Lesson 19
Analyze prices, incentives, profits, and the competitive markets. Look at how scarcity affects government decisions, explore the differences between the public and private sector, and analyze the role of speculation
To understand how the government and the economy work together think about a game of monopoly:
In the last lesson you learned about types of Economic Systems. There was Traditional, Free Market, Command, and Mixed.
How is Monopoly a Free Market Economy?
Remember that a Free Market Economy/Capitalist Economy is one with absolutely no government control. A trait that would make monopoly 'Free Market' would be the fact that you get to choose to buy a property or not. You get to make trades with other players.
We played this game in-class and I let the students choose how much they wanted to charge in rent when someone landed on their property. All of these things are traits of a Free Market.
Then how is Monopoly a Command Economy?
Remember Free Market and Command are opposites. So a command economy is under the control of the government. What types of things does the 'government' control? The government in this case would be the rules of the game you don't have any control over. So the fact that their is a jail is a sign of 'government/game' control. Income tax is controlled. The prices that properties cost is fixed by the game/government. The cost of houses and hotels are fixed.
How is Monopoly a Free Market Economy?
Remember that a Free Market Economy/Capitalist Economy is one with absolutely no government control. A trait that would make monopoly 'Free Market' would be the fact that you get to choose to buy a property or not. You get to make trades with other players.
We played this game in-class and I let the students choose how much they wanted to charge in rent when someone landed on their property. All of these things are traits of a Free Market.
Then how is Monopoly a Command Economy?
Remember Free Market and Command are opposites. So a command economy is under the control of the government. What types of things does the 'government' control? The government in this case would be the rules of the game you don't have any control over. So the fact that their is a jail is a sign of 'government/game' control. Income tax is controlled. The prices that properties cost is fixed by the game/government. The cost of houses and hotels are fixed.
Now let's look at how a few more economic terms apply to Monopoly:
Supply and Demand: this one might be a little harder to see. The law of Supply and Demand says that the price of an item will go up if enough people want it. This makes sense because the more people that want something the more they are willing to pay for it. And those that supply the product want to charge as much as possible, so they can make more money. It's a little harder to see in Monopoly because all the prices are fixed. But think about the last game of Monopoly you played. When most of the properties had been bought people start trading. They trade money for properties they want, trying to get a Monopoly. The further you are in the game, or the closer you come to getting a Monopoly the more desperate you are, and the more you're willing to pay to get that last property to complete your Monopoly set.
These analogies will only make sense if you have played Monopoly... and I'm assuming you all have. If you haven't this lesson will make much more sense if you go and play a game of Monopoly.
Scarcity: This concept has a lot to do with Supply and Demand. Remember scarcity is when things are scarce. When oil is scarce the price goes up. So when the property available to buy is scarce, the price goes up.
Speculation: This is a term we haven't defined yet. Speculation is basically a risky investment. If you lived in 1849 and you wanted to get rich quick, you might have moved to California and started mining for gold. This is really risky. You don't know if you'll find gold or not. This is an example of speculation. So here's an example of speculation in Monopoly:
Say you have one of the 3 red properties you need to make a Monopoly. Another player owns a red one, and the last red one still belongs to the bank and is up for sale. Remember in the game Monopoly you can only buy a property if you roll the dice and land on the square. So you decide you want to trade with the other player. You offer him $500 if he will give you his red property. You are taking a risk when you make this trade. You don't know if you'll land on the last available red property, but if you do, you'll have a Monopoly.
The risk will be worth it if you do land on the last property available- and the player you're trading with is more likely to trade with you, if he isn't giving you the last piece to a Monopoly.
The last economic concept I want to talk about is Inflation. Inflation is when the cost of goods rises because money is worth less. If every had $1,000 to spend on candy every month, companies could charge more money for a chocolate bar. And these companies would charge more money, because they want to make as much as they can. So the price of the candy bar would go up, because people could afford it. INFLATION is the reason that countries in debt can't just print more money. The money they print would be less valuable because everyone would have more of it, so the prices of everything would go up.
An example of this is the price of gas. In 1969 gas was $0.35 for a gallon. Because that's what people could afford. Nowadays the price of a gallon of gas fluctuates, but it's around $3.00. Why? Because gas is becoming more scarce, and because more people can afford that price. If gas was $3.00 in 1969 then not many people would be able to afford it.
