Economics Unit 4 and Economics Unit 4 and 55

Capstone Unit 4 Lesson 20Capstone Unit 4 Lesson 20 People often complain about greed and People often complain about greed and

selfishness. They point to high prices for health selfishness. They point to high prices for health care or medicine as an example. Some people care or medicine as an example. Some people regard market systems as the problem in these regard market systems as the problem in these cases. They say that market systems foster cases. They say that market systems foster unseemly values such as selfishness, greed, unseemly values such as selfishness, greed, and a winner take all attitude. Economists take and a winner take all attitude. Economists take a far different view, asserting that market a far different view, asserting that market systems foster values that we generally systems foster values that we generally cherish, including individual freedom, cherish, including individual freedom, cooperation and prosperity. The purpose of this cooperation and prosperity. The purpose of this lesson is to apply economic reasoning to show lesson is to apply economic reasoning to show why self-interested behavior fosters positive why self-interested behavior fosters positive economic and social outcomes. economic and social outcomes.

Market SystemMarket System Why might people be skeptical of market Why might people be skeptical of market

systems?systems? What is the mystery?What is the mystery? Visual 1Visual 1 Visual 2Visual 2 T,F,TT,F,T You are going to participate in a simulated panel You are going to participate in a simulated panel

discussion. discussion. Assign PartsAssign Parts Activity 1Activity 1 Complete questions A-EComplete questions A-E

QuestionsQuestions Who was Adam Smith?Who was Adam Smith?

– He was an 18He was an 18thth century philosopher, now regarded as the founder of modern century philosopher, now regarded as the founder of modern economic thought. Wealth of Nations offers an extensive description of the economic thought. Wealth of Nations offers an extensive description of the principles of a market economy. principles of a market economy.

What is the difference between self-interest and selfishness?What is the difference between self-interest and selfishness?– Some people are selfish, all people act in their own self- interest. Self-Some people are selfish, all people act in their own self- interest. Self-

interest for some might mean seeking money; for others it might imply interest for some might mean seeking money; for others it might imply different priorities. Being interested in money need not mean that a person different priorities. Being interested in money need not mean that a person is selfish or greedy. It could just as well mean that he or she wants money in is selfish or greedy. It could just as well mean that he or she wants money in order to obtain an education or care for a family or contribute to order to obtain an education or care for a family or contribute to environmental causes and so on. environmental causes and so on.

What virtues are encouraged in market systems according to Smith?What virtues are encouraged in market systems according to Smith?– Honesty, cooperation, courtesy and enterpriseHonesty, cooperation, courtesy and enterprise

Why are market prices important?Why are market prices important?– Market prices reflect the value of a good to society and the cost to society Market prices reflect the value of a good to society and the cost to society

of making the good. of making the good. Solve the Mystery?Solve the Mystery?

– The incentives established by market systems encourage people The incentives established by market systems encourage people unknowingly to act in ways that help others by providing them with the unknowingly to act in ways that help others by providing them with the goods and services they wish to have at market prices that reflect the value goods and services they wish to have at market prices that reflect the value of goods to the societyof goods to the society

What motive-caring or self-interest- does What motive-caring or self-interest- does Smith think is more likely to encourage Smith think is more likely to encourage people to provide for one another? Do you people to provide for one another? Do you agree?agree?

Visual 3Visual 3 Smith thinks that self-interest is more likely Smith thinks that self-interest is more likely

than caring to encourage people to provide than caring to encourage people to provide for one another. for one another.

What is the invisible hand?What is the invisible hand? Visual 4Visual 4 When people pursue their own interests, they When people pursue their own interests, they

frequently and unknowingly benefit othersfrequently and unknowingly benefit others Visual 5Visual 5

Capstone Unit 4 Lesson 21Capstone Unit 4 Lesson 21 This lesson will give us a better understanding This lesson will give us a better understanding

of the concept of labor Productivityof the concept of labor Productivity Today is National Economics DayToday is National Economics Day To celebrate we will produce greeting cardsTo celebrate we will produce greeting cards How to makeHow to make

