economics business management. economics in perspective o bjective we will identify basic micro- and...
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ECONOMICS IN PERSPECTIVE
OBJECTIVE
We will identify basic micro- and macro-economic concepts in order to understand disposable and discretionary income.
ESSENTIAL QUESTIONS•What is economics?
•What is the driving force of the economy?
• Explain the difference between disposable and discretionary income.
WHAT IS ECONOMICS?
oStudy of producing, distributing, and consuming goods and services
oInvolves decisions regarding the use of resources
oEveryone has to make decisions about how to use resources!
Individuals – consumers
Businesses – producers
Societies – government
THE ECONOMY’S DRIVING FORCE
WantsoThings you would like to haveoNon-essential; adds to the quality of lifeoAlso referred to as a luxury
NeedsoThings necessary for basic livingoEssential to human life; required for survivaloIncludes basic food, water, shelter, and clothing
RESOURCES ARE LIMITED
oResources limit the number of wants & needs that a person can satisfy.oMost consumers in the U.S. can satisfy their basic needs.oMost people have unlimited wants… we have to make choices!
Basic Needs+
Unlimited Wants
Economic Resources
DISPOSABLE VS. DISCRETIONARY
Disposable Income
oAmount of an individual’s income that is left after deducting taxes
oGross Income – Taxes = Disposable
Discretionary Income
oAmount of an individual’s income that is left for spending, investing or saving after taxes and personal necessities (food, shelter, clothing) are paid
o Includes money spent on luxury items, vacations, and all other non-essential goods and services
(2) UNCLE SAM!
oMultiply your monthly salary by 0.75oWe are assuming that you pay 25% in taxes and other payroll deductions, which means you take home 75% of your monthly salary.oThis amount is your disposable income.
WANTS VS. NEEDS
Prioritize the following purchases & expenditures:
Going Out to Eat $50.00 / week = $200.00 per month
Entertainment $20.00 / week = $80.00 per month
Clothes Shopping $150.00 per monthNew Laptop $700.00Savings = 10% of disposable incomeDoctor Visit & Antibiotics $50.00Tithe / Charity = 10% of disposable
incomeCredit Card Payment $100.00
(3) BASIC NEEDS
Rent for 1-bedroom Apartment $1300
Utilities $250Car & Insurance $325
Student Loans $500
Groceries $50 / week = $200.00
Gas $40 / week = $120.00
This is your discretionary income!
HAS ANYTHING CHANGED?
Prioritize the following purchases & expenditures:Going Out to Eat $50.00 / week = $200.00
per monthEntertainment $20.00 / week = $80.00 per
monthClothes Shopping $150.00 per monthNew Laptop $700.00Savings = 10% of disposable incomeDoctor Visit & Antibiotics $50.00Tithe / Charity = 10% of disposable incomeCredit Card Payment $100.00
CLOSING TASK #1
1) Economics involves decisions regarding _______________.
2) _______ and _______ are the driving force of the economy.
3) Most people have _______________ _______________ but limited resources, which means we have to make choices!
4) Individuals (consumers) are limited by the amount of _______________ income available after taxes and personal necessities are paid.
ECONOMICS – SUPPLY & DEMAND
ObjectiveWe will identify basic micro- and macro-economic concepts in order to understand the role of supply and demand in the economy.
Essential Questions• What is the driving force
of the economy?
• What is supply? What is demand?
• Explain the laws of supply and demand.
• Describe the impact of a shortage and a surplus on the economy.
THE ECONOMY’S DRIVING FORCE
oWants & needs are the driving force of the economy.oWants & needs determine the supply & demand of goods and services!
DEFINITIONS
Supply
the quantity of goods that producers (businesses) are willing to SELL at a particular price
Demand
the quantity of goods that consumers are willing to BUY at a particular price
LAW OF SUPPLY
o As price increases, the quantity businesses are willing and able to produce will also increase.
o Supply = Same direction
P3
P2
P1
Q1
Q2
Q3
LAW OF DEMAND
o As price increases, the quantity that consumers are willing and able to pay will decrease.
o Demand = Different direction
P3
P2
P1
Q1
Q2
Q3
GRAPHING
oEquilibrium – the point at which supply meets demand; point of maximum profit
oShortage – when demand is greater than supply
oSurplus – when supply is greater than demand
D
P3
P2
P1
Q1
Q2
Q3
S
CONSIDER THE COOKIES…
PRICE SUPPLY DEMAND
$0.25 12 55
$0.50 24 45
$1.00 36 30
$1.50 48 15
$2.00 60 5
EFFECTS ON ECONOMY
Seller!oIf there is a shortage, this means there is less supply from businesses than there is demand from consumers.
oWho has more bargaining power – the buyer or the seller?
Buyer!oIf there is a surplus,
this means that there is more supply from producers than there is demand from consumers.
oWho has more bargaining power – the buyer or the seller?
CLOSING TASK #21) __________: the quantity that a business is willing
and able to produce at a given price
2) __________: the quantity that a consumer is willing and able to purchase at a given price
3) The law of supply states that as price goes up, quantity will _______.
4) The law of demand states that as price goes up, quantity will _______.
5) A shortage creates a __________ market.
6) A surplus creates a __________ market.