Help broaden your students’ understanding of the underlying economic principals behind current events, as well as other more basic economic concepts.
FOR THE WEEK OF Jan. 10, 2010
Article Link: "Rabbit ears multiplying," Jan. 4, 2010, The Denver Post, 18A
- Economics: the social science that studies the production, distribution, and consumption of goods and services. The word originates with the ancient Greek word that means rules and management of the household. It is used in this sense in this article.
- Save: means to conserve money. Saving also includes reducing expenditures to satisfy a family budget. Its opposite is to spend.
- Free: something given or supplied without payment. In economics nothing is truly “free.” There is an opportunity cost (something given up) associated with every choice.
- Penny-pinching: the practice of acquiring goods and services in a restrained manner. Saving rather than spending one’s income.
- Sales: when a buyer and a seller (or producer) agree on a price and exchange the good (or service) for money or some other agreed price. In a business, sales are called revenue. The business must pay its workers and all other expenses out of the income from sales.
- Demand: the desire to buy something and the ability to pay for it.
- Substitute good or service: one kind of good (or service) is said to be a substitute good for another kind when the two kinds of goods can be consumed or used in place of one another in at least some of their possible uses.
- Wants: something that is desired. Economics teaches that people have unlimited wants, but limited resources (a result of scarcity). People cannot have everything they want and must look for the best alternatives which they can afford.
- Choice: the mental process of judging the merits of options and selecting one of them. The choice in economics is based on weighing costs against benefits.
Discussion:Some families are giving up their cable service in favor of rabbit ears or roof-top antennas. This choice is made easier in cities (like Los Angeles) where there are up to 70 TV channels available over the air. Consumers can reduce their household expenses and save the money or use the savings for other more important items. The new high definition and digital technology makes it possible for viewers to receive many HD channels without the expense of paying for cable or satellite service. As a result manufacturers of rabbit ears antennas are having a hard time keeping up with the demand for their product. Consumers can also receive TV programs over the Internet.
Questions for discussion: How much do you think the average family spends on cable or satellite service each month? Do you think your family would switch to an antenna and stop paying for cable? Why or why not? Why is it important for people to have freedom of choice in making purchasing decisions? How does your family make purchasing decisions? Does your family have a budget?
Article Link: "Borrowing plummets for Nov." Jan. 9, 2010, The Denver Post, 7B
- Borrowing: debt that is granted to a person with the expectation that it will be repaid in the future.
- Consumer: individuals and households who purchase goods and services. In the U.S. economy consumers account for about 70% of all economic activity.
- Credit: the process of one person granting another a loan (usually of money or goods) with an agreement that the loan will be repaid according to a time schedule.
- Federal Reserve: The Federal Reserve Bank system was established in 1913 to keep prices and the money supply stable. Over the years Congress has expanded its responsibilities to include regulation of parts of the banking system, influence over interest rates and unemployment. The Federal Reserve Bank system consists of a central committee and 12 autonomous regional banks. Denver is in the territory covered by the Federal Reserve Bank of Kansas City.
- Investments: assets that create financial benefits in the form of income or profit in the future. Individuals save part of their earnings and then invest in stocks, mutual funds, Certificates of Deposit and many other instruments.
- GDP: Gross Domestic Product consists of Consumer spending, Government spending, business Investment, and Net Exports: GDP = C + G + I + NX. When GDP is negative this usually means that C and I are falling. In the current recession consumers need to spend in order for the economy to start growing. Then businesses will start to invest and GDP will turn positive.
- Unemployment: A measure of how many people are looking for jobs but cannot find work. Currently 10% of the workforce is unemployed. There have been 8 million jobs lost since December 2007. Many economists think that the recovery cannot occur until jobs are being created. There were 85,000 jobs lost in December 2009.
- Aggregate demand: the total demand for goods and services in the economy at a given time and price level. It is the amount of goods and services in the economy that is purchased and reflected in GDP. It is the sum of all the demand of all households plus government spending.
Discussion: U.S. consumers are borrowing much less than in the past. This is due to unemployment, fear over job loss, recouping investment losses, and increased difficulty in qualifying for credit cards. The problem with less borrowing is that there is less spending. If consumers are saving and paying down debt then the economy cannot recover quickly from the recession. In addition, banks are reluctant to lend because they have suffered huge losses from defaults on credit cards.
Questions for discussion: What motivates a family to reduce its spending? Would you recommend that your family spend (and possibly borrow) which would help the economy or should they save for emergencies, college, and retirement? What is the importance of having a family budget? A personal budget?
Handy Dandy Guide
6 core economic Principals
Colorado Model Content Standards for Economics
Economics is written by Dennis Grogran, Program
Director, Colorado Council for Economic Education. For information about
CCEE's other programs, call 303-752-2323 or e-mail email@example.com.