– First fold paper in halfFirst fold paper in half– Write Happy Economics Day on Front in BlackWrite Happy Economics Day on Front in Black– Draw a smiley face above Economics in redDraw a smiley face above Economics in red– On the back write the year in BlackOn the back write the year in Black– Leave the inside blank to save for special Leave the inside blank to save for special

messagesmessages

Making the CardsMaking the Cards One volunteerOne volunteer Two minutes to finish as many high Two minutes to finish as many high

quality cards as possiblequality cards as possible Time on BoardTime on Board One volunteer for quality controlOne volunteer for quality control After two minutes record in notes or After two minutes record in notes or

on on visual 1visual 1

Round TwoRound Two Two workersTwo workers Same suppliesSame supplies Same rulesSame rules Visual 1Visual 1 Round threeRound three Round four Round four ……

Labor ProductivityLabor Productivity Visual 1Visual 1 Why did our productivity go down in the end? (Hopefully)Why did our productivity go down in the end? (Hopefully)

– Need for more capital (scissors and markers), better resources, Need for more capital (scissors and markers), better resources, more education, skilled workforce, and better technologymore education, skilled workforce, and better technology

Improvements in productivity are important for economic Improvements in productivity are important for economic growth and lead to higher living standards in an economy.growth and lead to higher living standards in an economy.

Activity 1Activity 1 Pick a partner and complete togetherPick a partner and complete together Marginal Product of Labor 4,5,6,5,4,2,1,0Marginal Product of Labor 4,5,6,5,4,2,1,0 Value of marginal product 8,10,12,10,8,4,2,0Value of marginal product 8,10,12,10,8,4,2,0 Diminishing marginal returns occurs with the 4Diminishing marginal returns occurs with the 4thth worker worker

because the marginal product of the fourth worker is 5, because the marginal product of the fourth worker is 5, which is less than 6, the marginal product of the 3which is less than 6, the marginal product of the 3rdrd worker worker

@ $5 the business would hire 5 workers.@ $5 the business would hire 5 workers.

Capstone Unit 4 lesson 22Capstone Unit 4 lesson 22 Activity 1 and 2Activity 1 and 2 Groups of FourGroups of Four One person is responsible for one of the One person is responsible for one of the

cases in Activity 1cases in Activity 1 Read the case and fill in your Read the case and fill in your

corresponding chart (activity 2)corresponding chart (activity 2) When each person is finished share with When each person is finished share with

your group to fill in the rest of activity 2your group to fill in the rest of activity 2

Answers to Activity 2Answers to Activity 2 Pure Competition: Many firms, identical products, Pure Competition: Many firms, identical products,

no control over prices, easy to enter, no non-price no control over prices, easy to enter, no non-price competition. Examples: agriculture, stocks and competition. Examples: agriculture, stocks and foreign exchangeforeign exchange

Monopolistic Competition: Many firms, different Monopolistic Competition: Many firms, different products, some control over prices, fairly easy to products, some control over prices, fairly easy to enter, a lot of non-price competition. Examples: gas enter, a lot of non-price competition. Examples: gas stations, fast food, and dry cleanersstations, fast food, and dry cleaners

Oligopoly: Few firms, similar or different products, Oligopoly: Few firms, similar or different products, significant non-price competition if products are significant non-price competition if products are differentiated. Examples: soaps, cars, airlines, differentiated. Examples: soaps, cars, airlines, copper and glasscopper and glass

Monopoly: One firm, a unique (different) product, Monopoly: One firm, a unique (different) product, significant control over prices, difficult to enter, significant control over prices, difficult to enter, non-price competition may exist. Examples: non-price competition may exist. Examples: companies with patents and regulated public companies with patents and regulated public utilitiesutilities

Capstone Unit 4 Lesson 23Capstone Unit 4 Lesson 23 Marginal Analysis: Comparing additional benefits Marginal Analysis: Comparing additional benefits

to additional coststo additional costs Activity 1Activity 1 Read Andrea’s case togetherRead Andrea’s case together Fixed CostFixed Cost Variable CostVariable Cost Total CostTotal Cost Marginal CostMarginal Cost Total RevenueTotal Revenue Marginal RevenueMarginal Revenue ProfitProfit

