VCEE Scope & Sequence EPF : simplebooklet.com

Scope and Sequence for Virginia Economics & Personal Finance Course -Introduction and OutlineCreated by the Virginia Council on Economic Education (VCEE)Below is an outline of a day by day approach for teaching Virginia’s high school Economics andPersonal Finance. Each “day” refers to a 45-60 minute class period. Units 1 through 10 mainlycover economic concepts and have 85 days; Units 11 through 18 mainly cover the personal financeconcepts and have 82 days for a total of 167 days. Thus, more time is available to spend on sometopics and involve students in projects that allow them to apply the concepts and skills.A document is available for each unit providing a brief summary of the content for the day, keyvocabulary, relevant portions of the Board of Education’s framework, as well as some teaching tipsand lessons and resources.All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource called Virtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for free by participating in a VCEE training session. Visit www.vcee.org or email vcee@vcu.edu.3. Lessons from Financial Fitness for Life are on VE. They also have educational technology tools that can be found here: https://www.econedlink.org/resources/collection/fffl-9-12/Footnotes in the unit documents reference the following sources:1 Virginia Board of Education’s Curriculum Framework for Economics and Personal FinanceStandards of Learninghttp://www.doe.virginia.gov/testing/sol/frameworks/economics_personal_finance/economics_personal_finance_curriculum_frmwrk.pdf2 Voluntary National Content Standards in Economicshttps://www.councilforeconed.org/resource/voluntary-national-content-standards-in-economics/#sthash.GKA2kPIJ.dpbs3 Virtual Economics 4.5 and 5.0, published by the Council on Economic Educationhttp://ve.councilforeconed.org/The definitions for vocabulary comes the Board of Education’s Framework or the EconEdLinkGlossary found at http://www.econedlink.org/economic-resources/glossary.phpLessons identified can be found on Virtual Economics unless a web link is provided. Checkwww.TeachingMoneyVA.org for additional lessons and resources.2Virginia Council on Economic Education

Page 3

UNIT 1 - ABOUT DECISIONS (10 DAYS)EPF.1 The student will demonstrate knowledge of basic economic concepts and structures bya) describing how consumers, businesses and government face scarcity of resources, maketrade-offs and incur opportunity costsDay 1 What is scarcity and why does it exist?Day 2 What’s the trade-off? What’s my opportunity cost?Day 3 Decision makingc) describing how effective decision-making requires comparing the additional costs (marginalcosts) and additional benefits (marginal benefits)Day 1 What’s in it for me? What is this going to cost me?Day 2 Applying marginal thinking in the real worldb) explaining that choices often have long-term unintended consequencesDay 1 "I didn’t mean for that to happen."EPF.1 The student will demonstrate knowledge of basic economic concepts and structures byd) identifying the factors of productionEPF.2 The student will demonstrate knowledge of the role of producers and consumers in amarket economy byc) identifying the role of entrepreneurs.Day 1 Resources for productionDay 2 What do entrepreneurs do?Day 3 What’s the difference between real capital and human capital?Evaluation dayUNIT 2 - ECONOMIC SYSTEMS (6 DAYS)EPF.1 The student will demonstrate knowledge of basic economic concepts and structures bye) comparing the characteristics of market, command, traditional, and mixed economiesDay 1 The three basic questionsDay 2 Command, traditional, and market economiesDay 3 The free market and the US economyf) identifying Adam Smith and describing the characteristics of a market economyDay 1 Competition and the invisible handDay 2 Property rightsEvaluation dayUNIT 3 – PRODUCERS AND CONSUMERS IN A MARKET ECONOMY (11 DAYS )EPF.2 The student will demonstrate knowledge of the role of producers and consumers in amarket economy bya) describing how consumers, producers, workers, savers, investors and citizens respond toincentivesDay 1 Understanding incentivesb) explaining how businesses respond to consumer sovereigntyDay 1 Consumers rulec) identifying the role of entrepreneursDay 1 Entrepreneurs as visionaries and risk-takerse) describing how costs and revenues affect profit and supply3Virginia Council on Economic Education

Page 4

Day 1 Cost vs. priceDay 2 Calculating profitg) examining how investment in human capital, capital goods, and technology can improveproductivityDay 1 Investing in human capitalDay 2 Improving productivityf) describing how increased productivity affects costs of production and standard of livingDay 1 Measuring productivity using GDPj) illustrating the circular flow of economic activityDay 1 and Day 2 Understanding circular flowEvaluation dayUNIT 4 - THE PRICE SYSTEM (11 DAYS)EPF.3 The student will demonstrate knowledge of the price system bya) examining the laws of supply and demand and the determinants of eachDays 1 and 2 The law of demandDay 3 The law of supplyb) explaining how the interaction of supply and demand determines equilibrium price.Day 1 Bringing supply and demand together for equilibrium pricea) examining the laws of supply and demand and the determinants of eachDay 1 What causes demand to change?Day 2 What causes supply to change?Day 3 Practicec) by describing the elasticity of supply and demand.Day 1 How responsive are consumers and producers to price changes? That’s elasticity!d) examining the purposes and implications of price ceilings and price floors.Day 1 Price ceilings and floors.Day 2 Review supply, demand, equilibrium price, determinants of supply & demand,elasticity, price ceilings and price floorsEvaluation dayUNIT 5 - HOW ARE BUSINESSES ORGANIZED? (6 DAYS)EPF.2 The student will demonstrate knowledge of the role of producers and consumers in amarket economy byd) comparing the costs and benefits of different forms of business organization including soleproprietorships, partnership, corporation, franchise and cooperativeDay 1 and 2 Proprietorship, partnership, franchise, cooperative, corporation—what are thecharacteristics as well as the advantages and disadvantages of each?EPF.18 The student will demonstrate knowledge of investment and savings planning byf) describing how the stock market worksDay 1 Some corporations go publicDay 2 How are stock prices determined?EPF.2 The student will demonstrate knowledge of the role of producers and consumers in amarket economy byh) describing the effects of competition on producers, sellers and consumers4Virginia Council on Economic Education

Page 5

Day 1 What are the characteristics of competitive and uncompetitive markets?Evaluation dayUNIT 6 - WHAT WILL DETERMINE MY INCOME? (7 DAYS)EPF.4 The student will demonstrate knowledge that many factors affect income bya) examining the market value of worker’s skills and knowledgeDay 1 Human capital-just another name for skills and knowledgeDay 2 What determines the market value of my skills and knowledge?b) identifying the impact of human capital on production costsDay 1 Why do businesses prefer to hire workers with more skills?c) explaining the relationship between a person’s own human capital and the resulting incomepotentialDays 1 and 2 What’s the connection between education and income?d) explaining how changes in supply and demand for goods and services affect incomeDay 1 How does demand for other things affect my job?Evaluation DayUNIT 7 – THE ROLE OF GOVERNMENT IN A MARKET ECONOMY (8 DAYS)EPF.8 The student will demonstrate knowledge of the role of government in a market economybya) identifying goods and services provided by government to benefit societyDay 1 Public goods and servicesDay 2 Expanding the definition of public goodsDay 3 Tragedy of the commonsb) identifying the role the government plays in providing a legal structure to protect property rightsand enforce contractsDay 1 Protecting private property and enforcing contractsc) providing examples of government regulation of the marketDay 1 Government regulation and market failured) explaining that governments redistribute wealthDay 1 Transfer programs and tax structurese) explaining that taxes and fees fund all government-provided goods and servicesDay 1 Where does the money come from and where does it go?Evaluation DayUNIT 8 – HOW DOES THE HEALTH OF THE ECONOMY AFFECT YOU? (6 DAYS)EPF.5 The student will demonstrate knowledge of a nation’s economic goals, including fullemployment, stable prices, and economic growth, bya) describing economic indicators, such as gross domestic product (GDP), consumer price index(CPI), and unemployment rate.Days 1 and 2 What are the nation’s economic goals and how do we measure them?b) describing the causes and effects of unemployment, inflation, and reduced economic growth.Days 1 and 2 How do unemployment, inflation and reduced economic growth affect us?5Virginia Council on Economic Education

Page 6

c) describing the fluctuations of the business cycle.Day 1 The business cycle: a picture of the economy over timeEvaluation DayUNIT 9 – MONETARY AND FISCAL POLICY (11 DAYS)EPF.6 The student will demonstrate knowledge of the nation’s financial system bya) defining the role of moneyDay 1 Characteristics and functions of moneyb) explaining the role of financial markets and financial institutionsDay 1 Financial intermediaries and how they workEPF.5 The student will demonstrate knowledge of a nation’s economic goals, including fullemployment, stable prices, and economic growth, byd) describing strategies for achieving national economic goals.Day 1 What can the government do to help the economy reach full employment, stable pricesand economic growth?EPF.7 The student will demonstrate knowledge of how monetary and fiscal policy influenceemployment, output and prices byb) describing government’s role in stabilizing the economyDay 1 and 2 What fiscal policy tools can government use to help stabilize the economy?EPF.7 The student will demonstrate knowledge of how monetary and fiscal policy influenceemployment, output and prices bya) describing the purpose, structure and function of the Federal Reserve SystemDay 1 What is the role and structure of the Federal Reserve System?Day 2 Tools of monetary policyDay 3 The role of interest ratesd) explaining balanced budget, deficit and national debtDay 1 Government budgets and their effect on the economyc) describing sources of government revenueDay 1: Sources of national, state and local revenueEvaluation DayUNIT 10 – WE ARE PART OF THE GLOBAL ECONOMY (9 DAYS)EPF.9 The student will demonstrate knowledge of the global economy bya) explaining that when parties trade voluntarily, all benefit.Day 1 Why do people trade?b) distinguishing between absolute advantage and comparative advantage.Day 1 Do you have an absolute or comparative advantage?c) distinguishing between trade deficit and trade surplus.Day 1 What’s the difference between a trade deficit and a trade surplus?d) explaining exchange rates, and the impact of a strong dollar and weak dollar on economicdecisions.Days 1 and 2 Changing exchange rates: who is helped and who is hurt when the dollarstrengthens or weakens?e) describing the costs and benefits of trade barriers.Day 1 Who is helped and who is hurt by trade barriers?6Virginia Council on Economic Education

Page 7

f) describing the effects of international trade agreements and the World Trade Organization.Day 1 How do trade agreements increase trade?g) explaining growing economic interdependence.Day 1 How does globalization make countries more interdependent?Evaluation DayUNIT 11 - GOALS, SAVING, INTEREST AND BANKING (13 DAYS)EPF.17 The student will demonstrate knowledge of personal financial planning bya) identifying short-term and long-term personal financial goalsf) explaining how economics influences a personal financial planDay 1 Saving requires foregoing spending; goals and why they’re so hard to achieveDay 2 Creating a plan to help achieve goalsEPF.10 The student will develop consumer skills byd) determining the consequences of conspicuous consumption.h) examining the impact of advertising and marketing on consumer demand and decision-makingin the global marketplaceDay 1 Stay on track toward meeting your goalsEPF.18 The student will demonstrate knowledge of investment and savings planning bya) comparing the impact of simple interest vs. compound interest on savings.Day 1 What is interest? Calculating simple interestDay 2 Compound interest, the rule of 72, and the time value of moneyEPF.12 The student will demonstrate knowledge of banking transactions by)a) comparing the types of financial institutions.b) comparing how financial institutions affect personal financial planningDay 1 Financial institutions, check cashing, and payday loansc) evaluating services and related costs associated with personal bankingd) differentiating among types of electronic money transactionsDay 1 Understanding how funds are transferred and calculating the costs and benefits ofbankinge) preparing all forms necessary for opening and maintaining a checking and saving accountDay 1 Completing application forms and examining a bank statementf) reconciling bank statementsDay 1 Finding the errorsg) comparing costs and benefits of online and traditional bankingDay 1 Traditional and online bankingh) explaining how certain historical events have influenced the banking system and otherfinancial institutionsDay 1 Panics, depressions, inflations and recessionsDay 2 September 11, the Great Recession, and the novel Coronavirus.Evaluation DayUNIT 12 - INVESTMENT & SAVINGS PLANNING (11 DAYS)EPF.18 The student will demonstrate knowledge of investment and savings planning byb) comparing and contrasting investment and savings optionsDay 1 Risk and reward7Virginia Council on Economic Education

Page 8

Day 2 Calculating outcomesc) comparing costs and income sources for investmentsDay 1 Where can the money come from?Day 2 What does it cost to save?d) examining the fundamental workings of Social Security and the system’s effects on retirementplanningDay 1 Examining Social Securitye) contrasting alternative retirement plansDay 1 IRAs, 401(k)s, pensions and annuitiesDay 2 Help from your employerf) describing how the stock market worksDay 1 What are stocks? The difference between speculating and investingDay 2 What makes a stock rise or fall?EPF.10 The student will develop consumer skills byi) accessing reliable financial information from a variety of sources.Day 1 Evaluating sources of informationEvaluation DayUNIT 13 – LABOR MARKETS, HUMAN CAPITAL AND INCOME (9 DAYS)EPF.10 The student will develop consumer skills byb) examining the effect of supply and demand on wages and pricesDays 1 and 2 Demand for laborDay 3 Supply of laborEPF.15 The student will demonstrate knowledge of income earning and reporting bya) examining how personal choices about education, training, skill development and careersimpact earningsDays 1 and 2 How and where can you develop your human capital?b) differentiating among sources of incomeDay 1 Wages, interest, profitsd) investigating employee benefits and incentivesDays 1 and 2 Benefits and incentivesEvaluation DayUNIT 14 – TAXES (7 DAYS)EPF.16 The student will demonstrate knowledge of taxes bya) describing the types and purposes of local, state, and federal taxes and the way each is leviedand used.Day 1 Why should citizens pay taxes – what’s in it for us?EPF.15 The student will demonstrate knowledge of income earning and reporting byc) calculating net paye)completing a standard W-4 formEPF.16 The student will demonstrate knowledge of taxes bye) explaining the content and purpose of a standard W-2 form.Day 1 Gross pay, withholding, and net pay8Virginia Council on Economic Education

