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Unit 9: Economics

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Laura Case Morgan

on 1 December 2017

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Transcript of Unit 9: Economics

Unit 9:
Economics

Introduction
Factors of Production
Types of Economies
Types of Competition
Types of Businesses
Economics is...
the study of choices in a world full of
unlimited wants
&
limited resources
.
Microeconomics
study of choices made by individuals & individual businesses
Macroeconomics
study of choices made by entire industries & countries
The key to economics, is
SCARCITY
having more wants** than you have resources
**Could be
goods
or
services.
Examples:
You can't buy a new car without enough money.
You can't get everything done b/c there's not enough time.
What is another example?
Goods
things you can hold
you pay someone to do
Services
Trade-offs
Opportunity Costs
choose one thing over another
the value of what you gave up
Can you think of your own example?
Four Economic Questions
1
2
3
4
What should be produced?
How should it be produced?
How much should be produced?
For whom should it be produced?
Who answers these questions?
Traditional
Command
Market
Mixed
decisions based on tradition
- custom, beliefs, religion
- Little to no technology
- "The way it's always been"
Where?
decisions made by government
- Example: Communism
- There is no private property
Where?
Advantages
Low prices
Financial support for education
Basic needs like housing, medical provided by govt
Disadvantages
No competition
Little choice of goods
Small supply of many goods
Quality of goods is poor
Little individual freedom of choice
decisions made by individuals
- based on supply & demand
- AKA "Capitalism"
- PROFIT = biggest motivation
Advantages
More choices
Better quality
Abundant supply
Private property
Individual freedoms
Disadvantages
Unequal distribution of wealth
Where?
decisions made by individuals & government
So basically... all countries have some kind of mixed economy.
Consider the US...
land =
labor =
capital=
entrepreneurship=
also called "natural factors"
also called "human factor"
Warm Up
1. What is something you've recently bought?
2. Why didn't you buy more?
3. Are your wants limited or unlimited?
4. Are your resources limited or unlimited?
5. How would you define economics?
Warm Up
1. Who controls prices in the US? What are the benefits to our type of economy? Disadvantages?
2. Describe Amish people and their economy. What are the benefits? Disadvantages?
3. What type of economy does China have? What are the benefits? Disadvantages?
4. What is communism? What is the opposite of communism?
5. Give an example of a trade-off & opportunity costs.
6. Define economics.
7. What are the 4 factors of production and give examples that relate to your small business.
Knowing what you know about scarcity, how can we make sure our businesses are productive?
Increasing Productivity
Specialization
Focusing on one small task
Division of Labor
dividing tasks among people
Technology
applying knowledge to a task
(i.e. computers, scissors, wheels, radio)
Education
training, educating people to be more effective
Partnership
Corporation
Non-Profit
meaning, make the most of what we have
One owner
Advantages
Pride
Keep all profit
Quick decision making process
Flexibility
Tax breaks
Disadvantages
Financially responsible
Unlimited Liability
Hard to raise funds
Hard to get qualified employees
Sole Proprietor/
Entrepreneurship
Examples of companies that started as a sole proprietorship:
Ray Croc mortgaged his home to take over a small fast food location, McDonald's Corporation.

Sam Walton purchased a Ben-Franklin store that later grew into WalMart.

James Cash Penney bought out his partner in 1912 and became sole proprietor of his store, JC Penney.
two or more people
Raise more money
Tax breaks
Bring in special talents
Complex decision making
Unlimited Liability
Fully responsible for finances
Advantages
Disadvantages
many individuals own stock in company & it is treated as its own entity
Easy to raise money
Professionals run business (board)
Ownership can be easily transferred
Limited Liability
Corp. responsible for debt
Expensive
Complex
Owners have little say
More govt regulation
Double taxed
Corporation pays tax on profits, owners pay tax on earnings
Advantages
Disadvantages
To become a corporation
1. Get permission from govt via charter
2. Stockholders invest $ to gain ownership
3. Stockholders elect board of directors to run corporation
FAQs
1. Which type of business is the oldest and most common?