Choose a partnerChoose a partner Each group will try to help AndreaEach group will try to help Andrea Complete Complete Activity 2 Activity 2 (do first couple as class)(do first couple as class) Answers to Activity 2Answers to Activity 2 Total Fixed Costs: $60 for each quantityTotal Fixed Costs: $60 for each quantity Total costs: $60, 105, 145, 180, 210, 245, 285, 330, 385, 450, 525Total costs: $60, 105, 145, 180, 210, 245, 285, 330, 385, 450, 525 Marginal Costs: $45, 40, 35, 30, 35, 40, 45, 55, 65, 75Marginal Costs: $45, 40, 35, 30, 35, 40, 45, 55, 65, 75 Price: $56 for eachPrice: $56 for each Total Revenue: $0, 56, 112, 168, 224, 280, 336, 392, 448, 504, 560Total Revenue: $0, 56, 112, 168, 224, 280, 336, 392, 448, 504, 560 Marginal Revenue: $56 for each additional unitMarginal Revenue: $56 for each additional unit Profit or loss $60 loss, 49, 33, 12, $14 profit, 35, 51, 62, 63, 54, 35Profit or loss $60 loss, 49, 33, 12, $14 profit, 35, 51, 62, 63, 54, 35 A. Andrea should sell eight programs. Her profit would be $63. A. Andrea should sell eight programs. Her profit would be $63.

Marginal revenue for the 8Marginal revenue for the 8thth program is $56, marginal cost is $55. program is $56, marginal cost is $55. Producing the 8Producing the 8thth program adds to her profit. program adds to her profit.

B. If Andrea sold nine programs. Her profit would fall to $54. B. If Andrea sold nine programs. Her profit would fall to $54. Marginal revenue for the 9Marginal revenue for the 9thth program is $56, marginal cost is $65. program is $56, marginal cost is $65. Producing this ninth program would decrease her profit. Producing this ninth program would decrease her profit.

Capstone Unit 5 Lesson 24Capstone Unit 5 Lesson 24 What action has the government taken to try What action has the government taken to try

to protect endangered species?to protect endangered species? What is the mystery?What is the mystery? Visual 1Visual 1 Visual 2Visual 2 F, T, TF, T, T There is a role for government to protect the There is a role for government to protect the

environment. This is the case when all the environment. This is the case when all the costs and benefits associated with producing costs and benefits associated with producing a good or service are reflected in the pricea good or service are reflected in the price

Visual 3Visual 3

Activity 1Activity 1 What are ExternalitiesWhat are Externalities

– Economic side EffectsEconomic side Effects Name at least two activities that involve negative externalitiesName at least two activities that involve negative externalities

– Barking dogs, babies crying on airplanes, second hand smoke, Barking dogs, babies crying on airplanes, second hand smoke, factory emissionsfactory emissions

Name at least two activities that involve positive externalitiesName at least two activities that involve positive externalities– Painting the exterior of a home, maintaining a lawn, flu Painting the exterior of a home, maintaining a lawn, flu

vaccinations, education, scientific researchvaccinations, education, scientific research Why might governments choose to take action when markets Why might governments choose to take action when markets

produce negative and positive externalities?produce negative and positive externalities?– Because not all the costs and benefits are considered by Because not all the costs and benefits are considered by

producers in the transactions in question. They want to raise producers in the transactions in question. They want to raise prices and lower the production of goods with negative and lower prices and lower the production of goods with negative and lower the price and raise the production of goods with positivethe price and raise the production of goods with positive

Many citizens believe that education ahs positive externalities Many citizens believe that education ahs positive externalities Explain?Explain?– Education helps people become more productive. Educated Education helps people become more productive. Educated

people are more likely to get a job, commit fewer crimes, vote people are more likely to get a job, commit fewer crimes, vote and have lower medical expenses.and have lower medical expenses.

Visual 4Visual 4 Individual Tradable Quotas: Government establishes Individual Tradable Quotas: Government establishes

a quota for the quantity of fish that may be taken , a quota for the quantity of fish that may be taken , setting the quota at a level that will sustain the setting the quota at a level that will sustain the fishery. ITQ’s are established at a level and are sold fishery. ITQ’s are established at a level and are sold to fishers. Fishers can use the quota or sell it to to fishers. Fishers can use the quota or sell it to others. Each fisher in a sense owns part of the others. Each fisher in a sense owns part of the fishery.fishery.

Trading Pollution Permits: Establishing air pollution Trading Pollution Permits: Establishing air pollution permits is similar to ITQ’s. 1permits is similar to ITQ’s. 1stst the government sets a the government sets a standard for air quality. Businesses are granted standard for air quality. Businesses are granted flexibility in meeting the standard. If a business flexibility in meeting the standard. If a business exceeds the standard (i.e. emits less pollution) it can exceeds the standard (i.e. emits less pollution) it can sell some portion of its reaming pollution permit to sell some portion of its reaming pollution permit to another business. another business.

