1. Unit 1: Basic Economic Concepts

2. Scarcity Means There Is Not Enough For Everyone
Government must step in to help allocate (distribute) resources
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3. 10 students need to get off the bus
Scarcity Bus Ride
Scenario:
A group of 40 college students get on a bus to go to a dance 30 miles away.
Shortly after leaving, the bus finds that it is too heavy to go over a large hill
10 students need to get off the bus
You and your partner need to find 5 different ways to decide who should get off the bus.
Are any of the solutions fair?
How are resources allocated in communism?
How are resources allocated in capitalism?
What role do prices play in capitalism?
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4. The Three Economic Questions
Every society must answer three questions:
The Three Economic Questions
What goods and services should be produced?
How should these goods and services be produced?
Who consumes these goods and services?
The way these questions are answered determines the economic system
An economic system is the method used by a society to produce and distribute goods and services.
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5. Economic Systems Traditional Economy
Centrally-Planned (Command) Economy
Free Market Economy
Mixed Economy
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6. Traditional Economies
What, how and for whom to produce are answered by ritual, habits, customs.
Communal living, little private property
Children work the same jobs parents worked, often farming or hunter/gatherer
Fear Change!
Tribal Societies Across the world
Ex. Eskimos, the Amish, Pigmies, Bush People.

7. Traditional Economies
Advantages Disadvantages
Methods Work Subsistence living
Everyone knows Role Low standard of living
Discourages new ideas
Never changes

8. Time to Get Creative!!!!!
Describe what each of the following would look like in a traditional economy
Waking up in the morning
You and your friends hangout in the afternoon
Going to get food for dinner

9. Centrally-Planned Economies
(aka Communism)
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10. Centrally Planned Economies
In a centrally planned economy (communism) the government…
owns all the resources.
answers the three economic questions
Examples:
Cuba, North Korea, former Soviet Union, and China?
Why do centrally planned economies face problems of poor-quality goods, shortages, and unhappy citizens?
Little incentive to work harder and central planners have a hard time predicting preferences
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11. Advantages and Disadvantages
What is GOOD about Communism?
What is BAD about Communism?
Low unemployment-everyone has a job
Great Job Security-the government doesn’t go out of business
Equal incomes means no extremely poor people
Free Health Care
No incentive to work harder
No incentive to innovate or come up with good ideas
No Competition keeps quality of goods poor.
Corrupt leaders
Few individual freedoms
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13. Write down all the words that fit with Command Economies
Lots of Choices government housing
Economic freedom Karl Marx
Merit Pay Joseph Stalin Cuba
Incentives to work Basic needs met
Get what you need Slow to change
No Technology Equal distribution of Wealth
Happy Consumers Government control
Private Property Fast to change
Day to day flexibility Central Planning
North Korea Tribes Adam Smith

14. Free Market System
(aka Capitalism)
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15. Free Market Economy
Economic questions are answered by individual buyers and sellers.
Supply and demand influence economy
People act out of self interest; motive for profit (money) drives the economy
Also known as FREE ENTERPRISE or CAPITALISM
Ex. The United States, Western Europe, Japan

16. Characteristics of Free Market
Little government involvement in the economy. (Laissez Faire = Let it be)
Individuals OWN resources and answer the three economic questions.
The opportunity to make PROFIT gives people INCENTIVE to produce quality items efficiently.
Wide variety of goods available to consumers.
Competition and Self-Interest work together to regulate the economy (keep prices down and quality up).
Reword for Communism
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17. Example of Free Market
Example of how the free market regulates itself:
If consumers want smartphones and only one company is making them…
Other businesses have the INCENTIVE to start making smartphones to earn PROFIT.
This leads to more COMPETITION….
Which means lower prices, better quality, and more product variety.
We produce the goods and services that society wants because “resources follow profits”.
The End Result: Most efficient production of the goods that consumers want, produced at the lowest prices and the highest quality.
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18. Example of Central Planners
Example of why communism failed:
If consumers want smartphones and only one company is making them…
Other businesses CANNOT start making computers.
There is NO COMPETITION….
Which means higher prices, lower quality, and less product variety.
More phones will not be made until the government decides to create a new factory.
The End Result: There is a shortage of goods that consumers want, produced at the highest prices and the lowest quality.
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19. Mixed ECONOMY
Mixed Economy: No economy is pure market, pure command or pure traditional, elements of each appear in all economies, some have more elements of one economy than another.
While the United States is mostly a free market economy, it does have elements of a command economy.

