Chapter 2

Quiz Monday Review Key Terms on p25 Decision Making Model Know laws and fallacies Be able to graph a production

possibility curve, diminishing returns and increasing returns to scale

Widget Game Profit = Revenue – Cost Profit = Q x P – Cost

Price = $100 – Q Cost = Q x $2

Q= ??????

Get your WIDGET ON!! First things first….what the heck is a

widget?

Widget – a small mechanical device

Goal of the Widget Game You want to make the most profit

you can and beat your fellow competing teams.

Rules There are 6 Rounds Each round is 3 minutes long No calculators or phones with calculators You cannot discuss business tactics with other

teams (until the 4th round and only the 4th round) You must report and show your numbers to the

teacher at the end of every round You may not use scrap paper to test different

combinations You may not erase, cross out or change your

numbers. Any changes will result in 0 profit for that round

Any cheating and your team will be disqualified

Homework Answer the questions from the

exercise Study for quiz on Monday Notes are on wikisite lredmond.wikispaces.com

Answers from Questions from the Widget Game At what level of production is sales

revenue highest for this industry?

At what level of production is profit highest?

How and when did your firm calculate its profit potential

How close did you come to realizing your fair share of this competitive market?

What prevented you from maximizing your profits? Which decisions most adversely affected your profits during this game? What adjustments would you make next time?

Not understanding market conditions represented by the formula $100-Q

Incorrectly anticipating the moves of rival teams

Overreacting to previous round results

Competition reduces profit levels

Who benefited most from your collective decision as an industry?

Consumers benefited most when market prices were low and quantities available were high

Who would have benefited most if you had conspired to fix production levels? Why would the government not tolerate this kind of activity?

Capitalism: A Love Story The film focuses heavily on a moral

condemnation of capitalism. Do you agree with that approach?

Corporations repeatedly claim that cutting jobs will allow them to save money and stay in business. Why does this not seem to work much in the examples detailed in the film?

What did you find most troubling when watching the film?

Of the four political models; captialism, communism, socialism and fascism, which do you think is best for western society? Why?

Factors of Production Productive resources: Anything that

can be used to create or manufacture goods or services

Land Labour Capital

Land Physical Space Fertile Soil Raw Materials

Mineral Deposits Ground Water Fossil Fuels Forests

Labour Human contribution to

production process Physical Labour (TANGIBLE) Mental Effort (INTANGIBLE)

Entrepreneurship: Organise, Assume Risk, Achieve Results, Innovation

Knowledge: Science, use and creation of technology

Environmental: Political stability, social values

Capital Goods that aid in the production of

other goods Real Capital: Factories, Machines,

equipment Money Capital: Funds to acquire Real

Capital and other factors of production Example: Wages to acquire labour

EconomicsEconomics is the social science that

studies the production, distribution, and consumption of goods and services

Answers the questions: What gets made? Who gets to have it? How do they get it ?

Economist: A person who studies economics

Economic Systems

An Economic System is the way government and business work together to provide goods and services to consumers

Government: Public Sector

Business: Private Sector

Economic Systems Answers the questions

TO PRODUCE

????

WHAT

HOW

FOR WHOM

There are 3 economic systems 1) Traditional Economy 2) Command Economy 3) Market Economy

Traditional Economy System Goods and services produced today

are the same as those produced in the past, and in are produced the same fashion

Common in underdeveloped countries

Practices of the past determine what, how and for whom we produce.

Traditional Economy What to produce:

Same products as in the past

Same quantity – subsistence

For whom to produce: Own use Family Tribe

How to produce: Traditional

Methods Skills passed

from parent to child

Bedouin of Sahara Desert

Traditional EconomyStrengths

Little environmental damage

Consumption and waste are minimized

Focus on self reliance

Control price and quantity

FREEDOM!!

Weaknesses No social

improvement Limited planning Limited choice of

products Individualism

Discouraged

Examples of Traditional Economic Systems

The Bedouin of the Sahara Desert The Bushmen of the Kalahari Desert The Mongols of the Gobi Desert

Command Economy All production decisions are made by a

small group of political leaders who have the power to enforce their decisions throughout the entire economy.

Supply and price are controlled by the governement

What, how and for whom to produce are all answered by the central authority

Command Economy What to produce:

Decided by state through central a planning authority

Capital Goods For whom to

produce: Decided by state

through a central planning authority

How to produce: Decided by state

through central a planning authority

North Korea

Cuba

Command EconomyStrengths

Planning Promotes Growth (Capital Goods vs Consumer Goods)

Reduces waste Equitable distribution

of wealth Economic Stability Needs are provided

for

Weakness Bureaucratic and

inflexible Limits individual

choice Personal Consumer goods

Quotas foster quantity over quality

Little incentive To strive socially To innovate

Command Economy Motivation in a command economy

Pure Market Economy Economic activity is coordinated by many

individuals who make independent decisions in a free market

Supply and demand determine prices

The actions of individual buyers and sellers in the marketplace answer what, how and for whom goods and services will be produced.

