Current Events:
The government representative notes that she has a Masters degree in landscape architecture and regional planning which must be all that it takes.
She states: “it’s gonna take a huge effort to educate the public about the importance of public transportation.”
Study for Test #1, Chapter 1 (detailed in-class and on the wiki). The Test will be on Wednesday, 20 October.
Honors Business Economics Test #1 Chapter 1 Test Prep Page
Cf. http://shanawiki.wikispaces.com/HonorsBusinessEconomicsTest1Chapter1Fall2010
Chapter 1 Review
Chapter 1: What Is Economics? Self-Check Quizzes
Cf. http://glencoe.mcgraw-hill.com/sites/0078747643/student_view0/unit1/chapter1/self-check_quizzes.html
Crossword Puzzle
Cf. http://www.glencoe.com/olc_games/game_engine/content/gln_ss/epp_05/chapter01/index_ch01.html
The Circular Flow of Economic Activity
Cf. http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/epp/EPP_p15.swf
Chapter 2 Economic Systems and Decision Making
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
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
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
Reading Strategy (Graphic Organizer)
Economic Efficiency
Economic Equity
Economic Security
Full Employment
Price Stability
Economic Growth
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.
Externalities, 2:13
What is an externality? Milton Friedman describes it as the effect of a transaction between two parties on a third party who is not involved in the transaction. A technical sounding term that basically means let somebody else deal with the problems the corporation creates.
(In economics, an externality (or transaction spillover) is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit. A benefit in this case is called a positive externality or external benefit, while a cost is called a negative externality or external cost).
Cf. http://www.youtube.com/watch?v=QurYZ6Bsjqs&feature=related
Can GDP Buy You Happiness? About 35 years ago, the king of Bhutan decided that the well-being of his country was not best measured by its GDP, but rather by something he called its “Gross National Happiness.” A very useful source is the article by Andrew C. Revkin in The New York Times (October 4, 2005) titled “A New Measure of Well-Being from a Happy Little Kingdom,” available on the Web at: "A New Measure of Well-Being From a Happy Little Kingdom. Cf. http://www.nytimes.com/2005/10/ 04/science/04happ.html?ei=5088&en=a4c0250cf8730dca&ex= 1286078400&partner=rssnyt&emc=rss&pagewanted=all
Determinants of growth
Economic growth is affected by:- changes in the quantity and quality of available resources, and
- changes in technology
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.
For example, according to the Wall Street Journal, Obama Financed Offshore Drilling in Brazil.
And again, according to the Brookings Institution, Obama supported entrepreneurship in Muslim majority Middle Eastern nations.
Productivity and economic growth
The rate of economic growth can be expressed as:
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.
In summary, these are the economic growth goals (as a review): Economic Freedom, Economic Efficiency, Economic Equity, Economic Security, 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, p. 48
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.
Guide to Reading
Section Preview
Content Vocabulary
free enterprise
voluntary exchange
private property rights
profit
profit motive
competition
consumer sovereignty
mixed or modified free enterprise economy
Taped in the 70s, Economist Milton Friedman informs Phil Donahue when asked to equate greed with capitalism, 2:30.
Milton Friedman, 1912 - 2006
Companies in the News
Hot Growth at Claire's
Characteristics of Free Enterprise Capitalism, p. 49
Economic Freedom
Voluntary Exchange
Private Property Rights, p.50
Profit Motive
Competition
Reading Check
Summarizing
How does voluntary exchange work in the free enterprise economy?
The Role of the Entrepreneur
Reading Check, p. 51
Analyzing
Why are entrepreneurs considered both spark plugs and catalysts of the free enterprise economy?
The Role of the Consumer
Reading Check
Summarizing
What role do consumers play in a free enterprise system? p. 52
The Role of Government
Protector
Provider
Regulator
Consumer, p. 53
Modified Free Enterprise
Reading Check
Why do Americans want government to play a role in the economy? Use specific examples.
Profiles in Economics
Tony Hawk
Resources
Hayek's 'The Road to Serfdom' in Five Minutes, 5:01
What do all forms of collectivism (command economy) lead to?
Are there differences--in terms of control exercised--between Nazism or Communism?
How is order achieved in these systems?
Can democracies be on the road to serfdom?
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. How might the goal of protecting the environment conflict with the goals of efficiency or full employment?
2. Study for Test #1, Chapter 1 (detailed in-class and on the wiki). The Test will be on Wednesday, 20 October.
Honors Business Economics Test #1 Chapter 1 Test Prep Page
Cf. http://shanawiki.wikispaces.com/HonorsBusinessEconomicsTest1Chapter1Fall2010
