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2015 day 2

  1. Quiz 1 ½ page 1. When an economist is talking about a “firm”, what is that? 2. Why doesn’t Mr. Klein drive a sports car? Using economic language 3. What is your opportunity cost of being here right now? 4. Why might someone disagree with the statement “the best things in life are free”? 5. Why do you think entrepreneurs are vitally important to our society? (2 reasons)
  2. Group Activity “Entrepreneurship” • Groups of 2-3, Design a brand new business On a single sheet of paper with everyone’s name answer these ?
  3. On Slates 1. Give an example of a time when you were forced to do something. 2. Who was the authority figure? 3. Why did they force you to make that choice? 4. How could they have made you do #1 without force?
  4. 4 Economic questions for your household 1. What to produce? 2. How to produce? 3. How much to produce? 4. How much does each person consume?
  5. 4 Economic questions for every society 1. What to produce? 2. How to produce? 3. How much to produce? 4. How much does each person consume? Barack Obama President of USA Naoto Kan prime minister of JapanMexican President Enrique Pena Neito
  6. What happened in 1776? • Enlightenment • Philosophy • Adam Smith • Scottish economist • Wealth of Nations • clip • Pages 46-50 • Read for 8 minutes • Answer 4 economic questions • Summarize the 5 parts of “our system” in your notes
  7. Free Market Economy • “Invisible hand” • Government does as little as possible • Property rights • Stays out for winners and losers
  8. Adam Smith’s invisible hand • Laissez faire • Market based economy • How did your pencil get made? • I pencil
  9. Circular Flow Model Households Firms Product Market Factor Market Money $$$ Goods/Services labor Wages $$ Investments $$ Interconnectivity Where is the gov’t? Regulation & taxation
  10. In Review In our system: • Firms need households • Households need firms • They are interconnected • Gov’t small role • Mixed economy
  11. What if…. In our system: • Firms need households • Households need firms • They are interconnected • Govt raised sales tax to 25%? • Govt lowered the income tax by 5% • Unemployment rate rose by 10%
  12. The government role in the economy? • Like a guide to our economy • Mixed economy • Group Assignment: 1 paper 1. Explain your family’s role in the market economy. (2 ways from circular flow) 2. Using the model, why would a business want other businesses to succeed? 3. How could the government increase consumption by households? 2 ways 4. How could the government increase goods and services created or sold by firms? 2 ways 5. How could the government increase the number of households who work for firms? 2 ways 6. For 3-5, what is the opportunity cost of that action?
  13. On your slates 1. Imagine that Flowing Wells High School won a $15,000 grant to do what ever they want from Bookman's. How do you think they should allocate the $15,000?
  14. Original Economic Questions What to produce? How to produce? How much to produce? How to allocate resources?
  15. Allocation methods How do families allocate? Brute force First come, first serve Equal Rationing Rationing by committee Based on need (poorest) Contest based Random lottery Auction – willing to pay
  16. FW Administration has 2 tickets to this year’s Final Four basketball games They are going to allocate the tickets to one student. They are going to either use: 1. lottery, 2. auction, 3.poorest, 4.first come, first serve, 5.highest GPA, 6.committee of teachers, 7.fastest 1 mile run, 8. most free throws, 9.winner of singing contest, 10. best youtube fan video 2. Two reasons your method is best 3. For two of the others, 1 problem
  17. Currently organ donation in the US is done by donation only, and first come first serve. 4. Write a paragraph comparing and contrasting this allocation method with an auction for kidneys where people on the waiting list could buy kidneys from donors. Which method do you think is best?
  18. Value, in economic terms ½ sheet of paper 2 ways economists measure value of a good/service: 1. Price – (How much are you willing to pay?) 2. Utility (how happy does this make me?)
  19. Why trade is important? On this ½ sheet of paper: 1. What is your original good/service? 2. Write what you think the value (in $) your good or service is. 3 Write down the good’s utility for you (1-10) Round 1, only at your table Round 2, same gender Round 3, everyone Walk around the room for 10 minutes and see if you can trade your good for something of higher utility 4. How many trades did you make? 5. What is your final good/service? 6. What is its value? 7. What is your new utility? 8. Imagine you had to pay Mr. Klein $10 for each trade, how would that have impacted this simulation? (this tax is called a tariff)
  20. Full sheet: Choose an entrepreneurial idea Landscaping firm Restaurant Software firm Trucking Company 1.Think of at least two places could you raise the $15,000-$30,000 to start the business? 2. Besides going bankrupt, what bad things or risks could occur to your business? 3. Would your business do better during good economic times or could it succeed anytime? Explain your reasoning.
  21. Sole Proprietorship • Single person • Good for: low risk businesses, low entry costs • Benefits: single person has all control and keeps all profits • Drawbacks: single person assumes all risk, • hard to raise capital • Examples: small construction firms, artistic firms, bloggers, import/export
  22. Partnerships • Two people in business together • Good for: low risk businesses • Benefits: low entry costs, shared costs • Drawbacks: partners assume all risk • hard to raise capital, • agreements “like a marriage” • Examples: law firms, small specialized firms
  23. What happens if? • New Restaurant!!!
  24. Liability • If your Sole Proprietorship or Partnership is sued… • They can take: – Your house – Your car – Your money in the bank – Your future money!!!
