UNIT 1 BASIC ECONOMIC CONCEPTS 1 SCARCITY MEANS

UNIT 1: BASIC ECONOMIC CONCEPTS 1

SCARCITY MEANS THERE IS NOT ENOUGH FOR EVERYONE 2 GOVERNMENT MUST STEP IN TO HELP ALLOCATE (DISTRIBUTE) RESOURCES COPYRIGHT ACDC LEADERSHIP

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 PARTNER NEED TO FIND 1. YOU AREAND ANYYOUR OF THE SOLUTIONS FAIR? 5 DIFFERENT WAYS TO DECIDE WHO 2. HOW ARE RESOURCES ALLOCATED IN SHOULD GET OFF THE BUS. COMMUNISM? 3 3. HOW ARE RESOURCES ALLOCATED IN COPYRIGHT ACDC LEADERSHIP

EVERY SOCIETY MUST ANSWER THE THREE ECONOMIC THREE QUESTIONS: QUESTIONS 1. WHAT GOODS AND SERVICES SHOULD BE PRODUCED? 2. HOW SHOULD THESE GOODS AND SERVICES BE PRODUCED? 3. 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. COPYRIGHT ACDC LEADERSHIP 4

ECONOMIC SYSTEMS 1. TRADITIONAL ECONOMY 2. CENTRALLY-PLANNED (COMMAND) ECONOMY 3. FREE MARKET ECONOMY 4. MIXED ECONOMY COPYRIGHT ACDC LEADERSHIP 5

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

TRADITIONAL ECONOMIES ADVANTAGES DISADVANTAGES METHODS WORK LIVING SUBSISTENCE EVERYONE KNOWS ROLE LIVING LOW STANDARD OF DISCOURAGES NEW IDEAS NEVER CHANGES

TIME TO GET CREATIVE!!!!! DESCRIBE WHAT EACH OF THE FOLLOWING WOULD LOOK LIKE IN A TRADITIONAL ECONOMY 1. WAKING UP IN THE MORNING 2. YOU AND YOUR FRIENDS HANGOUT IN THE AFTERNOON 3. GOING TO GET FOOD FOR DINNER

CENTRALLYPLANNED ECONOMIES (AKA COMMUNISM) COPYRIGHT ACDC LEADERSHIP 9

CENTRALLY PLANNED ECONOMIES IN A CENTRALLY PLANNED ECONOMY (COMMUNISM) THE GOVERNMENT… 1. OWNS ALL THE RESOURCES. 2. 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 10 PREDICTING PREFERENCES COPYRIGHT ACDC LEADERSHIP

ADVANTAGES AND DISADVANTAGES 1. WHAT IS GOOD WHAT IS BAD ABOUT COMMUNISM? LOW UNEMPLOYMENT- 1. NO INCENTIVE TO EVERYONE HAS A JOB WORK HARDER 2. GREAT JOB SECURITY- 2. NO INCENTIVE TO THE GOVERNMENT INNOVATE OR COME DOESN’T GO OUT OF UP WITH GOOD IDEAS BUSINESS 3. EQUAL INCOMES MEANS 3. NO COMPETITION KEEPS QUALITY OF NO EXTREMELY POOR PEOPLE GOODS POOR. 4. FREE HEALTH CARE 4. CORRUPT LEADERS 5. FEW INDIVIDUAL FREEDOMS COPYRIGHT ACDC LEADERSHIP 11

12 COPYRIGHT ACDC LEADERSHIP

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

FREE MARKET SYSTEM (AKA CAPITALISM) COPYRIGHT ACDC LEADERSHIP 14

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

CHARACTERISTICS OF FREE MARKET 1. LITTLE GOVERNMENT INVOLVEMENT IN THE ECONOMY. (LAISSEZ FAIRE = LET IT BE) 2. INDIVIDUALS OWN RESOURCES AND ANSWER THE THREE ECONOMIC QUESTIONS. 3. THE OPPORTUNITY TO MAKE PROFIT GIVES PEOPLE INCENTIVE TO PRODUCE QUALITY ITEMS EFFICIENTLY. 4. WIDE VARIETY OF GOODS AVAILABLE TO CONSUMERS. COPYRIGHT ACDC LEADERSHIP 16

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”. COPYRIGHT ACDC LEADERSHIP 17

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, COPYRIGHT ACDC LEADERSHIP 18

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.

