Wednesday, October 13, 2010

Honors Business Economics Chapter 2 Section 1, 14 October 2010

Prayer:

Current Events:

How Do You Create a Job? Richard Blumenthal vs. Linda McMahon in Connecticut’s U.S. Senate race.

Assessment: how do the entrepreneurs we have seen hope to create jobs? Discuss price, profit, demand, and the market.


Debates in Economics

Should the Minimum Wage Be Increased?

In-class assignment: list at least three bullet points in favor of each side of the question, pro or con, then, conclude whether or not you think the minimum wage should be increased.

The Minimum Wage: Campaign 2010 version



Chapter 2 Economic Systems and Decision Making

Section 1 Economic Systems

Chapter Overviews

Section 1: Economic Systems

Economic systems help societies provide for the wants and needs of their people. Three major economic systems have evolved over the years: traditional, command, and market economies. In the traditional economy, the WHAT, HOW, and FOR WHOM questions are answered by tradition, customs, and even habits handed down from generation to generation. In a command economy, a central authority answers the three basic questions. In a market economy, decision making is decentralized with consumers and entrepreneurs playing a central role. Most economies in the world today feature some mix of traditional, command, and market economies.


May 2009 cover of the American magazine, Newsweek:


BULGARIA - From a Command to a Market Economy, 4:43

Cf. http://learnecon.info/moodle/mod/resource/view.php?id=11

1.1 Quiz

Cf. http://learnecon.info/moodle/mod/quiz/attempt.php?id=137

IBM Corp. has launched CityOne, an online interactive simulation game designed to enable local government officials find innovative solutions for energy, water, traffic, banking and retail problems in their communities.

Players can explore more than 100 simulated crisis scenarios in CityOne. The solutions must balance various financial, environmental, social and budgetary goals. The solutions include technologies such as business process management, service reuse, cloud computing and collaborative technologies.

Cf. http://www-01.ibm.com/software/solutions/soa/innov8/cityone/index.jsp

Class Quiz

Chapter 2: Economic Systems and Decision Making

Cf. http://glencoe.mcgraw-hill.com/sites/0078747643/student_view0/unit1/chapter2/self-check_quizzes.html

Drag and Drop

Cf. http://www.glencoe.com/sec/socialstudies/tutor/economics/econprinciples2005/puzzles/epp2005_02.html

Flashcards

Cf. http://www.glencoe.com/qe/efcsec.php?qi=15412

Preview

Section 2 Evaluating Economics Performance

The seven major economic and social goals used to evaluate the performance of an economic system are economic freedom, economic efficiency, economic equity, economic security, full employment, price stability, and economic growth. If the system does not perform as people would like, people can lobby for laws to achieve their goals. One example would be the Social Security program that was enacted to achieve the goal of economic security.

Guide to Reading, p. 43

Section Preview

Content Vocabulary

minimum wage

Social Security

inflation

fixed income

Academic Vocabulary

adverse

accommodate

Reading Strategy (Graphic Organizer)


Companies in the News

Economic and Social Goals, p. 44

Economists normally measure growth as the annual percentage change in either real GDP or real per capita GDP. (The latter measure is a better measure of how growth affects a typical individual in the economy.) While a small difference in growth rates will have a small effect on output in a given year, the cumulative effects of differences in growth rates is rather dramatic as a result of compound growth. This result can be seen quite easily by examining the rule of 72.

Rule of 72

The rule of 72 states that:


approximate number of years for a balance to double = 72 / growth rate (as a percentage)

Suppose, for simplicity that an individual lives for 72 years. If he or she resides in an economy in which per capita real GDP grows by 2% per year, output will double in approxmately 36 (=72/2) years. This means that per capita output at the time of a typical person's death will be approximately 4 times as large as it was at that person's birth. If the economy grows at an annual rate of 4%, however, output will double in 18 years. In this case, per capita output will double by the time this person turns 18, double again by age 36, again by age 54, and again by the time this typical person dies at age 72. This means that output will be 16 times as large at the time of a typical person's death as it would be if per capita output grew at an annual rate of 2%. The difference becomes even more pronounced over longer time periods. In the long run, the most important determinant of the standard of living for a typical person is the rate of economic growth. For this reason, economists devote a great deal of effort to an analysis of the factors that influence economic growth.

Problems with using economic growth as a measure of economic welfare

There are, of course, a number of problems with using real GDP growth as a measure of social welfare. Among the problems are:
  • the distribution of income also matters,
  • per capita real GDP does not measure the quality of life,
  • it does not take leisure time into account, and
  • it does not take externalities into account.
(These topics were discussed earlier in the module on national income accounting.)

Determinants of growth

Economic growth is affected by:
  • changes in the quantity and quality of available resources, and
  • changes in technology
Less developed economies generally have relatively high rates of fertility (and mortality). This results in a relatively large growth in the quantity of labor available in such economis. Industrialized economies, on the other hand, tend to experience relatively low rates of growth in the labor force (since birth rates are lower in countries at higher levels of economic development). The quality of the labor force may be enhanced by investments in human capital (through investments in health care, education, and training programs).

