Coach Saucedo AP Macroeconomics

Economics

Classroom Rules

BE ON TIME. NO CELLPHONES. Put them in the “bucket” if I ask you to. NO SLEEPING. Stand-up in the back, or go see your A.P. BE PREPARED – Homework, pen, pencil, notebook. DO NOT TALK WHILE I AM TALKING!!! I DISLIKE REPEATING

MYSELF! ASSIGNED SEATING. NO COMPROMISE. NO FOOD OR DRINKS – UNLESS I GIVE THEM TO YOU. NO MORE THAN 5 MINUTES WITH A RESTROOM PASS. IF YOU TAKE

MORE THAN 5 MINUTES YOU WILL NOT GET ANOTHER PASS FOR THE 6 WEEKS.

IF YOU ACT LIKE SENIORS I WILL TREAT YOU LIKE SENIORS – WITH THE UTMOST RESPECT YOU DESERVE.

I ARRIVE AT SCHOOL AT 8:AM AND LEAVE AT 3:30PM. COME AND SEE ME ANYTIME.

YOU WILL BE EXPECTED TO WORK THE ENTIRE CLASS PERIOD.

““Intelligent people want to learn, but Intelligent people want to learn, but foolish people are satisfied with foolish people are satisfied with

ignorance”ignorance”Proverbs 15:14Proverbs 15:14

“I have good plans for you, not plans to hurt you. I will give you hope and a good future”

Jeremiah 29:11

Before you speak, ask yourself, is it kind, is it necessary, is it true, does it improve on the silence? 

Sai Baba

What Does Time Mean To You?What Does Time Mean To You?

6,570 Days If you are 18 yrs old, the number of days you have been alive.

28,470 days If you live to 78 yrs old the number of days you will have lived

IT IS UP TO YOU AS TO HOW PRODUCTIVE THIS TIME WILL BE

23%

77%

0 - 18

18 - 78

I want to talk to you about Three four-letter words:

There are NO other substitutes

Tell me what you

What are we trying to satisfy?

I want to talk about the last four-letter word

Tell me what isIt doesn’t cost anyone, anything!

TINSTAAFL “There Is No Such Thing As A Free Lunch”

What is Economics?What is Economics?

Economics is the Economics is the social sciencesocial science that studies how that studies how societiessocieties ( (individuals, businesses, and individuals, businesses, and Government)Government) allocateallocate their their scarcescarce resourcesresources to to satisfy satisfy unlimited wantsunlimited wants. .

Three IMPORTANT wordsThree IMPORTANT words– Allocate Allocate – to assign, allot, distribute– to assign, allot, distribute– ScarceScarce – insufficient to meet demand, not enough to – insufficient to meet demand, not enough to

go around for allgo around for all– ResourcesResources – “things” available to a society that are – “things” available to a society that are

used to attempt to satisfy unlimited wants.used to attempt to satisfy unlimited wants.

““No horn of plenty”No horn of plenty”

ScarcityScarcity ChoicesChoices

What is given upWhat is given up

ECONOMICECONOMICSS

ChoiceChoicess

LLimited imited RResourcesesources

SupplySupply

Unlimited NeedsUnlimited Needs

and and WantsWantsDemandDemand

ECONOMICSECONOMICS - - “science of scarcity”“science of scarcity”-the study of the choiceschoices people make in an effort to satisfy

their unlimited needs unlimited needs and and wantswants from limited resourceslimited resources.

The principal problem of The principal problem of Economics is…Economics is…

ScarcityScarcity

““The first lesson of economics is The first lesson of economics is scarcity: There is never enough of scarcity: There is never enough of anything to satisfy all those who anything to satisfy all those who

want it. The first lesson of politics is want it. The first lesson of politics is to disregard the first lesson of to disregard the first lesson of economics”. --Thomas Sowelleconomics”. --Thomas Sowell

Resources or “Factors of Resources or “Factors of Production”Production”

Land – Natural ResourcesLand – Natural ResourcesAcreage, rivers, lakes, ports, natural resource (oil, precious metals, Acreage, rivers, lakes, ports, natural resource (oil, precious metals, minerals)minerals)

Labor – Human ResourcesLabor – Human ResourcesPhysical and Mental talents that produce goods and servicesPhysical and Mental talents that produce goods and services

Capital – Capital – “stuff you use to make other stuff”“stuff you use to make other stuff”All manufactured goods and services used in producing consumer goods. All manufactured goods and services used in producing consumer goods. Examples: Tools, machinery, equipment, trucks to carry goods, airplanes, Examples: Tools, machinery, equipment, trucks to carry goods, airplanes, etc.etc.

