers.

8. Economists disagree over whether the“new economy” is truly revolutionary.Some think that it is the result of shifts inthe labor market and declining wages.Economists do agree that innovation is asignificant factor in the changing worldeconomy.

9. He concluded that each new growth cyclestarts when a set of innovations comesinto general use.

10. consumer software, recorded music11. small investors who can least afford to

lose money12. Advances in computing have made it pos-

sible for institutions to collect all kinds ofpersonal information such as credit cardor bank debt, telephone calls, and itemsbought at particular stores.

Have students visit theEconomics Today and TomorrowWeb site at ett.glencoe.com toreview Chapter 22 and take the Self-Check Quiz.

MindJogger Videoquiz

Use MindJogger to reviewChapter 22 content.


585

585

not agree. The moviebecame a huge box-officesuccess.

Building a ReputationLucas immediately

plowed his profits from the movieinto two more episodes of StarWars. While working on thesemovies, the ILM team began to usecomputers to control cameras and gener-ate images. Over time, ILM became theindustry’s leader in applying the mostrecent technology to moviemaking.

Digital EffectsIn 1993, ILM changed moviegoers’

expectations forever with the digital effectsit used in the film Jurassic Park. Audienceswere stunned when they first viewed thedigitally created dinosaurs on the bigscreen—nothing so realistic had ever beendone before. Nearly everyone who saw themovie wandered out of the theater asking,“How did they do that?”

Steven Spielberg, who directed the film,had seen early digital footage

created by the artists atILM. He immedi-ately scrappedplans to usestop-animationdinosaurs,instead urgingILM to create all

the dinosaurscenes using com-

puter graphics.Artists at ILM studied

animal behavior and

movement, filmed themselves runningaround their parking lot, and generally doveinto the “minds” of dinosaurs to create themost believable special effects ever.

This technological innovation, alongwith dazzling artistic creativity, soon wonILM the attention of other moviemakers.Many times when a movie required stun-ning visual effects, ILM was called in—earn-ing the company critical and financialsuccess. ILM has won 14 Academy Awardsfor Best Visual Effects. In addition, ILM hasprovided the special effects for more thanhalf of the top 15 box-office hits of all time.

Free Enterprise in Action

1. How was ILM different from most other com-panies in the movie business?

2. What attracted other moviemakers to ILM?

T-rex

Velociraptor

Answers to Free Enterprise In Action1. The vast majority of employees were straight out of college. There were no set work-

ing hours. And there were few hard-and-fast job descriptions.2. ILM’s technological innovation and artistic creativity

Focus on Free Enterprise

Focus on Free Enterprise

Industrial Light & Magic

Chewbacca, C3PO, Darth Vader, Jar

Jar Binks, R2-D2, and Yoda. These

memorable characters, and the world they

inhabit, sprang from the fertile imagination

of filmmaker George Lucas. When Lucas

first thought up the world of Star Wars, he

had an idea of what everything should look

like. It took Lucas’s special effects com-

pany, Industrial Light &

Magic (ILM), however,

to transfer this idea to

the movie screen.

BeginningsWhen George Lucas first took the idea of

Star Wars to Hollywood studios, he had noluck in getting their backing. Science-fictionmovies rarely made money. Finally, 20thCentury Fox agreed to back the movie, pro-viding a budget of $9 million. One area inwhich Fox offered little help was specialeffects. So in 1975 Lucas set up his owncompany called Industrial Light & Magicto develop special effects for Star Wars.

Unconventional Working EnvironmentILM was unlike other companies—either

in the movie business or business in gen-eral. Except for a few managers, the vastmajority of employees were straight out ofcollege. There were no set working hours—ILM was essentially open 24 hours a day.There were few hard-and-fast job descrip-tions. As well as doing their own jobs,design artists might also be called upon to make models and operate cameras.

Although ILM’s work practices wereunconventional, they proved very effective.In less than 18 months, the ILM team hadcompleted the Star Wars special effects.Although Lucas expressed disappointmentwith the finished product, the public did

C3PO

George Lucas

584

Ask students if they have seenany of the Star Wars movies or ownany Star Wars memorabilia. Thenpoint out that the first Star Warstrilogy has sold more than $1.2 bil-lion in tickets and $1.5 billionworth of related products.

Even Universal Studios, whichhad made—and profited hand-somely from—Lucas’s earlier film,American Graffiti, showed littleinterest in the Star Wars idea.Universal turned down his requestfor financial backing.

ILM’s studio in San Rafael,California, is littered with StarWars paraphernalia. An ImperialStormtrooper greets visitors in thelobby. And ILM workers, for relax-ation, race model Star Wars space-ships in the parking lot.

The Future of ILM ILM’s immediate plans are focused on building its reputation as atechnological innovator and creative force in the field of special effects. The company’smajor project in the early 2000s was George Lucas’s “prequel” trilogy to Star Wars, sched-uled to be completed by 2005. The first in the series, Episode 1: The Phantom Menace,was released in 1999.


Have students read the featureand note how George Lucas’s imagi-nation contributed to the develop-ment and success of Industrial Light& Magic. Then ask them to discusswhat impact, if any, ILM’s workenvironment had on its success.

Have students answer the FreeEnterprise in Action questions.

Read aloud the following quotefrom George Lucas. “Film is a verytechnical medium. New technol-ogy—whether it’s new film stock orelectronic editing or special effects—enhances the tools you have avail-able and expands your vocabulary.But they don’t make a picture suc-cessful. A film is not about tech-nique. It’s about ideas.” Havestudents discuss if they agree withLucas’s view.

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