Chapter 02 - * * * Economics: Create Wealth • Study of...

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Unformatted text preview: * * * Economics: Create Wealth • Study of how society chooses to Study employ resources to produce goods & services and distribute them among competing groups/individuals groups/individuals Micro v. Macro Resource Development 2-1 • • * * * Four “What’s” of an Economic System $ What is produced? $ What amount is produced? $ What is the method of output distribution? $ What is the rate of economic growth? Adapted from: Edwin Mansfield Economics (New York: W.W. Norton, 1976), p.8 2-2 * * * • Economic Theories Thomas Malthus (Early 1800s) • “Dismal Science” • Too many people • Adam Smith (1776) • Freedom is vital • “Invisible Hand” 2-3 * * * Circular Flow Model 2-4 * * * Three Economic Systems Mixed Socialism (Highly Controlled) (Little Control) Communism Capitalism 2-5 * * * • • • • Free-Market Capitalism Private Property Business Ownership/ Profits Freedom of Competition Freedom of Choice 2-6 * * * High Supply Curve Price(P) S Low Quantity(S) High 2-7 * * * High Demand Curve Price(P) D Low Quantity(D) High 2-8 * * * High Equilibrium Point Surplus Price Market Equilibrium S Low Shortage D High 2-9 Quantity * * * Free-Market Competition Monopolistic Monopolistic Oligopoly Competition Competition One Monopoly Many Perfect Perfect Competition Competition Sellers 2-10 * * * Perfect Competition Sellers Buyer 2-11 * * * Monopolistic Competition: Many Sellers With Perceived Differences Perceived • Fast Food Colleges 2-12 • * * * • Oligopoly: Few Sellers Automobiles Tobacco Tobacco • 2-13 * * * • Monopoly: One Seller Utilities • Microsoft? Microsoft? 2-14 * * * • Limits of Free-Markets Inequality of Wealth- Causes National & World Tension Greed Compromises Ethics Limitations Push Country towards Socialism = Government Regulation • • 2-15 * * * 6 5 4 3 2 1 0 Number of Workers per Social Security Recipient 1960 Source: Investors.com 2000 2075(Est.) 2-16 * * * U.S. Japan Germany Italy Spain France Austria Denmark Industrialized Nations’ Top Individual Tax Rate 0% 10% 20% 30% 40% 50% 60% 70% Source: www.worldwide-tax.com, May 9, 2006 2-17 * * * • Socialism Private & Public Ownership Some Choices are Limited • • Creates Social Equality Creates • Reduces Individual Incentive - Brain Drain Brain 2-18 * * * • • Communism Public Ownership Almost all major factors of production • Central Planning/Controlled Economy • Shortages of food and other products may develop may • Lack of motivation to work hard for business people business 2-19 * * * • • Mixed Economies Free-Market Economy = Capitalism Command Economy • Socialism • Communism • Trend Results in Blend/Mix • Capitalism > Socialism • Socialism > Capitalism 2-20 * * * Why is the U.S. an Economic Success? an Major Reason Major Constitution Free Elections Free Enterprise System Abundant Resources Cultural Diversity * Respondents could choose more than one. Source: Investors Business Daily Survey Percent* Percent 85 84 81 78 71 2-21 * * * U.S. Economy • • • • Key Economic Indicators Productivity in the U.S. Productivity in the Service Sector Business Cycles • • • • • • • Recession Depression Recovery Fiscal Policy National Debt Stabilization Economic Growth through Monetary Policy 2-22 * * * • Key Economic Indicators Gross Domestic Product (GDP) Unemployment Rate Price Indexes • • • Consumer Price Index (CPI) • Producer Price Index (PPI) 2-23 * * * 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1940 U.S. Gross Domestic Product Domestic In Billions of U.S. $ 1950 1960 1970 1980 1990 2000 2002 2005 2-24 Source: U.S. Dept. of Commerce, Bureau of Economic Analysis * * * Share of World GDP(%) •G-8 Countries •U.S. only •China •India •Latin America •Africa Source: www.dlc.org/ppi, July 6, 2005 1975 1975 2004 2004 55 22 5 3 7 3 44 21 13 6 6 3 2-25 * * * 16 14 12 10 8 6 4 2 0 U.S. Unemployment (%) 1940 1950 1960 1970 1980 1990 2000 2002 2005 Source: U.S. Bureau of Labor Statistics Source: U.S. Bureau of Labor Statistics 2-26 * * * What Makes Up The Consumer Price Index? Recreation Apparel 5% 6% Medical Care/ Insurance 7% Medical Care 6% Food & Beverage 16% Transportation 18% Source: U.S. Bureau of Labor Statistics Other 5% Housing & Util. 39% 2-27 * * * 250 200 150 100 50 0 Consumer Price Index 1982-84 = 100 1940 1950 1960 1970 1980 1990 2000 2002 Apr. 2006 Source: U.S. Dept. of Labor, Bureau of Labor Statistics 2-28 * * * 9 8 7 6 5 4 3 2 1 0 -1 Percent Change in Labor Productivity- U.S. Productivity- 1950 1960 1970 1980 1990 2000 2002 Source: U.S. Dept. of Commerce, Bureau of Labor Statistics Q1 2006 2-29 * * * Where Does the Government Get Its Money? 4% 9% 43% 4% Individual Income Taxes Social Security & Payroll Taxes Corporate Taxes Excise Taxes 40% Other Source: Office of Management & Budget, 2002 Source: 2-30 * * * 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Federal Spending 1966 2006 Medicare & Medicaid Source: Congressional Budget Office Social Security Interest Defense Other 2-31 * * * Biggest Economic Biggest Challenges Challenges Over • Over the Next 3-5 years the U.S. can be expected to face these challenges: expected • Pension & Health care costs • The Federal Deficit • High Energy and Commodity Costs • Balance of payments • Terrorism Source: Investors Business Daily January 9, 2006 2-32 * * * Healthcare Expenditure Healthcare Projections (Percent of National GDP) (Percent 18.00% 17.50% 17.00% 16.50% 16.00% 15.50% 15.00% 14.50% 14.00% 2004 2006 2008 2010 2012 % of GDP Source: FORTUNE May 3, 2004 2-33 * * * Rising U.S. Trade Deficit 0 -100000 -200000 -300000 Deficit in Millions -400000 -500000 -600000 -700000 -800000 1980 1985 1990 1995 1999 2001 2003 2005 Source: US Dept of Commerce, Bureau of Economic Analysis 2-34 * * * What is the National Debt? • • The debt has reached $8.36 trillion+ (May 2006) If $1,000 bills were stacked: • • • • • $1 Million = $1 Billion = $1 Trillion = 4.29 Inches 357.5 Feet 67 Miles The debt is equal to 560.1 miles in $1,000 bills National Debt Clock- http:// www.brillig.com/debt_clock/ 2-35 * * * 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1940 U.S. Gross Domestic Product Domestic In Billions of U.S. $ 1950 1960 1970 1980 1990 2000 2002 2005 2-36 Source: U.S. Dept. of Commerce, Bureau of Economic Analysis ...
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