Advanced Economics Week #2

1. Advanced Economics Week #2 Spring 2012

2. Advanced Economics 3/26/12http://mrmilewski.com • OBJECTIVE: Examine the fundamental economic concepts from Chapters#7,13,&14. • I. Journal#5 pt.A -Watch the following: -'The Hunger Games' Phenomenon: Examining Film's Buzz, 'Insane' Marketing • II. Journal#5 pt.B -notes on microeconomics (Chapters#7,13&14) • Notice: 55 Days until the Senior’s Last Day!

3. Surplus & Shortage • Surplus – a situation in which the quantity supplied is greater than the quantity demanded at a given price. • Shortage – a situation in which the quantity demanded is greater than the quantity supplied at a given price.

4. Four types of Market Structures 1.) Perfect Competition 2.) Monopolistic Competition 3.) Oligopoly 4.) Pure Monopoly

5. Perfect Competition 1.) # of Firms -Many 2.) Influence over prices -None 3.) Product Differentiation -None 4.) Advertising -None 5.) Entry into market -Easy Example: Trucking, Lawn service http://robertstrucking.com/trucking_files/trhgway.jpg

6. Monopolistic Competition 1.) # of Firms -Many 2.) Influence over prices -Limited 3.) Product Differentiation -Fair amount 4.) Advertising -Fair amount 5.) Entry into market -Easy Example: Gas Stations (Pop) http://www.lowcarbluxury.com/extrabooks/faygo-diet.jpg

7. Oligopoly 1.) # of Firms -few 2.) Influence over prices -some 3.) Product Differentiation -Fair amount 4.) Advertising -some 5.) Entry into market -Difficult Example: Auto companies, fast-food, domestic airlines http://www.20minutestolessstress.com/supersize%20fast%20food.jpg

8. Pure Monopoly 1.) # of Firms -One 2.) Influence over prices -Extensive 3.) Product Differentiation -None 4.) Advertising -None 5.) Entry into market -Almost impossible Example: Water http://www.systemsandsoftware.net/uploadImages/logo_detroit.gif

9. Laissez-faire • “allow them to do” • In Adam Smith’s day the average factory was small, and business was competitive. • Smith’s, role for government is confined to: -protection of private property -enforcing contracts -settling disputes -protecting business from foreign competition

10. What is market failure? • Market failure – occurs when the following four factors are present: 1.) inadequate competition – not enough suppliers 2.) inadequate information – knowledge of supply and/or demand is unknown by either producers or consumers 3.) resource immobility – land, labor, capital, and entrepreneurship do not move when market returns are the greatest 4.) externalities – an unintended side effect that either benefits or harms someone who was not involved in the activity that caused it.

11. The Business Cycle • Business cycle - the rise and fall of GDP over time. • GDP – Gross Domestic Product • GDP= C+I+G+(X-M) • C – consumer • I – business • G – government • X – exports • M - imports

12. GNP v. GDP • GDP- the dollar value of all final goods and services produced within a country’s national borders in a year. • GNP- the dollar value of all final goods, services, and structures produced with labor and property supplied by a countries residents.

13. Phases of the Business Cycle • Ch#14 sec#1 p.376

14. Advanced Economics 3/27/12http://mrmilewski.com • OBJECTIVE: Examine the fundamental economic concepts from Chapters#. • I. Journal#6 pt.A -Watch the following: -Supreme Court Considers Health Reform Day 1 Recap: Jurisdiction, Tax Questions • II. Journal#6 pt.B -notes on microeconomics (Chapters#) • Notice: 54 Days until the Senior’s Last Day!

15. Monetary Policy • Monetary policy – the expansion or contraction of the money supply in order to influence the cost and the availability of credit. • In English, when the Fed raises interest rates the amount of money in the economy gets smaller. • When the Fed lowers interest rates, the amount of money in the economy gets bigger. • Higher interest rates encourage people to save money. • Lower interest rates encourage people to spend and borrow money.

16. Easy Money Policy • If the Fed wants the money supply to grow they can do the following: • 1.) Lower the interest rate • 2.) Lower the reserve requirement • 3.) Buy securities (buy bonds) • This is known as easy money policy.

17. Tight money policy • If the Fed wants the money supply to contract, or slow they can do the following: • 1.) Increase the interest rate • 2.) Increase the reserve requirement • 3.) Sell securities (sell bonds) • This is known as tight money policy.

18. Advanced Economics 3/28/12http://mrmilewski.com • OBJECTIVE: Examine the fundamental economic concepts from Chapters#. • I. Journal#7 pt.A -Watch the following: -Frontline: The Warning -Take notes while watching the film • Notice: 53 Days until the Senior’s Last Day!

19. Advanced Economics 3/29/12http://mrmilewski.com • OBJECTIVE: Examine the fundamental economic concepts from Chapters#. • I. Journal#8 pt.A -Watch the following: -High-Tech Illinois Company Looks to Bridge Workers' 'Skills Gap' • II. Journal#8 pt.B -notes on microeconomics (Chapters#) • Notice: 52 Days until the Senior’s Last Day! • Notice: Fundamental Economic Test Tomorrow!

20. What is international trade? • When goods and services are bought and sold between nations. • Import – something made in another nation and sold here. • Export – something made here and sold in another nation.

21. Why do nations trade? • Not all nations can produce what they need at home. • For example, Japan is an industrial nation, yet they have no domestic sources of oil. They import it. • The United States uses more energy than we produce, so we have to import oil. We produce more food than we can consume. We export crops like wheat and corn, but we also import food like bananas and coffee because the climate in the United States isn’t right for those products.

22. Why trade? • Specialization – assignment of tasks so that each worker performs fewer tasks more frequently • i.e. – Detroit specializes in cars, Florida in oranges, Texas in cattle • Exports – what a nation specializes in. • Individuals engage in trade because they believe what they gain is equivalent in value to what they give up.

23. Advantage • Absolute advantage – when one country can produce more of a product than another country • Comparative advantage – the ability of a nation to produce a product at a relatively lower opportunity cost than another nation. • Opportunity cost – cost of the next best alternative use of money, time, or resources when one choice is made over another

24. Alpha & Beta • Country A • PPF – 40 lbs of coffee 8 lbs of cashew nuts • Opportunity cost 5 coffee for 1 cashew • Country B • PPF- 6 lbs coffee 6 lbs cashew nuts • Opportunity cost 1 coffee for 1 cashew

25. Before & After Trade • Before Trade • Alpha produced 20 lbs coffee 4 lbs cashews • Beta produced 5 lbs coffee 1 lbs cashews • Totals 25 lbs coffee 5 lbs cashews • After Trade • Alpha specializes in coffee 40 lbs coffee 0 lbs cashews • Beta specializes in cashews 0 lbs coffee 6 lbs cashews • Totals 40 lbs coffee 6 lbs cashews

26. Figure 17.2a Figure 17.2b The Gains of TradeCh#17 sec#1 p. 469

27. NAFTA • North American Free Trade Agreement – reduced tariffs between the U.S., Canada, and Mexico

28. Advanced Economics 3/30/12http://mrmilewski.com • OBJECTIVE:Demonstrate mastery of Fundamental Economic Concepts. • I. Administrative Stuff -attendance & test procedures • II. Test on Fundamental Econ Concepts -Test on Chapters1,2,3,4,4,6,7,10,12,14,&17 • III. Various Films on Economic Concepts • Notice: 51 Days until the Senior’s Last Day!