Economics

Illustrate by means of a production possibilities curve the tradeoffs between two options.

(refer to Graphs on SSf2- letter A. Production Possibility Curves)

Define scarcity as a basic condition that exists when unlimited wants exceed limited productive resources.

Scarcity exists because human wants exceed the capacity of available resources. This basic problem of scarcity is faced by all individuals, organizations, businesses and governments.

Define productivity as the relationship of inputs to outputs.

The quantity of output per unit of input, an increase in productivity can be more goods and services created with the same amount of resources or the same amount of goods and services with less resources. More productive workers lead to a higher standard of living.

The student will explain why limited productive resources and unlimited wants result in scarcity, opportunity costs, and tradeoffs for individuals, businesses, and governments.

Wants are unlimited, the total resources of a society including natural resources, human resources, capital goods and entrepreneurship are limited resulting in scarcity. All wants cannot be filled, trade-offs are inevitable when deciding what to produce.

Explain that both parties gain as a result of voluntary, non-fraudulent exchange.

We don't make all of our electronic devices, countries do not make all of the goods and services they need. Specialization is the basis of trade and interdependence among individuals, businesses, cities, regions and countries. Wisconsin = dairy Florida = oranges.

Give examples of government regulation and deregulation and their effects on consumers and producers.

Comparing the expected costs of a new policy or a change in an existing policy to the expected benefits.

Give examples of how individuals and businesses specialize.

Division of Labor refers to the practice of dividing the work to make something into separate tasks. Workers become specialized in different tasks. We earn a living by doing tasks, taking our wages to purchase goods and services from other workers. Division of Labor and Specialization is the basis for an economy to exist. 3 benefits are doing it better, no time required to switch tasks, create more effective ways to do the task.

Evaluate how well each type of system answers the three economic questions and meets the broad social and economic goals of freedom, security, equity, growth, efficiency, and stability.

Economic Freedom - freedom of choice by consumers and producers. Economic Security - protection against some risks as consumers and producers Economic Equity - Fairness? Right or wrong? Equal opportunity? Equal distribution of wealth and income? Economic Growth - an increase in the production of goods and services over time, measured by real GDP, 3 to 4 % is a reasonable and sustainable yearly growth rate. Economic Efficiency - allocation of resources so that no one is hurt at the expense of someone else gaining, lower costs to produce. Economic Stability - maintain stable prices, full employment and economic growth

Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs.

Economic decisions are made on the basis of comparing marginal costs and marginal benefits. There are not many all or none decisions. Almost all decisions are marginal, we don't typically make a decision between studying all day or watching TV all day, we choose between studying a little more and watching a little less TV or vice versa.

Compare command, market, and mixed economic systems with regard to private ownership, profit motive, consumer sovereignty, competition, and government regulation.

Economic systems are characterized by how they answer the three basic economic questions Command (centralized) Economy - the issues of production and distribution are resolved through central planning and control Market (decentralized) Economy - market prices are determined by consumers and producers, all pursuing their own self-interest. Mixed Economy - there are no pure market or command economies, most economies today contain both command and market characteristics Profit Motive - the desire to make money causes people to work hard to produce goods and services. Consumer Sovereignty - people are free to choose without government interference or regulation Competition - consumers compete with other consumers for goods and services, producers compete with other producers for consumers. Governmental Regulation - the government intervention in the decisions of consumer and producers in the market.

The student will compare and contrast different economic systems and explain how they answer the three basic economic questions of what to produce, how to produce, and for whom to produce.

Every society must contend with the problem of scarcity. Every society, regardless of its political structure, must develop an economic system to determine how to use its limited productive resources to answer the three basic economic questions. What goods and services will be produced? How will goods and services be produced? Who will consume the goods and services? The way a society answers these questions determines its economic system. Three types of economic systems exist to answer these questions. Traditional - In a traditional economy, economic decisions are based on custom and historical precedent. Command - In a centralized command economy, government planning groups make the basic economic decisions. They determine such things as which goods and services to produce, their prices, and wage rates. Market - In a decentralized market economy, economic decisions are guided by the changes in prices that occur as individual buyers and sellers interact in the market place (which it is also referred to as a price system). Other names for market systems are free enterprise, capitalism, and laissez-faire.

