MONEY

Why do we need money? ► Key Economic Concepts: ► Barter ► Exchange ► Markets ► Price

► Task: Make a list of things you would like to sell on Ebay. ► Think about your room at home:  Are there items in their closet that you never use?  Have your parents been telling you to "get rid of that..."?

► Next make a list of things you would like to buy on Ebay--using the proceeds from the sale of the items you have listed above. Barter

► Barter depends on a "double coincidence of wants." ► It only works when one trader is willing to exchange his product for something the other trader has and the second trader wants what the first trader has. Barter

Barter ► The barter system can work when there are limited goods for sale;

Barter ► However, as economies developed and people had more goods to trade (ceramics, beads, arrows, bows, etc.), finding a good to trade became more difficult. ?

Barter ► Barter also requires that an exchange rate be set. = =1.56

Conclusion: ► Money is important in an economy. Transactions for goods and services are very difficult to complete without money that serves as: 1. A medium of exchange 2. A unit of account 3. A store of value.

► Finally, setup a marketplace for these goods in your classroom. ► There is no money in this economy. ► Draw pictures of these items onto the paper sheets provided. paper sheets paper sheets ► Then use them for the activity. Market Place - Activity

► In this activity everything must be purchased via barter and trade. The buyers and sellers will have to work out prices between them. Eg if one student wants a new video game that another student is selling, and the prospective buyer is offering old baseball cards, the buyer and seller will have to decide how many cards must be exchanged for one video game. Market Place - Activity

► Back in the real world, as people developed more and more goods and trade became more difficult, buyers and sellers began to use certain goods for money. ► If a trader could not find a good that he or she wanted personally, some good with market value could be accepted instead.

► Examples might be corn, salt (among the Romans), gold or wampum (polished strings of shells used in Colonial America). ► A doctor who is hungry might want to exchange his or her medical services to a farmer for food

► But if the farmer is feeling fine and has no need for the doctor's medical services, what would make that farmer want to give up his food?

► This is where money becomes useful. In the example of the doctor and farmer, the doctor could simply give the farmer money instead of medical services. The farmer would accept money more readily than the doctor's services because money is always valuable.

► In order to be useful, money must satisfy three important functions: 1.It must serve as a medium of exchange. In other words, it must be generally accepted as a means of payment by all parties. Did you ever wonder why a restaurant owner is willing to give you a pizza for a piece of paper with a picture on it? Money

2. It must serve as a unit of account. In other words, it must provide a common unit for measuring the value of every good and service. This allows those who are selling to set prices. Money

3. It must serve as a store of value. In other words, it must retain its purchasing power over time. People do not want to make purchases every time they sell something. You can see that items like corn, or other goods that spoil, are not very good substitutes for money because they cannot function as a store of value. Money

► In your opinion would the in-school market be better if the buyers and sellers could use money in their transactions.  Explain your answers. ► Would the market have been more efficient with money?

► In the earlier periods of history, families produced all they consumed and consumed all they produced. There was no need for money. But this changed once began to specialize. Specialization

Specialization ► When some people became hunters and others became farmers, for example, they often made transactions by trading or bartering. This was relatively simple at first because the number of goods being traded was so limited.

► For instance, a farmer might want some meat for his family and a hunter might want vegetables for his family. The most logical means for both men to obtain what they want is to trade what they have. Specialization

► The hunter gives the farmer part of animal he just hunted and in return the farmer gives the hunter a basket full of fruit & vegetables. ► But the barter system has flaws. Specialization

► A monopoly is defined as a persistent market situation where there is only one provider of a product or service, in other words a firm that has no competitors in its industry. Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods. market competitiongoodservice substitute goods market competitiongoodservice substitute goods Monopoly

► An oligopoly is a market form in which a market or industry is dominated by a small number of sellers market formmarketindustrymarket formmarketindustry Oligopoly

Economic equilibrium is simply a state of the world where economic forces are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change Economic Equilibrium

*P - price *Q - quantity of good *S - supply *D - demand *P0 - price of market balance *A - surplus of demand - when P P0 Price of Market Balance

Supply and Demand Model ► The price P of a product is determined by a balance between production at each price (supply S) and the desires of those with purchasing power at each price (demand D). The graph depicts an increase in demand from D1 to D2, along with a consequent increase in price and quantity Q sold of the product. purchasing power purchasing power

A cartel is a formal (explicit) agreement among firms. Cartels usually occur in an, where there are a small number of sellers and usually involve the same or similar products. Cartel members may agree on such matters as: ► price fixing, price fixing price fixing ► total industry output, ► market shares, market shares market shares Cartel

Cartel ► allocation of customers, ► allocation of territories, ► bid rigging, bid rigging bid rigging ► establishment of common sales agencies,

Cartel ► and the division of profits or combination of these. ► The aim of such collusion is to increase individual member's profits by reducing competition. collusionprofitscollusionprofits ► Competition laws forbid cartels. Competition laws Competition laws