Chapter 2 Four Economic Questions

Chapter 1 ECQ Answers1. F: Economics is also important for

consumers and the government. 2. T3. T4. F: A stereo is not necessary for life.

It is a want.5. F: People’s wants are diverse.

They differ for each person and also differ in time, place, and situation.

6. T7. T8. T

2

9. T10. F: People’s needs and wants are never

satisfied (endless).11. F: Some side-effects are bad like

pollution and environmental damage.12. F: Scarcity is when needs/wants are

greater than the supply of goods & services. (D > S)

13. T14. F: Resources have many different uses.

For example, wood can be used for fuel or building material.

15. T

Chapter 1 Review

1. What is the meaning of ‘scarce’? What are some examples of scarce resources?

2. What is the difference between physical needs and collective needs?

3. Endless wants help drive economics. Explain this statement.

4. What are the 3 types of resources. Provide examples of each.

5. Scarcity means Demand is greater than Supply. Provide an example.

6. What is the meaning of Trade-off? Provide a real example.

Four Basic Economic Questions

1. WHAT will be produced?

2. HOW will it be produced?

3. HOW MANY will be produced?

4. WHO gets what is produced?

For whom

What

HowMuch

4 Economic Questions

How

4 Economic QuestionsApparel goods

Household goods Food

Company & Industry

For whom

What

HowMuch

4 Economic Questions

How

Customers’ AgeTeens

4%20s26%

30s29%

40s39% Average

Age

35Marketing strategies of Muji retrieved on July 4,2015 fromhttp://www.j-mac.or.jp/wordpress/wp-content/uploads/2013/11/lecture_matsui.pdf

For whom

Company & Industry

Marketing strategies of Muji retrieved on July 4,2015 fromhttp://www.j-mac.or.jp/wordpress/wp-content/uploads/2013/11/lecture_matsui.pdf

30s &40s68%

For whom

Customer's Age

Average age

35

Male21%

Female79%

Marketing strategies of Muji retrieved on July 4,2015 fromhttp://www.j-mac.or.jp/wordpress/wp-content/uploads/2013/11/lecture_matsui.pdf

Customer's Gender

For whom

For whom

What

HowMuch

4 Economic Questions

How

Specialty store retailer ofPrivate labelApparelA special production method that gives control to the company.

The company controls all processesRyohin Keikaku

Material procurement

Sales

Manufacturing

Productdesign

Distribution

What is SPA?Company & Industry

ChallengesüLarge capital investmentüResponsible for: •All production processes•All fixed & variablecosts

MeritsüReact to trends quicklyüQuality control

of productsüReduced long-term production costs

What is SPA?

How will it be produced? Production method: technology, place, resources, etc.

Japanese Automobile Production

For whom

What

HowMuch

4 Economic Questions

How

Automatic demand forecasting systemSales data

collected at stores

Weather & seasonal data

Calculate Accurate Demand Forecasting with computers

Economic Decisions made by ProducersApple Corporation must decide:

• What to produce: iPad, iPhone, Mac Air notebook, Apple Music, Apple TV

• Where to manufacture: Many products are assembled in China.

• How will they produce: Fabless prodcution -> Apple only designs it products. It does NOT own any factories. Other companies are contracted to manufacture parts for Apple.

• How many products to produce: Global demand forecasting

• How much will their products cost? Premium pricing strategy. Prioritize profit over market share (sales voume).

Trade-off: Choosing between two (or more) options.

Opportunity Cost: What you give up when you make your decision. It is the value of the next best option.

Alternative Cost (Opportunity Cost)All economic decisions have an opportunity cost. You must always give up something when you make a decision.

You must include the opportunity cost in the real cost of an economic decision. A good economic decision is the choice with the smallestopportunity cost.

Q1. What is the monetarty (yen) cost of a university education?

Q2. What is the opportunity cost of a university education?

Opportunity Cost of Attending University Q1. The average yearly tuition for university education = 810,000 yen

810, 000 yen x 4 years = 3,240,000 yen

Q2. Opportunity cost of attending university = working for 4 years1000 yen x 8 hours x 5 days x 4 weeks x 12 months = 1,920,000 yen1,920,000 yen x 4 years = 7,680,000 yen

The real cost of attending university is the total of the monetary cost and the

opportunity cost. 3,240,000 yen + 7,680,000 yen = 10,920,000 yen

Opportunity Cost

Q: If the real cost of university is so high, why do students choose to

enter university?

Average lifetime earnings of university graduate = 300,000,000 yen

Average lifetime earnings for high school graduate = 240,000,000 yen

Average difference = 60,000,000 yen

Profit: Economic Choices of Businesses

23

Profit

Invest in equipment

Higher wages

Pay dividend

New facilities

Economic Choices of Mitsubishi

New factory for car parts in India.

Cost = 1,700,000,000yen

Mistubishi Factory – Opportunity Costs

What are the possible opportunity costs for building a factory in India?

• Invest in new machinery for factories in Japan = Increase efficiency by

10% by 2022.

• Spend money for research and development = Develop new

electronic vehicles to gain market share in Japan.

Economic Conflict

• What are economic decisions based on? (Hint: 3 factors)• Values, beliefs, opinions, and facts• Who makes the decision• What the decision maker thinks is most important

• Conflict occurs because of the different choices and priorities of:• Consumers• Workers• Businesses• Government

This is the Noth Shore of Oahu (Hawaii).

There is an idea to develop the area -> build luxury hotels, restaurants and gift shops to attract more toursists. What are the different groups involved? What are the conflicts?

Market Bargaining

Market bargaining is the settling of economic conflict the way people

buy and sell goods and services.

Consumers have power by chooising what to buy and what NOT to buy

Businesses conduct market bargaining by reducing prices, improving

quality, and building a positive brand image.

Workers conduct market bargaining by negotiation through unions and

going on strike.

Discussion Questions – Market Bargaining

• Consumers have recently choosed to shop at Fast Fashion brands

such as Uniqlo, Forever 21, H&M, and Zara. This shows the

consumers’ power of choice. What type of companies were damaged

by this consumer choice?

• Can you provide a real example of your market bargaining power?

Korea boycotts Japanese brands

Market Bargaining – Workers

Employees can negotiate with companies through labor unions.

• Higher wages

• Safer / better working conditions

• Less over-time work

• Maternity leave for women

Government Action to Resolve Conflict

Government can also help settle economic conflict through laws and

regulations.

Example: Companies want to keep wages low to keep labor costs down.

Average hourly wage for workers in China = 200 yen/hour

Tokyo minimum wage set by the government = 1,013 yen/hour

Protecting Private PropertyCitizen’s right to own property is protected by law

Even the government itself cannot take privately owned property unless it has a good reason and pays a fair price for the property.

Property Rights

PPOTECT

New AEON Shopping Center in Hachioji

What are the different groups that are in conflict for this project?

Economic Conflict • AEON (large corporation) – Wants to build a shopping center to increase

profits

• Hachioji city government – Wants the shopping center to increase jobs and the value of land in Hachioji.

• Some Hachioji residents – Wants the shopping center for convenience

• Other residents – Against the project because of destruction of nature, traffic, and noise.

• Local small businesses – Against the project because of competition