Owning Whales: Ownership rights Owning Whales: Ownership rights could be assigned by applying genetic could be assigned by applying genetic tagging and using satellite technology. tagging and using satellite technology. Conservation groups as well as whale Conservation groups as well as whale farmers could purchase whale pods. farmers could purchase whale pods. Both would have incentives to Both would have incentives to preserve currently endangered whales.preserve currently endangered whales.

Land Ownership: Ownership rights are Land Ownership: Ownership rights are now widespread which allow private now widespread which allow private conservation groups to bid on an down conservation groups to bid on an down valuable habitat. valuable habitat.

Activity 2Activity 2 What is the Endangered Species Act?What is the Endangered Species Act?

– A federal law intended to protect endangered animals and A federal law intended to protect endangered animals and plantsplants

What were the goals of the Act?What were the goals of the Act?– The law allows government officials to deny landowners the The law allows government officials to deny landowners the

use of their property if an endangered species is found to be use of their property if an endangered species is found to be present. The law makes it illegal to harass, harm, pursue, present. The law makes it illegal to harass, harm, pursue, hunt, shoot, would, kill, trap, capture or collect a plant or hunt, shoot, would, kill, trap, capture or collect a plant or animal listed.animal listed.

Why were carrier pigeons destroyed?Why were carrier pigeons destroyed?– They were hunted to extinction because they were not They were hunted to extinction because they were not

owned. There were incentives to kill them, but no incentives owned. There were incentives to kill them, but no incentives to protect them.to protect them.

Why does the ESA appear to be a government failure?Why does the ESA appear to be a government failure?– It creates incentives that encourage landowner to destroy It creates incentives that encourage landowner to destroy

habitat. By presenting perverse incentives to landowners it habitat. By presenting perverse incentives to landowners it generates costs that appear to exceed the benefits gained in generates costs that appear to exceed the benefits gained in the protection of endangered species.the protection of endangered species.

Capstone Unit 5 Lesson 26Capstone Unit 5 Lesson 26 A vast majority of the things we A vast majority of the things we

consume are produced by the private consume are produced by the private sector-private businesses.sector-private businesses.

The Government does produce some The Government does produce some goods and servicesgoods and services

Why does the government produce Why does the government produce some things and not others?some things and not others?

Activity 1 Activity 1 Complete Part 1Complete Part 1

What is the public sector?What is the public sector?– All the production and consumption activities of the All the production and consumption activities of the

governmentgovernment What is the private sector?What is the private sector?

– Private producers in marketsPrivate producers in markets What makes a private good unique?What makes a private good unique?

– In conveys its benefits only to the purchaserIn conveys its benefits only to the purchaser What makes a public good or service different from What makes a public good or service different from

a private good or service?a private good or service?– A public good or service conveys benefits to payers and A public good or service conveys benefits to payers and

non payersnon payers What is a free riderWhat is a free rider

– A person who consumes a good but does not pay for it. A person who consumes a good but does not pay for it. What does non-exclusion mean?What does non-exclusion mean?

– A condition in which it is difficult to exclude non-payers A condition in which it is difficult to exclude non-payers from receiving a good or servicefrom receiving a good or service

What is shared consumption?What is shared consumption?– One person’s consumption of a good or service does not One person’s consumption of a good or service does not

reduce its usefulness to othersreduce its usefulness to others

Complete Part 2 in groups of threeComplete Part 2 in groups of three AnswersAnswers Police-PublicPolice-Public Flood Control-PublicFlood Control-Public Gourmet Cofee Shops-PrivateGourmet Cofee Shops-Private High School Education-BothHigh School Education-Both Movie Tickets-PrivateMovie Tickets-Private Severe Weather Warning-PublicSevere Weather Warning-Public Laptop Computer-PrivateLaptop Computer-Private

Capstone Unit 5 Lesson 27Capstone Unit 5 Lesson 27 US initiated a farm subsidies program in US initiated a farm subsidies program in

1930s to save farmers from bankruptcy1930s to save farmers from bankruptcy Today most government subsidies go to Today most government subsidies go to

large farmed concentrated in a few stateslarge farmed concentrated in a few states Why might this shift have occurred?Why might this shift have occurred? Visual 1Visual 1 Why do our senators and representatives Why do our senators and representatives

sometimes pass programs that impose sometimes pass programs that impose costs on everyone but benefit only a few?costs on everyone but benefit only a few?

