1. Brief Response: Adam Smith organized many ideas into what we call economics today. In his essay, The Wealth of Nations, 1776, Smith argued ….. – ….the abilities and skills of a nation are its sources of wealth….. Which factor(s) of production would Adam Smith be most likely to identify as the source of a nation's wealth? Do you concur? Explain. (2) Answer: he would likely identify labor or entrepreneurship rather than land or capital as the most important factor of production. 1

2. CH 1, Sect 3 CH 2, Sect 1 &2 2

3. Section 3 p. 19 Terms: listed in front of section Trade-off 19 alternative choices Limited spending power Variety of wants Variety of criteria 3

4. CH 1, Sect 3 Opportunity cost 20 the cost of the next best alternative use of money, time, or resources When one choice is made over another. “what are you giving up?” “Why?” 4

5. CH 1, Sect 3 Production possibilities frontier 21 a diagram representing various combinations of goods and/or services an economy can produce Considers all available resources 5

6. CH 1, Sect 3 Cost-benefit analysis 24 a way of thinking about a problem – Compare the cost of an action To the benefit(s) received – A person’s ability to predict and handle risk is important here. 6

7. CH 1, Sect 3 Free enterprise economy 24 consumers and privately owned businesses decide: – What to make? – How to make it? – For Whom to make it? 7

8. CH 1, Sect 3 Standard of living 25 the quality of life based on Possession of necessities and luxuries that make life easier Is it a low or high standard of living? Explain. 8

9. Economy/economic system: 33 an organized way of dealing with and providing for the wants and needs of a people. – Traditional – Command – Market Chapter 2 Economic Systems and Decision Making Section 1 p. 33; Terms: listed in front of section 9

10. Chapter 2, Section 1 Traditional economy 34 allocation of scarce resources based on – Ritual – Habit – Custom Rarely creative or innovative 10

11. Chapter 2, Section 1 Command economy 35 allocation of scarce resources based on: Government planning – Prices controlled so most people can afford things. – Quotas does not allow for more demand of a product that is in short supply. People wait in lines and might not get what they want anyway. 11

12. Chapter 2, Section 1 Market economy: 36 aka free market economy Buyers and sellers act the way they want Prices are set between – What the seller wants to be paid – What the buyer is willing to pay – Supply of the good/service – Demand for the good/service 12

13. Social security 42 a federal program of benefits for working people – Retirement – Disability 90% of Americans participate – Retirees – Disabled persons – Survivors Spouses Children – Medicare recipients 65 or older Section 2 p. 41 Terms: listed in front of section 13

14. Chapter 2, Section 2 Inflation 43 a rise in the general level of prices – People need more money to pay for Food Clothing Shelter Caused by – Economic change Rise in price of a key resource Raise in salaries and wages of employees – Falling value of currency Too much money available 14

15. Chapter 2, Section 2 Fixed income 43 an income that does not increase even though the cost of living increases. – Retirement – Government benefits/entitlements 15

16. Hwk Assessments, Class Work, to Know 16

17. CH 1 sect 3 Assessments: Checking for Understanding 1 When making economic decisions People try to get the most value for their investment – Time – Money – Some other resource 17

18. CH 1 sect 3 Assessments 3 All economic decisions involve trade-offs. Opportunity cost of a choice is the cost of the next best use of – Money – Time – Resources 18

19. CH 1 sect 3 Assessments 4 Circular flow diagram Production possibilities frontier Cost-benefit analysis 19

20. CH 1 sect 3 Assessments 5 Economic issues are an important part of many political campaigns An understanding of the issues will help a citizen to decide how to vote in an election. 20

21. Cartoon analysis separate sheet of paper, use the last one. What does the 8 million pound gorilla represent? Why that representation? Who are the two men standing in front of it? (occupation) EC: name them (2 pts each) What is the reporter’s accusation? Why is each response to the accusation a continuation of the failure of both to respond adequately? (2) Why do you think they do not answer the question straight out? 21

