CHAPTER 5 Pump Primer List the four primary economic goals of most nations

CHAPTER 5 What Is the Economic Problem?

CHAPTER 5 Objectives Identify the economic problem List the four primary economic goals of most nations List the three critical economic questions Explain the command and market solutions to each of the three economic questions Describe the egalitarian and libertarian concepts of fairness Explain the biblical principles that apply to the distribution question

CHAPTER 5 Biblical Integration Christians should use the whole Word of God as the standard by which to evaluate all economic issues(welfare, poverty, corrupt government, etc) Scripture does give way to generate personal income. societies need to employ a variety of strategies to motivate its lazy members to become productive. (Prov. 10:4; 12:27; 22:29)

The Economic Problem of a Society how best to accomplish its economic goalshow best to accomplish its economic goals pp CHAPTER 5

National Economic Goals 1.A low level of unemployment benefits society and individualsbenefits society and individuals 2.A stable price level less disruption in economiesless disruption in economies pp CHAPTER 5

National Economic Goals 3.A healthy rate of economic growth economic growth: an increase in the quantity of goods and services a nation can produceeconomic growth: an increase in the quantity of goods and services a nation can produce 1.extensive growth: using more land, labor, and financial capital pp CHAPTER 5

National Economic Goals 3.A healthy rate of economic growth economic growth: an increase in the quantity of goods and services a nation can produceeconomic growth: an increase in the quantity of goods and services a nation can produce 2.intensive growth: using existing factors of production with greater efficiency pp CHAPTER 5

National Economic Goals 4.A fair distribution of income continual problemcontinual problem income distributionincome distribution income equality: same returns for everyoneincome equality: same returns for everyone “safety net”: same limited benefits for everyone“safety net”: same limited benefits for everyone pp CHAPTER 5

National Economic Goals 4.A fair distribution of income continual problemcontinual problem income distributionincome distribution market distribution: returns based on personal inputmarket distribution: returns based on personal input pp CHAPTER 5

p. 88 CHAPTER 5

Economic System imposes commands from some central authorityimposes commands from some central authority allows the free market to workallows the free market to work pp CHAPTER 5

Three Economic Questions 1.The output question: What will the nation produce? 2.The input question: How will the nation produce its goods? 3.The distribution question: Who will receive what the nation produces? pp CHAPTER 5

1. The Output Question What will the nation produce?What will the nation produce? cannot produce everything that is wantedcannot produce everything that is wanted pp CHAPTER 5

Types of Goods consumer goods: purchased for personal useconsumer goods: purchased for personal use capital goods: used to produce consumer goodscapital goods: used to produce consumer goods pp CHAPTER 5

1. The Output Question What will the nation produce?What will the nation produce? cannot produce everything that is wantedcannot produce everything that is wanted consumer goods/capital goods tradeoffconsumer goods/capital goods tradeoff combination productioncombination production spending vs. savingspending vs. saving pp CHAPTER 5

The Command Economy a powerful individual or a committee decides the proportion of consumer goods to capital goods and the specific items it will manufacturea powerful individual or a committee decides the proportion of consumer goods to capital goods and the specific items it will manufacture decisions = too important to be left to the whims of the marketdecisions = too important to be left to the whims of the market pp CHAPTER 5

p. 90 CHAPTER 5

Critics of the Command Economy 1.If the market leads individuals to make wrong choices about spending and saving and if those choices produce undesirable results, would a central committee’s making similar wrong choices not equally cause similar negative consequences? pp CHAPTER 5

Critics of the Command Economy 2.Is it morally justifiable to punish someone for saving or spending more of his own income than the government allows? pp CHAPTER 5

Critics of the Command Economy 3.If a government encourages too much consumer spending, would it not risk having the nation’s factories and equipment falling into disrepair as spending on real capital declines? pp CHAPTER 5

The Market Economy natural adjustment of capital and consumer spendingnatural adjustment of capital and consumer spending based on economic laws designed by Godbased on economic laws designed by God pp CHAPTER 5

2. The Input Question How will the nation produce its goods?How will the nation produce its goods? Should a business firm use a greater amount of either human labor or capital goods in its production process?Should a business firm use a greater amount of either human labor or capital goods in its production process? pp CHAPTER 5

Types of Businesses labor intensive: mostly human laborlabor intensive: mostly human labor capital intensive: more automated equipmentcapital intensive: more automated equipment pp CHAPTER 5

Labor Intensive human labor is trainable and versatilehuman labor is trainable and versatile remain more flexible to meet changes in demandremain more flexible to meet changes in demand contributes to a lower unemployment ratecontributes to a lower unemployment rate pp CHAPTER 5

Capital Intensive no large payrolls and pay smaller hidden costsno large payrolls and pay smaller hidden costs not as significant a threat of union agitation or labor unrestnot as significant a threat of union agitation or labor unrest assured of nearly constant rate of productivityassured of nearly constant rate of productivity pp CHAPTER 5

2. The Input Question How will the nation produce its goods?How will the nation produce its goods? Should a business firm use a greater amount of either human labor or capital goods in its production process?Should a business firm use a greater amount of either human labor or capital goods in its production process? right combinationright combination pp CHAPTER 5