Special Interest GroupsSpecial Interest Groups Many people belong to special interest groups Many people belong to special interest groups Visual 2Visual 2 List only includes a few of the thousandsList only includes a few of the thousands Groups spend more than One Billion annuallyGroups spend more than One Billion annually These groups often get a bad reputationThese groups often get a bad reputation If they are harmful to the system why so If they are harmful to the system why so

many and why do so many join and why do many and why do so many join and why do wo many politicians support?wo many politicians support?

Special interest groups offer important Special interest groups offer important benefits or advantages to the citizens who join benefits or advantages to the citizens who join them and to the elected officials who support them and to the elected officials who support their causestheir causes

Special Interest GroupsSpecial Interest Groups What potential benefits or What potential benefits or

advantages do interest groups offer advantages do interest groups offer to the citizens who join them?to the citizens who join them?

What potential benefits or What potential benefits or advantages do they offer to elected advantages do they offer to elected officials?officials?

Visual 3Visual 3 Activity 1 Part 1Activity 1 Part 1

Who will benefit from the construction of the new Who will benefit from the construction of the new stadium?stadium?– People in local and state business, labor and government. People in local and state business, labor and government.

The members of Congress from the state will benefit if their The members of Congress from the state will benefit if their constituents know they helped to deliver the stadiumconstituents know they helped to deliver the stadium

Will people in other states and communities derive Will people in other states and communities derive much benefit from the construction of the new much benefit from the construction of the new stadium? Why or why not?stadium? Why or why not?– No not unless they visit Twin Lakes or watch the Muskies No not unless they visit Twin Lakes or watch the Muskies

on tvon tv If you knew that your taxes would increase bya a If you knew that your taxes would increase bya a

few cents so the people of Twin Lakes could have a few cents so the people of Twin Lakes could have a new stadium, would you protest the action to your new stadium, would you protest the action to your members of Congress? Why or why not?members of Congress? Why or why not?– No The protest probably would not seem to be worth your No The protest probably would not seem to be worth your

efforteffort What do you predict will happen?What do you predict will happen?

– They will get the money. The cost will be spread over a They will get the money. The cost will be spread over a large population, and the cost per taxpayer will therefore large population, and the cost per taxpayer will therefore seem small. The concentrated effort of the state and local seem small. The concentrated effort of the state and local voters involved provides strong incentives for the state’s voters involved provides strong incentives for the state’s congressional delegation to work hard to deliver the federal congressional delegation to work hard to deliver the federal funds.funds.

Part 2Part 2 Who will benefit from construction of Who will benefit from construction of

a new subway?a new subway?– Interest groups in HoustonInterest groups in Houston

Will people in other states derive Will people in other states derive much benefit?much benefit?– No not unless they visit HoustonNo not unless they visit Houston

What do you predict will Happen?What do you predict will Happen?

Part 2Part 2 Who will benefit from the dam and Who will benefit from the dam and

reservoir?reservoir?– Special groups in TownsendSpecial groups in Townsend

Will people in other states and Will people in other states and communities derive much benefit?communities derive much benefit?– No not unless they vacation in TownsendNo not unless they vacation in Townsend

What do you predict will happen?What do you predict will happen?– Probably fail. # of interests in Townsend Probably fail. # of interests in Townsend

are just too small. are just too small.

Unit 5 Lesson 28Unit 5 Lesson 28 The level of voter turnout has droppedThe level of voter turnout has dropped What seems to be the pattern of voter What seems to be the pattern of voter

turnout in presidential elections?turnout in presidential elections? Visual 1Visual 1 What groups of people tend to vote less? What groups of people tend to vote less?

Why?Why? Visual 2Visual 2 What are the costs and benefits of voting?What are the costs and benefits of voting? Visual 3Visual 3 Visual 4Visual 4

What are some ways to reduce What are some ways to reduce the cost of voting?the cost of voting?

Allowing voter registration on day of Allowing voter registration on day of electionelection

Develop electronic voting systemDevelop electronic voting system Vote from homeVote from home Vote by mailVote by mail Reduce residency requirementsReduce residency requirements Hold elections on holidays or Hold elections on holidays or

weekendsweekends

What are some ways of What are some ways of increasing the benefits of increasing the benefits of

voting?voting? Encouraging more attractive Encouraging more attractive

candidates to run for officecandidates to run for office Nominate candidates with sharp Nominate candidates with sharp

differences on issuesdifferences on issues Encourage more competition Encourage more competition

between candidatesbetween candidates