Economics Unit Consumer Economics

Unit Overview I.Types of Economic Systems II.Microeconomics III.Macroeconomics

I. Types of Economic Systems Traditional Decisions based on traditional customs and beliefs Rare today Command Decisions made by central government Market Decisions made by individuals in their self-interest Mixed Combination of command and market systems

II. Microeconomics Competition Encourages efficient use of resources Consumers benefit - low prices and improvements Supply and Demand (video)video Central relationship to all economic theory Demand and supply curve components Price Quantity Equilibrium Monopoly Single company controls supply of a good/service Illegal except in certain situations

Microeconomics (cont’d) Law of Scarcity Not enough resources to satisfy all wants Societies must make choices (opportunity costs) Economic Resources (Factors of Production) Land Labor Capital Entrepreneurship Technology

III. Macroeconomics Measuring the Economy Market Conditions Government & its Effect on the Economy International Trade

Macroeconomics – Measuring the Economy Standard of Living Measured by kinds and quality of goods and services you can afford Consumer Price Index (CPI) Measures change in prices of goods and services over time Base year = 1982 (100) Nov, 2010 CPI = (what does that mean?) Gross Domestic Product (GDP) Total dollar value of all goods & services produced in one country during one year U.S. GDP (2010) = $14,660,000,000,000 (link)link

Macroeconomics – Market Conditions (6.1) Recession Period of economic decline (usually 6-12 months) Producers produce more than public can consume Profits decrease, people laid off & buy less Depression What a recession can turn into Longer lasting and more devastating Prices plummet, businesses fail, unemployment soars Inflation Prices increase too quickly for consumers Wages/income don’t increase proportionately

Macroeconomics – Government & its Effect on the Economy Fiscal/Monetary Policy VideoVideo Fiscal Policy - Government adjusts taxes or spending to assist the economy Monetary Policy – Government adjusts amount of money in circulation to assist the economy Federal Reserve System Main function is to set monetary policy VideoVideo Comprised of 12 districts (Chicago is one) VideoVideo Current Chairman of the Fed is Ben Bernanke Federal Reserve Operations Sets Reserve Requirement for banks-% of money banks deposit that must be kept on hand (link)link Discount Rate – Interest Rate % the banks pay to the Fed to borrow money Federal Funds Rate – Interest Rate at which banks lend money to one another

Macroeconomics – Government & its Effect on the Economy Federal Reserve Operations (cont’d) Open Market Operations – Most frequently used tool by the Fed Reserve to control the supply of money through securities BUY securities = more money in circulation SELL securities = less money in circulation Securities are guaranteed by the U.S. Government and exempt from state and local income taxes

Macroeconomics – Government & its Effect on the Economy Federal Reserve Operations (cont’d) Securities Include: Treasury Bills issued at a discount & repaid value at final maturity Shortest maturation 91, 182, or 364 days 10,000 minimum investment Treasury Notes mature 2-10 yrs./$1,000 minimum/most sold in $5,000 denominations Treasury Bonds mature 10+ yrs./denominations include: $1,000, $5,000, $10,000, $100,000 and $1,000,000/sensitive to int. rate change

Microeconomics Opportunity Cost The value of giving up one choice for another (after school job vs. playing sports) Wants/Needs Wants– items you desire but don’t need to live Needs– items essential to survival (food, water, clothes, shelter) Some items may be either (car, money, sunglasses)

Anti-trust Laws Designed to promote competition and the economy Sherman Antitrust Act prohibits monopolies Clayton Antitrust Act prohibits price fixing and unfair trade FTC was created in 1914

Macroeconomics – International Trade Import/Export Import - goods or services (examples?) brought into a country for sale Why not make our own? Export – goods or services (examples?) sent to a foreign country for sale there Trade Deficit/Surplus U.S. has been running a deficit since 1977 Current (June 2015) U.S. trade deficit: $43.8 billion Why do some people think a deficit is good?

Macroeconomics – International Trade (cont’d) Trade Agreements Used to expand trade opportunities with other countries Can be helpful but also hurtful to American workers (why?) NAFTA (North American Free Trade Agreement) (link)link Eliminates barriers between U.S., Canada, and Mexico Implemented in 1994 Has created the world’s largest free trade area Why are many Americans against NAFTA? EU (European Union) (link)link Over two dozen countries in Europe with no trade barriers Common currency is the euro