In Monopoly you can see inflation when you're making trades. If you get further in the game and everyone has more money, so it's worth less. You can buy the property Park Place for $350 at the beginning of the game- but if you have $3,000 and you want to get Park Place from another player, they're going to charge you a lot of money, because you have a lot of money. That's business.
Supply and Demand: this one might be a little harder to see. The law of Supply and Demand says that the price of an item will go up if enough people want it. This makes sense because the more people that want something the more they are willing to pay for it. And those that supply the product want to charge as much as possible, so they can make more money. It's a little harder to see in Monopoly because all the prices are fixed. But think about the last game of Monopoly you played. When most of the properties had been bought people start trading. They trade money for properties they want, trying to get a Monopoly. The further you are in the game, or the closer you come to getting a Monopoly the more desperate you are, and the more you're willing to pay to get that last property to complete your Monopoly set.
These analogies will only make sense if you have played Monopoly... and I'm assuming you all have. If you haven't this lesson will make much more sense if you go and play a game of Monopoly.
Scarcity: This concept has a lot to do with Supply and Demand. Remember scarcity is when things are scarce. When oil is scarce the price goes up. So when the property available to buy is scarce, the price goes up.
Speculation: This is a term we haven't defined yet. Speculation is basically a risky investment. If you lived in 1849 and you wanted to get rich quick, you might have moved to California and started mining for gold. This is really risky. You don't know if you'll find gold or not. This is an example of speculation. So here's an example of speculation in Monopoly:
Say you have one of the 3 red properties you need to make a Monopoly. Another player owns a red one, and the last red one still belongs to the bank and is up for sale. Remember in the game Monopoly you can only buy a property if you roll the dice and land on the square. So you decide you want to trade with the other player. You offer him $500 if he will give you his red property. You are taking a risk when you make this trade. You don't know if you'll land on the last available red property, but if you do, you'll have a Monopoly.
The risk will be worth it if you do land on the last property available- and the player you're trading with is more likely to trade with you, if he isn't giving you the last piece to a Monopoly.
The last economic concept I want to talk about is Inflation. Inflation is when the cost of goods rises because money is worth less. If every had $1,000 to spend on candy every month, companies could charge more money for a chocolate bar. And these companies would charge more money, because they want to make as much as they can. So the price of the candy bar would go up, because people could afford it. INFLATION is the reason that countries in debt can't just print more money. The money they print would be less valuable because everyone would have more of it, so the prices of everything would go up.
An example of this is the price of gas. In 1969 gas was $0.35 for a gallon. Because that's what people could afford. Nowadays the price of a gallon of gas fluctuates, but it's around $3.00. Why? Because gas is becoming more scarce, and because more people can afford that price. If gas was $3.00 in 1969 then not many people would be able to afford it.
In Monopoly you can see inflation when you're making trades. If you get further in the game and everyone has more money, so it's worth less. You can buy the property Park Place for $350 at the beginning of the game- but if you have $3,000 and you want to get Park Place from another player, they're going to charge you a lot of money, because you have a lot of money. That's business.
So the game of Monopoly has both Capitalist and Socialist parts to it. The game you know and love is a lot different than it used to be...
Enough Monopoly, now let's look at how the GLOBAL economy works.
Countries trade with each other. That's why there's a global economy. If you call your cell phone carrier's help desk because you need technical support, you just might have your call answered by someone in India. There's your proof of a global economy.
If you look at the tags on your clothes, how many of your clothes are not made in the U.S.A? My guess would be most of your clothes are not made in the United States. There's more proof of a global economy.
You might have heard words like 'recession' or 'economic downturn' in the United States. Well, even when the U.S. is in a recession, we are still the richest country in the world.
Think about countries with small economies. A third world country has a smaller economy. They are less industrialized. Which means they have less machines to do their work for them. They might be more willing to make trades for goods rather than money. Their economy might be more TRADITIONAL (if you don't remember what that is, look it up in the last lesson).
When you think of a country like that, and then think of the United States, it's pretty obvious to see that the U.S. would have a lot of power over these countries. They have more money, more goods, more technology, and therefore they could get pretty much whatever they wanted from these poorer countries.
