Economics 12/6/10 http://mrmilewski.com

• OBJECTIVE: Demonstrate mastery of Chapter #1 and begin examination of world economic systems.

• I. Administrative Stuff-attendance

-explanation of test procedure

• II. Chapter#1 Test• III. Journal #4 pt. A

-Read “The Global Economy” p.35

-Answer questions (1-2) p.35

• IV. Journal #4 pt. B-notes on economic systems

All societies face scarcity and must answer the 3 basic questions:

• What to produce?• How to produce?• For whom to

produce?

http://www.swan.ac.uk/engd/production%20line.JPG

http://en.wikipedia.org/wiki/Image:Bakweri_cocoyam_farmer_from_Cameroon.jpg

Types of Economic Systems• Traditional – tribal

law• Market – democratic

societies• Command –

dictators, communist gov’t

http://www.horizonsunlimited.com/forwood/images/uzbepho5.jpg

Types of Economic Systems

Goals of the American Economy• Economic freedom• Economic efficiency• Economic equity• Economic security• Full employment• Price stability• Economic growth• (Future Goals)

Economic freedom• In the United States, people place a high value on the

freedom to make their own economic decisions.

– People like to choose their own occupations, employers, and uses for their money.

– Business owners like the freedom to choose where and how they produce.

• The belief in economic freedom, like political freedom, is one of the cornerstones of American society

Economic efficiency

• Productive resources (land, labor, capital & entrepreneurs) are scarce and must be used in a way that the benefits of their use are greater than their costs.

Economic equity• Americans have a strong sense of justice,

impartiality, and fairness.

• Examples:

-equal pay for equal work

-illegal to discriminate

-advertisers are not allowed to make false claims

-lemon laws (hold producers responsible for faulty products)

Economic security• Americans desire protection from such adverse

economic events as layoffs and illnesses.

• Examples:

-unemployment insurance

-workman’s comp.

-social security

Full employment• When people work, they earn income for

themselves while they produce goods and services for others.

Economics 12/7/10 http://mrmilewski.com

• OBJECTIVE: Examine the Goals of the American Economy.

• I. Journal #5 pt. A-Read “Critical Thinking Skill” p.40-Answer questions (1-3) p.40

• II. Quiz#3• III. Return of Chapter#1 Test • IV. Journal #5 pt. B

-finish notes on goals

• V. Journal#5 pt. C-questions on Econ U.S.A. episode#7

Price stability• Price stability adds a degree of certainty to the future.

• If inflation–a rise in the general level of prices–occurs, workers need more money to pay for food, clothing, and shelter.

• How inflation works:

-Wendy’s Jr. Cheese Deluxe

-Cost $.99

If you make $5.00• How many Jr. Cheese’s

can you buy per hour?

• 5, so your purchasing power is 5 burgers per hour

• Next year you get a raise of $1, is your purchasing power higher this year than it was last year or lower?

• You can’t answer the question until you know the price of the Jr. Cheese.

• If the price of the Jr. Cheese goes to $1.50, what is the change in your purchasing power?

• Decreased by 1 burger

Inflation ExampleYear 1 Year 2 Year 3

Burger price

1.00 1.50 1.50

Your salary

5.00 6.00 7.50

Your purchasing power

5 burgers 4 burgers 5 burgers

Fixed Income• People who live on a fixed income–an income

that does not increase even though prices go up–find that bills are harder to pay and that planning for the future is more difficult.

Economic growth• Growth is needed so that people can have more

goods and services.

• Because the nation’s population is likely to grow, economic growth is necessary to meet everyone’s needs.

Econ U.S.A. episode#7• 1.) What did Kennedy do in 1963? What was the goal of it? Did

it work?• 2.) What happened in 1965? How did the White House make it

worse?• 3.) What happened when consumers and government continued

to buy?• 4.) How can inflation help some people?• 5.) What is inflationary psychology? How did it hurt businesses?• 6.) How are senior citizens affected by inflation?• 7.) Why did workers go on strike? How did it effect inflation?• 8.) How did President Nixon try to control inflation?Did it

work?• 9.) What happened to inflation by the late 1970’s?

Economics 12/8/10 http://mrmilewski.com

• OBJECTIVE: Examine the characteristics of capitalism and the Consumer Price Index.

• I. Journal #6 pt. A-Examine Figure 2.1 p.38-Answer the caption question p.38

• II. Quiz #4• III. Journal #6 pt. B

-notes on capitalism & CPI

• IV. Math Practice with CPI-constructing a CPI

The Characteristics of Capitalism• In capitalism private citizens own the

factors of production.

• Free enterprise means that competition is allowed to flourish with minimum government interference.

Competition & Free Enterprise• Economic freedom –

-people can choose their jobs, employers, and how to spend their money. -businesses may choose what to sell and how much to charge.

• Voluntary exchange – -buyers and sellers freely engage in market transactions.

• Private property rights – -people may control their possessions as they wish

• Profit motive –-people and organizations may improve their material well-being by making money

• Competition – -producers and sellers compete with each other for consumers while lowering costs.-consumers compete with each other to obtain the best products at the lowest prices.

Roles• Entrepreneur –

-organizes land, labor, and capital in order to make a profit

• Consumer –

-determines what is made “the customer is always right”

• Government –

-protector of private property, enforcer of contracts, and definer of fairness

-provider of services like defense, education, and public welfare

-consumer of goods

-regulator charged with preserving competition

-promoter of national goals

CPI• Consumer Price Index – an index used to measure

price changes for a basket of frequently used common items.

• The CPI reports on price changes for 90,000 items in 364 categories from 85 geographic areas of the country and are compared to their 1982-84 base year prices.

• Produce Price Index – measure price changes paid by domestic consumers for their inputs and is based on a sample of about 100,000 commodities and uses 1982 as the base year.

CPI & PPI

• Higher prices for inputs normally results in higher prices for consumer.

http://money.cnn.com/2005/07/14/news/economy/cpi/cpi_corecpi_july05.gif

Midwest urban CPI• Source: U.S. Department of Labor

Bureau of Labor Statistics• Base Year 1982-84=100

Year CPI1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

148.4

153.0

156.7

159.3

162.7

168.3

172.8

174.9

178.3

182.6

188.4http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=dropmap&series_id=CUUR0200SA0,CUUS0200SA0

Midwest Urban CPI 1967-2005

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

Midwest Urban CPI 1988-2005

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

Economics 12/9/10 http://mrmilewski.com

• OBJECTIVE: Examine the effect of inflation on the economy.

• I. Journal #7 pt.A-Read “Profiles in Economics” p.266-Answer question#1 p.266

• II. Journal#7 pt.B-notes on ideas

• III. Finish Math Practice with CPI• IV. The Commanding Heights

-Film about Economic Systems

Types of Economic Systems

• Market – democratic societies

• Command – dictators, communist gov’t

• Traditional – tribal law

• Market – Capitalist• (Socialist)• Command -

Communist

The Battle of Ideas• The 20th Century began with a Communist

Revolution, and ended with a Capitalist Revolution.

• In the West the battle of ideas was between Keynes v. von Hyeck.

Economics 12/10/10 http://mrmilewski.com

• OBJECTIVE: Examine the effect of government planning on the 20th century.

• I. Administrative Stuff-attendance

-test reminders

• II. Commanding Heights-questions on film about globalization

• III. Mindjogger-video quiz on Chapter#2