Page 9

d) examining potential tax deductions and credits on a tax return.Day 1 Tax deductions and tax creditsDay 2 Completing a 1040 EZ and determining your tax bracket and average tax ratec) computing local taxes on products and services.Day 1 Computing local taxesf) explaining the similarities and differences between state and federal taxation of inheritances.Day 1 Inheritance and estate taxes - what’s the difference?Evaluation DayUNIT 15 – BUDGETING AND CONSUMER SKILLS (10 DAYS)EPF.17 The student will demonstrate knowledge of personal financial planning byd) developing a personal budgetDay 1 Constructing the budget – income firstDay 2 Constructing the budget – choosing expensesDay 3 Revisiting the budgetEPF.10 The student will develop consumer skills bya) examining basic economic concepts and their relation to product prices and consumer spendingDay 1 Prices and decisionsc) describing the steps in making a purchasing decision, including the roles of marginal benefitand marginal costf) demonstrating comparison-shopping skillsDay 1 Deciding whether and when to buye) describing common types of contracts and the implications of eachDay 1 Understanding contract basicsj) explaining consumer rights, responsibilities, remedies and the importance of consumer vigilanceDay 1 Consumer rights, responsibilities and remediesg) maintaining a filing system for personal financial recordsk) examining precautions for protecting identity and other personal informationDay 1 Protecting yourselfEvaluation DayUNIT 16 – PLANNING FOR LIVING AND LEISURE (7 DAYS)EPF.11 The student will demonstrate knowledge of planning for living and leisure expenses bya) comparing the costs and benefits purchasing vs. leasing a vehicleDay 1 Purchase or lease a vehicle?b) comparing the advantages and disadvantages of renting vs. purchasing a homeDay 1 Purchase or rent a home?c) describing the process of renting housingDay 1 Going through a standard rental/lease agreementd) describing the process of purchasing a homeDay 1 Main points of the purchase processe) calculating the costs of utilities, services, maintenance and other housing expensesDay 1 Household expenses beyond the rent or mortgagef) evaluating discretionary spending decisionsDay 1 Understanding discretionary spending9Virginia Council on Economic Education

Page 10

Evaluation DayUNIT 17 - CREDIT (14 DAYS)EPF.13 The student will demonstrate knowledge of credit and loan functions bya) evaluating the various methods of financing a purchaseDays 1 and 2 Credit: Is it free? Is it worth it?e) comparing terms and conditions of various sources of consumer creditDay 1 Where is credit obtained?c) identifying qualifications needed to obtain creditg) explaining the need for a good credit ratingDay 1 Creditworthiness and credit ratingsDays 2 and 3 Why credit ratings matter and what you can do to improve themb) analyzing credit card features and their impact on personal financial planningDay 1 Understanding your credit cardsd) identifying basic provisions of credit and loan lawsDays 1 and 2 Consumer loan lawsf) identifying strategies for effective debt management, including sources of assistanceDay 1 Managing your debth) comparing the costs and conditions of secured and unsecured loansDay 1 What is a secured loan and what does it cost? What is an unsecured loan and whatdoes it cost?i) comparing the types of voluntary and involuntary bankruptcy and the implications of eachDays 1 and 2 When and how to file for bankruptcyEvaluation DayUNIT 18 - EVENTS AFFECTING THE PLAN (11 DAYS)EPF.17 The student will demonstrate knowledge of personal financial planning byb) identifying anticipated and unanticipated income and expensesDay 1 Dealing with unanticipated eventsEPF.14 The student will demonstrate knowledge of the role of insurance in risk managementa) evaluating insurance as a risk management strategyDay 1 What is insurance?b) distinguishing among the types, costs, and benefits of insurance coverage including automobile,life, property, health, and professional liability insuranceDay 1 Auto insuranceDay 2 Property and professional liability insuranceDay 3 Life and health insurancec) explaining the role of insurance in financial planningDay 1 Protection or investmentEPF.17 The student will demonstrate knowledge of personal financial planning byc) examining components and purposes of a personal net worth statementDay 1 Calculating net worthe) investigating the effects of government actions and economic conditions on personal financialplanningf) explaining how economics influences a personal financial plan10Virginia Council on Economic Education

Page 11

Page 12

Page 13

UNIT 1 - ABOUT DECISIONS (10 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/Students face many choices every day. Is playing video games the best use of their time? Isworking at a fast-food restaurant better than the best alternative job or some other use of theirtime? Identifying and systematically comparing alternatives enables people to make moreinformed decisions and to recognize often overlooked relevant consequences of choices they orothers make. Some students believe that they can have all the goods and services they want fromtheir family or from the government because goods provided by family or by governments arefree. But this view is mistaken. Resources have alternative uses, even if parents or governmentsown them. For example, if a city uses land to build a football stadium, the best alternative use ofthat land must be given up. If additional funds are budgeted for police patrols, less money isavailable to hire more teachers. Explicitly comparing the value of alternative opportunities thatare sacrificed in any choice enables citizens and their political representatives to weigh thealternatives in order to make better economic decisions. This analysis also makes people awareof the consequences of their actions for themselves and others, and could lead to a heightenedsense of responsibility and accountability.2EPF.1 The student will demonstrate knowledge of basic economic concepts and structuresbya) describing how consumers, businesses and government face scarcity of resources, maketrade-offs and incur opportunity costsDay 1 What is scarcity and why does it exist?Day 2 What’s the trade-off? What’s my opportunity cost?Day 3 Decision makingEPF.1 The student will demonstrate knowledge of basic economic concepts and structuresbyc) describing how effective decision-making requires comparing the additional costs (marginalcosts) and additional benefits (marginal benefits)Day 1 What’s in it for me? What is this going to cost me?Day 2 Applying marginal thinking in the real worldEPF.1 The student will demonstrate knowledge of basic economic concepts and structuresbyb) explaining that choices often have long-term unintended consequences13Virginia Council on Economic Education

Page 14

Page 15

Day 1 - What is scarcity and why does it exist?Content KnowledgeEPF.1 The student will demonstrate knowledge of basic economic concepts andstructures bya) describing how consumers, businesses and government face scarcity of resources, maketrade-offs and incur opportunity costsScarcity is the central economic problem—unlimited wants vs limited resources. The goods andservices we want exceed our ability to produce them. Everyone faces scarcity. Because ofscarcity, consumers, businesses, and government decision-makers are forced to make choices.VocabularyChoice – The condition that arises from unlimited wants and limited resources;Decision – A conclusion reached after considering alternatives and their results.Resources – Things that we have that are in limited supply and which may include personalresources (financial, skill, time) or productive resources (capital resources, human resources,natural resources and entrepreneurship).Scarcity - The condition of not being able to have all the goods and services one wants. It existsbecause human wants for goods and services exceed the quantity of goods and services that canbe produced from all available resources.Wants – Desires that can be satisfied by consuming or using a good or service. Economists donot differentiate between wants and needs.Virginia Board of Education FrameworkScarcity is the condition of not being able to have all the goods and services one wants. It existsbecause human wants for goods and services exceed the quantity of goods and services that canbe produced from all available resources.The opportunity cost of a choice is the value of the best alternative given up.Consumers face scarcity and must make choices and incur opportunity costs. For example, aconsumer with two hours of free time cannot go ice skating for two hours and see a movie.Whatever choice is made, the alternative given up is the opportunity cost.Businesses face scarcity and must make choices and incur opportunity costs. Suppose a groceryis deciding whether to add a café or a pharmacy. It only has space for one. It makes a choice; theone not selected is the opportunity cost.15Virginia Council on Economic Education

Page 16

Governments face scarcity and must make choices and incur opportunity costs. For example,money spent on roads cannot be spent on education—or whatever would be the next bestalternative.A tradeoff is not an all-or-nothing decision. For example, government could choose to trade offsome money for roads to spend more on education.1Teaching Tips1) Before class, set up a scarcity situation---e.g. remove a few chairs so there are not enough forall. Ask students to define the problem. (Not enough chairs.) Explain it is a situation ofscarcity—not enough of something for everyone who wants one. How did they allocate thescarce resource? (First-come-ﬁrst-served.) What are some other possibilities? (Fight over chairs,take turns, share, pay to use the chairs, lottery, girls sit, boys sit.)2) Introduce the idea of time being scarce. Discuss many options for time after school. (Work,sports, theater, musical instrument practice, homework, hangout, read, video games.) Can you doall of the things in one afternoon? (No, you have to choose.) Put students in groups. Tell them tomake two columns on a sheet of paper. In column one, write a situation where they had to makea choice. In column two, write what was scarce. (Keep these sheets for the next class period.)3) What about businesses? Have students list businesses and decide what scarcity they face. Forexample, what is scarce for a grocery? (Floor space, shelf space, number of employees workingat one time.) What choices do they have to make? (How much space to give organic food,magazines, soft drinks, produce; whether to have employees on cash registers or carrying outgroceries; which cereals to carry—there are too many for a grocery to carry all). If the studentswork, perhaps they can give examples of other choices businesses make. (Keep these sheets forthe next class period.)4) What about government? Have students list choices the local, state or federal governmentmust make and what is scarce. For example: FEMA may have several disasters occurring at thesame time. What might be scarce? (Workers, supplies, equipment.) What about schools? Whatmight be scarce? (Keep these sheets for the next class period.)5) Discuss. Do even wealthy people experience scarcity? (Yes. They can’t do everything theywant. They must make choices.) Everyone faces scarcity everyday. Economics is about usingyour scarce resources to get or do the things that are most important to you.Lessons and ResourcesChoices & Changes: In Life, School, and Work - Grades 9-10 Lesson 1: Making ChoicesFinancial Fitness for Life: 9-12 Lesson 2: The Economic Way of Thinking16Virginia Council on Economic Education

Page 17

Capstone Lesson 2: Scarcity and AbundanceEconomics In Action Lesson 2: Economic Decision MakingVideoScarcity and Choice (4:35)http://www.youtube.com/watch?v=yoVc_S_gd_0What is economics about? (1:32)https://www.youtube.com/watch?v=nWPrMmv1TisIntro to Economics: Crash Course (12:09)https://www.youtube.com/watch?v=3ez10ADR_gM&t=5sRobert Frost reading poem “The Less Travelled” (1:04)http://www.youtube.com/watch?v=ie2Mspukx14MusicI Want It All by Queen (unlimited wants)In the End by Linkin Park (scarcity)You Can’t Always Get What You Want by The Rolling Stones (scarcity)Day 2 - What's the trade-off? What's my opportunity cost?Content KnowledgeTo evaluate the opportunity cost associated with making a choice, identify what would have beengained if the best alternative use of the resources, including time, had been undertaken. When astudent chooses to attend a theatrical event, the student not only gives up the use of the moneyspent to purchase the admission ticket but the student also gives up the time spent at the play. Ifthat time would have been spent babysitting, the opportunity cost is the price of the ticket and themoney not earned in babysitting. The alternative use for resources also depends on the context inwhich the choice is being made. For example, a choice to attend school may have an opportunitycost of the wages that would be earned if a student entered the workforce instead. But, in aperiod of high unemployment (when students may have little else to do), the choice to attendschool may have an opportunity cost of spending time with friends.2VocabularyOpportunity cost – The second-best alternative (or the value of that alternative) that must begiven up when making a choice.Trade-oﬀs – The giving up of one benefit or advantage in order to gain another regarded as morefavorable.Virginia Board of Education Framework17Virginia Council on Economic Education

Page 18

All choices have opportunity costs. Choices involve trading off the expected value of oneopportunity against the expected value of its best alternative.The opportunity cost of a choice is the value of the best alternative given up.Consumers face scarcity and must make choices and incur opportunity costs. For example, aconsumer with two hours of free time cannot go ice skating for two hours and see a movie.Whatever choice is made, the alternative given up is the opportunity cost.Businesses face scarcity and must make choices and incur opportunity costs. Suppose a groceryis deciding whether to add a café or a pharmacy. It only has space for one. It makes a choice; theone not selected is the opportunity cost.Governments face scarcity and must make choices and incur opportunity costs. For example,money spent on roads cannot be spent on education—or whatever would be the next bestalternative.A tradeoff is not an all-or-nothing decision. For example, government could choose to trade offsome money for roads to spend more on education.Teaching Tips1) Explain that all choices have costs. When you choose something, the real cost is what youhave to give up to get it. That is called the opportunity cost.Example: Suppose someone has two hours available. Let’s say he is choosing betweenparticipating in a two hour bike race, going to a movie or spending the two hours studying for anexam. If he picks the movie, and studying is his second choice, studying is the opportunity cost.Studying is the “real” cost because it’s what he gave up to go to the movies. (Students often thinktheir opportunity cost is all of the choices they might have had. In this scenario, in the two hourperiod it wasn’t a choice between going to the movie OR participating in a two hour bike raceAND studying for two hours. His opportunity cost was the option he would have chosen—hisnext best choice—if he hadn’t chosen to go to the movie.)2) Tell students to look at the list of choices they made in the last class period. In each case theydecided what was scarce. Now, tell students to look at each choice and determine the opportunitycost. What was given up in each case?3) Remind students that businesses experience opportunity costs as well. Suppose BurgerWhoopee can only afford to add one more restaurant in a community. If they build it in onelocation, the opportunity cost is their second choice location. If they can only afford to hire onemore worker, their opportunity cost is the next best applicant.4) Governments experience opportunity costs. $1 million spent on tanks cannot be spent onmedical research. $1 million allocated to cancer research cannot also be spent on Alzheimer’s18Virginia Council on Economic Education