2. In a sole proprietorship, what happens if the owner dies?

3. Even though ____________________ make up 90% of businesses in the US, _____________________ make 85% of the profits.

4. Why should Americans buy from Americans?
sole proprietorship
it closes or passed down to family member
sole proprietorships
corporations
Types of Businesses
What do you already know?
Monopolistic Competition
Oligopoly
Monopoly
aka. Market/Pure Competition
Many companies compete with similar products and no one has total control.
Little price difference between products
Few barriers to entry and exit
Producers have a degree of control over price

Examples: potato chips, Toothpastes, toilet papers, computer software and operating systems
Few companies compete with very similar products
One company can greatly impact the market

Examples: Movie Producers, Video Game Producers, Cell phone companies, Soft Drink
One company controls everything in that market.

Illegal in the USA, unless government operated

Examples of USA government: Post Office, Greenville Utilities

In other countries: DeBeers Diamonds

USA monopolies that were broken up: AT&T, Standard Oil becomes ExxonMobil and Chevron Corporation
CONGLOMERATE
MERGER
buying up all
similar companies
Corporation
buys up
other companies
that
provide its
capital goods
CORPORATION
MONOPOLY
US Government has
ANTI-TRUST laws
to stop harmful
monopolies.
How do corporations become monopolies?
Corporations are
usually large, multinational, & multi-industry
http://en.wikipedia.org/wiki/List_of_conglomerates
Non-Profits
Organizations not interested in making a profit.
Want to benefit society rather than make a profit.

Examples:
Before we talk about the types of competition, there are some words you need to know:
Consumer Sovereignty:
consumer decides what is produced. (Customer is always right)
Pure Competition:
No one person/group controls the market on a product and there are no barriers to enter this market
Free enterprise:
Individuals answer all 4 questions and allow for free trade; capitalism
Profit motive/incentives:
individuals willing to give up an FoP for a personal gain
Demand
Demand:
consumers' willingness to buy a good
Graph that shows the amount of a product that would be bought at all possible prices
Demand Curve:
Law of Demand:
as prices increases, demand decreases
Example: How many of you would buy a pizza at these prices? Let's graph it.
price
quantity
$0
$5
$10
$15
$20
For different goods, the
ELASTICITY
of demand changes.
(the extent to which demand changes when price changes )
If something is ELASTIC, then a price change can cause a BIG difference in demand
price
quantity
demand
If something is INELASTIC, then a price change does not really cause a difference in demand
price
quantity
demand
S
T
I
C
ubstitution
aste / preference
ncome
omplement
Reasons that Demand Changes
examples: UNC wins championship, so everyone wants shirts
It's winter, so demand for gloves goes up
example: economy is doing better, the unemployment rate is down, people buy more
example: PB&J, Shoes & laces
price
Demand 1
example: Coke & Pepsi
price
quantity
Demand 1
What would happen to the demand for Tony's Pizza after a new health kick to not eat carbs?
What would happen to the demand for Tony's Pizza after a decrease in the unemployment rate?
price
Demand 1
What would happen to the sale of Tony's Pizza after a new dessert pizza comes out?
What would happen to the demand for Tony's Pizza after a new pasta business opens?
price
quantity
Demand 1
example: Skittles
a little bit
A LOT
A LOT
a little bit
example: Brain surgery
Warm Up
1. List and compare the types of competition.
2. What type of business would you open & why would you choose that over another type of business?
3. How can you increase productivity?
4. Give examples of each of the 4 factors of production.
Supply
Supply:
producers' willingness to sell a good
Graph that shows the amount of a product that would be sold at all possible prices
Supply Curve:
Law of Supply
Example: How many of you would sell a pizza at these prices? Let's graph it.
price
quantity
$0
$5
$10
$15
$20
For different goods, the
ELASTICITY
of supply changes.
(the extent to which supply changes when price changes )
If something is ELASTIC, then a price change can cause a BIG difference in supply
price
quantity
supply
If something is INELASTIC, then a price change does not really cause a difference in supply
price
quantity
supply
P
E
T
roduction costs
ntrance/exit of substitute
echnology
Reasons that Supply Changes
examples: Nike goes out of business, so Adidas sells more shoes
example: sewing machine breaks, you can't produce as much
price
quantity
Supply 1
example: price of cotton increases, so cost of T-shirts increases
price
quantity
price
a little bit
A LOT
A LOT
a little bit
as prices increases, supply increases
Supply 1
Supply 1
What happens to the supply of Tony's Pizza after the cost of tomatoes goes up?
What happens to the supply of Tony's pizza after Michelangelo's closes?
What happens to the supply of Tony's pizza after Tony gets a better, larger double oven?
1. Draw a demand graph and label all parts.
2. In which type of business do the owners NOT get to make decisions? Who does make the decisions? What are the advantages of this type of business?
3. Describe the types of economies and the pros/cons of each.
4. What is the difference between trade-offs & opportunity costs?
5. What is productivity & how can you increase it?
quantity
Warm Up
Warm Up
Supply & demand work together
to determine price
.
price
quantity
Supply
Demand
equilibrium
equilibrium price
equilibrium quantity
Remember that supply & demand can shift. This means equilibrium can change.
price
quantity
Supply
Demand 1
new equilibrium
Demand 2
Surplus:
when more is supplied than demanded
price
quantity
Supply
Demand
q
D
q
S
Shortage:
when more is demanded than supplied
price
quantity
Supply
Demand
q
S
q
D
Why would a surplus or shortage happen?
Price Floor:
Gov't sets a price minimum above equilibrium
price
quantity
Supply
Demand
q
D
q
S
anything up here
anything down here
price floor
i.e. minimum wage
price
quantity
Supply
Demand
q
S
q
D
price ceiling
i.e. gas cap
Price Ceiling:
govt puts a cap on prices to keep goods/services from getting to expensive
Other examples:
Price Ceiling
Rent control in NYC
Gas prices in 1970s
Price Floor
US minimum wage
Milk
1. Contrast the 4 types of competition.
2. What are the advantages of the 3 types of economies?
3. Explain 2 types of businesses & which one you'd choose & why.
4. Give 1 definition of economics.
5. Graph:
Price
$0
$10
$20
$30
$40
Demand
100
75
50
25
0
Federalism & Economics
What is the relationship between national & state economies?
Employment
Part time employment-works less than 35 hrs a week
Full time employment- works 35 hours or more a week, usually receives some type of benefits

