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Chapter 5
Economics
EQ’s: What effects our economy?
What are the consequences of investment decisions made by individuals, businesses, and governments?
http://www.econedlink.org/interactives/index.php?iid=87
Pair Share with these 2 questions: 1.How has a famous basketball player been good for Cleveland's economy?2.We now know where LeBron chose to go…not Cleveland! Will he help his new city as much as he helped Cleveland? Why or why not?
What are economics?
Study of how societies decide what to produce, how to produce it, and how to distribute what they produce
If all consumers could consume everything they wanted, economic decisions would not be made
Scarcity
BUT…all goods and services are scarce
Scarcity: the fact that too few resources are available for everyone in the world to consume as much as he or she would like
Opportunity Cost
The loss associated with the best opportunity that is passed up
If you are a greeting card company and spend 2 million on b-day cards, you will have 2 million less to spend on other cardsThe company’s lost opportunity represents the
opportunity cost of producing b-day cards
Economic Systems
Command Economy: government decides what goods and services are producedTypes and amounts
Market Economy: private companies and individuals decide what to produce and consumeBased on competition
http://www.kplr11.com/news/kplr-riche-pujols-economic-impact-021611,0,6812504.story
Pair Share---a new Partner with these questions1.Consumer confidence is an economic indicator which measures the degree of optimism that consumers feel about the overall state of the economy and their personal financial situation. How confident people feel about stability of their incomes determines their spending activity and therefore serves as one of the key indicators for the overall shape of the economy. How would Pujols leaving St. Louis impact consumer confidence?2.Why does one individual have so much impact on an economy?
Supply and Demand
In a market economy, supply and demand determine prices and quantities of goods and services
Text book page 139 read together
Supply and Demand
Demand: quantity of good or service individuals are willing to purchase at various prices
Supply: quantity of good or service that producers are willing to produce at a given price
Determining Price
Price of a good or service adjust until the amount producers are willing to produce equals the amount consumers are willing to consume
When supply = demand we have equilibrium price
Determining Profits
Fixed Costs: cost you absorb regardless of units produces (heating, rent)
Variable Costs: rise or fall depending on how many units produced (labor and materials)
Breakeven Analysis: determines how many units of a good or service a business needs to sell before it begins earning profit
Breakeven Point: point at which revenue is sufficient to cover all costs
Study the cartoon above. Which entrepreneur is in a better position to control fixed costs if there is a decline in the demand for AJAX bats? What if there is a decline in Al’s handmade bats? What does this show about fixed and variable costs?
Journal Entry
What is recession? What is depression? Does anyone know what the Great Depression was?
Explain.
Phases of the Business Cycle
Expansion: Consumer and business spending strongUnemployment declines
BUT…when prices rise so much businesses and consumers cut back on purchases and the next phase begins
Phases of the Business Cycle
Contraction: Consumers and businesses reduce
purchasesUnemployment risesBusinesses and consumers pessimistic
about the future
What happens when growth falls for a long time?
Recession: when growth falls for two three month periods in a row
Depression: when business activity remains far below normal for years
Economic Indicators
Help to predict when changes in business cycle might occur
Data that show how the economy is performingHousing loans,
bankruptcies, new orders of consumer goods and materials by manufacturers (economy is likely to expand)