FEATURES OF AMERICAN FREE MARKET ECONOMY 1. ECONOMIC FREEDOM: INDIVIDUALS HAVE THE RIGHT TO CHOOSE 2. COMPETITION: MORE THAN ONE PRODUCER OF GOOD/SERVICES INSURES CHOICE 3. PRIVATE PROPERTY: INDIVIDUALS HAVE THE RIGHT TO OWN THEIR OWN PROPERTY, INCLUDING BUSINESS

FEATURES OF AMERICAN FREE MARKET ECONOMY (CONT) 4. SELF-INTEREST: INDIVIDUALS MAKE DECISIONS BASED ON WHAT IS BEST FOR THEM 5. VOLUNTARY EXCHANGE: INDIVIDUALS MAY FREELY BUY AND SELL GOODS 6. PROFIT MOTIVE: INDIVIDUALS ARE DRIVEN BY A DESIRE TO PROFIT (MAKE MONEY)

FEATURES OF AMERICAN COMMAND ECONOMY 1. GOVERNMENT REGULATION OF SOME BUSINESS PRACTICES • 2. EX. WAGES, LABOR HOURS, SAFETY PRACTICE. GOVERNMENT LIMITS CERTAIN CHOICES • 3. EX. CANNOT BUY OR PRODUCE CERTAIN GOODS/SERVICES GOVERNMENT PROVIDES AID TO THE NEEDY • EX. MEDICARE, MEDICAID, WELFARE

MY PIZZERIA • 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

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?

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

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 27 COPYRIGHT ACDC LEADERSHIP

28 COPYRIGHT ACDC LEADERSHIP

MIXED ECONOMIES A SYSTEM WITH FREE MARKETS BUT ALSO SOME GOVERNMENT INTERVENTION. ALMOST ALL COUNTRIES, INCLUDING THE US, HAVE MIXED ECONOMIES 29 COPYRIGHT ACDC LEADERSHIP

PRODUCTIVITY CREATES COUNTRIESWEALTH WITH FREE MARKETS, PROPERTY RIGHTS, AND THE RULE OF LAW, HAVE HISTORICALLY SEEN GREATER ECONOMIC GROWTH BECAUSE THEY ARE 3 RD WORLD DEVELOPED COUNTRIES MORE PRODUCTIVE 30 COPYRIGHT ACDC LEADERSHIP INDEX OF ECONOMIC 30

THE DIFFERENCE BETWEEN NORTH AND SOUTH KOREA AT NIGHT NORTH KOREA'S GDP IS $1331 COPYRIGHT ACDC LEADERSHIP BILLION SOUTH KOREA'S GDP IS $1. 6 TRILLION

HERE WE GO YO, SO WHAT’S THE, SCENARIO?

SCENARIOS • 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.

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 MP 3 PLAYER MODEL, AND AT THE SAME TIME DECREASE PRODUCTION LEVELS OF THEIR MOST POPULAR CD PLAYER. THE REASON FOR THE EMPHASIS ON MP 3 PLAYERS IS THAT DEMAND FOR CD PLAYERS HAS DECREASED DRAMATICALLY AS MP 3 TECHNOLOGY HAS TAKEN OVER THE MARKET. SIMPLY PUT, THERE IS MORE PROFIT TO BE MADE IN THE MP 3 MARKET. • ANSWER: MARKET ECONOMY (COULD ALSO BE MIXED, IF IT IS ASSUMED THAT GOVERNMENT REGULATES INDUSTRY) • HOW DO YOU KNOW? : INDIVIDUALS MAKE ECONOMIC

SCENARIOS • 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

SCENARIOS • 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

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 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?