Economics Unit 4 and 5

1. Economics Unit 4 and 5

2. Capstone Unit 4 Lesson 20 • People often complain about greed and selfishness. They point to high prices for health care or medicine as an example. Some people regard market systems as the problem in these cases. They say that market systems foster unseemly values such as selfishness, greed, and a winner take all attitude. Economists take a far different view, asserting that market systems foster values that we generally cherish, including individual freedom, cooperation and prosperity. The purpose of this lesson is to apply economic reasoning to show why self-interested behavior fosters positive economic and social outcomes.

3. Market System • Why might people be skeptical of market systems? • What is the mystery? • Visual 1 • Visual 2 • T,F,T • You are going to participate in a simulated panel discussion. • Assign Parts • Activity 1 • Complete questions A-E

4. Questions • Who was Adam Smith? • He was an 18th century philosopher, now regarded as the founder of modern economic thought. Wealth of Nations offers an extensive description of the principles of a market economy. • What is the difference between self-interest and selfishness? • 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 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 order to obtain an education or care for a family or contribute to environmental causes and so on. • What virtues are encouraged in market systems according to Smith? • Honesty, cooperation, courtesy and enterprise • Why are market prices important? • Market prices reflect the value of a good to society and the cost to society of making the good. • Solve the Mystery? • The incentives established by market systems encourage people 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 of goods to the society

5. What motive-caring or self-interest- does Smith think is more likely to encourage people to provide for one another? Do you agree? • Visual 3 • Smith thinks that self-interest is more likely than caring to encourage people to provide for one another. • What is the invisible hand? • Visual 4 • When people pursue their own interests, they frequently and unknowingly benefit others • Visual 5

6. Capstone Unit 4 Lesson 21 • This lesson will give us a better understanding of the concept of labor Productivity • Today is National Economics Day • To celebrate we will produce greeting cards • How to make • First fold paper in half • Write Happy Economics Day on Front in Black • Draw a smiley face above Economics in red • On the back write the year in Black • Leave the inside blank to save for special messages

7. Making the Cards • One volunteer • Two minutes to finish as many high quality cards as possible • Time on Board • One volunteer for quality control • After two minutes record in notes or on visual 1

8. Round Two • Two workers • Same supplies • Same rules • Visual 1 • Round three • Round four • …

9. Labor Productivity • Visual 1 • Why did our productivity go down in the end? (Hopefully) • Need for more capital (scissors and markers), better resources, more education, skilled workforce, and better technology • Improvements in productivity are important for economic growth and lead to higher living standards in an economy. • Activity 1 • Pick a partner and complete together • Marginal Product of Labor 4,5,6,5,4,2,1,0 • Value of marginal product 8,10,12,10,8,4,2,0 • Diminishing marginal returns occurs with the 4th worker because the marginal product of the fourth worker is 5, which is less than 6, the marginal product of the 3rd worker • @ $5 the business would hire 5 workers.

10. Capstone Unit 4 lesson 22 • Activity 1 and 2 • Groups of Four • One person is responsible for one of the cases in Activity 1 • Read the case and fill in your corresponding chart (activity 2) • When each person is finished share with your group to fill in the rest of activity 2

11. Answers to Activity 2 • Pure Competition: Many firms, identical products, no control over prices, easy to enter, no non-price competition. Examples: agriculture, stocks and foreign exchange • Monopolistic Competition: Many firms, different products, some control over prices, fairly easy to enter, a lot of non-price competition. Examples: gas stations, fast food, and dry cleaners • Oligopoly: Few firms, similar or different products, significant non-price competition if products are differentiated. Examples: soaps, cars, airlines, copper and glass • Monopoly: One firm, a unique (different) product, significant control over prices, difficult to enter, non-price competition may exist. Examples: companies with patents and regulated public utilities

12. Capstone Unit 4 Lesson 23 • Marginal Analysis: Comparing additional benefits to additional costs • Activity 1 • Read Andrea’s case together • Fixed Cost • Variable Cost • Total Cost • Marginal Cost • Total Revenue • Marginal Revenue • Profit

13. Choose a partner • Each group will try to help Andrea • Complete Activity 2 (do first couple as class) • Answers to Activity 2 • Total Fixed Costs: $60 for each quantity • Total costs: $60, 105, 145, 180, 210, 245, 285, 330, 385, 450, 525 • Marginal Costs: $45, 40, 35, 30, 35, 40, 45, 55, 65, 75 • Price: $56 for each • Total Revenue: $0, 56, 112, 168, 224, 280, 336, 392, 448, 504, 560 • Marginal Revenue: $56 for each additional unit • Profit 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. Marginal revenue for the 8th program is $56, marginal cost is $55. Producing the 8th program adds to her profit. • B. If Andrea sold nine programs. Her profit would fall to $54. Marginal revenue for the 9th program is $56, marginal cost is $65. Producing this ninth program would decrease her profit.

14. Capstone Unit 5 Lesson 24 • What action has the government taken to try to protect endangered species? • What is the mystery? • Visual 1 • Visual 2 • F, T, T • There is a role for government to protect the environment. This is the case when all the costs and benefits associated with producing a good or service are reflected in the price • Visual 3

15. Activity 1 • What are Externalities • Economic side Effects • Name at least two activities that involve negative externalities • Barking dogs, babies crying on airplanes, second hand smoke, factory emissions • Name at least two activities that involve positive externalities • Painting the exterior of a home, maintaining a lawn, flu vaccinations, education, scientific research • Why might governments choose to take action when markets produce negative and positive externalities? • Because not all the costs and benefits are considered by producers in the transactions in question. They want to raise prices and lower the production of goods with negative and lower the price and raise the production of goods with positive • Many citizens believe that education ahs positive externalities Explain? • Education helps people become more productive. Educated people are more likely to get a job, commit fewer crimes, vote and have lower medical expenses.