Entrepreneurship –Entrepreneurship –1.1. Someone who takes the initiative in using or combining Someone who takes the initiative in using or combining the above the above Resources to produce a good or service.Resources to produce a good or service.

2. 2. Someone who is innovative, a risk taker, and makes Someone who is innovative, a risk taker, and makes basic business basic business decisions.decisions.

Remember Remember -- ALL THESE RESOURCES ARE IN -- ALL THESE RESOURCES ARE IN LIMITED SUPPLYLIMITED SUPPLY

THEY ARE SCARCE!!!!THEY ARE SCARCE!!!!

1. Land Land [natural resourcesnatural resources] – Nature’s itemsNature’s items [“gifts of nature“gifts of nature”] A. In the earthIn the earth - coal, oil, water, fossil fuels, etc. B. On the earthOn the earth – vegetation and water C. In the atmosphereIn the atmosphere – sun, wind, and rain

[Land is the starting pointstarting point of all production.““Stuff”Stuff” from which everything is made.

..

The The FourFour Factors Factors ofof Production ProductionResources beget Resources beget productionproduction, which beget , which beget incomeincome, which beget , which beget wealthwealth..

““GiftsGifts of of NatureNature””

WaterWater WindWind

SunSun Fossil fuelsFossil fuels

..

2. LaborLabor [human resourceshuman resources] {“effort”“effort”} anyone who works [“paid work”“paid work”] [Labor is the “brain-power”“brain-power” and ““muscle-power”muscle-power” of human beings] A. PhysicalPhysical – pro athletes & lumberjacks B. IntellectualIntellectual – ministers, doctors & lawyers

““Hired HelpHired Help””

*Most important resource – 70% of input cost*Most important resource – 70% of input cost

..

Real Real CapitalCapital v.v. FinancialFinancial CapitalCapital

FINANCIALFINANCIAL CAPITALCAPITAL[stocks, bonds, and money][stocks, bonds, and money]

REALREAL CAPITALCAPITAL[tools, machinery, & factories]

CanCan produce something produce something

directly with thesedirectly with these

Can’tCan’t produce anything produce anythingdirectly with thesedirectly with these

..

““Real Capital” Real Capital” [machinery, physical plants & tools] [capital is a [machinery, physical plants & tools] [capital is a factor factor of of production]production] v. “Financial Capital” v. “Financial Capital” [stocks, bonds, & $] [not factors[stocks, bonds, & $] [not factors of of production]production]

A product can be both a consumer good & a capital good –depends on its use.A product can be both a consumer good & a capital good –depends on its use.Ex: Jet aircraft used by a movie star to visit friends (consumer good). The Ex: Jet aircraft used by a movie star to visit friends (consumer good). The same aircraft used by a business manager to serve customers [capital good].same aircraft used by a business manager to serve customers [capital good].Ex:Ex: F150 pick-up F150 pick-up to deliverto deliver produceproduce [capital good][capital good] or takeor take family to church family to church [consumer good][consumer good]

3. CapitalCapital Resources Resources – all “man-made inputs”“man-made inputs” used in the production process (tools, machinery, and physical plants)(tools, machinery, and physical plants). A. Capital goodsCapital goods – goods [machinery, buildings, & tools] used to produce other goodsproduce other goods. [crane, Ford plant, hammer] [products meant for “future consumption”“future consumption”] B. Consumer goodsConsumer goods – products meant for “immediate consumption”“immediate consumption”.

