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What is economics? Why are we in an economics crisis?
Unlimited Wants Scarce Resources – Land, Labour, Capital Resource Use Choices
Economics: is the social science that analyzes the production, distribution, and consumption of goods and services Scarcity: It is the economic problem. We have scarce goods and services
Goods: commodities or products Services: such as those of a hairdresser, musician, or an architect Consumer choice: is a theory of microeconomics that relates preferences for consumption goods and services to consumption expenditures and ultimately to consumer demand curves. The link between personal preferences, consumption, and the demand curve is one of the most closely studied relations in economics
1) Status on Kony2012 2) Review of Supply and demand curve 3) Opportunity Cost 4) The market cycle
The law of supply and demand: it is an economic model of price determination in a market. In a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers
It is how much of something is available. For example, if you have 9 baseball cards, then your supply of baseball cards is 9. If you have 6 apples, then your supply of apples is 6.
It is how much of something people want. To measure demand, we can use a very simple numbering system, just like the supply one. If 8 people want baseball cards, then we can say that the demand for baseball cards is 8.
Pizza example: those who are willing and able to pay create demand for your pizza Supply needs to be created High quantity demanded = low prices Low quantity demanded = high prices High quantity supplied = high prices Low quantity supplied = low prices
Opportunity Cost It is the cost of any activity measured in terms of the value of the next best alternative that is not chosen. It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The pizza example! What are you giving up to buy the pizza?
NeedsProduction Consumption: using those goods and services Goods and services Payments
Financial goal: A statement of something a person wants or needs to do with his or her money. Opportunity: A financial activity or goal that is presented to a person. Opportunity cost: The cost associated with passing up a secondary option when making a financial decision.
A student is saving money for a new car. He is invited to go to a movie and out for pizza with friends, which would be an opportunity. If he chooses to pass up this opportunity and save his money instead, the opportunity cost is that he will not be able to have fun with his friends.
Productive investments Product of sale Workers CAPITAL salaries Energy, Expansion, Fixing machinery profits What happens to the product of sale?
Exit Slip 1)Write one thing that you have to give up in order to buy something else. (opportunity cost) 2)What would create a bad economy in the economic cycle presented earlier? (in your opinion)
The inputs used to produce the goods and services that people want 3 categories: human resources (labour), natural resources and capital resources Entrepreneur is needed in the human resources categories: a profit-seeker who develops a new product or process and assumes the risk of profit loss
Economists assume that there are a number of different buyers and sellers in the marketplace. This means that we have competition in the market, which allows price to change in response to changes in supply and demand
Perfect competition Monopoly Oligopoly
Many buyers, many sellers Many products are similar in nature and, as a result, many substitutes. Prices are determined by supply and demand
One seller for one product Entry into such a market is restricted due to high costs which may be economic, social or political. Monopoly may also form when a company has a copyright or patent that prevents others from entering the market
A few firms that make up an industry. This select group of firms has control over the price and, like a monopoly, an oligopoly has high barriers to entry. The products that the oligopolistic firms produce are often nearly identical
Substitute goods are goods which, as a result of changed conditions, may replace each other in use Perfect competition market or oligopoly An increase in price (Pepsi) will result in an increase in demand for its substitute goods (Coke)
The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to stop severe inflation, along with severe deflation, in an attempt to keep the excessive growth of prices to a minimum. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year.
1) Have you ever experienced inflation in your life? -Find one example 2) Have you ever witnessed the opposite situation? (deflation)
Unemployment occurs when a person who is actively searching for employment is unable to find work. Unemployment is often used as a measure of the health of the economy. It is the number of unemployed persons divided by the number of people in the labor force.
An involuntary fee levied on corporations or individuals that is enforced by a level of government in order to finance government activities. Ex: Income tax, property tax or sale tax
Mr. Miszczak is the government You will have to choose a career or position in our market Prices will be set by the market! Taxes will be applied To prevent credit problem, no bank will be created
Government Assistance: $25 Spending: $10 Taxes: $5 Restaurant Owner: $100 (only 1 st year) Spending: $20 Taxes: $40 Factory Owner: $100 (only 1 st year) Spending: $20 Taxes: $40 Government worker: $80 Taxes: $30 Spending: $20 Employees: $40 minimum ◦ Taxes: $15 ◦ Spending: $10
Government worker: $80 Taxes: $30 Spending: $20
Que faut-il pour que l’économie fonctionne bien ? Il faut que toute la production réalisée soit « consommée » C’est-à-dire qu’il faut que les producteurs trouvent suffisamment de clients Mais il faut aussi que les « consommateurs » aient les moyens financiers d’acheter… c’est la demande solvable Il faut donc qu’il y ait autant de produits proposés à la vente (l’offre) que de produits demandés à l’achat (demande) Des difficultés économiques apparaissent dès qu’il y a un déséquilibre entre l’offre et la demande Si : demande > offre, le prix augmente car tous les demandeurs ne seront pas servis. C’est l’ inflation, la monnaie perd de sa valeur. Si à l’inverse : demande < offre, le prix baisse car la production a été trop importante par rapport à la demande solvable. C’est la déflation. Si le déséquilibre est très important cela peut produire un récession et si cela se prolonge une dépression
L’offre de biens et services est supérieure à la demande Une partie de la production n’ayant pas été vendue, Les entreprises vont réduire leur production pour l’adapter à la demande Des travailleurs sont licenciés Le développement du chômage diminue le pouvoir d’achat global de la population La demande solvable, c’est-à-dire la consommation, baisse Le déséquilibre persiste, un processus de récession est engagé La crise s’aggrave Comment une récession peut se développer à partir d’une situation de surproduction ou ce qui revient au même d’une situation de sous-consommation…
Dans les années trente, pour combattre la dépression certains gouvernements ont mis en œuvre des « politiques de relance ». Leur but est de chercher à augmenter la consommation pour inciter les entreprises à augmenter leur production. (l’économiste anglais John Maynard Keynes en a fait la théorie, on appelle aussi ces politiques des « politiques keynésiennes ») Puisque la consommation (la demande) est insuffisante, l’État doit intervenir pour l’augmenter. Plusieurs moyens sont possibles : Financer une politique de grands travaux Distribuer des allocations de chômage Imposer une réduction du temps de travail pour obliger les entreprises à embaucher et donc à réduire le chômage Politique de relance : l’État embauche pour les grands travaux ou distribue du pouvoir d’achat Diminution du chômage Augmentation du pouvoir d’achat et donc de la consommation Les entreprises écoulant ainsi leurs stocks d’invendus sont incitées à reprendre la production Elles ont donc besoin d’embaucher l’État a « réamorcé la pompe » La croissance économique est relancée, elle s’entretient d’elle même.
1) Understanding economics 2) Review of opportunity cost 3) The supply and demand game