16. Visual 4 • Individual Tradable Quotas: Government establishes a quota for the quantity of fish that may be taken , setting the quota at a level that will sustain the fishery. ITQ’s are established at a level and are sold to fishers. Fishers can use the quota or sell it to others. Each fisher in a sense owns part of the fishery. • Trading Pollution Permits: Establishing air pollution permits is similar to ITQ’s. 1st the government sets a standard for air quality. Businesses are granted flexibility in meeting the standard. If a business exceeds the standard (i.e. emits less pollution) it can sell some portion of its reaming pollution permit to another business.

17. Owning Whales: Ownership rights could be assigned by applying genetic tagging and using satellite technology. Conservation groups as well as whale farmers could purchase whale pods. Both would have incentives to preserve currently endangered whales. • Land Ownership: Ownership rights are now widespread which allow private conservation groups to bid on an down valuable habitat.

18. Activity 2 • What is the Endangered Species Act? • A federal law intended to protect endangered animals and plants • What were the goals of the Act? • The law allows government officials to deny landowners the use of their property if an endangered species is found to be present. The law makes it illegal to harass, harm, pursue, hunt, shoot, would, kill, trap, capture or collect a plant or animal listed. • Why were carrier pigeons destroyed? • They were hunted to extinction because they were not owned. There were incentives to kill them, but no incentives to protect them. • Why does the ESA appear to be a government failure? • It creates incentives that encourage landowner to destroy habitat. By presenting perverse incentives to landowners it generates costs that appear to exceed the benefits gained in the protection of endangered species.

19. Capstone Unit 5 Lesson 26 • A vast majority of the things we consume are produced by the private sector-private businesses. • The Government does produce some goods and services • Why does the government produce some things and not others? • Activity 1 Complete Part 1

20. What is the public sector? • All the production and consumption activities of the government • What is the private sector? • Private producers in markets • What makes a private good unique? • In conveys its benefits only to the purchaser • What makes a public good or service different from a private good or service? • A public good or service conveys benefits to payers and non payers • What is a free rider • A person who consumes a good but does not pay for it. • What does non-exclusion mean? • A condition in which it is difficult to exclude non-payers from receiving a good or service • What is shared consumption? • One person’s consumption of a good or service does not reduce its usefulness to others

21. Complete Part 2 in groups of three • Answers • Police-Public • Flood Control-Public • Gourmet Cofee Shops-Private • High School Education-Both • Movie Tickets-Private • Severe Weather Warning-Public • Laptop Computer-Private

22. Capstone Unit 5 Lesson 27 • US initiated a farm subsidies program in 1930s to save farmers from bankruptcy • Today most government subsidies go to large farmed concentrated in a few states • Why might this shift have occurred? • Visual 1 • Why do our senators and representatives sometimes pass programs that impose costs on everyone but benefit only a few?

23. Special Interest Groups • Many people belong to special interest groups • Visual 2 • List only includes a few of the thousands • Groups spend more than One Billion annually • These groups often get a bad reputation • If they are harmful to the system why so many and why do so many join and why do wo many politicians support? • Special interest groups offer important benefits or advantages to the citizens who join them and to the elected officials who support their causes

24. Special Interest Groups • What potential benefits or advantages do interest groups offer to the citizens who join them? • What potential benefits or advantages do they offer to elected officials? • Visual 3 • Activity 1 Part 1

25. Who will benefit from the construction of the new stadium? • People in local and state business, labor and government. The members of Congress from the state will benefit if their constituents know they helped to deliver the stadium • Will people in other states and communities derive much benefit from the construction of the new stadium? Why or why not? • No not unless they visit Twin Lakes or watch the Muskies on tv • If you knew that your taxes would increase bya a few cents so the people of Twin Lakes could have a new stadium, would you protest the action to your members of Congress? Why or why not? • No The protest probably would not seem to be worth your effort • What do you predict will happen? • They will get the money. The cost will be spread over a large population, and the cost per taxpayer will therefore seem small. The concentrated effort of the state and local voters involved provides strong incentives for the state’s congressional delegation to work hard to deliver the federal funds.

26. Part 2 • Who will benefit from construction of a new subway? • Interest groups in Houston • Will people in other states derive much benefit? • No not unless they visit Houston • What do you predict will Happen?

27. Part 2 • Who will benefit from the dam and reservoir? • Special groups in Townsend • Will people in other states and communities derive much benefit? • No not unless they vacation in Townsend • What do you predict will happen? • Probably fail. # of interests in Townsend are just too small.

28. Unit 5 Lesson 28 • The level of voter turnout has dropped • What seems to be the pattern of voter turnout in presidential elections? • Visual 1 • What groups of people tend to vote less? Why? • Visual 2 • What are the costs and benefits of voting? • Visual 3 • Visual 4

29. What are some ways to reduce the cost of voting? • Allowing voter registration on day of election • Develop electronic voting system • Vote from home • Vote by mail • Reduce residency requirements • Hold elections on holidays or weekends

30. What are some ways of increasing the benefits of voting? • Encouraging more attractive candidates to run for office • Nominate candidates with sharp differences on issues • Encourage more competition between candidates