What is Economi

cs?

The study of choice under the conditions of scarcity.

• Microeconomics-study of the behavior and decision making by small units such as individuals and businesses.

• Macroeconomics-study of the behavior and decision making of large units such as governments.

What is Economics?

Scarcity and ShortageScarcity~ The concept that there are limited resources for

unlimited wants

Shortage~ A condition that occurs when producers will not or cannot offer goods and services at the current price.

What is the difference between scarcity and shortage?

FOP ACTIVITYIn small groups you will complete the following: PART ITerms and Concepts1. Definition of the term factors of production2. List and define the “four” factors of production

PART IIScavenger Hunt3. Take four index cards. Label them with each of the FOP4. Walk around and find examples of each in the creation of

“education”.

Chapter 1, Section 2:“Choosing is Refusing”Trade-offs- All the alternatives that we give up

whenever we choose one course of action over another. – Individuals– Businesses– Governments

Opportunity Cost- The most desirable alternative given up as the result of a decision. The next best thing!!

Thinking at the Margin- Deciding whether to do or use one additional unit of some resource.

Discussion Topic: “There is no such thing as a free lunch.”

The Government Trade-Off: GUNS OR BUTTER?

Our Role in Funding the Government

We authorize the government, through the Constitution and elected officials, to raise money through taxes.– Must originate in the House (Ways and Means)– House-Senate-President

Taxation is the primary way that the government collects money.

Without revenue, or income from taxes, government would not be able to provide goods and services.

Power and Limits of Taxation

The Power to Tax Article 1, Section 8, Clause 1 of the

Constitution grants Congress the power to tax.

The Sixteenth Amendment (introduced 1909, ratified 1913) gives Congress the power to levy an income tax.

Great Depression Social Security Act (1935) and the

Internal Revenue Service (IRS)– Administrative agency of the Dept.

of Treasury– Headquarters in DC, 7 regional

offices– Main functions are to collect

income taxes and enforce tax laws WWII

Limits on the Power to Tax1. The purpose of the

tax must be for “the common defense and general welfare.”

2. Federal taxes must be the same in every state.

3. The government may not tax exports.

Tax Activity

Person A (Low-Income)- $15,000 Person B (Middle-Income)- $75,000 Person C (High-Income)- $225,000

Types of Taxes Social Security Taxes

– This program is funded by the Federal Insurance Contributions Act (FICA). Most of the FICA taxes you pay go to Social Security, or Old-Age, Survivors, and Disability Insurance (OASDI)

Medicare Taxes– Medicare is a national health insurance program that helps pay

for health care for people over 65 and for people with certain disabilities. Medicare is also funded by FICA taxes.

Unemployment Taxes– Unemployment taxes are collected by both federal and state

governments. Workers can collect “unemployment compensation” if they are laid off through no fault of their own and if they are actively looking for work.

Other Taxes – Federal Income Taxes– Excise Taxes– Estate Taxes– Gift Taxes– Import Taxes

Tax Structures

Proportional Taxes– A proportional tax is a tax for which the

percentage of income paid in taxes remains the same for all income levels.

Progressive Taxes– A progressive tax is a tax for which the percent

of income paid in taxes increases as income increases.

Regressive Taxes– A regressive tax is a tax for which the

percentage of income paid in taxes decreases as income increases.

What is a “good” tax?

– Simplicity Tax laws should be simple and easily understood.

– Economy Government administrators should be able to collect

taxes without spending too much time or money.– Certainty

It should be clear to the taxpayer when the tax is due, how much is due, and how it should be paid.

– Equity The tax system should be fair, so that no one bears

too much or too little of the tax burden.

How the Money Comes In: Revenue

Total Revenue: $2.57 Trillion

14%4% 3%

45%

34%

Individual Income Taxes Social Insurance Payroll TaxesCorporate Income Taxes Excise TaxesOther Taxes

Federal Spending: “Guns or Butter”

The Politics of Tax and Spend

Obama Defends Budget

FY 2010 Introduced

Hannity on the Budget

Zinn on US

Militarism

Ron Paul on Government Spending

Spending Categories

Mandatory Spending Money that lawmakers are

required by law to spend Interest payments on the

national debt “Entitlement” programs

(Social Security, Medicare and Medicaid)

Makes up almost 2/3 of federal budget

Problem because Congress and the President cannot control much of spending.

Discretionary SpendingMoney that government planners can choose how to spend.

Defense EducationTrainingEnvironmental cleanupNational parks and monumentsScientific research

http://upload.wikimedia.org/wikipedia/en/6/64/GAO_Slide.png

Conference Committee Meets to Resolve

Differences

The Appropriations ProcessHouse Senate

Sent to the Floor

Full Committee Approves

Sent to the Floor

Appropriation Subcommittee Reports a Bill

Full Committee Approves

Appropriation Subcommittee Reports a Bill

Sent to President

Where the Money Goes: SpendingTotal Spending: $2.73 Trillion

7%

11%

9%

22%

16%

21%14%

Social Security MedicareMedicaid & SCHIP Other MandatoryNet Interest Security DiscretionaryNon-Security Discretionary

Total Spending: $2.73 Trillion53%

9%

22%

16%

Mandatory Net Interest

Security Discretionary Non-Security Discretionary

Guns or Butter?

Analyze the federal spending pie chart on page 371. Consider the difference between mandatory and

discretionary spending as described on pages 371-374. Create your own federal spending pie chart based on

your priorities. You may not “leave it the same”…think critically about what you think is the best way to spend our tax dollars!

Explain the rationale for your spending choices. Present your poster and defend your choices.

Production Possibilities Graph: A graph that shows alternativeways to use an economy’s resources. The graph can only considertwo items at once and these items are each placed on an axis.

Chapter 1, Section 3: Production Possibility Graphs

Production Possibilities Frontier: The line on a productionpossibilities graph that shows an economy’s maximum possibleoutput of any two products.

What can we learn from looking at a Production

Possibilities Graph/Frontier?· Trade-Offs/Cost- Alternative

given up as a result of a decision. Every point on the PPF indicates a cost in on item or another.

· Efficiency- Making the best possible use of resources (any point on the PPF)

· Underutilization/Inefficiency- Misuse or waste of resources (any point inside the PPF)

· Growth- Expanding an economy’s ability to produce (shift of the entire curve to the right or any point to the right of the PPF)

~New Technology/ Innovation

~Increase in Resources