Page 19

research, or research on diabetes. Land used for a public baseball park cannot also be used for alibrary or school5) Optional end of class activity:Prepare a variety of items such as pencils and/or pieces of candy—enough for each student tohave one. Have one volunteer choose two things she would like to have. Tell her that she canonly have one. Have her choose. Tell her to tell you which is her choice and which is heropportunity cost. She will keep her choice—the cost will be the thing she gave up.Then have all students make the same choice.Lessons and ResourcesFocus High School Economics Lesson 1: Choice, Opportunity Costs, and DecisionsOnlinePaul Solman on Opportunity Cost and costs and benefits (4:49)https://vimeo.com/199326365Reading: Getting the Most Out of Life: The Concept of Opportunity Costhttp://www.econlib.org/library/Columns/y2007/Robertsopportunitycost.htmlVideoSaving Private Ryan – DVD – Chapter 9Captain Miller discusses the cost of saving Ryan in terms of lives lost.Cartoonshttp://www.gocomics.com/bc/2010/12/08 (trade-offs)http://www.gocomics.com/frankandernest/2010/12/08 (opportunity cost, trade-offs)http://www.gocomics.com/calvinandhobbes/2010/09/06/ (opportunity cost)MusicDid You Ever Have to Make Up Your Mind? by the Lovin’ Spoonful (opportunity cost,trade-offs)The Road Not Taken by Bruce Hornsby and the Range (opportunity cost, trade-offs)Big Yellow Taxi by Counting Crows, et al. (trade-offs)PoemThe Road not Taken by Robert Frosthttp://www.youtube.com/watch?v=ie2Mspukx1419Virginia Council on Economic Education

Page 20

Day 3 - Decision makingContent KnowledgePeople make decisions many times daily. Both individuals and groups make decisions.Sometimes the outcomes are good—and sometimes not so good. There are tools that can helpclarify choices and alternatives and improve decision making. The PACED decision model is atool that can be used in a variety of situations. While it doesn’t guarantee a good outcome, it doesa good job of clarifying one's alternatives and criteria.VocabularyPACED decision-making process – A decision-making process designed to help people solveproblems in a rational, systematic way. It includes the following steps: State the Problem, ListAlternatives, Identify Criteria, Evaluate Alternatives, and Make a Decision.Virginia Board of Education FrameworkScarcity is the condition of not being able to have all the goods and services one wants. It existsbecause human wants for goods and services exceed the quantity of goods and services that canbe produced from all available resources.The opportunity cost of a choice is the value of the best alternative given up.Consumers face scarcity and must make choices and incur opportunity costs. For example, aconsumer with two hours of free time cannot go ice skating for two hours and see a movie.Whatever choice is made, the alternative given up is the opportunity cost.Businesses face scarcity and must make choices and incur opportunity costs. Suppose a groceryis deciding whether to add a café or a pharmacy. It only has space for one. It makes a choice; theone not selected is the opportunity cost.Governments face scarcity and must make choices and incur opportunity costs. For example,money spent on roads cannot be spent on education—or whatever would be the next bestalternative.A tradeoff is not an all-or-nothing decision. For example, government could choose to trade offsome money for roads to spend more on education.Teaching Tips1) Explain that there are tools to help make decisions. Demonstrate using the PACED model onsomething of interest to them, perhaps buying a used car. A PACED decision grid is attached atthe end of this unit.Step 120Virginia Council on Economic Education

Page 21

Problem: The first step is to state the problem. What car should I buy?Step 2Alternatives: List some likely alternatives.Step 3Criteria: The next step is to establish criteria—what is most important to you. (These criterianeed to be stated in positive terms, i.e., stated as what you want.) For example: costs less than$4,000; gets at least 25 mpg; seats at least 4; has AC; no more than 6 years old; reliable—basedon Consumer Reports; looks good; good sound system.Step 4Evaluate: Assess each alternative by comparing it to each criterion. If an alternative meets acriterion, put a + in that box—if not put in a -. At the end look to see which alternative meetsyour most important criteria. (Some criteria will be more important than others. Those may begiven greater weight. And,, if an alternative costs more than $4000, it probably won’t matter ifthere is a + in all of the other boxes.Step 5Decide: Based on the insights gained, make a choice. Be sure to explain that it won’t always bethe one with the most “+’s”—since some criteria count more than others.Looking at the results, have the class vote on the best choice. The one with the most votes willbe the official “choice.” The runner up will be the opportunity cost (the one they gave up whenchoosing the first).2) This tool can be used for many decisions. Its strength lies in the ability of each student todetermine their own criteria for evaluation, as well as the easy recognition of a “second” choiceor opportunity cost. Have students work in groups to solve a problem using the PACED grid.For example:Someone is giving our class $500 to donate to a charity. Use the PACED model to decide whichcharity to give it to.3) Possible homework: assign students a problem to work on using the PACED model.Examples of “problems” might be: “Which car to buy?” “Which college to attend?” “Whatcareer path to pursue?” "Which cell phone to buy?"Lessons and ResourcesPersonal Decision Making: Focus on Economics Lesson 2: Applying a Decision Making ModelFinancial Fitness for Life 9-12 Lesson 3: Decision MakingCapstone Lesson 2: Economic Decision Making21Virginia Council on Economic Education

Page 22

Page 23

DAY 1 - “What’s in it for me? What is this going to cost me?”Content KnowledgeEPF.1 The student will demonstrate knowledge of basic economic concepts andstructures byc) describing how effective decision-making requires comparing the additional costs(marginal costs) and additional benefits (marginal benefits)Day 1 What’s in it for me? What is this going to cost me?Day 2 Applying marginal thinking in the real worldTo make decisions that provide the greatest possible return (output or return on investment) fromthe resources available, people and organizations must weigh the benefits and costs of using theirresources to do more of some things, and less of others. For example, to use their timeeffectively, students must weigh the additional benefits and costs of spending another hourstudying economics rather than listening to music or talking with friends. School officials mustdecide whether to use some of their funds to buy more books for the library, more helmets for thefootball team, or more equipment for teachers to use in their classrooms. Company managers anddirectors must choose which products to make and whether to increase or decrease the amountthey produce. The President, Congress, and other government officials must decide which publicspending programs to increase, and which to decrease. Focusing on changes in benefits andcomparing them to changes in costs is a way of thinking that distinguishes economics from mostsocial sciences. In applying this approach, students should realize that it is impossible to alterhow resources were used in the past. Instead, past decisions only establish the starting points forcurrent decisions about whether to increase, decrease, or leave unchanged resource levelsdevoted to different activities.VocabularyBeneﬁts – Monetary or non-monetary gain received because of an action taken or a decisionmadeCosts – What must be given up to obtain something. The effort, loss or sacrifice necessary toachieve or obtain something.Cost-beneﬁt analysis – A process of examining the benefits (positive results) and costs (what isgiven up – lost benefits) of each available alternative in arriving at a decision.23Virginia Council on Economic Education

Page 24

Diminishing marginal utility – A widely observed relationship in which the additionalsatisfaction (marginal utility) associated with consuming additional units of the same product ina given amount of time eventually declines.Marginal analysis – A decision-making tool for comparing the additional or marginal benefitsof a course of action to the additional or marginal costs.Marginal beneﬁt – The additional gain from consuming or producing one more unit of a goodor service; can be measured in dollars or satisfaction. The benefit gained by consuming one moreof something.Marginal cost – The increase in a producer's total cost when it increases its output by one unit.The cost incurred by consuming one more of something.Virginia Board of Education FrameworkMarginal benefits are the additional benefits of consuming one more of something. Marginalcosts are the additional costs (i.e., what one must give up) of getting one more. For example, themarginal benefit of buying one more pair of jeans might be the time saved by having to washjeans less frequently. The marginal cost of one more pair of jeans might be giving up buying anew shirt or pair of shoes.Teaching Tips1) When people decide how to use their personal or productive resources, they want to get themost satisfaction (benefits) possible. One way to do this is to ask the question “What are thecosts and benefits of this choice?” For example: It’s midnight. You’ve been studying for 4 hours.Should you study one more hour or go to sleep? Make two columns on the board, one titledBenefits and the other titled Costs. If you choose to study, what are the benefits? Write thatunder benefits. Under costs, write down what you gave up, the benefits of an extra hour of sleep.Have students work in groups. Each group should draw a line down the center of a page. Writebenefits at the top of one column and costs at the top of the other, remembering to include bothmonetary costs and opportunity costs. Title it at the top, "Deciding whether to go to college."Under benefits, write the benefits of going to college. Under costs, write the costs of going tocollege—what is given up (the things you might have bought with the money you spent ontuition, books, dormitory etc. and lost income from working at a job or, if not working, lost timehanging out.) Discuss. Turn the page over and title it, "Deciding whether to go directly to workafter high school," and do the costs and benefits of taking a job instead of going to college.2) Have students think about other current and historical examples of weighing costs andbenefits. Possible examples: At the time of the revolution, colonists weighed the costs andbenefits of becoming patriots or loyalists. More recently, in Libya, citizens weighed the costs andbenefits of being loyal to Khadafi or being loyal to the freedom fighters. In consumer choices,one might weigh the costs and benefits of buying a new car vs. a used car.3) Sometimes the choice is about whether you want more of something. Students should then beasked if more is always better? Newspaper boxes allow a person to put in money, open the door24Virginia Council on Economic Education

Page 25

and take a newspaper from the stack. Why don’t people take two or three newspapers? (Answer:The marginal utility (additional benefit) of an extra newspaper is pretty low.)4) Ask for a student who likes bubble gum. Bring that student to the front, ask him/her to chew apiece of gum and give a number on a scale of 1 – 5, measuring the satisfaction. Write thatnumber on the board. Then give the student another piece to chew and give a rating. Repeat untilthe number begins falling. This is called diminishing marginal utility (benefit). As we consumemore and more of something, such as newspapers or chewing gum, the amount ofexcitement/benefit we get with each additional unit goes down.Why does this matter? Assume you are buying a slice of pizza in a food court. The first slice islikely to produce satisfaction. As you eat more and more pizza, each slice is likely to producelower and lower extra satisfaction (marginal utility). Again, this is called diminishing marginalutility. The marginal cost of each slice is it’s price. The real cost is whatever else one might bedoing with that money. At some point the extra satisfaction (marginal utility) of one more slicewill fall to the point that you would rather do something else with your money…maybe buy acookie.5) Imagine you are buying a concert ticket. Tickets up front are $75 while those halfway backare $50. What is the marginal cost of having a front row seat? $25. You are giving up thebenefits of whatever else you could do with the extra $25. What is the marginal benefit? Beingable to see better, etc. For some, it would be worth the marginal cost, but not for others.Lessons and ResourcesCapstone Lesson 4: To Choose or Not to Choose – That is Not the QuestionEconomics In Action Lesson 6: The Economic Way of Thinking - Three Activities toDemonstrate Marginal AnalysisOnlinePaul Solman on marginal thinking: How long should I pick berries? (6:37)https://www.youtube.com/watch?v=y8gt_1beAmwVideoThe Chicken Roaster (benefits, costs, cost-benefit analysis) (8:16)http://www.yadayadayadaecon.com/clip/84/Nobody Can Eat 50 Eggs from Cool Hand Luke (diminishing utility, marginal analysis) (1:30)https://www.youtube.com/watch?v=Ct3CcR3c4oMA Civil Action (DVD) – (0:30 to 1:20 and 7:10 to 11:25 cost-benefit analysis)Music25Virginia Council on Economic Education

Page 26

Stuﬀ by Diamond Rio (cost-benefit analysis, diminishing marginal utility)Day 2 - Applying marginal thinking in the real worldContent KnowledgeFew choices are all-or-nothing decisions. Most choices involve doing a little more or less ofsomething.How can marginal benefit and marginal cost be used to improve decision-making?1VocabularyCost - what you give up when you decide to do something.Beneﬁt - what satisfies your wants.Marginal beneﬁt - the change in total benefit resulting from an action.Marginal cost - the change in total cost resulting from an action.Virginia Board of Education FrameworkMarginal benefits are the additional benefits of consuming one more of something. Marginalcosts are the additional costs (i.e., what one must give up) of getting one more. For example, themarginal benefit of buying one more pair of jeans might be the time saved by having to washjeans less frequently. The marginal cost of one more pair of jeans might be giving up buying anew shirt or pair of shoes.As long as the marginal benefit of an activity exceeds the marginal cost, people are better offdoing more of it; when the marginal cost exceeds the marginal benefit, they are better off doingless of it. For example, what is the marginal benefit of one more hour of exercise? Suppose themarginal cost is one more hour of study?Teaching Tips1) Explain that individuals, businesses and governments make choices about whether to choosemore of something they are already buying or whether the benefits would be higher if theystarted spending on something else. Thinking along those lines, have students solve thefollowing problem: Your grandmother gives you $50 for your birthday and you are trying todecide how to spend it. You are considering buying t-shirts ($15 each), going to the movies ($10per ticket), or taking some friends out for pizza ($7.50 per person). You do not have to spend allyour money on one thing. You can use some money for one thing, and some for another. Howwould you spend your money to get the greatest satisfaction? After student decisions are made,explain that the satisfaction of buying one more is called the marginal benefit (or marginalutility). What one gives up to get the additional unit is the marginal cost. As one consumes moreand more of something the marginal benefit tends to fall with each additional unit. For example,26Virginia Council on Economic Education

Page 27

as one consumes more and more pizza, each additional slice provides less satisfaction than theone before.2) Apply the concepts of marginal benefit and marginal cost to reducing pollution. An activity inlesson 6 of Economics in Action can help demonstrate this.3) Decide how many workers to hire for a profit maximizing car wash by comparing the cost ofhiring each additional worker to the additional revenues derived from hiring each additionalworker.Lessons and ResourcesEconomics in Action: 14 Greatest Hits for Teaching High School Economics Lesson 6: TheEconomic Way of Thinking: Three activities to demonstrate marginal analysisFocus: High School Economics Lesson 15: Until the Last Unit Equals27Virginia Council on Economic Education

Page 28

EPF.1 The student will demonstrate knowledge of basic economic concepts andstructures byb) explaining that choices often have long-term unintended consequencesDay 1 - “I didn’t mean for that to happen.”Content KnowledgeChoices made by individuals, firms, or government officials often have long run unintendedconsequences that can partially or entirely offset or supplement the initial effects of the decision.2VocabularyUnintended consequences – The unexpected and unplanned results of a decision or action.Virginia Board of Education FrameworkPeople make decisions and governments make policies which sometimes have completelyunexpected results, called unintended consequences. For example, off the coast of Florida, oldtires were used to build reefs to attract fish; unfortunately, over time, the tires began todisintegrate, polluting the water, and the tires had to be removed.Teaching Tips1) Ask students “Do you ever make a bad decision on purpose?” Does anyone buy a stockexpecting the price to go down? Ask students if they ever made a choice that turned out badly?Did they ever make a decision that turned out better than they expected?2) Tell students that consumers, businesses and government make choices that sometimes haveunintended consequences. For example:Energy companies build more wind turbines to increase the production of renewable, greenenergy. After the turbines have been in use for a couple of months, there is a noticeable increasein the number of dead birds found near the structures.Student on spring break in Florida decides to stay until the last minute. Her flight is cancelleddue to bad weather and she misses an exam the following day.3) Give students a scenario and ask them to work in groups trying to determine possibleunintended consequences. Here are two options:A high school senior decides to work 20 hours per week during the school year. How mightworking reduce her lifetime income?28Virginia Council on Economic Education

