2. AP Econ F14 Week#2

3. Economics 9/8/14 http://mrmilewski.com OBJECTIVE: Examine the types of Economic Systems. AP Micro-I.D Language objective: Discuss economic systems. I. Journal#4 -Review Homework -Do now: Look at the chart on p. 32 -notes on economic systems II. Video: John Stossell III. Homework -Read p.33-34 & Answer questions 1-3 p.44

4. All societies face scarcity and must answer the 3 basic questions: What to produce? How to produce? For whom to produce? http://www.swan.ac.uk/engd/production%20line.JPG http://en.wikipedia.org/wiki/Image:Bakweri_cocoyam_farmer_from_Cameroon.jpg

5. Types of Economic Systems

6. Discussion Questions on Video: Is America #1? What do you think is the most important measure of success? Can wealth (jobs) be protected by the government? How does the rule of law contribute to wealth creation? Are freedom and democracy the same thing?

7. Homework Tonight Read p.33-34 Answer questions 1-3 p.44 Additional video: Khan PPCKhan PPC

8. Economics 9/9/14 http://mrmilewski.com OBJECTIVE: Examine the key points of a market economy. AP Micro/Macro-I.D Language objective: SWBAT define the terms: private property, freedom of enterprise, freedom of choice, self-interest, competition and market. I. Journal#5 -Review Homework -Do now: Vocabulary words pertaining to markets -notes on Specialization II. Homework -Read p.34 - 38

9. Do Now: Vocabulary Define each of the following Private property Freedom of Enterprise Freedom of Choice Self-Interest Competition Market

10. Specialization Market economies rely on specialization to create efficient markets. It enables the use of resources to produce one or a few goods or services rather than a bunch of them. Example: Many farmers sell their milk to the local dairy, but buy their butter from the grocery store rather than making their own. Society learned long ago that by specializing in what we produce, we are much more efficient than being a “jack-of-all-trades”.

11. Advantages of Specialization Division of Labor (Human specialization) – Individuals have different abilities and skills that can be taken advantage of. – If two people have the same skill, specialization still works. Since the person is devoting time to just one task, their skills at doing it will improve. – Specialization saves time. By applying one’s efforts to just one task, loss of time from shifting from one job to another is avoided. For these reasons, specialization increases output

12. Geographic Specialization- It is possible to grow oranges in Nebraska, but since the land, rainfall and temperature are not ideal for it, the costs would be much higher than growing them in Florida. The conditions in Nebraska are ideal for wheat, so they specialize in wheat. Both human and geographical specialization increase the total output generated from limited resources.

13. Use of Money Money actually performs many functions, but first and foremost it is a medium of exchange. Specialization requires exchange. Throughout history, exchange has occurred by bartering. This is swapping one good for another, like wheat for oranges. Unfortunately, this system can be a problem if you are bartering with someone who doesn’t need your product. This is why money is a better form of exchange. See Figure 2.1 on page 34

14. Homework Tonight Read p.34-38

15. Economics 9/10/14 http://mrmilewski.com OBJECTIVE: Examine the Five Fundamental Questions of a market economy. AP Micro-I.D Language objective: SWBAT answer and explain the Five Fundamental Questions of a market economy through discussion and written answers. I. Journal#6 -Do now: Question #4 on page 44 -notes on the “Five Fundamental Questions” II. Homework –Questions #5 thru #9 on page 44 and read pages 38-41.

16. Five Fundamental Questions What goods and services will be produced? How will the goods and services be produced? Who will get the goods and services? How will the system accommodate change? How will the system promote progress?

17. What will be produced? Goods and services that make a continuing profit will be produced and those that generate a loss will be discontinued. Profits occur when Total Revenues (TR) exceed Total Costs (TC). When this happens, the industry expands. If TC > TR, the industry contracts and firms either shrink in size or go out of business. In a market system, consumers are in command and they determine the types and quantities of goods produced. This is known as consumer sovereignty or “dollar votes”.

18. How Will Goods and Services Be Produced? In combinations and ways that minimize the cost per unit. Competition will further help determine what will be produced. Consumers prefer quality products at the lowest possible price. This means if a firm is using higher costs they will eventually be forced out of the market by firms producing the same product or good at lower costs. Basically: Competition eliminates high cost producers. See Table 2.1 on page 36.

19. Who Will Get the Output? Consumers will get the output based on their ability and willingness to pay. Their ability to pay is determined by their income. Their willingness to pay is determined by their desire for the good or service. Review Budget Line graph on page 9, Figure 1.1.

20. How Will the System Accommodate Change? Market economies are dynamic: Consumer preferences, technology and supplies of resources are always changing. What is selling now might not be selling in the near future. The market system is a huge communication system. It is told what to do by the demands of the consumer, or by consumer sovereignty. Discuss the fruit juice/milk example on page 37.

