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Unit 1 academic basic economics


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  • 1. Basic Economics - Academic Unit One
  • 2. I. What is Economics?
  • 3. A. Study of Choice
    • All decisions involve choices
    • Resources are finite or limited.
    • Human needs and wants are unlimited.
    • Needs – necessities (water, food)
    • Wants – luxuries, things not needed.
    • Scarce – when there is a limited amount of an item.
    • Shortage – a sudden shortfall of a product.
  • 4. B. Decisions
    • Trade offs – always two or more options in our choices.
    • Costs – What is given up when making a decision.
  • 5. C. National
    • Guns and Butter
    • Guns = Military spending
    • Butter = Domestic Spending
      • Social Security
      • Medicare
      • Medicaid
      • Social Security
  • 6.
    • 4. Presidential Decisions
      • FDR
        • Great Depression
        • WWII
      • LBJ
        • Great Society
        • Vietnam
      • GWB
        • No Child Left Behind
        • Tax Cuts
        • War on Terror
  • 7. 5. Production Possibilities Curve
    • A graph that shows alternative ways to use an economy’s resources.
    • Efficiency – Using resources to maximize production of goods and services.
    • Underutilization – Using fewer resources than an economy is capable of using.
    • Examples:
      • Cost – To an economist, countries give up on ideas, products.
      • Law of Increasing Costs –Cost of producing the second item increases.
  • 8. D. Individuals
    • Entrepreneurs use the Factors of Production
      • Land
      • Labor
      • Capital
        • Physical Capital - All human-made goods
        • Human Capital – The skills and knowledge gained by a worker through education and experience.
    • Thinking at the Margin – taking into consideration the consumption of one more unit.
  • 9. II. Different Economies
  • 10. A. Answering the Three Economic Questions
    • What goods and services should be produced?
    • How should goods and services be produced?
    • Who consumes goods and services?
    • Who and how these questions are decided is one of the most significant questions in economics.
  • 11. B. Economic Goals and Societal Values
    • Economic Efficiency- Societies attempt to produce most out of their resources.
    • Economic Freedom- Unlimited choices.
    • Patriotism- The love of one’s country
    • Many feel the USA should ensure economic freedom.
    • Instead of economic or political freedoms, China favors freedom from poverty instead.
  • 12. C. Economics and Values
    • Traditional Economy –relies on habit, custom, or ritual,
      • Slow to change, but evolve into other economies.
      • These rely on bartering, are inefficient.
    • Market Economy –production and consumption are based on exchanges people make.
    • Command Economy – central authority is in control (Moscow in Soviet Union).
  • 13. D. Adam Smith Wealth of Nations
    • Thought self-incentives like profit motivated people.
    • Companies work to provide best product and lowest price to beat competitors.
    • Marketplace automatically fixes itself – principle known as invisible hand.
    • Government should stay out of economy – policy known as laissez faire.
  • 14. E. Marx & The Communist Manifesto
    • Marx & Engels (his co-author) had the following ideas about people & their delusions: They…
      • are greedy
      • Want things like TV, cars, big houses (materialism).
      • Were power hungry (rich controlled poor).
      • Used religion, alcohol, drugs -to relieve themselves of reality.
    • Society was to evolve –
      • Workers (proletariat) were to revolt against the rich (bourgeois) & take over government, means of production.
      • Socialist society evolves - people distribute wealth evenly & no more oppression.
      • Eventually people would not be greedy and no longer need government, live in harmony, in a communist state.
      • PROBLEM - Dictators can take over easily & create an authoritarian regime.
  • 15. F. John Maynard Keynes
    • The General Theory of Employment, Interest, and Money
    • Reduction in interest rates
    • Government should invest in economy, especially in infrastructure.
    • Saving instead of spending will encourage recession or depressions.
  • 16. F. Modern Economics and Mixed Economies
    • Countries slide on economic continuum that ranges from command to free.
