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Mini Unit – Basic Economics

An understanding of basic economics is essential to the understanding of American history.

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Learning Goal 1 – I will be able to:-Define “economics”-Explain “scarcity” & “opportunity cost”-Define, compare, and contrast “command economy” and “free market economy.”

I. “It’s the Economy, Stupid!” – Intro to economics

a. Definition: The study of how people choose to use their resources knowing their wants are

unlimited but their resources are not.

b. Scarcity = economic factors (time, money, resources) are limited and economics studies how

people go about using them

i. Money is scarce, so people have to make decisions on how to spend their money.

1. Economics studies how people make those choices

ii. Opportunity Cost = the cost of the next best alternative what you had to give up – needed

to understand why people make decisions they do

1. Everything has an opportunity cost, regardless of how small

2. Ex: I have $200 to spend. I can buy either Pens tickets or Steelers tickets. I

choose Pens tickets, so my opportunity cost is the Steelers tickets

iii. Wants vs. Needs

1. Wants are specific products or services one desires. Needs are more broad, and

are what one needs to survive

2. Food as a want = Primanti Brothers Sandwich, Wings from the Lube

3. Food (broad term) is a need b/c you’d be dead if you didn’t have food

4. iPod? __ Computer? __ Water? __Your home? __ Phone? __ School? __

c. Types of economies

i. Command = Government controlled

1. Former Soviet Union, North Korea, Cuba, typically do not work

ii. Free market = People controlled

1. United States, Western Europe, imperfect but more successful than Command

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INDEPENDENT NOTE TAKING

• 1. Abbreviate

– Gov’t, $, nat res , +/-, pple, econ, pd, w/i, b/c, b/t, &, %, 2nd

• 2. Neatness DOESN’T count!

– Don’t erase or expect perfection

– Perfection comes later

• 3. Eliminate unimportant words

– And, an, that, etc.

• 4. Write quickly!

– Expected YOU meet the speed of the person talking, NOT THE

PERSON TALKING MEETING YOUR SPEED!

• 5. Respect those around you.

– If you miss something, don’t interrupt person next to you

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Learning Goal 1: I will be able to:-Define “economics”-Explain “scarcity” & “opportunity cost”-Define, compare, and contrast “command economy” and “free market economy.”

Economics

Scarcity Opportunity Cost

Command Economies Free Market Economies

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You have been saving your lawn mowing and/or babysitting money, birthday money, Christmas money, and any other money you may have “borrowed” from your brother’s not-so-secret hiding spot! The total is $500. What would you do with the money? The sum of the costs should be close to $500. Here are some examples to help get you started: TV ($350), new iPod/phone ($300 if not upgrade eligible), video game system ($300), new video games ($60 each), iTunes ($1-$500), new clothes, new shoes, new bag/purse, tickets to a show or sporting event ($200), donation to the “help my favorite teacher with his college loans” fund.

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What is the opportunity cost of those items? (What else could you have purchased?) _____________________

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In 1-2 sentences, explain the difference between wants and needs _____________________________________

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In a command economy, who makes the important economic decisions? _______________________________

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Learning Goal 2 – I will be able to:-Define supply, demand, and competition-List & explain factors that cause prices to go up and down in America today.

d. Prices

i. Supply = number/amount of an item (something you buy) or a service (someone’s time)

ii. Demand = number of people who want the item/service and/or how badly they want it

iii. Competition = number of companies or people selling the item or service

iv. Forces pushing prices up = decreased supply of a product, increased demand for a

product, less competition for a product

v. Forces pushing prices down = increased supply of a product, decreased demand for a

product, more competition for a product

Supply

Demand

Competitio

n

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What happens to the prices? Why? Address supply, demand, and/or competition.

Halloween Candy on November 1st ___________ price down ________________________________________

because __________demand down ____________________________________________________________

Baked items on the “Oops, We Made Too Much” cart at Giant Eagle __________________________________

because ___________________________________________________________________________________

Penguin tickets for a game against the Boston Bruins on Wednesday night vs. Saturday afternoon____________

because ___________________________________________________________________________________

QS&L Wings at PNC Park (only place there w/wings) vs. the Cranberry restaurant _______________________

because ___________________________________________________________________________________

Ticket on the 50 yard line for a Steelers preseason game vs. a playoff game if purchased on StubHub_________

because ___________________________________________________________________________________

Items on “Black Friday” (day after Thanksgiving) _________________________________________________

because ___________________________________________________________________________________

Housing prices when four houses on one street are for sale __________________________________________

because ___________________________________________________________________________________

Renting a beach house in Virginia Beach in October vs. in July _______________________________________

because ___________________________________________________________________________________

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GROUP EXAMPLES

Price of ___________________________________________________________________________________

Price goes _________________________________________________________________________________

Price of ___________________________________________________________________________________

Price goes _________________________________________________________________________________

Price of ___________________________________________________________________________________

Price goes _________________________________________________________________________________

Price of ___________________________________________________________________________________

Price goes _________________________________________________________________________________

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Learning Goal 3 – I will be able to:-Define Federal Reserve and explain how it works-Define and explain inflation-Define & summarize the importance of the business cycle

e. Federal Reserve - Created by Federal Reserve Act of 1913

i. Nat’l bank that monitors money supply, sets interest rates, & replaces old, worn out bills

ii. Inflation = as more money is printed, it becomes worth less

1. How much was a burger at McDonald’s when your grandparents were your age?

2. Would a reserved seat for a World Series Game 7 at PNC Park (stop laughing!)

cost more or less today than this ticket cost in 1960?

iii. Business Cycle = periodic ups and downs in a capitalist economy

1. During ups, people are spending, jobs are plentiful, production levels up.

2. During downs, people are spending less money, jobs are scarce, production down

3. Circular Flow of Money = When people have jobs, they have money. When they

have money they spend it. When people spend money, businesses produce things.

When businesses produce things, jobs are created…

4. Over 70% of the economy is “consumer spending” (people spending money on

goods like phones, books, and iPods, and services like time spent fixing a car)

a. If the economy is a car, the gasoline is people spending money

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5. If people aren’t spending, the economy slows.

Learning Goal 3 – I will be able to:-Define Federal Reserve and explain how it works-Define and explain inflation-Define & summarize the importance of the business cycle

Federal Reserve

How it Works

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Inflation

Business Cycle

Business Cycle

Importance

Prices in 1940 (year before WWII)

½ G of milk = _______ ($2.19 today) Loaf of bread = ______ ($1.19) New home = ______ ($221,000)

Conclusions:

1. The “growth trend” shows us that over time, the economy is always growing upward.2. During recession, people spend less money.3. During expansion, people spend more money.

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If the economy is a car, the “fuel” is what? ______________________________________________________

Learning Goal 4 – I will be able to:-Summarize and explain why the government cannot simply print $17 trillion to pay the national debt.

On page 3 you told me what you’d do with $500. Now tell me what you’d do if you had ANOTHER $500.

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Item With $500 With $1,000TV

iPod/iPhone/iPad

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Video game system

Video games

iTunes songs

New clothes

New bag/purse

New Shoes

Tickets to a show, concert, or sporting event

So what will happen if the government tries to print $17 trillion to pay off the national debt? _______________

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ECON NEED TO KNOW LIST

Economics

Scarcity

Opportunity cost

Wants

Needs

Command Economy

Free Market Economy

Forces pushing prices up

Forces pushing prices down

Federal Reserve

Inflation

Business Cycle

Circular flow of money

Consumer Spending

Why gov’t can’t print $17 trillion to pay off most of national debt