Unemployment Rate:
% of ppl without a job that are actively looking for one
https://www.google.com/publicdata/explore?ds=z1ebjpgk2654c1_&met_y=unemployment_rate&idim=country:US&fdim_y=seasonality:S&dl=en&hl=en&q=national%20unemployment%20rate
Which state should you move to to insure that you have a job? Why?
Which state should you NOT move to? Why?
Rural vs. Urban
http://www.bls.gov/web/laus/laumstrk.htm
major cities w/ large populations
low populated areas outside cities
Which one plays a larger role in our economy?
http://money.cnn.com/calculator/pf/cost-of-living/
Cost of Living
Warm Up
Graph:
Price
Quantity Demanded
Quantity Supplied
$0
$10
$15
$20
$25
40
30
20
10
0
0
10
20
30
40
a.) What is the equilibrium price & quantity?

b.) What happens if you set price at $10?

c.) What happens if you set price at $20?

d.) What would happen to price if demand increased? Draw a graph.

e.) What would happen to price if supply increased? Draw a graph.
Circular Flow of Economics
Households
Business firms
US Government
Banks
Foreign Sector
Warm Up
1. Who answers economic questions in a market economy? Command? Traditional?
2. What is an example of a product with inelastic demand? Elastic demand?
3. What are substitute goods? Compliments?
4. What is THE economic problem?
5. How can you increase productivity?
6. Review circular flow!
Demand 2
Income
Demand 2
Taste
Demand 2
Complement
Substitute
Demand 2
Tips for Remembering Demand:
R
ises = To the
R
ight
L
owers = To the
L
eft
elastic
inelastic
Supply 2
Production Costs
Supply 2
Exit of a Substitute
Supply 2
Technology
price
quantity
elastic
inelastic
goods & services
$$
$$ (wages/salary)
labor
tax $
services
tax $
services
$ (deposits)
$ (APR)
$ (APR)
Loans
Loans
$ (APR)
$ (deposits)
$ (APR)
EXPORTS
$$
IMPORTS
$$
Full transcript