THE ECONOMICS BEHIND FINANCIAL DECISIONS

I can understand the fundamentals of the market system.

I can understand the definition of Economics.

I can understand why people have to make choices and that with choosing comes consequences.

I can understand that with every benefit there is always a cost.

STUDENT TARGET

CONCEPTS Economics Scarcity Market Economy Opportunity Cost Entrepreneurship Capital Cost Revenue Profit Incentives

Supply and Demand Price Budget Utility Benefit Investment Growth Choice Consumer Producer Wages

Standard 1 : ScarcityProductive resources are limited. Therefore, people can not have all the goods and services they want; as a result, they must choose some things and give up others.

Standard 2 : Marginal Cost/BenefitEffective decision making requires comparing the additional costs of alternatives with the additional benefits. Most choices involve doing a little more or a little less of something: few choices are "all or nothing" decisions.

NATIONAL STANDARDS

Standard 3 : Allocation of Goods and Services

Different methods can be used to allocate goods and services. People acting individually or collectively through government, must choose which methods to use to allocate different kinds of goods and services.

Standard 4 : Role of IncentivesPeople respond predictably to positive and negative incentives

NATIONAL STANDARDS

WHICH ONE OF THESE TWO THINGS WOULD YOU RATHER BE

DOING RIGHT NOW?

A Cost is something you give up in making a choice and a Benefit is something you gain. What would be the costs and the benefits of doing this now?

COSTS AND BENEFITS

COSTS AND BENEFITS

WHY MUST YOU CHOOSE? BECAUSE OF SCARCITY

Why have you chosen to do this instead? What are the costs and benefits?

SCARCITY TELLS ME ICAN’T DO BOTH, IHAVE TO MAKE A CHOICE.SINCE YOU CAN’T HAVEEVERYTHING YOU WANTECONOMICS HELPS USGET THE MOST OUT OF WHAT WE CAN HAVE.

SCARCITY

Have you ever heard the phrase:

“There’s no such thing as a free lunch”?

T.I.N.S.T.A.A.F.L.

EVEN THOUGHTHE SIGN SAYSSO, IS IT TRULYFREE? I MAY NOTGIVE UP MONEY,BUT WHAT AM IGIVING UP BYATTENDING?

OPPORTUNITY COST

IF I EAT LUNCH FROM 12:00 TO 1:00 P.M., WHAT CAN’T I DO?

What is the Opportunity Cost of the following decisions?

Buying a gift for a friend. Working at a job after school Waiting on line for an hour to buy a new cell

phone Playing on your X-Box for two hours after

dinner.

Did you all have the same answers? Why not?

OPPORTUNITY COST IS THE BEST OPTION GIVEN UP WHEN YOU MAKE A

CHOICE

Economics is the study of how people make choices. When you make a good economic decision the benefits will be greater than the costs.

WHAT IS ECONOMICS?

UTILITY = SATISFACTION

He made a good decision

He made a bad decision

WHY DO PEOPLE MAKE THE DECISION TO GO INTO BUSINESS FOR THEMSELVES?

TAKE OUT A PIECE OF PAPER AND DRAW A LINE VERTICALLY DOWN THE MIDDLE. LABEL ONE SIDE

BENEFITS AND THE OTHER SIDE COSTS. WHAT WOULD BE THE BENEFITS OF OPENING YOUR OWN BUSINESS

AND WHAT WOULD BE THE COSTS?

BENEFITS COSTS

PROFIT BE YOUR OWN BOSS FREEDOM FILL A NEED HAVE MORE CONTROL

OVER MY WORK SCHEDULE

PAID MORE FOR MY WORK

GREAT CHANCE OF FAILURE

NO ONE TO SHARE THE COSTS WITH

NO ONE TO SHARE RESPONSIBILITIES OR SKILLS

DO THE JOB OF THE WORKER AND THE BOSS

INCENTIVES are things such as rewards that motivate a person to do something. Punishment is meant to be a disincentive.

PEOPLE RESPOND TO INCENTIVES

THERE WAS A TIME WHEN THE MAJORITY OF ADULT AMERICANS SMOKED AND PEOPLE

THOUGHT IT LOOKED COOL.

INCENTIVES HELP PEOPLE MAKE CHOICES

NOW LESS THAN 25% OF THE U.S.

POPULATION SMOKES AND THE NUMBERS HAVE BEEN SHRINKING FOR DECADES.

WHAT CHANGED?

WE GOT EDUCATED

CHANGING INCENTIVES CHANGE PEOPLE’S CHOICES

SCARCITY TELLS US WE CAN’T HAVE EVERYTHING WE WANT

EVERY DAY OF OUR LIVES WE HAVE TO MAKE CHOICES

IN MAKING CHOICES WE WEIGH THE BENEFITS AGAINST THE COSTS

NOTHING IS FREE, THERE IS ALWAYS AN OPPORTUNITY COST

A GOOD ECONOMIC DECISION CREATES MORE BENEFITS THAN COSTS

INCENTIVES HELP US TO CHOOSE

SO, TO RECAP!!!