Pure Market System Also called Free market, Free Enterprise, Capitalist system

What to produce: What will sell at

the most favourable price - Market

For whom to produce:

Consumers WILLING and ABLE

How to produce: As efficiently as

possible to keep costs/price low

Pure Market System Also called Free market, Free Enterprise, Capitalist system

Strengths Freedom of choice Variety of goods Competition =

quality, innovation, better prices

Profit motivates Flexibility

Weakness Poor distribution of

wealth Boom and Bust

cycles (hurt) Large producers

can manipulate prices

Waste and over consumption

Modern Mixed Economy

Business and government answer questions

Business and Government each are responsible for production and distribution of different goods and services

Public Sector: Parts of the economy run by the government

Private Sector: Parts of the economy run by business

Modern Mixed EconomyWhat would they produce Public Sector: Law enforcement Health Care Public swimming

pools Garbage Collections Education Public Transit Post National Defence

Private Sector: Food Water Clothing Phones Hot tubs Computers Cars Etc

Modern Mixed Economy Almost all countries are mixed

economies. They exist on a spectrum The roll of government and business

change over time

Understanding Political Economies Economics works within a

governmental framework Some examples of how government

has affected the economy Ex New government rules regarding

housing and mortgages Ex Trade agreements - NAFTA

GOVERNMENTS SET THE RULES OF THE GAME

How would tax cuts affect our economy?

Tax Cuts Good Saving High enough Lower taxes will

allow people to spend more

Bad Fewer public

services Lower quality

public services Increase

government debt

Socialism Capitalism

Communism Fascism

Command Economy

Market Economy

Dictatorship

Democracy

Extreme Left

Moderate Left Moderate Right

Extreme Right

Political Orientation

Political Economies Democracy:

Freely elected government Represents majority of citizens Limited term in control Open to other political views Checks and balances can make system

inefficient Dictatorship

Single person or group absolute control No way for citizens to change their leadership Not hindered by checks and balances

Find an Example Communism: Cuba, North Korea

Socialism: Sweden, Norway, Denmark

Capitalism: US

Fascism: Nazi Germany, Argentina (1970-1980s)

Communism Command economy + Dictatorship Based on the theories of Karl Marx,

Friedrich Engels and Vladimir Lenin Under Communism

Private Property & Free enterprise are abolished

Strong central government Examples: Cuba, North Korea

Socialism

Command Economy + Democracy Based on public ownership or control Allows democratic and peaceful methods Claims that free enterprise is inefficient and

wasteful Labour movement – co-operation and worker

solidarity Equitable distribution of goods Examples: Scandinavian Countries (Free

enterprise socialism)

Socialism = Happiness?? Top 10 Happiest Countries

Norway, Denmark, Finland, Sweden, Switzerland and Netherlands

In Norway… Free universal health care Free post-secondary education 1 year paid maternity leave/4 week mat leave 16 days paid sick leave Unemployment rate ~2% Poverty rate 1.7%

So Why Doesn’t Every Country Adopt a Socialist Political Economic Model?

High cost Less entrepreneurships Big governement Communism???

Capitalism Market Economy + Democracy Based on the theories of Adam Smith Focuses on the accumulation of capital

resources as a means to greater wealth Private ownership is key Producers are driven by Profit Examples: Canada, US

Fascism Market Economy + Dictatorship Based on the theories of free market

economy with a non democratic with authoritarian form of government

Do not tolerate political opposition Ex Nazi Germany, Chile under

Pinochet

Homework Come up with 2 pros and cons for each

political model (capitalism, fascism, socialism and communism)

Fill in the political economic model

Capitalism Pros

Promotes economic growth

Econcomic freedom Decentralized=more

competion=better prices

People who work hard are rewarded…sometimes

Cons It’s all about the za

benjamins Wasteful=Depletio

n of resources Wealth inequality Booms and busts

Socialism Pros

EQUALITY Medical Social Economic Political

no man/woman left behind

Cons Higher cost Less

entrepreneurship Government has

more power Free ride Little incentive to

be all that you can be

Communism Pros

Efficiently distribute resources

Focus is on cooperation of resources

Incentive to participate

Cons Difficult to maintain a

common goal Block out external

culture and competition=weakening of their economic system

Fascism Pros

Strong military Unity Laws can be

passed quickly Opportunities for

private business and property

Cons Corrupt Controlling Promotes war and

violence