22. Cartoon analysis What does the 8 million pound gorilla represent? – The banking failure that caused the financial crisis and the 2008 Recession Why that representation? – Because it is too large to control and dangerous Who are the two men standing in front of it? (occupation) – Politicians (presidential candidates) EC: name them (2 pts each) – Barack Obama and John McCain (running for president) What is the reporter’s accusation? – That neither candidate has adequately described their policy toward handling the financial crisis. Why is each response to the accusation a continuation of the failure of both to respond adequately? (2) – One says “hope” (which is not real action) – The other dodges the topic, blaming his opponent for not supporting the Surge (a military policy in Afghanistan). Why do you think they do not answer the question straight out? – A real answer might not be popular with special interests or voters 22

23. CH 2 sect 1: Assessments: Checking for Understanding 1 Those who act in their own best interests will receive the benefits. 23

24. CH 2 sect 1: Assessments 3 Sets economic roles – stable – predictable – continuous – But it discourages ideas 24

25. CH 2 sect 1: Assessments 4 Advantages: Great change in short time Disadvantages: Does not meet needs and wants of consumers Lacks incentives to work hard Large bureaucracy Little flexibility Ideas discouraged 25

26. CH 2 sect 1: Assessments 5 Advantages Adjusts to change gradually Individual freedom Lack of government interference Produces great variety of goods and services High consumer satisfaction Disadvantages Lacks services people want and need Workers and businesses face high uncertainty as a result of change. – Recession Does not provide basic needs of everyone 26

27. CH 2 sect 2 Assessments: Checking for Understanding 1 They help us to determine if the system meets our needs 27

28. CH 2 sect 2 Assessments 3 Economic freedom Economic efficiency Economic equity Economic security Full employment Price stability Economic growth 28

29. CH 2 sect 2 Assessments 4 Some believe that increase furthers the goal of economic equity – Because it is FAIR Others believe that it conflicts with the goal of full employment and economic freedom – By raising unemployment – Preventing employers from paying what they feel are fair wages. 29

30. CH 2 sect 2 Assessments 5 People choose their own – Occupations – Employers – Uses for their money Producers choose – What they will produce – Where they produce – How they produce 30

31. P. 23 Images: guns vs butter Question Different production levels Why? producing one good/service uses resources that could be used to produce the other good/service 31

32. Image, 34 Question Ritual Habit custom 32

33. image, 35 Question 1 Profit, inventory 2 Graduating students will be living and working in a market economy. – Must be able to understand how the economy works – Must be able to compute interest rates 33

34. Image, 37 Question The government 34

35. Image, 38 Question Must be reasonably competitive Resources must be free to move from one activity to another Adequate information available to everyone 35

36. image, 42 Question Legislation that bans discrimination for any reason 36

37. Image, 43 Question Social Security 37

38. Economic Choices handout handout EC: Vocabulary: Decision – A process of identifying the best way to achieve a goal Alternatives – Opportunities from which people can select: options Advantages – Good points about an alternative Disadvantages – Bad points about an alternative Choice (Decision) – The alternative (option) selected Opportunity cost – The best alternative NOT chosen, the opportunity GIVEN UP in a decision. 38

39. Economic Choices Ariel is going to the prom. Two guys have asked her EC: Ariel has to decide on how best to use her “valuable human capital” – Herself to have the best time possible. The two guys offering their valuable human capital are: 39

40. Economic Choices Ariel’s Alternatives Alternative: Spider Man: Alternative Harry Potter: 40

41. Peter Parker (Spiderman) (1 each) Advantages: Strong Brave Handsome Web Can “fly/swing” Spider sense Disadvantages Many dangerous enemies Not as handsome when Peter Parker Always fighting crime, may suddenly leave the prom May have an extreme, unrequited crush on Mary Jane Watson Low self-esteem 41

42. Harry Potter (1 each) Advantages Can use magic spells has a magic wand Can fly Dressed better for a prom Has many friends Cool accent Inherited money Disadvantages Has dangerous enemies Wears glasses Seen as a “nerd” Never seen as buff Short? 42

43. Economic Choices Ariel’s Alternatives Alternative: Spider Man: Alternative Harry Potter: 43

44. Brief Response Discuss inflation as it affects one of the following: (2) Labor: Consumers: Government spending: 44