Page 29

A city is experiencing extreme traffic congestion on an important highway, and decides to addlanes to reduce the congestion. Why might it not reduce congestion?Lessons and ResourcesFocus: International Economics Lesson 9: Ripples - Trade Barriers and UnintendedConsequencesEconomics in Action Lesson 3: Using Economic Reasoning to Solve MysteriesUS History: Focus on Economics Lesson 15: What Can Yesterday’s Choices Tell Us AboutTomorrow?OnlineEconEdLink, Cost/Benefit Analysis: Three Gorges Damhttps://www.econedlink.org/resources/cost-benefit-analysisthree-gorges-dam/VideoGreat Moments in Unintended Consequences (3:04)http://www.youtube.com/watch?v=pSwMEtuL-GQ&feature=results_video&playnext=1&list=PL8C2278851B42541A29Virginia Council on Economic Education

Page 30

EPF.1 The student will demonstrate knowledge of basic economic concepts andstructures byd) identifying the factors of production.Day 1 - Resources for productionContent KnowledgeProductive resources are the natural resources, human resources, capital goods andentrepreneurial skills available to make goods and services. Consumers, businesses and governmentwant to make decisions that provide the greatest possible return (output or return on investment) from theresources they have available. Economics is about using the resources you have to get the most of what youwant.Virginia Board of Education FrameworkThe factors of production are the productive resources used to produce goods and services.They include natural resources, human resources, capital resources, and entrepreneurship. Theseare the four factors of production.Natural resources are “gifts of nature” and exist without human intervention.Human resources refer to the effort of people which is applied to the production of goods andservices.There are two types of capital resources. Physical capital refers to man-made goods, such astools, which are used to produce other goods. Human capital refers to the skills and knowledge aperson has acquired through experience and/or education.Entrepreneurs are individuals who are willing to take risks, to bring the other resources togetherand develop new products, and start new businesses. They recognize opportunities, like workingfor themselves, and accept challenges. Entrepreneurs accept the risks in organizing resources toproduce goods and services because they expect to earn a profit.Teaching Tips1) Ask students to write down the word that comes to mind when someone says “economics.”Display their answers. Then give this definition of economics: “Economics is about how to usewhat you have to get the most of what you want.”Tell students to draw a line down the center of a page. In the left column, write “What you have”in the right column write “What you want.”Tell students to list in the right column things they want: Things they want for themselves, theirfamilies, friends, community, country world, in the present or in the future. They can bematerial/tangible things or intangible (fun, fitness, world peace). Give them about 3 minutes.30Virginia Council on Economic Education

Page 31

Then ask them what they use to get the things they want. What can they write in the column of“What you have”? (Answer resources: natural, capital, human, entrepreneurship)2) Define and give examples of natural resources. (Land, trees, rivers, ﬁsh) Do you knowanyone who produces any of the things they want from natural resources they own? Do somepeople grow some of their own food? Do you know anyone who gets income from naturalresources? (Fishermen, farmers) When they sell what they produce, they can buy some of thethings they want. Ask for examples of natural resources. (Sugar, flour, chocolate chips, forexample are NOT natural resources because they do not exist in nature. They are goods whichhave been produced by people.)Define and give examples of capital goods. Explain that when economists use the term capital,they mean man-made things used to produce other things. Examples might be tools, factories.Be sure they understand that a capital good is used over and over in production, and is notincorporated into the products that the capital good is used to produce. Do you know anyone whoinvested in capital goods and earns money? (Guitar for band member. Snowplow for clearingparking lots. Ladder and brushes for a housepainter.) People spend their money investing incapital goods because tools make workers more productive—able to get their work done faster.Capital helps them produce more and earn more money to buy the things they want. Studentsneed to clearly understand that money is neither capital nor a resource in the context ofconsidering productive resources used to make goods and services.Define human resources. Do you know anyone who sells their labor? Do any of you have a job?Most people earn their income by selling their labor. (Later lessons will cover why people earndifferent income for their labor.) When people have a job and earn money, they can use thatmoney to buy things they want.Define entrepreneurship. Note that entrepreneurship has its own category separate from laborbecause of the entrepreneur’s special role. Distinguish between inventors and entrepreneurs.Inventors come up with something new—but may not bring it to market. Entrepreneurs bringnew things to market or bring old things to market in new ways. McDonalds did not inventhamburgers. Ray Kroc brought hamburgers to market in a new way. Do you know of anyentrepreneurs? (founders of Google, founder of Facebook) Do you know anyone local whostarted their own business? When entrepreneurs are successful, they earn a profit. They can usethat money to buy things they want.Conclusion: Economics is about using the resources we have (factors of production) to get themost of what we want. Can we have everything we want? (No.) Why not? (Our resources arelimited.) We have a limited amount of time for labor, a limited amount of natural resources andcapital resources, a limited amount of entrepreneurial skill. Resources are limited and wants areunlimited. That is scarcity.Why do we categorize resources? We put resources in different categories in order to comparecountries/regions and consider the quality and quantity of the resources they have. Do differentcountries have different amounts/kinds of resources? Compare the US and Haiti—natural31Virginia Council on Economic Education

Page 32

resources? Human resources—are they skilled or unskilled? Capital resources—do they have lotsof factories?Do available resources affect what is produced in a country or region? (Oranges or apples inVirginia?)Can products be made different ways—using different resources? Lace can be made by hand incountries where labor is cheap, but is made by machine in countries where labor is expensive.3) In groups have students list examples of each of the types of resources in their region in onecolumn and in the other column how that influences what is produced in that region.(Example—Northern Neck has rivers and access to the Chesapeake Bay. Over the years, manyin the area have derived their income working as watermen. The Winchester area has many applegrowers.)Lessons and ResourcesMiddle School World Geography: Focus on Economics Lesson 1: What Are ProductiveResources?MusicWorkin’ for a Livin’ featuring Huey Lewishttp://www.youtube.com/watch?v=zOVRxizfqxM (labor)Day 2 - What do entrepreneurs do?EPF.2 The student will demonstrate knowledge of the role of producers and consumersin a market economy byc) identifying the role of entrepreneursContent KnowledgeEntrepreneurs create the new businesses in our economy. They take on the challenge of creatingor identifying a product, assessing the market for the product, determining a price for theproduct, creating a strategy for the business, obtaining funding for the new enterprise, hiring andmanaging employees, and assuming the risk associated with the new venture. Entrepreneurs areoften motivated by the potential for financial rewards, as well as an interest in working forthemselves. If they are successful, entrepreneurs receive the profit that remains after they paysalaries for employees, taxes to the government, and all other costs associated with the business.32Virginia Council on Economic Education

Page 33

Starting any new business involves some risk. Entrepreneurs must invest their own time andresources before making products available in the market. The vast majority of entrepreneurscreate new businesses similar to those around them, such as a new grocery store or a new drycleaning business. These businesses may create jobs and often provide important products andservices for their communities. Other entrepreneurs take on an even greater challenge byinnovating or bringing a new invention to the market. In addition to accepting the risks entailedin starting a new business, these innovative entrepreneurs must have the vision, originality, anddaring to seek out opportunities for a new product or service and introduce it to the public.Innovative entrepreneurs are responsible for much of the growth in our economy. Bringing usinnovations such as the radio, airplane, and personal computer, these individuals change the waypeople live their lives, often fostering a more productive and efficient economy. Becauseentrepreneurship plays an important role in economic growth, public policies that affect thereturns to entrepreneurship — from intellectual property rights to taxes to immigrationregulations — often have a significant effect on consumers.2VocabularyEntrepreneurs are people who take calculated risks in order to start new businesses and developinnovative products and processes.Virginia Board of Education FrameworkEntrepreneurs accept the risk of organizing resources to produce goods and services, and theyexpect to earn profits.Entrepreneurs earn profits when buyers purchase the products they sell at prices higher than thecosts of production. Entrepreneurs incur losses when buyers do not purchase the products theysell at prices high enough to cover the costs of production.Profit is an important incentive that leads entrepreneurs to accept the risks of business failure.Independence in decision-making is another incentive important to entrepreneurs.Entrepreneurs increase competition by bringing new goods and services to market or deliveringproducts in innovative ways. They often foster technological progress and economic growth.Teaching Tips1) In groups, have students think of examples of products or services entrepreneurs have broughtus in each category.2) Ask students if they can identify any firms that have gone out of business and discuss how thismight have occurred.3) Identify a local entrepreneur and describe how the entrepreneur’s decisions affect jobopportunities.33Virginia Council on Economic Education

Page 34

4) Entrepreneurs are risk-takers—but they try to anticipate and prepare for risks. Assign studentsto read short biographies of entrepreneurs and identify the risks each faced. Examine how theentrepreneur analyzed the risks and the entrepreneur’s incentive(s) for accepting the risk.5) Read short biographies of several entrepreneurs, list the pertinent characteristics of eachentrepreneur, and make a generalization about the non-financial incentives that motivateentrepreneurs and the risks or disincentives entrepreneurs face.Lessons and ResourcesEntrepreneurship in the U.S. Economy: Teacher Resource Manual Lesson 29: The InnovativeProcess: How Entrepreneurs Develop New IdeasFinancial Fitness for Life: 9-12 Lesson 5: Making Your Own JobEntrepreneurship Economics Lesson 2: The Role of the Entrepreneur in the EconomyOnlineEconEdLink: The Entrepreneur in You?https://www.econedlink.org/resources/the-entepreneur-in-you/EconEdLink: Inventors and Entrepreneurs in the Industrial Agehttps://www.econedlink.org/resources/economic-spotter-inventors-and-entrepreneurs-in-the-industrial-age/Comicshttp://www.gocomics.com/bc/2010/04/13 (business combination)Video– DVD – The last 30 minutes. (role of the entrepreneur)New in TownThe Entrepreneur (1:50)https://www.youtube.com/watch?v=q7K9RXqAK6sDay 3 - What’s the diﬀerence between real capital and humancapital?Content KnowledgeHuman resources are the people who do the mental and physical work to produce goods andservices. Capital goods are goods that are produced and used to make other goods and services.Human capital refers to the quality of labor resources, which can be improved throughinvestments in education, training, and health.34Virginia Council on Economic Education

Page 35

There are two types of capital resources. Physical capital refers to man made goods, such astools, which are used to produce other goods. Human capital refers to the skills and knowledge aperson has acquired through experience and/or education. People invest in their human capitalthrough education, training, and experience.1Investment in human capital can improve one’sproductivity and thus increase one’s income. Investment in physical capital (tools etc.) canimprove worker productivity (output per hour) and increase a nation’s growth (output per year)and thus its standard of living.VocabularyHuman resources - the effort of people which is applied to the production of goods andservices.Human capital - the skills and knowledge a person has acquired through experience and/oreducation.Capital (sometimes called real capital or physical capital) - man made goods, such as tools,which are used to produce other goods.Teaching Tips1) Have students look up job listings—in the newspaper, online, or in the Occupational OutlookHandbook. Note the pay and the requirements. Occupational Outlook Handbookhttps://www.bls.gov/ooh/In class, divide the students into groups according to pay. Discuss why some jobs are payingmore than others. Help students understand that jobs requiring more skill tend to pay more, andthat when there are many openings and few people with the skills to do the job, the pay tends tobe higher. Discuss how people get skills. (School—high school, college or technical school—internships, practice, apprenticeship)Use statistics on incomes for various professions to show that those which require more trainingare likely to be paid more. Use statistics to show that people with little education are much morelikely to be unemployed.2) Have students list the human capital they already have. (e.g. reading, writing, math, computerskills, web design, PowerPoint , accounting skills, understanding of how the government works,understanding of how the economy works, speaking a foreign language, cooking, playing amusical instrument, public speaking, communication skills, working with a team, organizationalskills, athletic skills, singing, dancing) Compile a list.Ask students to look at the skills they have and think about what types of jobs they would bequalified to do.3) Ask students to select a couple of skills they would like to have, but don’t have at present.Tell them to make a plan for how they might develop those skills.35Virginia Council on Economic Education

Page 36

4) Have students write a paragraph explaining to a younger sibling the definition of humancapital and how it might affect their future income.5) Have students investigate a profession of interest to them to determine the skills required andthe path to acquiring those skills and the average income in that field.6) Show Steve Jobs Graduation Speech--What kind of human capital did he have? How did heacquire his human skill?7) Show the segment about Byron Pitts. How did he overcome his obstacles to gain the humancapital he needed?Lessons and ResourcesLearning, Earning, and Investing Lesson 3: Invest in YourselfCapstone Lesson 15: Why Do Some People Earn More than Others?Occupational Outlook Handbookhttps://www.bls.gov/ooh/VideosSteve Jobs Graduation Speech at Stanford 2005 (15:04)http://www.youtube.com/watch?v=IeqlN0I_ZB0&feature=related60 Minutes' Byron Pitts talks about overcoming illiteracy (2:34)http://www.youtube.com/watch?v=HMZIOAbZRiEWhat is human capital? (2:51)https://www.youtube.com/watch?v=unQwnHmV7UEEVALUATION DAY36Virginia Council on Economic Education

Page 37

Page 38

Page 39

UNIT 2 - ECONOMIC SYSTEMS (6 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/The problem of scarcity forces every society to make difficult choices about how to use itsresources. In trying to decide how to allocate those scarce resources, each society must answerthree critical questions. How those questions are answered determines the type of economicsystem (market, command, traditional, mixed) that is present.EPF.1 The student will demonstrate knowledge of basic economic concepts and structuresbye) comparing the characteristics of market, command, traditional, and mixed economies(BUS6120.038)Day 1 The three basic questionsDay 2 Command, traditional, and market economiesDay 3 The free market and the US economyEPF.1 The student will demonstrate knowledge of basic economic concepts and structuresbyf) identifying Adam Smith and describing the characteristics of a market economy(BUS6120.039)Day 1 Competition and the invisible handDay 2 Property rightsEvaluation Day39Virginia Council on Economic Education