    • China is now involved in a transition period to move toward privatization (free).
    • Most nations strive to become as free as possible and let decisions be made in the private sector.
    • The USA is also privatizing (more businesses, less regulations.)
  • 17. G. Modern China
    • 1,321,851,888, GDP:$7.043 trillion
    • Premier WEN Jiabao, Beijing
    • 1978 leadership moved economy-centrally planned economy to more market-oriented system.
    • Strict Communist control
    • Influence of non-state organizations and individual citizens has been steadily increasing.
    • Household and village responsibility in agriculture in place of collectivization
    • Increased the authority of local officials and plant managers in industry
    • Wide variety of small-scale enterprises
    • Opened the economy to increased foreign trade and investment.
    • Quadrupling of GDP since 1978.
    • China in 2003 stood as the second-largest economy in the world after the US
    • Per capita terms the country is still poor.
    • Worst results of
      • Socialism (bureaucracy and lassitude)
      • Capitalism (growing income disparities and rising unemployment).
    • Government has struggled to
      • Sustain adequate jobs growth for tens of millions of workers laid off from state-owned enterprises
      • New entrants to the work force;
      • Reduce corruption and other economic crimes
      • Keep afloat the large state-owned enterprises -shielded from competition by subsidies
    • From 80 to 120 million surplus rural workers are adrift
    • Lose arable land because of erosion and economic development.
  • 18. H. North Korea
    • 23,301,725 population, GDP $40 billion
    • KIM Jong Il
    • Pyongyang
    • One of the world's most centrally planned and isolated economies
    • Underinvestment
    • Spare parts shortages.
    • Nation has suffered years of food shortages because of a lack of arable land, collective farming, weather-related problems, and chronic shortages of fertilizer and fuel.
    • Large-scale military spending eats up resources needed for investment and civilian consumption.
    • Black market prices continued to rise following the increase in official prices and wages in the summer of 2002
    • Relaxed restrictions on farmers' market activities in spring 2003, leading to an expansion of market activity.
  • 19. III. American Economy
  • 20. A. Free Enterprise, Yesterday and Today
    • America’s birth was marked by wishes for new freedoms and less taxes.
    • Most politicians believed in laissez faire.
    • Government needed little revenue and gained it through tariffs, land sales, etc.
    • Few government programs.
    • Unregulated industry led to massive growth, but heavy negative externalities.
      • Pollution
      • Slums
      • Deep cutting depressions.
      • Bank closings
      • Economic panics.
    • Great Depression – FDR takes on Keynesian Economics.
    • Ronald Reagan – Decides taxes are too high and there is too many regulations that stifles business.
    • Supply side economics – Taxes need to be at a moderate amount.
    • Deregulation begins.
    • Laffer Curve – demonstrates that when taxes are too high or low, governamne will bring in little revenue.
  • 21.  
  • 22. 8. When the government should get involved…
    • a. Over time problems have to be met by solutions from the gov’t. Follows these steps:
      • Market failure: something the private sector cannot do.
      • Public interest –people are concerned and want gov’t to intervene if the economy cannot provide.
      • Public policy –Government responds to public interests with laws.
      • Interest groups lobby politicians, or give them ideas.
      • Examples:
        • Healthcare – unfulfilled.
        • Transportation – to big for companies.
        • Water and sewage – to big and important for a company.
    • Must restrain negative externalities such as : Coal burning power plants = exhaust that may harm breathing – Government responds with pollution laws.
  • 23. B. Providing Public Goods
    • Cost of public goods is spread more evenly.
    • The cost would be higher if it were provided privately.
    • These generally benefit society as a whole.
  • 24. C. Tracking Our Successful Economy
    • Macroeconomics/Microeconomics = Big/Small
    • Gross Domestic Product – Income of a whole nation.
    • Business Cycle – Expansion and contraction.
    • Technology –Anything used to help produce (biggest advantage for USA) has.