21. How Will the System Promote Progress? Technological Advance: Technology provides the ability to produce goods and services at lower costs which leads to lower prices for the consumer and greater profits for the firm. Firms that are innovative and use new technologies put pressure on their competition to keep up. If they do not, they could go out of business. In some cases, the result of this is known as creative destruction. Firms that do not change with the times, and stick to their old ways of doing business, will be left behind and most likely fail. For example, CD’s replaced vinyl albums and now digital technology is replacing CD’s.

22. Homework Tonight Complete questions on page 44, # 5-9 Read pages 38-41

23. Economics 9/11/14 http://mrmilewski.com OBJECTIVE: Examine the Five Fundamental Questions of a market economy. AP Micro-I.D Language objective: Preview FRQs. I. Journal#7 -Do now: Problem #2 on page 45 -FRQ Example: 2013 Macro #22013 Macro #2 II. Homework: – Finish reading Ch#2

24. 2013 FRQ question#2 Assume that the country of Fischerland produces only consumer goods and capital goods. (a) The graph above shows the production possibilities curve for Fischerland. The production of which of the following exhibits increasing opportunity costs: consumer goods only, capital goods only, both goods, or neither good? (b) Redraw the graph given above. Show a point that represents fully employed and efficiently used resources on the redrawn graph and label it A. (c) Assume there is a recession in Fischerland. On your graph in part (b), label as C a point representing the recession. (d) Identify a fiscal policy action that the Fischerland government can take to address the recession. (e) Assume instead that no discretionary policy actions are taken. Will short-run aggregate supply increase, decrease, or remain the same in the long run? Explain.

25. Homework Tonight Finish reading Ch#2

26. Economics 9/12/14 OBJECTIVE: Examine the concepts of the Invisible Hand and The Circular Flow Model. AP Macro-2.A Language objective: SWBAT read and discuss the Circular Flow Model and write the answers to questions and problems regarding Circular Flow. I. Journal#8 -Review Homework -Do now: Question #10 on page 44 -notes on the Invisible Hand and Circular Flow II. Video on the “Invisible Hand” II. Homework –Questions #11 and #12 on page 44 and problems #1, 3, and 4 on page 44 and 45.

27. The “Invisible Hand” In 1776, Adam Smith wrote the book The Wealth of Nations. One observation that he made was the relationship between private interests and social interests in the market. He realized that firms build and improve products to increase profits and that these enhanced products increase society’s well-being. At the same time, firms use only the scarce resources in the most efficient way which “frees up” scarce resources to produce other products that society desires.

28. Virtues of a Market System The “Invisible Hand” ensures that when firms maximize profits and resource suppliers maximize profits, then society maximizes their output and income. Efficiency- A market system promotes efficiency in production and encourages more and better ways to produce. Incentives- A market system encourages hard work, innovation and the desire to improve resulting in higher income. Freedom- A market system encourages personal freedom. Also, freedom of enterprise and choice.

29. Circular Flow Model Illustrate on board and explain the Circular Flow.

30. Sole Proprietorship Sole proprietorship – a business owned and run by one person.

31. Advantages/Disadvantages of Sole Proprietorships Advantages: -easy to start -flexible -$ is all yours -own boss -easy to shut down Disadvantages: -unlimited liability – you are responsible for everything -hard to borrow money -expensive inventory -limited management experience -hard finding qualified employees -limited life – business dies when you die

32. Partnerships Partnerships – business jointly owned by two or more persons. There are two types of partnerships: *general partnership – all partners actively run the business *limited partnership – at least one partner is not active in daily operations (probably just contributed $).

33. Advantages/Disadvantages of partnerships: Advantages: -easy to start -easy to manage -share profits -can attract financial capital -easier to attract qualified employees Disadvantages: -responsible for other partners actions -when a partner dies, a new partnership agreement has to be drawn up -conflict between partners

34. Corporations Corporation – a form of business organization that is recognized by the law as having all the legal rights of an individual. They have the right to buy & sell property, enter into legal contracts, and to sue & be sued.

35. Advantages of Corporations Easy to raise financial capital Hire professional managers Limited liability – shareholders only lose money invested if something goes terribly wrong. Unlimited life – the firm doesn’t die when a shareholder does.

36. Disadvantages of Corporations Difficult to start. Shareholders have little say. Double taxation – the firms profits are taxed and then the profit that is distributed to shareholders is also taxed. Government regulation.

37. Homework Tonight Complete questions on page 44, # 11 & 12 Complete problems on page 44-45, # 1, 3, & 5 Read pages 47-53