Page 40

EPF.1 The student will demonstrate knowledge of basic economic concepts and structuresbye) comparing the characteristics of market, command, traditional, and mixed economiesDay 1 - The three basic questionsContent KnowledgeMost high school students already understand the major advantages and disadvantages of sellingconcert tickets using a first-come/first-served system, rather than a lottery to select from amongthose who applied for tickets. Unfortunately, many students have experienced the use of force toallocate resources on the school playground. Students also know that families typically useauthoritarian systems to decide how resources are used — Mom and Dad decide.2Individuals and organizations routinely use different decision-making systems to determinewhat should be produced, how it should be produced, and who will consume it.2When examining systems, the teacher should note the characteristics of each economic system.However, the most distinguishing characteristic is “who makes decisions?” The greater theamount of decision-making that is left to the individual producer and consumer, the closer asystem is to a market system. The greater the amount of decision-making that is left to acentralized authority, the closer the system is to a command system.Another factor that may be considered is “who bears the risk?” The more the individualconsumer or producer bears the risk of their decisions and is left to deal with the consequences,the closer the system is to a market system. The more risk is shared and socialized, the closer thesystem is to a command system. Further discussion of these ideas can be carried out on days twoand three.VocabularyEconomic systems – The institutional framework of formal and informal rules that a societyuses to determine what to produce, how to produce and how to distribute goods and services.Virginia Board of Education FrameworkThe three basic economics questions are1. What goods and services will be produced?2. How will these goods and services be produced?3. Who will consume these goods and services?Teaching Tips40Virginia Council on Economic Education

Page 41

1) An allocation activity helps the students recognize that who makes decisions determines thetype of economic system. Have an item that most students in your class would like. Forexample, bring a can of cold soda after recess or make a "get out of homework free" coupon.Ask how many students would like to have the item. Explain that many students want it so adecision will have to be made about whom gets it. Ask the students to suggest ways in whichthis decision can be made. Most suggestions can generally be categorized as lottery, authoritydecides, highest bidder, need, force and first-come, first-served. With these categories, it is thenpossible to discuss who makes the decision and who benefits or loses as a result. Then links canbe made to how allocation decisions are made in the students' society.3Lessons and ResourcesEconomies in Transition: Command to Market Lesson 2: Who Decides?Master Curriculum Guides in Economics: Teaching Strategies - 5-6 Lesson 2: What? How? ForWhom?Capstone Lesson 3: Economic Magic: Creating Something from NothingOnlineEconEdLink I Don’t Want Much, I Just Want Morehttps://www.econedlink.org/resources/i-dont-want-much-i-just-want-more-allocation-competition-and-productivity/Day 2 - Command, traditional, and market economiesContent KnowledgeStudents need to understand that governments can direct economic activity, but they often can’tdo it efficiently. A command economy takes the freedom to choose from the individuals insociety and transfers it to a smaller group. It is impossible for this group to have all of theinformation necessary to efficiently and effectively allocate resources in a way that will satisfythe greatest number of wants.Students also need to recognize that traditional economies are inefficient and lack an incentive togrow and change. Virtually all modern economies, including the economy of the United States,contain some parts of the command, market and traditional economic systems within them.All market economies have several basic characteristics in common including private property,free enterprise, self-interest, competition, a price system and limited (laissez-faire) government.Property rights, defined as individual ownership and control of resources and products, are a41Virginia Council on Economic Education

Page 42

fundamental characteristic of a market system. Property rights affect the way markets allocateresources. If property rights are well defined and enforced and markets are competitive, a marketsystem ensures that resources are used in their most valued manner.The American economy uses a market system to make many allocation decisions, and it isimportant for students to understand why the market system is used so extensively. Students alsoshould be able to compare the characteristics of a market system with alternatives used moreextensively in some other countries. With this understanding, students can assess the benefits andcosts of alternative allocation systems when discussing difficult questions such as how incomesshould be divided among people or who should receive a kidney transplant and who should not.2Teachers should use the terms market, mixed and command to describe economic systems ratherthan capitalist, socialist and communist. These terms mean different things to different people,and they carry an emotional and political overtone that can be confusing and/or distracting.VocabularyCommand economy – An economy in which most economic issues of production anddistribution are resolved through central planning and control.Market economy – An economy that relies on a system of interdependent market prices toallocate goods, services, and productive resources and to coordinate the diverse plans ofconsumers and producers, each of them pursuing their own self-interest.Mixed economy – An economic system that exhibits characteristics of more than one type ofeconomic system. Most modern systems are mixed and have various aspects of command,market and traditional systems within them.Traditional economy – An economy in which customs and habits from the past are used toresolve most economic issues of production and distribution.Virginia Board of Education FrameworkIn a market economy, scarce goods and services are allocated through the influence of prices onproduction and consumption decisions.In a traditional economy, the answer to all questions is “What has always been done.”In a command economy the government or other central authority answers all of the questions.A mixed economy is a combination. The United States is primarily a market economy; however,since it has some elements of government involvement (e.g., taxation and regulation) it issometimes called a mixed economy.Most of the world’s economies today are mixed economies and exist on a continuum betweenmarket and command. Some lean toward market; others lean toward command.Teaching Tips42Virginia Council on Economic Education

Page 43

1) Explain to students that traditional economies are those where the three basic economicquestions are answered based on habit or tradition. Production is carried out in certain waysbecause “that’s the way we’ve always done it,” or “you don’t mess with success.” Ask students ifthey know of any traditional economies that still exist. Some students might suggest remoteprimitive tribes or cultures that are “cut off” from the outside world.Then ask students if there are certain traditions in their family. Are there certain things that aredone for holidays, for special events, etc.? Do these traditions take the place of making choicesor drive decisions about where to go, what to eat, what to purchase, etc…? Are these examplesof a “traditional” economy?2) You can ask students to name historical nations that they feel had total control of the economy.Common responses may include Hitler’s Germany or the former Soviet Union. You can askabout current nations that they feel have total control over the economy. Common responsesmay include Cuba or North Korea.Ask students what they feel are the common characteristics among these nations. Point out thatin command economies, there is a centralized authority that makes most decisions about thethree major economic questions – what to produce, how to produce and for whom, If you haveused or plan to use the “Moscow on the Hudson” video (see resources section), this is anopportune time. The main character lives in the former Soviet Union and is used to having towait in lines for unknown products. Once he gets to the head of the line, he finds his choices arelimited by a “central authority”. The same character, once in the U.S., is astounded by thechoices just about coffee.Ask students to suggest reasons for centralizing decision-making. Common responses mightinclude “greater efficiency,” “avoid bad decisions,” and “more fairness.” Ask students howsatisfied they are when others make decisions for them. Do they want to make more or fewerdecisions for themselves? Why?A command economic system is sometimes confused with a dictatorship. A command economyoften is run by a dictator such as Stalin or Castro, but democracies can also have large elementsof command in the economy. The key is to remember that command decisions are made bygovernment. These decisions are made by non-elected officials in a dictatorship and by electedofficials in a democracy.33) In a market economy, supply and demand are major factors in how the three basic economicquestions are answered. Have students identify examples of products for which the pricefell because sellers did not sell all they had produced at the initial price; identify examples ofother products for which the price rose because consumers wanted to buy more than producerswere producing at the initial price. Explain what happens (and why) to the price ofconcert tickets purchased from scalpers when, at prevailing prices, many more people want toattend those events than the number of seats available.2Lessons and Resources43Virginia Council on Economic Education

Page 44

Capstone: Exemplary Lessons for High School Economics Lesson 6: Why Did CommunismCollapse?OnlineEconEdLink Traditional Economies and the Inuithttps://www.econedlink.org/resources/traditional-economies-and-the-inuit/The Bead Game Simulationhttps://files.eric.ed.gov/fulltext/ED458175.pdfVideoMoscow on the Hudson (DVD) – Chapter 1 (3:30 to 3:55), Chapter 3 (10:35 to 11:05),Chapter 17 (1:01:45 to 1:02:45)“Tradition”, from Fiddler on the Roof (the first 3:50 of the clip are sufficient)http://www.youtube.com/watch?v=gRdfX7ut8gwDay 3 - The free market and the US economyContent KnowledgeIn market economies, there is no central authority that decides how many different kinds ofsandwiches are provided for lunch every day at restaurants and stores, how many loaves of breadare baked, how many toys are produced before the holidays, or what the prices will be forsandwiches, bread, and toys. Students should understand that, instead, most prices in marketeconomies are established by interaction between buyers and sellers. Understanding how marketprices and output levels are determined helps people anticipate market opportunities and makebetter choices.2Consumers wish to purchase goods and services so that they can satisfy their wants. Producerswish to supply goods and services to consumers in order to earn the profits with which producerscan satisfy their own wants. Both sellers and buyers are better off when they willingly makeexchanges in the market. To facilitate exchange, systems have evolved to coordinate the actionsof suppliers and consumers. In the United States and many other countries, exchange and thesetting of terms under which exchanges take place usually occur in markets. Markets areinstitutional arrangements that enable buyers and sellers to exchange particular amounts of goodsor services at particular prices. Prices help buyers and sellers decide how to use their resources.Both buyers and sellers play a role in establishing prices and the quantities that are exchanged atvarious prices.344Virginia Council on Economic Education

Page 45

VocabularyMarket economy – An economy that relies on a system of interdependent market prices toallocate goods, services, and productive resources and to coordinate the diverse plans ofconsumers and producers, each of them pursuing their own self-interest.Virginia Board of Education FrameworkEPF.1e: In a market economy:● consumers decide what will be produced by casting their “dollar votes”● producers choose the most profitable method of production● goods and services are consumed by those who are willing and able to pay the marketprice.In a market economy, scarce goods and services are allocated through the influence of prices onproduction and consumption decisions.A mixed economy is a combination. The United States is primarily a market economy; however,since it has some elements of government involvement (e.g., taxation and regulation) it issometimes called a mixed economy.Most of the world’s economies today are mixed economies and exist on a continuum betweenmarket and command. Some lean toward market; others lean toward command.EPF.1f: Market economies are characterized by:● private ownership of resources, which provides incentives for the owners of resources toweigh the value of present uses against the value of conserving the resources for futureuse● competition among businesses, which tends to lower prices and raise quality● prices determined in the marketplace through the interaction of supply and demand● consumer sovereignty, the concept that consumers’ “dollar votes” tell businesses what toproduce● profit motive, an incentive for businesses to produce what consumers demand and toproduce those goods and services efficiently—keeping costs down—in hopes of earninggreater profit● limited government that acts as a referee—protecting consumers, workers, theenvironment, and competition in the marketplace.Teaching Tips1) Ask students whether they think the US is a market, command or traditional economy. Havestudents explain their answers. Point out that the US, as with most nations, is a mixed economy.There are parts of the economy that are very market-oriented, parts that are verycommand-oriented, and parts that are driven by tradition. Ask students to come up withexamples of each type of economy that is present in the US system. For example, most nurses inthe US are females, and most truck drivers are males, due to tradition. Enacting a law thatprohibits smoking in restaurants is an example of a command decision.45Virginia Council on Economic Education

Page 46

2) Have students explain the effect a free market has on the following scenarios: Why there isusually a shortage of batteries in areas where forecasters predict a hurricane? Why there is oftena late-season surplus of tickets available for the home contests of a baseball team that loses mostof its games? Explain what will happen to corn prices during an unusually favorable growingseason?Lessons and ResourcesMiddle School World Geography: Focus on Economics Lesson 5: Economic Freedom: HowImportant Is It?Your Credit Counts Challenge Section 6: The Basics of a Market EconomyEconomies in Transition Lesson 1: A Parking Lot Full of IncentivesEconEdLink Guess Who’s Coming to Dinnerhttps://www.econedlink.org/resources/guess-whos-coming-to-dinner/46Virginia Council on Economic Education

Page 47

EPF.1 The student will demonstrate knowledge of basic economic concepts and structuresbyf) identifying Adam Smith and describing the characteristics of a market economyDay 1 - Competition and the invisible handContent KnowledgeAdam Smith was the father of modern economics. He based his theory and understanding of themarket on several ideas. First, he believed that rational, enlightened individuals would bestbenefit society by being allowed to pursue their own self-interest. (Self-interest is not the sameas greed.) He came to this conclusion after years of philosophical work that indicated we areconcerned about what others think of us and we are aware of our connection with others.Rational individuals realize that their best interests are tied up with the continued best interests ofothers, in the long-run.In a market economy, there is no direct communication between producers and consumers -market sales and pricing do the “talking” for us. Smith referred to this indirect communicationas an “invisible hand” guiding the market. Price and market transactions answer the questionsof “what, how and for whom,” instead of the “visible” hand of government. However, Smith alsobelieved that government and laws were necessary to keep markets running smoothly. Thesewere necessary to protect property and profits that were legally and fairly obtained.Finally, Smith believed in the value of trade over self-sufficiency. He demonstrated thatindividuals and nations who trade are richer and better off (have a higher standard of living) thanthose who restrict trade by erecting barriers or giving preferences. He felt this was true on alocal, national, and international level.VocabularyAdam Smith – He is the father of modern economics. He wrote An Inquiry in the Nature andCauses of the Wealth of Nations which was published in 1776 and explained the nature ofeconomic exchange and the role of government in the economy.Private property – A basic institution in a market economy, private property involves the rightto exclusive use, legal protection against invaders and the right to transfer property to others.Property rights are defined, enforced and limited through the process of government.Virginia Board of Education FrameworkAdam Smith believed that people, acting in their own self-interest, would work hard and producewhat consumers want as if directed by an invisible hand.Smith argued for trade, saying it opened new markets where surplus goods could be sold andallowed for cheaper goods to be imported.47Virginia Council on Economic Education