Developing economies tend to lag behind industrialized economies in access to capital and in technological development. Foreign direct investment and international aid programs that provide technological assistance, though, help to provide a technology transfer from industrialized to developing nations.

Productivity and economic growth

The rate of economic growth can be expressed as:

Economic growth = growth rate of TFP + Growth rate of resources

where: TFP = total factor productivity (a measure of the overall productivity of resources)

Changes in total factor productivity result from technological improvements. In industrialized countries, most growth is the result of increases in total factor productivity and in the quantity of capital.

Economic Freedom Economic Efficiency Economic Equity Economic Security, p. 45 Full Employment Price Stability Economic Growth Future Goals Reading Check Interpreting What major themes can you identify in the list of seven economic goals?

Did You Know?

Resolving Trade-Offs Among Goals, p. 46 Determining Cause and Effect: Graphic Organizer

Reading Check

Explaining

Why do trade-offs among goals exist?

Section 3 American Free Enterprise

Free enterprise, another term used to describe the American economy, refers to the competition that is allowed to flourish with a minimum of government interference. A capitalistic free enterprise economy has five important characteristics: economic freedom, voluntary exchange, private property rights, the profit motive, and competition. Another key component is the entrepreneur, who is the risk-taking individual in the economy that starts new businesses and undertakes new ways of doing things in search of profits. The consumer is sometimes thought of as being "king" or sovereign of the market, and government is involved in the economy primarily because people want it to be involved. Because of the government involvement as the protector, provider, regulator, and consumer, the American economy can also be described as a mixed economy, or a modified free enterprise economy.

Resources

Hayek's 'The Road to Serfdom' in Five Minutes, 5:01

In the 1940s, Look Magazine made a comic strip of Hayek's classic book 'The Road to Serfdom'. Hayek went on to win the Nobel Prize in Economics in 1974.

Cf. http://en.wikipedia.org/wiki/The_Road...

Hayek's central thesis is that all forms of collectivism lead logically and inevitably to tyranny, and he used the Soviet Union and Nazi Germany as examples of countries which had gone down "the road to serfdom" and reached tyranny. Hayek argued that within a centrally planned economic system, the distribution and allocation of all resources and goods would devolve onto a small group, which would be incapable of processing all the information pertinent to the appropriate distribution of the resources and goods at the central planners' disposal. Disagreement about the practical implementation of any economic plan combined with the inadequacy of the central planners' resource management would invariably necessitate coercion in order for anything to be achieved. Hayek further argued that the failure of central planning would be perceived by the public as an absence of sufficient power by the state to implement an otherwise good idea. Such a perception would lead the public to vote more power to the state, and would assist the rise to power of a "strong man" perceived to be capable of "getting the job done". After these developments Hayek argued that a country would be ineluctably driven into outright totalitarianism. For Hayek "the road to serfdom" inadvertently set upon by central planning, with its dismantling of the free market system, ends in the destruction of all individual economic and personal freedom. Hayek argued that countries such as the Soviet Union and Nazi Germany had already gone down the "road to serfdom", and that various democratic nations are being led down the same road. In The Road to Serfdom he wrote: "The principle that the end justifies the means is in individualist ethics regarded as the denial of all morals. In collectivist ethics it becomes necessarily the supreme rule."

Cf. http://www.youtube.com/watch?v=mkz9AQhQFNY

Activity: Interdisciplinary Connection

Read 19th-century short stories by Russian authors such as Anton Chekhov or Nikolay Gogal. As you read, list details that describe effects of the Soviet Union's command economy--for example, details about jobs, economic and social status, property rights, individual freedoms, and the government. Write a report summarizing the economic effects that you fin din the story.

MARKET AND COMMAND SYSTEMS, 12:44

Cf. http://learnecon.info/moodle/mod/resource/view.php?id=10

BULGARIA - From a Command to a Market Economy, 4:43

Cf. http://learnecon.info/moodle/mod/resource/view.php?id=11

1.1 Quiz

Cf. http://learnecon.info/moodle/mod/quiz/attempt.php?id=137

IBM Corp. has launched CityOne, an online interactive simulation game designed to enable local government officials find innovative solutions for energy, water, traffic, banking and retail problems in their communities.

Players can explore more than 100 simulated crisis scenarios in CityOne. The solutions must balance various financial, environmental, social and budgetary goals. The solutions include technologies such as business process management, service reuse, cloud computing and collaborative technologies.

Cf. http://www-01.ibm.com/software/solutions/soa/innov8/cityone/index.jsp


HW email to gmsmith@shanahan.org or hand in hard copy.

1. Just as in the case of Home Depot that marketed towards women, and encouraged women to pursue careers with the company, consider television advertisements or other advertisements. Which gender do you feel marketers were targeting? Describe five products and the "hook" used to capture the consumer's attention.