““man-made inputs”man-made inputs”

4. EntrepreneurshipEntrepreneurship – starting a new businessstarting a new business or introducing a newintroducing a new productproduct. “Sparkplugs”“Sparkplugs” who introduce the product or start the new business. He combines land, labor, & capital to produce productscombines land, labor, & capital to produce products.

Resource paymentsResource payments. The resource owners receive rentrent [for

the use of their land; wageswages [for their labor]; interestinterest [payment

for financial capital], and profitsprofits [for their entrepreneurial ability].

Rent Wages Interest ProfitsRent Wages Interest ProfitsLand Labor Capital EntrepreneurLand Labor Capital Entrepreneur

..

The Three Fundamental QuestionsThe Three Fundamental Questions......

1. What will be produced 1. What will be produced with ourwith our scarce resources? scarce resources?

The Three Basic Questions...The Three Basic Questions...

2. How will the goods be produced?2. How will the goods be produced?

1. What will be produced?1. What will be produced?

The Three Fundamental Questions...The Three Fundamental Questions...

2. How will the goods be produced?2. How will the goods be produced?

1. What will be produced?1. What will be produced?

3. Who will get the goods3. Who will get the goods and services? and services?

The Case for the Market SystemThe Case for the Market System Efficiency, Incentives, and FreedomEfficiency, Incentives, and FreedomAdam Smith said the “invisible hand”“invisible hand” determines what gets produced, how, & for whom. It is the invisible handthat moves us along the PPC. The invisible hand is now called the market mechanismmarket mechanism. Its essential feature is the price signalprice signal.

BusinessesBusinessesBusinesses

Most needy Most needy or or most moneymost money

ScarcityScarcity LimitedLimitedResourcesResources

UnlimitedUnlimitedWantsWants ChoicesChoices

WHATWHAT G/S G/Sto produce?to produce?

WHOWHO will receive will receivethe G/S produced?the G/S produced?

[Eskimo/pygmy][Eskimo/pygmy]

Answers to the above determine:Answers to the above determine:ECONOMIC SYSTEMSECONOMIC SYSTEMS

BASIC BASIC ECONOMICECONOMICPROBLEMSPROBLEMS

TRADITIONALTRADITIONAL FREE MARKETFREE MARKETCOMMANDCOMMAND

HOWHOW will the will the G/S be produced?G/S be produced?

1. Traditional2. Pure Command3. Pure Market4. Mixed a. Capitalism b. Democratic Socialism c. Authoritarian Socialism [Communism]

The way the 3 basic questions are answeredDetermines an economic system.

1.1. Traditional-[where “CUSTOM RULES”]Traditional-[where “CUSTOM RULES”] A. What, how, and for whom are answered by tradition B. Change is resisted, no technology [clashes with tradition] C. Heredity and caste system limit the economic role of individuals. D. 35,000 Pygmies in the Ituri Forest are an example. E. Men hunt & women/children gather/prepare food. F. Wear loincloths from bark of fig trees [“PYGLER” or “PYBUGLE Boy”] G. Eat mushrooms, berries, roasted grasshoppers, monkeys, & plantain H. Eat bone marrow & everything else in an elephant.

I. Used to be ““PYGACHEPYGACHE””,, big Pygmies, have to wear ““LARDACHELARDACHE.”.”

Economic SystemsEconomic Systems – the way society produces productsthe way society produces products

2. PURE COMMANDPURE COMMAND - where the “GOVERNMENT RULES”.“GOVERNMENT RULES”. The government controls all resources. What, How, and For Whom answered by the government.

3. PURE MARKETPURE MARKET – where ““INDIVIDUALS RULE”.INDIVIDUALS RULE”. Individuals and firms control all resources. Thegovernment has no say. WHAT, HOW &FOR WHOM are decided by individuals.

MIXEDMIXED – all countries have mixed economic systemsHow are these words used in everyday life?

1.1. Traditional 2. Command 3. MarketTraditional 2. Command 3. Market

Karl MarxKarl Marx

Adam SmithAdam Smith

• A mixed economymixed economy is one that uses both market signals and both market signals and government directivesgovernment directives to allocate goods & resources.