Page 48

Smith believed that competition among businesses would keep prices in check.Smith believed there was a limited but important role for government to do things such asenforce contracts, grant patents and copyrights, and provide public works such as roads.Smith observed that specialization and division of labor in a pin factory allowed workers toproduce many times more pins than if each worker had been working alone.Teaching TipDisplay the following quote: “It is not from the benevolence of the butcher, the brewer, or thebaker, that we expect our dinner, but from their regard to their own interest. We addressourselves, not to their humanity but to their self-love….—Adam Smith, The Wealth of NationsAdam Smith talked about “self-interest” (self-love) as the motivation for people to producegoods and services. Can someone have too much self-interest? When does self-interest turn togreed? Have students give examples of the difference between the two.Lessons and ResourcesWorld History: Focus on Economics Lesson 8: Adam Smith and the Market Economy.Capstone: Exemplary Lessons for High School Economics Unit 4, Lesson 20: Why HelpingYourself Helps OthersWight, Jonathon. Saving Adam Smith. Prentice Hall, 2002. ISBN:0-13-065904-5.Saving Adam Smith website: https://facultystaff.richmond.edu/~jwight/Adam/Day 2 - Property rightsContent KnowledgeProperty rights refer to the legal ownership of resources. For many students, this definition stopswith tangible goods – things they own that they can touch. Some students might also recognizethe right of ownership that is conveyed on the intangible; for example – the property rights thatbelong to a musician when they create original music. And don’t forget that ownership ofresources extends to your own labor. The right to your own labor is what gives you the right tobe paid for your work.Market systems cannot function well without clearly defined, well enforced property rightsbecause property rights send clear signals on who is rewarded for caring for the resource and48Virginia Council on Economic Education

Page 49

who is liable if it is used poorly. Property rights help insure that people bear the costs and reapthe benefits of their decisions. Property rights and contract enforcement encourage investment byassuring investors that they will reap the rewards of deferring consumption and assuming risk ifthese investments perform well. Limiting individual liability and allowing people to pool theirinvestment resources through joint stock corporations also increases investment and futureincome.2VocabularyCopyright – Legal protection for the authors of literature and music, giving them the sole rightto profit from the publication, distribution and other use of their work for a specific period oftime. It also gives them the ability to transfer these rights to other people or entities.Patent – Legal protection for the inventors of ideas, products and processes, giving them the soleright to profit from the production and distribution of their work for a specific period of time. Italso gives them the right to transfer these rights to other people or entities.Property rights – Legal protection for the boundaries and possession of property. Assigning ofproperty rights to individuals, collectives or governments depends on the economic system.Teaching Tips1) Predict what might happen if there were no legal way to settle boundary disputes or if everystate had its own system of weights and measures.22) Reinforce the point that market systems cannot function well without clearly defined, wellenforced property rights because property rights send clear signals on who is rewarded for caringfor the resource and who is liable if it is used poorly. When property rights are unclear or notenforced, the resource will be overused in the marketplace. Examples such as the markets forelephant ivory and caviar demonstrate how a resource can be overused and depleted whenproperty rights are not clear. Other examples like chickens and cattle demonstrate how aresource can be used aggressively but not depleted if property rights are clear.33) Begin by having students give examples of property. Common responses will include land,homes, cars, clothing, and electronics. Ask students if they believe they should have the right tobuy and sell any of these types of property. Ask them if they believe there are or should be limitson what, how much and when certain types of property should be purchased and ask them tojustify their answers. Ask them if they should be free to use other people’s property or to profitfrom other people’s property; or if other people should be free to use their property or profit fromtheir property. Then have students explain why the rights to buy, sell, use and distribute propertyas one sees fit may differ between economic systemsUpon receiving answers, the instructor can develop the discussion further by asking aboutfile-sharing. The instructor can also ask about the incentive to use a lot of resources to pursue anidea (research) and have that protected. This is where the instructor can introduce ideas ofcopyright and patent.49Virginia Council on Economic Education

Page 50

Page 51

Page 52

UNIT 3 - PRODUCERS AND CONSUMERS IN A MARKETECONOMY (11 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/The actions of producers and consumers are a driving force in a market economy. The allocationof scarce resources influences the choices that both groups have to make when interacting withthe market. Producers use scarce resources to produce goods and services which consumers useto satisfy their wants and needs. Consumers are the guiding force in a market economy, and theeconomic choices of consumers in the marketplace drive the behavior of producers.EPF.2 The student will demonstrate knowledge of the role of producers and consumers in amarket economy bya) describing how consumers, producers, workers, savers, investors and citizens respond toincentivesDay 1 Understanding IncentivesEPF.2 The student will demonstrate knowledge of the role of producers and consumers in a marketeconomy byb) explaining how businesses respond to consumer sovereigntyDay 1 Consumers RuleEPF.2 The student will demonstrate knowledge of the role of producers and consumers in a marketeconomy byc) identifying the role of entrepreneursDay 1 Entrepreneurs as visionaries and risk-takersEPF.2 The student will demonstrate knowledge of the role of producers and consumers in amarket economy bye) describing how costs and revenues aﬀect proﬁt and supplyDay 1 Cost vs. priceDay 2 Calculating profitEPF.2 The student will demonstrate knowledge of the role of producers and consumers in amarket economy byg) examining how investment in human capital, capital goods, and technology can improveproductivityDay 1 Investing in human capital to improve productivityVirginia Council on Economic Education52

Page 53

Page 54

EPF. 2 The student will demonstrate knowledge of the role of producers and consumers ina market economy bya) describing how consumers, producers, workers, savers, investors and citizens respond toincentivesDay 1 - Understanding IncentivesContent KnowledgeEconomic incentives are the additional rewards or penalties people receive from engaging inmore or less of a particular activity. Understanding rewards and penalties helps people to makethe choices they need to make in order to achieve their goals. Prices, wages, profits, subsidies,and taxes are common economic incentives. Subsidizing an activity usually leads to more of itbeing provided; taxing or penalizing an activity usually leads to less of it being provided.2We all use incentives (rewards) or disincentives (penalties) to encourage people to make certainchoices. All people respond to incentives, but we don’t respond to them in the same ways.Understanding this can help students understand their own behavior and the behavior of otherswhen it comes to making decisions.People frequently have good reasons to influence the behavior of others. For example, businessestry to encourage people to buy more of their products, workers try to persuade employers to hirethem and to pay them higher wages, and governments try to induce the production andconsumption of some products and discourage the production and consumption of others.2VocabularyPositive incentive - A reward or other enticement that encourages a behavior (e.g., prize,wages).Negative incentive – A penalty that discourages a behavior (e.g., library fine, parking ticket).Virginia Board of Education FrameworkConsumers, producers, workers, savers, investors, and citizens respond to incentives. Forexample,• value and/or a lower price is an incentive for consumers• profit is an incentive for producers• pay and benefits are incentives to workers• interest earned is an incentive for savers• capital gain is an incentive for investors (e.g., buying at $10 and selling at $15 results in a$5 capital gain)• citizens have an incentive to vote for politicians who share their views• interest groups have an incentive to seek to influence politicians to vote in ways thatbenefit their group.Virginia Council on Economic Education54

Page 55

Teaching Tips1) Discuss the incentives that are present in your class that encourage or discourage certain typesof behavior. There could be positive incentives, such as grades, or negative incentives, such asstaying after school for being late for class.3Why does extra credit not work equally well as anincentive for everyone? What about time as an incentive or disincentive? Do offers of“free-time” or “time-outs” work? Under what circumstances? Is there a reason why certainincentives or disincentives don’t work on certain people when they do work on others? Have thestudents discuss the most effective incentives in the class and explain why they are effective.2) The teacher may want to show the clip from “The Terminal” and ask why the quarters work asan incentive for Tom Hanks’ character when they clearly aren’t working for others? What isopportunity cost for Hanks’ character vs. others in the terminal? What is Hanks’ motivation forcollecting quarters? Video: “The Terminal” – DVD – Chapter 103) A common error of students is to consider financial incentives as the only importantincentives to influence individual choices. While financial incentives can be important and areeasy to measure, nonmonetary incentives, such as loyalty, stability, love, altruism and publicrecognition, also influence individual choices.3Compare and contrast the incentives anindividual might face in serving as an elected official, the owner of a small business, thepresident of a large company, and the director of a local United Way office in the aftermath ofhurricane devastation.2Lessons and ResourcesTeaching the Ethical Foundations of Economics Lesson 7: Should We Allow a MarketFor Transplant Organs?Capstone Unit 1 Lesson 5: Rules Influence Economic BehaviorChoices and Changes in Life, School and Work: Grades 9-10 Lesson 4: What InfluencesChoices?EconEdLink Lesson: Fewer Watts and Fatter Walletshttps://www.econedlink.org/resources/fewer-watts-and-fatter-wallets/News articlesNPR Planet Money, the Economy Explained - Search “incentives” to see recent news articlesapplying the concept of incentiveshttps://www.npr.org/sections/money/VideoLentils as Incentive (2:57)https://www.mruniversity.com/courses/development-economics/lentils-incentivePerverse Incentives and Bad Policies with Jacob Cliﬀord (5:37)Virginia Council on Economic Education55

Page 56

Page 57

EPF. 2 The student will demonstrate knowledge of the role of producers and consumersin a market economy by:b) explaining how businesses respond to consumer sovereigntyDay 1 - Consumers RuleContent KnowledgeThe role of the consumer in a market economy often gets lost in discussions about businesses,government, unemployment and inflation. As a result, students often see themselves(consumers) as victims of businesses. There often is little understanding of the important role ofthe consumer in the producers’ decisions. Producers are well-served only when consumers arewell-served. Producers who do not understand that will not be producers for the long-term; andconsumers who do not understand that underestimate their own market power.Consumers are powerful in a market economy, and the economic choices of consumers in themarketplace drive the behavior of producers. Businesses must respond to the wishes ofconsumers to succeed. Consumers decide what will be produced by casting their dollar votes. Itis important for business owners and their employees to understand this. Customers who receivepoor service or inferior products will take their business elsewhere.VocabularyConsumer Sovereignty – The concept that consumers rule and buyers ultimately determinewhich goods and services remain in production.Virginia Board of Education FrameworkConsumer sovereignty is the concept that consumers rule. In order to succeed, businesses mustproduce goods and services that consumers are willing and able to buy.Consumers tell businesses what they want through their dollar votes—that is, what they buy.Businesses must respond to the wishes of consumers in order to succeed.Teaching Tips1) Discuss this quote by Adam Smith from The Wealth of Nations. It makes it clear that aneconomic system should be judged on how well it satisfies the desires of consumers:"Consumption is the sole end and purpose of all production; and the interest of the producerought to be attended to, only so far as it may be necessary for promoting that of the consumer.The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it. But in themercantile system, the interest of the consumer is almost constantly sacrificed to that of theproducer; and it seems to consider production, and not consumption, as the ultimate end andobject of all industry and commerce." Point out that products that consumers don't want (such asBlue Pepsi and New Coke) don't last in the marketplace. In recent years, technology hasprovided companies with tools to better understand their customers’ preferences and avoid suchVirginia Council on Economic Education57

Page 58

gaffs. For example, Mountain Dew recently allowed their customers to vote for new flavorsonline while other firms have used social networking web sites to better understand what theircustomers like.Lessons and ResourcesPersonal Decision Making: Focus on Economics Lesson 12: Advertising: Is ConsumerSovereignty Dead?Capstone Unit 2 Lesson 11: Do Prices Matter to Consumers?EconEdLink Lesson: Satisfaction Please!Part 1: https://www.econedlink.org/resources/satisfaction-please-part-1/Part 2: https://www.econedlink.org/resources/satisfaction-please-part-2/Video“The Seedless Watermelon” (consumer sovereignty) (0:38)http://www.yadayadayadaecon.com/clip/37/Products That Didn’t Satisfy Customershttp://www.growthink.com/content/10-famous-product-failures-and-advertisements-did-not-sell-themVirginia Council on Economic Education58

Page 59

EPF.2 The student will demonstrate knowledge of the role of producers and consumers ina market economy byc) identifying the role of entrepreneursDay 1 - Entrepreneurs as visionaries and risk-takersContent KnowledgeEntrepreneurs take on the calculated risk of starting new businesses to make a profit, either byembarking on new ventures similar to existing ones or by introducing new innovations.Entrepreneurial innovation is an important source of economic growth.2Entrepreneurs create the new businesses in our economy. They take on the challenge of creatingor identifying a product, assessing the market for the product, determining a price for theproduct, creating a strategy for the business, obtaining funding for the new enterprise, hiring andmanaging employees, and assuming the risk associated with the new venture. Entrepreneurs areoften motivated by the potential for financial rewards, as well as an interest in working forthemselves. If they are successful, entrepreneurs receive the profit that remains after they paysalaries for employees, taxes to the government, and all other costs associated with the business.2Starting any new business involves some risk. Entrepreneurs must invest their own time andresources before making products available in the market. The vast majority of entrepreneurscreate new businesses similar to those around them, such as a new grocery store or a new drycleaning business. These businesses may create jobs and often provide important products andservices for their communities. Other entrepreneurs take on an even greater challenge byinnovating or bringing a new invention to the market. In addition to accepting therisks entailed in starting a new businesses, these innovative entrepreneurs must have the vision,originality, and daring to seek out opportunities for a new product or service and introduce it tothe public.2Innovative entrepreneurs are responsible for much of the growth in our economy. Bringing usinnovations such as the radio, airplane, and personal computer, these individuals change the waypeople live their lives, often fostering a more productive and efficient economy. Becauseentrepreneurship plays an important role in economic growth, public policies that affect theprofitability of entrepreneurship — from intellectual property rights to taxes to immigrationregulations — often have a significant effect on consumers.2VocabularyEntrepreneurs - People who take calculated risks in order to start new businesses and developinnovative products and processes. A person who draws upon his or her skills and initiative tolaunch a new business venture with the aim of making a profit. Often a risk-taker, inclined to seeopportunity when others do not.Virginia Board of Education FrameworkVirginia Council on Economic Education59