The Command Economy proportion decided by central authorityproportion decided by central authority pp CHAPTER 5

The Market Economy proportion decided by each business firmproportion decided by each business firm considers production costsconsiders production costs pp CHAPTER 5

3. The Distribution Question Who will receive what the nation produces?Who will receive what the nation produces? most debated questionmost debated question pp CHAPTER 5

The Command Economy close the gap between rich and poorclose the gap between rich and poor egalitarian fairness: each person in a nation has a right to a part of that nation’s wealth simply because he is part of the human raceegalitarian fairness: each person in a nation has a right to a part of that nation’s wealth simply because he is part of the human race pp CHAPTER 5

The Command Economy close the gap between rich and poorclose the gap between rich and poor economic leveling: equally distributing the nation’s pool of wealth to all its citizens regardless of what any individual has contributed to the pooleconomic leveling: equally distributing the nation’s pool of wealth to all its citizens regardless of what any individual has contributed to the pool pp CHAPTER 5

The Command Economy close the gap between rich and poorclose the gap between rich and poor “safety net”: protects the poor from the devastating effects of economic hardships“safety net”: protects the poor from the devastating effects of economic hardships pp CHAPTER 5

pp CHAPTER 5 Winston Churchill “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”

The Market Economy a nation should distribute its wealth solely to those who successfully satisfy the needs of othersa nation should distribute its wealth solely to those who successfully satisfy the needs of others libertarian fairness: only economic right for citizens is to own and use property free of government interferencelibertarian fairness: only economic right for citizens is to own and use property free of government interference pp CHAPTER 5

Advantages to the Market Solutions 1.freedom 2.efficiency 3.stability pp CHAPTER 5

The Biblical Perspective individual labor = primary means of incomeindividual labor = primary means of income economic leveling = wrongeconomic leveling = wrong God’s people = responsible to help those unable to care for themselvesGod’s people = responsible to help those unable to care for themselves pp CHAPTER 5

ACTIVITY: WHY ARE SOME NATIONS WEALTHY? The contentious debate on globalization often centers on why some nations are rich and others remain in poverty. The contentious debate on globalization often centers on why some nations are rich and others remain in poverty. A nation’s wealth affects the standard of living of its citizens.A nation’s wealth affects the standard of living of its citizens. (Capestone: Exemplary Lessons for High School Economics. National Council on Economic Education. New York, NY: Unit 7 Lesson 43.)

The key to economic prosperity is long-term economic growth.The key to economic prosperity is long-term economic growth. What explains the difference among nations in long-term economic growth?What explains the difference among nations in long-term economic growth? Economists have identified keys to economic growth; they include technological innovation, investment in physical and human capital, low inflation, political stability, and a decentralized market economy.Economists have identified keys to economic growth; they include technological innovation, investment in physical and human capital, low inflation, political stability, and a decentralized market economy.

The anti-globalization movement is a major threat to world prosperity. The anti-globalization movement is a major threat to world prosperity. According to Steven Landsburg – “the particular responses endorsed by the anti-globalization crowd—kick back, relax, keep your environment clean and don’t worry so much about where your next meal is coming from—are responses that have never worked well for poor people in the U.S. or anywhere else.”According to Steven Landsburg – “the particular responses endorsed by the anti-globalization crowd—kick back, relax, keep your environment clean and don’t worry so much about where your next meal is coming from—are responses that have never worked well for poor people in the U.S. or anywhere else.”

The way to achieve economic growth is to create incentives to save, invest, and innovate. The way to achieve economic growth is to create incentives to save, invest, and innovate. Every year the Heritage Foundation and The Wall Street Journal publish the “Index of Economic Freedom.” Every year the Heritage Foundation and The Wall Street Journal publish the “Index of Economic Freedom.” Every year the findings are similar. Countries with most economic freedom (low taxes, less government regulations, sound monetary policy, protection of property rights, decentralized markets) also have the highest rates of economic growth. Every year the findings are similar. Countries with most economic freedom (low taxes, less government regulations, sound monetary policy, protection of property rights, decentralized markets) also have the highest rates of economic growth.

RICH NATION/POOR NATION Part 1: You are secret agents assigned to find out if a county is rich or poor. From the information provided, identify each of he five countries listed. Part 1: You are secret agents assigned to find out if a county is rich or poor. From the information provided, identify each of he five countries listed. Write down the country’s name opposite each bold-face heading.Write down the country’s name opposite each bold-face heading. Then, rank them from the richest country to the poorest country in Part 2.Then, rank them from the richest country to the poorest country in Part 2.

MYSTERY NATIONS Singapore Per capita GDP: $26,500 Population: 4,300,419 Japan Per capita GDP: $24,900 Population: 126,771,6662 Nigeria Per capita GDP: $ 950 Population: 126,635,626 Russia Per capita GDP: $7700 Population: 145,471,197 Argentina Per capita GDP: $ 12,900 Population: 37,384,816

RICHEST TO POOREST COUNTRY 1. 1.Country ESingapore 2. 2.Country BJapan 3. 3.Country AArgentina 4. 4.Country DRussia 5. 5.Country CNigeria