Unit 1 academic basic economics


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Unit 1 academic basic economics

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