AP Economics1/12/2015 & 1/13/2015

Warm Up—Warm Ups will be graded weekly as a daily grade. Every Thursday/Friday I will walk around and check off that you are doing

your warm ups. Warm Up #1: -3 Sentences

-What does economics mean to you?

Announcements• New Year, New YOU! (And me)

• Remind: Text @waisecon to 81010• January Calendars• Supplies: Binder w/ graph paper, Dividers, Spiral• Texts: Naked Economics By Charles Wheelan• Money Skill: moneyskill.org • Grades

• 50%: Tests/Projects• 30%: Quizzes • 20%: Daily Grades

• Your group is building a new zoo.

• You have to decide what animals to have.

• Space is limited. You get 25 acres.

• Take 8-10 minutes to make your selections, based on the next slide.

We Bought a Zoo

• Lion - 2 acres

• Turkey - 1/10 acre

• Giraffe -1 acre

• Seal - 1/2 acre

• Camel - 1/2 acre

• Cheetah - 1 acre

• Cow - 1/3 acre

• Monkey - 1/2 acre

• Asian Elephant - 1 acre

• African Elephant - 1.5 acres

• Reptile House - 5 acres

• Hammerhead Shark - 1/2 acre

• Kangaroo - 1/2 acre

• Tiger - 1 acre

• Whales - 3 acres

• House of Birds - 5 acres

*Numbers are acres required for ONE animal (hint: they don’t like being alone!)[If you had 2 of each, it would take over 34 acres–so you will have to make choices.]

Zoo Choices – 25 acres total!

Lion - 2 acres; Turkey - 1/10 acre; Giraffe -1 acre; Seal - 1/2 acre; Camel - 1/2 acre; Cheetah - 1 acre; Cow - 1/3 acre; Monkey - 1/2 acre; Asian Elephant - 1 acre;African Elephant - 1.5 acres; Reptile House - 5 acres; Hammerhead Shark - ½ acre;Kangaroo - 1/2 acre; Tiger - 1 acre; Whales - 3 acres; House of Birds - 5 acres.

*Numbers are acres required for ONE animal (hint: they don’t like being alone!)[If you had 2 of each, it would take over 34 acres – so you will have to make choices.]

Principles of Economics

1. People Face Trade-Offs

• “There ain’t no such thing as a free lunch”

• “Guns and Butter”• Clean Environment and a high

level of income• Efficiency and Equality

2. The Cost of something is What you Give up to Get it• What is the real cost of going to college?• Opportunity Costs: Whatever must be given up to obtain some item• Professional Athletes opportunity costs in college is higher than Ms.

Speight’s.

VS.

3. Rational People Think at the Margin

• Marginal Change: small incremental adjustment to a plan of action

• 200 seat plane costs airline $10,000 to fly across United States. How much should each seat cost?

• What is the marginal cost of selling a ticket at $300?

• Why is water so cheap when diamonds are so expensive?

• Rational decision makes takes action IF AND ONLY IF the marginal benefit of the action exceeds the marginal cost. ($300 or a bag of peanuts?)

4. People Respond to Incentives

• Incentive: something that induces a person to act• Seatbelts in the 1960s and the incentive to drive faster• Just how much does GAS affect you?

• “As Gas Prices Soar, Buyers are Flocking to Small Cars”• “As Gas Prices Climb, So Do Scooter Sales”• “Home Buying Practices Adjust to High Gas Prices”• “Gas Prices Drive Students to Online Courses”• “Increased Gas Prices Increase Celebrity Sitings”

• Tax on Gas in Europe vs. America• Incentives for middle class?

5. Trade Can Make Everyone Better Off• Ford vs. Toyota• Apple vs. Sony• Your family vs. Other Families• Trade allows each person to

specialize in the activity he or she does best! (Farming, sewing, or homebuilding)

6. Markets are Usually a Good Way to Organize Economic Activity

• Communism or Central Planners vs. Market Economy

• Market Economy: an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

• Adam Smith: “Invisible hand” • Prices: Supply and Demand• Smith: When the Government prevents prices

from adjusting naturally to supply and demand, it impedes the invisible hand’s ability to coordinate the decisions of the households and firms that make up the economy

7. Governments Can Sometimes Improve Market Outcomes• Property Rights: individuals can own

and control scarce resources• A farmer won’t grow food if he

expects his crop to be stolen• A restaurant won’t serve meals unless

it is assured that customers will pay before they leave

• Entertainment companies won’t produce DVDs if too many potential customers avoid paying by making illegal copies

8. A Country’s Standard of Living Depends on Its Ability to Produce Goods and Services• United States: $47,000• Mexico: $10,000• Nigeria: $1,400• Productivity: the quantity of goods and

services produced from each unit of labor input

• Increased productivity increases standard of living

• How do we raise productivity?

9. Prices Rise When the Government Prints Too Much Money• Inflation: an increase in the overall level of prices in the economy• January 1921: German Newspaper cost .30 marks. • November 1922: Same newspaper cost 70,000,000 marks• Gerald Ford: “Inflation is public enemy number one.”

10. Society Faces a Short-Run Trade-Off between Inflation and Unemployment• Increasing the amount of money in the economy stimulates the

overall level of spending and thus the demand for goods and services• Higher demand may over time cause firms to raise their prices, but in

the meantime, it also encourages them to hire more workers and produce a larger quantity of goods and services

• More hiring means lower unemployment• Business Cycle: Fluctuations in economic activity, such as

employment and production

Terms to know by next class and forever• Economics• Scarcity• Efficiency• Equality• Opportunity Cost• Marginal Changes• Incentive• Market• Productivity• Inflation• Trade-Off

Principles of Economics Quiz: Next Class