  25. Corporations • A legal “person” • Good for: higher risk businesses • Benefits: owners protected • easier to raise capital • Drawbacks: double taxation • increased regulation • Examples: restaurants, LLC’s, Sports Franchises
  26. Double taxation • Corporation pays its own taxes: 25-35% • Corporation pays employees wages/salary • Employees ALSO pay taxes: 20-38% • Trade off is liability for risk
  27. General Electric ($26/share) • Founded by Thomas Edison (1878) • Largest producer of finished goods in world • Lighting, appliances, engines, aviation, power, railroads, healthcare, NBC, measurement systems • Revenue: US $146 Billion (2013)
  28. Non-Profit Organization • Goal is service, not profit (not part of gov’t) • Good for: caring or political, service related goals • Benefits: legally protected, no taxation • Drawbacks: difficult to keep alive, survives on donations and grants • Examples: Churches Salvation Army, USAID, Amnesty International, NAACP, PETA, Judicial Watch, Gates Foundation, Scholarships
  29. 4. Which business organization would you use for your business and why?
  30. Subway- 1965
  31. 2 types of Corporations • Privately held – owned by founders or owners • Publicly held – owned by shareholders
  32. Publically Held Corporations • Larger corporations, publically traded • Good for: higher risk businesses • Benefits: owners protected, • MUCH easier to raise capital • Drawbacks: double taxation • increased regulation • owned by shareholders • Examples: Wal-Mart, Disney, Starbucks, Apple, Microsoft
  33. Corporate Structure Shareholders Election Board of Directors Hires/fires Chief Executive Officer (CEO) Hires/fires Every other employee 1976 – founded as partnership Steve Jobs, Steve Wozniak 1977 – formed privately held corp 1980 – “went public” to shareholders Steve Jobs new CEO 1985 – Jobs fired by B of Directors 1996 – Jobs returns as CEO, ipods, imacs
  34. Chapter 3, Corporations 1. Page 58, Rank US business organizations in order of how common they are 2. Rank business organizations in order of revenue 3. Who actually owns big corporations like Walmart, Disney and Apple? 4. What would your business need to do to file articles of incorporation with the state of Arizona? 5. What would you have to do if you wanted to open a Subway franchise? 6. Compare and contrast the advantages of owning a franchise like a Subway. 7. What is the opportunity cost of investing in the stock market? 8. What is a merger? Give 3 real world examples, ok to look up on phone 9. Which market structure would you use if you wanted to start a taco stand? Support your answer 10. Which market structure would you use if you wanted to start a company that writes cellphone apps? Support your answer
  35. Circular Flow Model Households Firms Product Market Factor Market Money $$$ Goods/Services labor Wages $$ Investments $$ Interconnectivity
  36. Mixed Economies • Modern countries have the government help some, but mostly it’s the market • For example…. • Schools • Roads • Healthcare • Child care • Space Travel
  37. Investing • One way to save for your future is to invest • You can publically invest in hundreds of companies Brainstorm a list of 5 companies (or industries) you think would be a good investment and a brief “why”. Investments $$
  38. Investing in the USA • Stocks • Bonds • Stock Market • NYSE, NASDAQ • Dow Jones • Bull vs. Bear • Mutual Funds • Industries
  39. Savings Accounts • 0% - 0.5 % interest
  40. Investing • Brokerage Account • Old School – Stock Broker • Higher fees, but advice • New School – DIY online • Lower fees, little to no help • Show clip
  41. A stock broker at work • Finance degree • Income: $50,000 and up • Commission per trade
  42. Famous Investor Warren Buffett (1930- Richest man in the world ($52 Billion) Successful investor Earns only pays himself $100,000/year “hold investments”
  43. Bonds • Government backed • Very Safe • Low risk • Low return • Loan for a time • Corporations also offer them
  44. Stocks • Ownership in a publically traded company • Issued to raise capital • Some pay dividends
  45. Stocks • Stock Calculation: • $25.90/share • You have $1000 to invest in Disney • $1000 investment • $25.90 per share • You can buy 38.6 shares with $1000 • Dividend: $0.35 /year Investment divided by share price = shares you can buy
  46. Let’s try one • $1,000 investment • Someone name a large company
  47. Stocks • Stock Calculation: • $25.90 share price • You own 38 shares • Price $28/share $28 X 38 = $1064 now! Total investment = share price X shares owned
  48. Stock Market • Place where Stocks are traded • Most famous: NYSE • Others, NASDAQ, Nikkei, London, Hong Kong, Chicago
  49. 2011 New York Summer
  50. Stock Symbols • Makes trading easier • EX: Disney = DIS • Use to look them up
  51. “Dow Jones” • Dow Jones” – average 30 top companies • MMM, AA, AXP, T, BAC, BA, CAT, CVX, CSCO, KO, DD, XOM, GE, HPQ, HD, INTC, IBM, JNJ, JPM, KFT, MCD, MRK, MSFT, PFE, PG, TRV, UTX, VZ, WMT, DIS
  52. Bull vs. Bear Markets • Bull Market • Bear Market
  53. Industries • Field of business • Stocks follow others • “Chinese increase car purchases” • Tough times for biotechnology
  54. Stock Market Simulation
  55. Old School Stock Market Simulation • Sellers/Buyers • 3 companies, Ford (F) , Campbell's (CPB), Adobe (ADBE)
  56. News of the Day • American businessmen fear US government debt • Consumer demand for soup increases by 10% • Chevy announces new hybrid model
  57. News of the Day • Mexican tomato growers watch 80% crop killed • President Obama announces increase in income taxes • Adobe announces record breaking year
  58. News of the Day • US signs trade deal with Australia, tariffs on cars eliminated • Consumer debt at an all time high • US consumers frustrated with Indian tech support
  59. News of the Day • Gas price up to $5/gallon in US • US computer companies sell 20% more computers last month • US consumers get rebate check of $200
  60. News of the Day • US Unemployment Rate increases to 10% • US tourism increases for the second straight month • Microsoft announces new product to compete with Acrobat Reader