Page 60

Entrepreneurs accept the risk of organizing resources to produce goods and services, and theyexpect to earn profits.Entrepreneurs earn profits when buyers purchase the products they sell at prices higher than thecosts of production. Entrepreneurs incur losses when buyers do not purchase the products theysell at prices high enough to cover the costs of production.Profit is an important incentive that leads entrepreneurs to accept the risks of business failure.Independence in decision-making is another incentive important to entrepreneurs.Entrepreneurs increase competition by bringing new goods and services to market or deliveringproducts in innovative ways. They often foster technological progress and economic growth.Teaching Tips1) Often students think that inventors are entrepreneurs. Sometimes they are and sometimes theyare not. It is important to note that entrepreneurs take the risks required to bring a product tomarket. An inventor can have a product in his or her basement but will become an entrepreneuronly upon moving the product from the basement into the marketplace. Have the students readabout inventors who were entrepreneurs (e.g., Jim Henson, Jan Matzliger, Thomas Edison, SteveJobs, Mark Zuckerberg).32) Display the following list somewhere in the classroom where all students can see it:Role of the EntrepreneurNew productNew processNew marketNew source of materialsNew ways of doing businessStudents will identify and explain the five roles of entrepreneurs. Explain that these are the fiveroles of an entrepreneur that were described by economist Joseph Schumpeter. Begin by askingstudents to identify products or services that might fit into each category: examples (new productor service – iPhone, new process – shale oil, new market – cell phones for rural India, newsource of materials – deep-water oil and natural gas, new ways of doing business – Redbox andNetflix).Explain further that Schumpeter said it was not enough merely to develop or design these things,but that an entrepreneur also took a risk in bringing it to the marketplace; for example,, theentrepreneur may experience profit or loss by taking on any of these roles because theentrepreneur is responsible for the decision to bring it to the marketplace.In groups have students brainstorm products or services which would fit in each category. Theymight conduct research to learn the name of the entrepreneurs behind the innovations. (It’s goodfor students to understand the variety of ways in which an entrepreneur can innovate – and notjust memorize the list.)Virginia Council on Economic Education60

Page 61

Students will be able to explain the difference between an entrepreneur, an inventor, and amanager. Have students look at the five roles of the entrepreneur. Ask students why an inventorof a new product or process may not be an entrepreneur. Ask students why a manager may notbe an entrepreneur. These are important because students frequently assume that an inventortakes a risk in bringing a new product or process to market, when in fact, inventors frequentlysell their ideas to others who create products and/or bring them to market. Likewise a managermay oversee a portion of the process, but their compensation is frequently a salary (sometimeswith a bonus).Lessons and ResourcesEntrepreneurship Economics Lesson 1: Entrepreneurship’s Many BeneficiariesFinancial Fitness for Life: Grades 9- 12 Lesson 5: Making Your Own JobFocus: Understanding Economics in US History Lesson 24: Industrial Entrepreneurs or RobberBarons?EconEdLink Lesson: The Entrepreneur in Youhttp://www.econedlink.org/lessons/index.php?lid=264&type=educatorEconedlink Lesson: What Makes an Entrepreneur?https://www.econedlink.org/resources/what-makes-an-entrepreneur/Reading“Have Knife, Will Travel: A Slaughterhouse on Wheels”http://online.wsj.com/article/SB122054916174600403.htmlCartoonshttp://www.gocomics.com/wizardofid/2010/04/27 (role of the entrepreneur)http://www.gocomics.com/bc/2010/04/13 (entrepreneurship)VideosEntrepreneurs Change the World (2:00)https://www.youtube.com/watch?v=T6MhAwQ64c0What is Entrepreneurship (2:00 min)https://www.youtube.com/watch?v=N95U0nhxg2815 Characteristics of Entrepreneurs (6:20)https://www.youtube.com/watch?v=sOjeQV5pHh4&spfreload=5Ordinary to You, Amazing to Others (1:55)https://www.google.com/search?sourceid=navclient&ie=UTF-8&rlz=1T4GGNI_enUS522US523&q=ordinary+to+you,+amazing+to+othersVirginia Council on Economic Education61

Page 62

Page 63

EPF .2 The student will demonstrate knowledge of the role of producers and consumersin a market economy bye) describing how costs and revenues aﬀect proﬁt and supplyDay 1 - Cost vs. priceContent KnowledgeFrom television advertisements to casual conversation, cost and price are used interchangeably.But they are different. A business must consider the costs of producing a product as well asconsumer demand for the product before it sets a product’s price. The difference between costand price needs to be brought to the student’s attention as they have very different implicationsfor decision-making. Time should be spent explaining that economic costs include opportunitycosts (what else could be done with the time involved) as well explicit costs (those that are paidfor).VocabularyCosts – An amount that must be paid or spent to buy or obtain something. The effort, loss orsacrifice necessary to achieve or obtain something. The money spent for the inputs used inproducing a good or service1(see cost of production).Cost of production – Amounts paid for resources (land, labor, capital and entrepreneurship)used to produce goods and services.Price – The amount consumers pay when they buy a good or service; the amount a producerreceives when they sell a good or service.Virginia Board of Education FrameworkRising costs tend to decrease profits and/or lead to higher prices of goods and services. Fallingcosts tend to increase profits and/or lead to lower prices of goods and services.A change in the cost of production influences how much of a good or service will be produced(supplied).When costs of inputs rise, (a) profits will fall and/or (b) the price of the good or service will beincreased and sales may decrease. (For example, when the cost of lumber goes up, homebuilderprofits will fall or the price of houses will go up.)When costs decrease through a reduction in the cost of inputs (a) profits can increase or (b) theprice of the good or service can be decreased and sales may increase. (For example, when thecost of lumber decreases, homebuilder profits will increase and/or the price of houses willdecrease.)Supply refers to the quantity of a good or service that will be brought to market at every price ata given time. When cost of production rises, supply will decrease; when cost of productiondecreases, supply will increase.Virginia Council on Economic Education63

Page 64

Teaching TipCost is what it takes, in terms of dollars or resources, to produce a particular product or service.If you are buying corn from the local Farmer’s Market this would include the dollar value ofseeds, labor, transportation to the market, equipment like tractors, etc… The price – on the otherhand – is the amount that the consumer is willing to pay to be able to have that corn on the tablefor dinner.Time needs to be spent on a simple exercise asking students whether something is a price (theexchange value of a good or service between consumer and producer) or a cost (an amount paidfor a resource in the production process). Students should then explain what the mathematicalrelationship between price and cost needs to be for the producer to stay in business (cost < price).Lessons and ResourcesPersonal Decision Making: Focus on Economics Lesson 7: Business Decision Making; AreThey Out To Get You?Master Curriculum Guide: Economics and Entrepreneurship Lesson 12: Profits andEntrepreneurshipEconEdLink Lesson: The Price of Gasoline - What’s Behind It?https://www.econedlink.org/resources/the-price-of-gasoline-whats-behind-it/atorPodcast:Planet Money: “Work After Covid”https://www.npr.org/2020/07/28/896472621/work-after-covidDay 2 - Calculating proﬁtContent KnowledgeProfit is income received for entrepreneurial skills or risk taking and is calculated by subtractinga firm's costs of producing a good or service from the revenues received from selling the good orservice. Profit is income to business owners.3The desire for profit persuades entrepreneurs to establish new businesses, expand existing onesand change the kinds of goods and services produced. The desire for profit motivates ownersand managers to introduce cost-cutting technologies and to compete more vigorously with otherVirginia Council on Economic Education64

Page 65

businesses for consumer dollars. Similarly, losses or negative profits are a signal to moveresources elsewhere. In a competitive market economy, profits and losses spur efficiency,growth, change and economic progress.3Students often see profit as benefiting only businesses. The important thing about profits andlosses is that they direct businesses toward producing the goods and services that consumersvalue more and away from producing the goods and services that consumers value less. Profitsreward firms that produce efficiently and correctly anticipate which goods and servicesconsumers want most. Inefficient businesses and firms that do not adapt to changes in consumerpreferences and technology are penalized by incurring losses.3VocabularyCosts – An amount that must be paid or spent to buy or obtain something. The effort, loss orsacrifice necessary to achieve or obtain something. The money spent for the inputs used inproducing a good or service1(see cost of production).Cost of production – Amounts paid for resources (land, labor, capital and entrepreneurship)used to produce goods and services.Price – The amount consumers pay when they buy a good or service; the amount a producerreceives when they sell a good or service.Revenue - The income generated by the sale of goods and services (price × quantity).Proﬁt = Total Revenue − Total CostProﬁt – The amount remaining when all costs are subtracted from all revenues.Teaching TipsStudents often confuse revenues and profits. Ask your students how much they paid for theirbackpack or some other item. Next, ask how much profit the store that sold the backpack earned.Most students will tell you that the price they paid is the amount of profit the store earned. Usethis example to help them recognize that the price paid for the backpack is revenue for the store,and that from its revenue the store must pay its costs. What is left after the store pays its costs isprofit. Have the students identify some of the costs the store must pay, e.g., salary for workers,payment for items sold in the store, rent, electricity and water service.3Create some simple mathproblems as examples to illustrate “Total Revenue – Total Cost = Profit.”2) Show this video to show the costs of running a business. How much profit is left? Costs ofhttp://www.youtube.com/watch?v=QQrDZOwU24Y&feature=relatedLessons and ResourcesEconomics in Action: 14 Greatest Hits for Teaching High School EconomicsLesson 9: The Invention ConventionCapstone Unit 4 Lesson 23: Make a Profit: Do the MathMathematics and Economics: Grades 3-5: Lesson 6: Bookmark ProfitVirginia Council on Economic Education65

Page 66

Page 67

EPF.2 The student will demonstrate knowledge of the role of producers and consumers ina market economy byg) examining how investment in human capital, capital goods, and technology can improveproductivityDay 1 - Investing in Human Capital to Improve ProductivityContent KnowledgeHuman capital refers to the combination of a person's education, knowledge, experience, health,habits, training and talent. A person who has acquired more human capital will be able toproduce more. At the individual level, additions to human capital are closely connected toearning higher wages and income. At the level of the national economy, gains in the averagelevel of human capital for the population are a primary source of productivity growth andeconomic growth.3VocabularyProductivity The amount of output (goods and services) produced per unit of input (productiveresources) used.Human capital – The health, education, experience, training, skills and values of people.3Virginia Board of Education FrameworkPeople invest in their human capital through education, training, and experience.Through investment in human capital, workers learn how to produce more efficiently, thusincreasing productivity.Workers can also improve their productivity by using physical capital (or real capital), such astools and machinery.Increases in productivity result from advances in technology and improvements in physical andhuman capital. Investment in physical and human capital can increase productivity and thus raisefuture standards of living by increasing economic growth.Teaching Tips1) In Unit 6 you will look at human capital as it affects one’s income. Here you will look at howhuman capital affects productivity--output per worker.2) Productivity is a measure of the quantity of goods and services produced for a given amountof resources. Have students give examples from their own work experience of times wherecompetition helped improve productivity by forcing all workers to “be the best that they canbe.”Virginia Council on Economic Education67

Page 68

3) Conduct an assembly line activity. After one round, let students decide if they think they candevelop a process to be more productive. Conduct a second round. Were they moreproductive? Were some people better at one job than others? If they were employers couldthey imagine paying those people more. Have students explain how the process ofspecialization and division of labor results in increased productivity of labor, output, andoverall consumption.4) Have students decide which workers to hire and explain the hiring decisions, given a list ofjob applicants with different levels of productivity, measured by the amount the workerproduces in a certain period of time.5) Discuss productivity in sports. Are players who can produce more home runs paid more? Thatis productivity.6) Ask why more productive workers are likely to be of greater value to employers and earnhigher wages than less productive workers. To emphasize how important productivity is tobusinesses, how this video on company productivity training:http://www.youtube.com/watch?v=eGwjLnbuM6I&feature=relatedLessons and ResourcesEconEdLink Lesson: Capital Investments: Human vs. Physicalhttps://www.econedlink.org/resources/capital-investments-human-v-physical/Day 2 - Improving productivityContent KnowledgeWhy should students understand productivity? On a personal level, being more productivemeans getting things done more quickly. Get chores done faster and have more leisure time.More productive workers generally earn more because businesses want more productiveworkers--and increasing productivity increases a nation’s output and making it wealthier.Productivity is important.Productivity is the amount of goods and services produced per unit of input or per unit of theproductive resources used. Productivity can be increased by producing more goods and serviceswith the same amount of resources or by producing the same amount of goods and services withfewer resources. Productivity can be increased by investing in capital goods such as factories,machines and tools. Individual workers can also increase productivity and enhance their ownearning power by investing in their human capital through education and training.3Increased productivity is important because a high income and standard of living are dependentupon higher productivity. Without higher productivity per worker, there cannot be higher wagesper worker, which lead to more goods and services for the workers to consume and enjoy.3OverVirginia Council on Economic Education68

Page 69

time, increased productivity leads to reduced costs of production and higher standards of livingfor societies.1Students need to be shown that there is a direct connection between the use of capital,technology and improved human capital, and the standard of living. This applies to individualsand to the nation as a whole. The increased productivity that comes from use of technology,capital and improved human capital relates directly to more goods and services at a lowercost—which means an improved standard of living.Students should be able to cite examples of changes in productivity throughout history resultingfrom improvements in processes and procedures.Vocabulary:Productivity – The amount of output (goods and services) produced per unit of input(productive resources) used.3Technological changes - Improvements in a ﬁrm's ability to produce due to improved processes,methods and machines.Physical capital - An asset used in production that is made by humans, but is non-human.Specialization - The process of becoming an expert in a subject, skill, or task.Virginia Board of Education FrameworkEPF.2f: Productivity refers to output per worker. Productivity is measured by dividing output(goods and services) by the number of inputs used to produce the output.An increase in productivity occurs when the same output can be produced with fewer resources.Since fewer resources are used, costs of production are reduced. (For example, when Henry Fordintroduced the assembly line, cars could be built with many fewer man-hours, an increase inproductivity. Because less was spent on labor, the cost of production went down, the price of carswent down, and more cars were sold.)EPF.2g: Research and development can lead to increased productivity.Technological change can lead to increased productivity. Improvements in processes andprocedures can increase productivity.The rate of productivity increase is strongly affected by the incentives that reward successfulinnovation and investments in research and development and in physical and human capital.Economic growth varies across countries because of differences in human and physical capitalinvestments, technologies, and institutional arrangements and incentives.Teaching Tips1) Discuss the advantages and disadvantages of buying a motor scooter to replace a bicycle usedto earn income as a delivery person. Make sure that your students understand that investing inVirginia Council on Economic Education69