20. Features of American Free Market Economy
Economic Freedom: individuals have the right to choose
Competition: more than one producer of good/services insures choice
Private Property: individuals have the right to own their own property, including business

21. Features of American Free Market Economy (cont)
Self-Interest: individuals make decisions based on what is best for them
Voluntary Exchange: individuals may freely buy and sell goods
Profit Motive: individuals are driven by a desire to profit (make money)

22. Features of American Command Economy
Government regulation of some business practices
Ex. Wages, labor hours, safety practice.
Government limits certain choices
Ex. Cannot buy or produce certain goods/services
Government provides aid to the needy
Ex. Medicare, Medicaid, welfare

23. My Pizzeria
How would my pizzeria function under different economic systems?

24. How would my pizzeria function under different economic systems
How would my pizzeria function under different economic systems? My Pizzeria in a Free Market
I answer the basic economic questions!
I determine how much cheese and pepperoni goes on the pizza
I determine the quality of the cheese and pepperoni
I set my employees wages
I set my business hours

25. How would my pizzeria function under different economic systems
How would my pizzeria function under different economic systems? My Pizzeria in a Command Economy
The government answers the basic economic questions
The government sets the amount of cheese and pepperoni on each pizza
The government determines quality of cheese and pepperoni
The government sets employees wages
The government sets business hours
Problem: What does the government know about pizza?

26. How would my pizzeria function under different economic systems
How would my pizzeria function under different economic systems? My Pizzeria in a Mixed Economy
The Government and I both answer the basic economic questions
I determine the amount of cheese and pepperoni on the pizzas; government determines the quality of cheese and pizza
I set employee wages; government sets minimum wage for employees
I determine business hours; government determines whether I am safe to be open or not

27. The Invisible Hand
The concept that society’s goals will be met as individuals seek their own self-interest.
Example: Society wants fuel efficient cars…
Profit seeking producers will make more.
Competition between firms results in low prices, high quality, and greater efficiency.
The government doesn’t need to get involved since the needs of society are automatically met.
Competition and self-interest act as an invisible hand that regulates the free market.
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29. Mixed Economies
A system with free markets but also some government intervention.
Almost all countries, including the US, have mixed economies
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30. Productivity Creates Wealth Index of Economic Freedom
Countries with free markets, property rights, and The Rule of Law, have historically seen greater economic growth because they are more productive
3rd World Countries
Developed Countries
Index of Economic Freedom 30
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31. South Korea's GDP is $1.6 Trillion
The difference between North and South Korea at night North Korea's GDP is $13 Billion
South Korea's GDP is $1.6 Trillion
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32. HeRE WE GO YO, HErE WE GO YO, SO What’s the, What’s the, What’s the, Scenario?

33. Scenarios Answer: Command economy
State planners in Country A met to decide what the country should focus on producing. After much deliberation, they decided it would be in the country’s best interest to use their limited resources to produce automobiles instead of other consumer goods, such as electronics or textiles. The state planners passed their decision down to factories, and allocated to them raw materials, workers, and other resources needed to produce automobiles. Factories were then told how much they should produce with these resources and who the final products should be shipped to.
Answer: Command economy
How do you know?: State planners decide what to produce, how to produce it, who it should be produced for.

34. Scenarios
In Country B, business owners decide what to produce, how much to produce, and who to produce for. The CEO of Tarheelia Audio, one of the leading audio equipment producers in the country, recently decided to increase production levels of the company’s newest MP3 player model, and at the same time decrease production levels of their most popular CD player. The reason for the emphasis on MP3 players is that demand for CD players has decreased dramatically as MP3 technology has taken over the market. Simply put, there is more profit to be made in the MP3 market.
Answer: Market economy (could also be mixed, if it is assumed that government regulates industry)
How do you know?: Individuals make economic decisions; decisions made based on demand; profit motivation

35. Scenarios Answer: Traditional economy
In Country C, people rarely engage in market transactions. For the most part, they do not need to. Families grow their own vegetables and raise their own animals or hunt to get meat. Certain times get tough for people in Country C, like when the winters are particularly cold or animals change their migration patterns. For this reason, it is important that families stock up in “good times” and develop relationships with neighbors with whom they can share or trade.
Answer: Traditional economy
How do you know?: Economic activities centered around family; resources are determined by environment

36. Scenarios Answer: Mixed economy
In Country D, business owners make most economic decisions. As long as they abide by fair trade policies, they can decide what to produce, how to produce, and for whom to produce without government intervention. These decisions are made by business owners based on what happens in the market. For example, a computer manufacturer recently developed a new video gaming system, but decided to wait until closer to the holidays to release the system to the public because it believed anticipation among consumers would allow the company to charge a higher price for the system
Answer: Mixed economy
How do you know?: Business owners make economic decisions, but government can intervene

37. Skit/Role Play
Your task: with your group, you will write and perform a 3-5 minute skit showing what life would be like in in the economic system you have been assigned.
Tell your main character’s story from birth to death.
Show how life would be different in your chosen economic system, compared with the mixed economy we have in the US.
Include ALL group members in important, prominent roles.
Be performed in class, between 3 and 5 minutes.
preferred - Have a typed script (turned in for a grade).
Be creative and original.
Be school-appropriate (if you have to ask, it probably isn’t).
Questions to Consider:
How does the government or tribe impact the individual life and decisions of your character, from young to old age?
What factors might affect the big, life-changing decisions made by your character (where to go to school, what career to pursue, who to marry, etc.)
What services are provided for everybody in this society and what opportunities are available to all/some/none of the population?
What personality traits are encouraged and/or discouraged in this society?
What types of people are able to advance in this society, and what types of people have a tougher time?