THE WORLD’S ECONOMIES

PROVIDE US WITH A LOT OF CHOICES AND THE WORLD’S SHOPPERS HAVE A LOT OF DIFFERENT

INTERESTS.

THE MARKET ECONOMY

IN AMERICA, WE HAVE A LOT OF FREEDOM TO DECIDE WHAT WE WANT TO DO WITH OUR LIVES AND HOW WE WANT TO SPEND OUR MONEY

THE MARKET ECONOMY

THE MARKET ECONOMY ALLOWS SELLERS TO COMPETE FOR CONSUMER DOLLARS

SUPPLY DEMAND

PRICE OF LABOR

WHY DOES THIS GUY MAKE $30,000,000?

WHY DOES THIS GUY MAKE $7.25?

WE LOVE BASKETBALL, ESPECIALLY HIGH FLYING AND ACROBATIC DEFYERS OF GRAVITY ( HUGE DEMAND)

THERE’S ONLY ONE LeBRON (TINY SUPPLY) WE LOVE FAST-FOOD THOUGH WE KNOW IT’S

NOT GOOD FOR US (HUGE DEMAND) THERE ARE SEEMINGLY ENDLESS CHOICES

FOR IT AND THE PROCESS OF MAKING IT DOESN’T REQUIRE MUCH THOUGHT. JUST ABOUT ANYONE CAN FILL THE JOB. ( EVEN BIGGER SUPPLY)

THE ANSWER IS: SUPPLY AND DEMAND

It’s the Motorola DynaTAC 8000X , the world’s first cell phone. It went on sale March 6, 1983 and the initial price was $3995. It had enough battery life for 30 minutes of talk and there was a waiting list of thousands anxious to buy it.

DO YOU KNOW WHAT THIS IS?

Today we have cellular technology that allows for all kinds of communication, video streaming, and downloads with more computing power and memory then the technology that sent all of our astronauts to the Moon. Many are given away with service contracts.

HOW DID THAT HAPPEN?

IN 1983, ONE COMPANY MADE CELL PHONES WITH VERY EXPENSIVE PARTS AND A GREAT AMOUNT OF COSTLY LABOR (TINY SUPPLY)

PEOPLE WERE CRAZY ABOUT IT AND WAITED FOR MONTHS BEFORE DELIVERY (BIG DEMAND)

IN 2010, MANY COMPANIES MAKE A VARIETY OF PHONES WITH VERY INEXPENSIVE PARTS AND VERY LITTLE HUMAN LABOR INVOLVED (HUGE SUPPLY)

MOST CONSUMERS HAVE A PHONE AND SPEND MOST OF THEIR MONEY ON SERVICES (DEMAND IS SLOWING DOWN)

THE ANSWER IS: SUPPLY AND DEMAND

1. A TICKET TO SEE YOUR FAVORITE FOOTBALL TEAM NOW THAT THEY’VE MADE THE PLAYOFFS

2. A GALLON OF GASOLINE AFTER A HURRICANE SHUTS DOWN OIL DRILLING PLATFORMS IN THE GULF OF MEXICO.

3. A BUSHEL OF CORN AFTER FARMERS IN IOWA DISCOVER A MORE POWERFUL FERTILIZER.

4. A PAIR OF DESIGNER JEANS AFTER EVERYONE’S FAVORITE CELEBRITY IS SEEN WEARING THEM THE NIGHT BEFORE ON AN AWARDS SHOW.

5. A BIG MAC AFTER RESEARCHERS DETERMINE THAT EATING TOO MUCH FAST FOOD CAUSES STUDENTS TO GET LOWER GRADES.

READ EACH STATEMENT BELOW AND DECIDE WHETHER THE PRICE OF THE ITEM WILL GO UP OR DOWN. ALSO,

IS THIS BECAUSE OF A CHANGE IN SUPPLY OR DEMAND?

IN ORDER FOR THE MARKET TO WORK IT MUST BE OPEN TO EVERYONE

MARKETS ARE CREATED TO ALLOW BUYERS AND SELLERS TO PROFIT.

SELLERS MAKE MONEY AND BUYERS GET THE ITEMS THEY’RE LOOKING FOR.

THE PRICE HELPS BUYERS MAKE DECISIONS ON WHAT THEY WILL PURCHASE AND HELPS SELLERS DETERMINE WHAT THEY SHOULD PRODUCE.

WAGES ARE DETERMINED BY THE SUPPLY AND DEMAND FOR THE JOB SKILLS OFFERED.

SO, TO RECAP!!!

IS THE MARKET POWERLESS TO DO ANYTHING ABOUT THE PRICE OF GASOLINE?

IS ANYTHING IN THIS WORLD TRULY PRICELESS?