• Most economies use a combinationcombination of market signals and governmentmarket signals and government directives to select economic outcomes.

When faced with SCARCITY of resources, decisions have to

be made about how to use those resources

Trade-offs

Opportunity Costs

Trade-Offs

• This is the decision making process that is occurring in your mind right now!

• Am I going to pay attention to what Coach Saucedo is saying, or am I going to daydream?

• Am I going to come to class or go buy a lottery ticket? • Am I going to stay in school or go find a full time job?• Each and every decision you make has a cost!! Not

necessarily a cost in dollar terms, but a cost in that you must give up something in order to get more of something else.

Trade-offsTrade-offs–decision (choicechoice) to get more of one thing means to accept less of another.

Opportunity CostOpportunity Cost – – 22ndnd Choice Choice(most important concept in economics)

[what you sacrifice when you make a choice]

Lorenzo BorgheseLorenzo Borghese

JenJen SadieSadie

““I’m in love withI’m in love withboth, but can both, but can have only onehave only one.”.”

The BachelorThe Bachelor

Opportunity Cost

• The “price you pay” for each decision you make is called the OPPORTUNITY COST.

• Opportunity cost is vital to the understanding of economics.

• “The amount of a product or service that must be forgone (given up) in order to obtain more of the next best alternative product or service”

SScarcitycarcity ChoicesChoices Opportunity CostsOpportunity Costs

OOpportunity pportunity BenefitBenefitOpportunity SetOpportunity Set[“what is possible for $10,000”][“what is possible for $10,000”]

OOpportunity Costpportunity Cost

And – As 40 Million Watched, And – As 40 Million Watched, JJoe oe MMillionaire chose illionaire chose ZZora over ora over SSaraharah

And Why Didn’t Joe Pick Sarah? This Is The Reason He Gave Her.And Why Didn’t Joe Pick Sarah? This Is The Reason He Gave Her.

Always get aAlways get approm rom ddate ate or or 22

Better JobBetter Job

Better chanceBetter chancein collegein college

You always doYou always doyour homeworkyour homework

Beautiful Beautiful SpouseSpouse

Better chance atBetter chance atthe best collegesthe best colleges

Cheerleaders doing flipsCheerleaders doing flipsto get your attentionto get your attention And – They And – They

ask you!ask you!

Better chanceBetter chanceto be the bossto be the boss

RReporteport C CardardA EconA EconA EnglishA EnglishA CalculusA CalculusA JournalismA JournalismCC Sex Ed Sex Ed

Fewer home problems Fewer home problems LearnLearnResponsibilityResponsibility

BetterBetterSelf-esteemSelf-esteem

Opportunity Cost ofOpportunity Cost ofDoing Your Best In SchoolDoing Your Best In School

Beautiful Spouse & Great KidsBeautiful Spouse & Great Kids[comes from a good educationcomes from a good education]

And what kind of kids And what kind of kids does the educated workerdoes the educated workerend up with?end up with?

What Kind Of A Sports Car Do You DriveWhat Kind Of A Sports Car Do You Drive

[because of a good education]

Opportunity CostOpportunity Cost [of NOTNOT doing your best]

““No, I will not go to No, I will not go to the prom with you.the prom with you.You are a loser.”You are a loser.”

You don’t do your bestYou don’t do your best

More problems at homeMore problems at home

He will have a difficult pathHe will have a difficult path

[Poor self-esteem][Poor self-esteem]

Opportunity CostOpportunity Cost[of [of NOTNOT doing your best in school]doing your best in school]

Worse JobWorse Job

““Paper or Plastic?”Paper or Plastic?”““Do You want friesDo You want fries with that?”with that?”

Men have these 4 choicesMen have these 4 choices Women also have 4 choices.Women also have 4 choices.

And Your SpouseAnd Your Spouse[due to a bad education]

And Your KidsAnd Your Kids“Sorry”“Sorry” – – because of abecause of a bad education bad education