The student will describe the roles of government in a market economy.

Government establishes the rules of the game, gov't involved in the market, public goods, gov't as a business (national defense), environmental concerns, monetary system.

Give examples of how investment in education can lead to a higher standard of living. (Graph on pg 14)

High investments in education, physical and human capital equals higher productivity, low inflation, political stability and free trade.

Give illustrations of investment in equipment and technology and explain their relationship to economic growth. (also a graph on page 13)

Improvements in education, experience, skill level of the workforce (human capital), greater amounts of physical capital, improved technology.

Define and give examples of productive resources (factors of production) (e.g., land (natural), labor (human), capital (capital goods), entrepreneurship).

Land = natural resources; Labor = people with their education, skills and abilities; Capital = the goods and services used to make other consumer goods and services; Entrepreneurs = individuals who take the risk and combine the productive resources (factors of production) to produce goods and services and profit by selling these to consumers.

Define opportunity cost as the next best alternative given up when individuals, businesses, and governments confront scarcity by making choices.

Opportunity cost is what you give up to obtain something else, one good or service for another. Governments often have to decide on one good or service at the expense of another. Trade-off is giving up one benefit or advantage in order to gain another one that may be better.

Explain why government provides public goods and services, redistributes income, protects property rights, and resolves market failures.

Public Goods and Services - Those goods and services that cannot be easily be restricted to those who pay for them. Shared consumption and non-exclusion determine what a public good is. Income Redistribution - The re-allocation of wealth and income, 3/4ths of national income is wages. Property Rights - legal ownership of resources, government's role is to protect property rights. Market Failures - private police or military, imperfect information in the market, pollution costs.

C - List a variety of strategies for allocating scarce resources (this definition is actually super lengthy)

Supply and Demand (Prices/Auction): This allocation strategy allows rationing of a resource based on who can afford the price set by the market. The more desirable and relatively scarce the item, generally, the higher the price. This method is efficient because one can easily tell whether or not the resource can be allocated based on their willingness and ability to pay the price. However, this method will exclude people from markets if they lack the money to pay the price. • Authority: This allocation strategy allows for quick action because a person or a group of people in power can make and implement the decision quickly. In countries where the government makes and carries out decisions by force, economic changes can happen quickly because the government decides how to distribute resources and enforces the decision through military/police power. • Random Selection (Lottery): This allocation strategy can be handled quickly and gives everyone who wants the resource equal odds of receiving it. This strategy can be inefficient because it may allocate the resource to a purpose or person who does not need it or know how to produce using it. If the government randomly selects individuals to receive farmland, the land may go to someone who has no knowledge of farming techniques and the resource maybe underutilized. • First Come, First Served: This allocation strategy allows people to receive a resource if they are the first one in line for it. Many concert and sporting events use this method in addition to price. Rather than set all prices extremely high because there are people willing to pay it, many events offer lower price tickets so that all fans will have a chance of purchasing an affordable ticket. This can be an inefficient strategy because fans will spend time they could have used at work or school to camp out at the ticket window or endlessly refresh their online browser as the ticket outlet's servers are overwhelmed. • Personal Characteristic: This allocation strategy allows resources to be distributed based on need or merit. Ideally, the person who gets the scholarship or the job is the one best qualified for it. However, personal characteristics can also be used negatively such as when one does not get a job due to discrimination against a personal characteristic of the individual. • Contest: This allocation strategy can distribute the resource to the person who wins. The "winning" could be based on running a race (who is fastest), in academics (valedictorian has the highest GPA), or in a test of knowledge/skill (Jeopardy contestant or chess champion). This strategy can be inefficient on a day to day basis. You don't want to run a race to see who gets the last slice of pizza in the cafeteria. It would take too long.

The student will give examples of how rational decision making entails comparing the marginal benefits and the marginal costs of an action.

We make choices to satisfy needs or to seek happiness! We look at the options, compare costs, benefits, and the trade-offs involved with each choice and reach a decision. Marginal Cost = the additional cost of producing one more unit. Marginal Benefit = the additional satisfaction or utility of consuming one more unit.