So how do I know the U.S. is the richest country in the world? Well a little thing called GDP measures how rich a country is.
If you look at the tags on your clothes, how many of your clothes are not made in the U.S.A? My guess would be most of your clothes are not made in the United States. There's more proof of a global economy.
You might have heard words like 'recession' or 'economic downturn' in the United States. Well, even when the U.S. is in a recession, we are still the richest country in the world.
Think about countries with small economies. A third world country has a smaller economy. They are less industrialized. Which means they have less machines to do their work for them. They might be more willing to make trades for goods rather than money. Their economy might be more TRADITIONAL (if you don't remember what that is, look it up in the last lesson).
When you think of a country like that, and then think of the United States, it's pretty obvious to see that the U.S. would have a lot of power over these countries. They have more money, more goods, more technology, and therefore they could get pretty much whatever they wanted from these poorer countries.
So how do I know the U.S. is the richest country in the world? Well a little thing called GDP measures how rich a country is.
If you could put a price tag on how much the United States is worth, that would be the GDP. Take a look at the countries with the best GDP:
On the chart when it says 'per capita' that means that if they split up their money evenly between all the people in their country, that's how much money each person would be worth. To get a better idea of how the economies of the world compare to one another watch the video below.
You need to know one thing before you watch the video--- they're going to mention BRICS economies a lot. A smart economist came up with a list of 5 countries that seemed to be growing (financially) the fastest. He nicknamed these economies the 'BRICS'. Why? Well it's an acronym: Brazil, Russia, India, China, & South Africa. These economies seem to be growing the fastest. Now you are prepared to watch the video:
You need to know one thing before you watch the video--- they're going to mention BRICS economies a lot. A smart economist came up with a list of 5 countries that seemed to be growing (financially) the fastest. He nicknamed these economies the 'BRICS'. Why? Well it's an acronym: Brazil, Russia, India, China, & South Africa. These economies seem to be growing the fastest. Now you are prepared to watch the video:
So even though the United States is rich, there are plenty of other factors that affect the state of our nation. And even though we are worth a lot of money we're pretty deep in debt. The United States owes China $1.3 trillion dollars. And because the United States is worth a lot of money, China is willing to loan money to us. What if we weren't able to pay that money back????
Well take a look at what happened to Greece. They joined the European Union and switched to the Euro. Then they started spending lots of money on their country. They borrowed money from other nations to pay for all the money they were spending. Eventually the countries that were loaning them money realized that Greece wasn't going to be able to pay that money back.
The countries that were loaning Greece money started charging higher interest rates when they realized Greece wouldn't be able to pay them back. ECONOMIC CRISIS. Greece started cutting back projects and funds. The people of Greece weren't very happy with these cuts. People lost their jobs, no one had money. The city of Athens came up with an interesting solution to this no-money problem:
Well take a look at what happened to Greece. They joined the European Union and switched to the Euro. Then they started spending lots of money on their country. They borrowed money from other nations to pay for all the money they were spending. Eventually the countries that were loaning them money realized that Greece wasn't going to be able to pay that money back.
The countries that were loaning Greece money started charging higher interest rates when they realized Greece wouldn't be able to pay them back. ECONOMIC CRISIS. Greece started cutting back projects and funds. The people of Greece weren't very happy with these cuts. People lost their jobs, no one had money. The city of Athens came up with an interesting solution to this no-money problem:
Because money was scarce, the people of Greece turned to bartering. And the next most valuable thing they had was their time. So they trade their time. They economy of their country was failing, so they turned to a more traditional economy.
Assignment 19
1. How is private business better for the economy than a price-fixed-government-controlled business?
2. Do you think the 'Athens Time Bank' is a good idea? Would something like that work in the United States? Why?
3. What is GDP?
4. What does the video 'The Global Economy' tell you about the different nation's economies?
5. What role does SPECULATION play in Government decision making?
2. Do you think the 'Athens Time Bank' is a good idea? Would something like that work in the United States? Why?
3. What is GDP?
4. What does the video 'The Global Economy' tell you about the different nation's economies?
5. What role does SPECULATION play in Government decision making?
Standard 5: Objective 2 A, B, C, & D