Page 70

new physical or human capital can increase future productivity and consumption, but suchinvestments require the sacrifice of current consumption and entail economic risks.22) Have students participate in a simulated production process in which they calculateproductivity and analyze changes that occur through investment in human capital and capitalgoods. The productivity lesson in Economics in Action would work well. After severalrounds students will observe that the average cost of production falls as they become moreproductive. And, they will be able to conclude that productivity increased as workers gainedexperience (human capital), as they rented more pencils (investment in capital) as theyspecialized and developed processes for working faster (technology).3) Have students give examples from their own work experience of times where competitionhelped improve productivity by forcing all workers to “be the best that they can be.”4) Have students explain how the process of specialization and division of labor results inincreased productivity of labor, output, and overall consumption.Lessons and ResourcesFinancial Fitness for Life: Grades 6-8 Theme 2 Lesson 6: ProductivityEconomics in Action: 14 Greatest Hits for Teaching High School EconomicsLesson 8: ProductivityCapstone Unit 4 Lesson 21: Productivity, Diminishing Marginal Returns, and the Demand forLaborWorld History: Focus on Economics Lesson 10: How the Industrial Revolution Raised LivingStandardsEconEdLink Lesson: Henry Ford and the Model T: A Case Study in ProductivityPart 1:https://www.econedlink.org/resources/case-study-on-productivity-1-of-3-henry-ford-and-the-model-t/Part 2:https://www.econedlink.org/resources/henry-ford-and-the-model-t-a-case-study-in-productivity-part-2/Part 3:https://www.econedlink.org/resources/henry-ford-and-the-model-t-a-case-study-in-productivity-part-3/VideoKiva Systems http://www.youtube.com/watch?v=Fr6Rco5A9SMMaking Sen$e with Paul Solman: Stress, Burnout Taking Toll on Many U.S. Workershttps://www.pbs.org/newshour/show/stress-burnout-taking-toll-on-many-still-in-u-s-workforceVirginia Council on Economic Education70

Page 71

Page 72

EPF.2 The student will demonstrate knowledge of the role of producers and consumersin a market economy byf) describing how increased productivity aﬀects costs of production and standard of living.Day 1 - Measuring productivity using GDPContent KnowledgeThe key measurement of economic growth is gross domestic product (GDP). It is comprised ofthe total market value of final goods and services produced in a country (or economy) in a giventime period, usually a single year. An important measurement of the standard of living for aneconomy is per capita GDP. That is the nation’s GDP for a year divided by the nation’spopulation. An economy that is showing continual improvement in per capita GDP is likelyexperiencing a rising standard of living for its citizens.Increased productivity is important to a society because it leads to reduced costs of productionand higher standards of living for its citizens. Students should be able to explain how reducingcosts can increase the standard of living of others. The key to GDP and productivity is to getstudents to understand that standard of living is not determined by money, but rather by access togoods and services.An important way to measure whether or not an economy is growing is to measure theeconomy’s output, called gross domestic product or GDP. GDP is the measure of all the finalgoods and services produced in an economy in a single year. And that number can be used todetermine whether or not a nation’s standard of living is improving. That is done through astatistic called per capita GDP. That is the average share of GDP per person within an economy.Per capita GDP is calculated simply by using the nation’s GDP for a given year and dividing itby the nation’s population. A nation with consistently rising per capita GDP is experiencing arising standard of living. This is because each member of the population, on average, has a largerportion of the total goods and services produced by that nation’s economy.VocabularyGross Domestic Product (GDP) – The market value of all final goods and services produced ina country in a year.Gross Domestic Product per Capita (GDP per capita) – The market value of all final goodsand services produced in a country in a year divided by the total population.Standard of living – The level of subsistence of a nation, social class or individual withreference to the adequacy of necessities and comforts of daily life.Virginia Board of Education FrameworkGross Domestic Product (GDP) is a basic measure of a nation’s economic output and income. Itis the total market value, measured in dollars, of all final goods and services produced in theeconomy in one year.Virginia Council on Economic Education72

Page 73

Economic growth is a sustained rise in a nation’s production of goods and services. Economicgrowth is measured by real Gross Domestic Product (GDP).Real GDP per capita is the measure most often used to measure standard of living. Real GDP percapita is calculated by dividing a nation’s real GDP by its population. It is what each person’sshare would be if the total output of a country was divided equally among its citizens.An increase in real GDP over time indicates economic growth, which means the nation isproducing more goods and services than the year before. A decrease in real GDP over timeindicates economic contraction.As the productivity of labor improves, an economy grows, real GDP per capita increases, andstandard of living rises.Economic growth has been the vehicle for alleviating poverty and raising the standard of living.Teaching Tip1) GDP is the total market value of all final goods and services produced in a country in a givenperiod of time, usually one year. GDP measures an economy's output. Is it also a measure ofthe well-being of a country? Does it account for the quality of a child's education, the safetyof a nation's people, the quality of health care, the quality of the environment, the value ofleisure or the distribution of income? GDP is clearly an imperfect measure of well-being.2) Have the students discuss what GDP includes and what it leaves out. Volunteer, unpaid workis not counted. The purchase of a used car is not included...as it was produced in a previousyear. The profit made on the sale is included. The purchase of an existing home is notincluded, because it was built in a previous year, but, the realtor’s commission is counted.Unreported income is not counted.3) GDP is a measure of the total output of a country--but when discussing standard of living, themeasurement most often used is GDP per capita. The GDP of China may be higher thanSwitzerland, but, the GDP per capita is what measures a nation’s wealth. Have studentsexplain why that would be.4) Have each student research a country to learn the GDP and GDP per capita. Tell students toread about the countries on the CIA World Factbook and write a paragraph about why theythink each country is wealthy or not. Why are the poorer countries not productive? (limitedphysical capital? poor human capital? war? economic system does not encourageproductivity?) Ask, "Which countries would you want to live in and why?"NOTE: GDP is discussed again in Unit 8 – How Does the health of the Economy Affect You.Lessons and ResourcesTrading Around the World Unit 4 Productivity: The Key to Increasing a Country’s IncomeVirginia Council on Economic Education73

Page 74

Page 75

EPF.2 The student will demonstrate knowledge of the role of producers and consumersin a market economy byj) illustrating the circular ﬂow of economic activityDays 1 and 2 - Understanding Circular FlowContent KnowledgeWhen one person spends money, it becomes someone else’s income. This idea is oftenrepresented in the “circular flow” diagrams commonly found in high school economicstextbooks. This idea also leads to the two major ways in which government accountants computeGDP: by measuring total spending (as in this lesson) or by measuring the combined income of allthose within the country.The circular flow diagram is a way of visualizing and categorizing activity within an economy.Its main strength is that it forces the viewer to recognize that there are two exchanges going onwith each transaction. One person’s spending is another person’s income.1Adam Smith was oneof the first to show how a wide range of markets for different kinds of goods and services, eachseemingly independent, were actually linked together in a market system.A country’s overall levels of income, employment and prices are determined by the interaction ofspending and production decisions made by all households, firms, government agencies andothers in the economy. When consumers make purchases, goods and services are transferredfrom businesses to households in exchange for money payments. That money is used in turn bybusinesses to pay for natural resources, human resources and capital goods and to pay taxes. Thecircular flow model illustrates this flow of economic activity.1,2Students should be able to analyze current events as they apply to the circular flow model.1VocabularyCircular Flow – The movement of output and income from one sector of the economy toanother; often illustrated as a circular flow diagram.3Product Market - Consumer goods and services – things consumers buy because thegoods or services provide them with satisfaction – are exchanged in product markets.3Factor Market - Markets for inputs used in the production process are called factor markets.These markets are where the factors of production (natural resources, labor, capital, andentrepreneurship) are bought and sold.Virginia Board of Education FrameworkThe circular flow model illustrates the way in which resources, goods and services, and moneyflow among individuals, businesses, and governments in a market economy.In a market economy, resources are owned by the households; this includes natural, capital, andhuman resources and entrepreneurial skills.Virginia Council on Economic Education75

Page 76

Individuals in households may take their resources to market (called the factor market, referringto the factors of production) and sell them; they may choose not to sell their resources (as inpeople who choose not to work for pay).Businesses go to the factor market and buy or hire the resources they need to produce goods andservices.Households generally receive income from the sale of resources; they can spend this money orsave it. Households may take their income to the goods and services (product) market to buy thethings they want.Firms in the goods and services (product) market take the money from those sales to order morefrom the businesses. The businesses buy more resources to produce more and the moneycontinues to flow through the economy.Government can be added to the simple circular flow as it buys goods, services, and resources inorder to produce certain goods and services. Tax on income and sales is collected by thegovernment to pay for government-provided goods and services (e.g., interstate highways, postalservice).Financial institutions can be added to the economic model to show how savings find their wayback into the economy through borrowing and investment.Teaching Tip1. Ask students if they know the difference between what the government does and what theeconomy does? The economy is the system for getting goods and services produced forconsumers Read the following scenario and show on a circular flow chart the effects on thelocal economy: A visitor comes into a community and spends $100 on a single purchase at astore. The store’s revenues are higher by $100. It spends some of this money to pay formaterials from local suppliers. Have students brainstorm some other ways this money couldbe circulated throughout the market system.2. Tell students you are going to draw a simple model to show the basics of how the economyworks. Ask students who are the two main players in the economy. (Households and Firms)Write “ Households” and “Firms” (Businesses). What do households want? (Goods andservices) Where do households get the money to buy goods and services? (Households ownthe resources--natural, human and capital--households get money by selling resources tobusinesses in the factor market.) Businesses buy resources and produce goods and serviceswhich they sell through retailers in the Goods and Service Market. Households take themoney from selling their resources to the goods and services market and buy things theywant. That money flows from the Goods and Services Market back to the businesses. So,there is the flow of resources from households to businesses and the flow of goods andservices from businesses to households. Then there is the flow of money in the form ofincome to the households for their resources and the flow of money from the households toVirginia Council on Economic Education76

Page 77

the businesses for goods and services. So--two continuous flows--one going clockwise andthe other going counterclockwise. This model is called the simple circular flow. It’s calledsimple because it only includes households and businesses--no government, no banks, and noforeign sector. (It assumes that all income is spent by households and comes back into theeconomy through business spending.)3. If you wish to add government, remind students that some money is taken from paychecksbefore the workers get them. Show that both households and businesses pay taxes (leakagefrom the circular flow)--money going toward government. Then show money going from thegovernment to the factor market (hiring people) and the goods and service market (buyingthings from staplers to airplanes).4. If you wish to add banks--remind students that there are only two things to do withmoney--spend or save. When households save (leakage from the circular flow), that moneyonly comes back into the circular flow when businesses and households borrow and investand spend. If banks hold money and don’t lend, the economy slows. If banks want to lendand businesses don’t want to borrow, the economy slows. Have students explain why thiswould be the case.5. Ask students what happens when members of households go to the factor market and do nothave skills that anyone wants to pay for. (unemployment) What happens to firms thatproduce products that consumers don’t buy? (They will go out of business or change whatthey are producing.)Ask students who decides what will be produced? (Consumers will vote with their dollars andtell businesses what to produce.) Who decides how goods and services will be produced?(Businesses decide on the most profitable method of production. Government may have rulesabout safety in some cases, e.g. airline travel, food preparation, pharmaceuticals.) Who decideswho gets the goods and services that are produced? (Consumers who are willing and able to pay.)6. Summarize. The circular flow is a circle where money and goods and services flow roundand round. One person’s spending is another person’s income. The circular flow shows thateverything is connected.Virginia Council on Economic Education77

Page 78

Page 79

Source: http://www.harpercollege.edu/mhealy/eco211/lectures/captism/ch4.htmLessons and ResourcesChoices and Changes In Life, School, and Work: Grades 5-6 Lesson 6: What Results WhenPeople Can Produce More?Economics in Action Lesson 10: The Circular Flow of Economic ActivityDemonstration of the circular flow model that goes with this activity:http://www.youtube.com/watch?v=lshvr4ug2rY&feature=relatedMaster Curriculum Guides in Economics: Teaching Strategies – 5-6 Lesson 3: Dandy DollarsTakes a TripEntrepreneurship Economics Lesson 2: Role of the Entrepreneur in the EconomyLesson: Circular Flows – A Teaching Planhttp://ecedweb.unomaha.edu/ve/library/CIRF.PDFVideoCircular Flow demonstration (8:19)http://www.youtube.com/watch?v=gaEY-p-21F8EVALUATION DAYVirginia Council on Economic Education79

Page 80

Page 81

Unit 4 - THE PRICE SYSTEM (11 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/In market economies, there is no central authority that decides how many different kinds ofsandwiches are provided for lunch every day at restaurants and stores, how many loaves of breadare baked, how many toys are produced before the holidays, or what the prices will be forsandwiches, bread, and toys. Students should understand that, instead, most prices in marketeconomies are established by interaction between buyers and sellers.Understanding how market prices and output levels are determined helps people anticipatemarket opportunities and make better choices as consumers and producers. It will also help themrealize that market allocations are impersonal.2EPF.3 The student will demonstrate knowledge of the price system bya: examining the laws of supply and demand and the determinants of eachDays 1 and 2 The law of demandDay 3 The law of supplyEPF.3 The student will demonstrate knowledge of the price system byb. explaining how the interaction of supply and demand determines equilibrium price.Day 1 Bringing supply and demand together for equilibrium priceEPF.3 The student will demonstrate knowledge of the price system bya: examining the laws of supply and demand and the determinants of eachDay 1 What causes demand to change?Day 2 What causes supply to change?Day 3 PracticeEPF.3 The student will demonstrate knowledge of the price system byc. by describing the elasticity of supply and demand.Day 1 How responsive are consumers and producers to price changes? That’s elasticity!EPF.3 The student will demonstrate knowledge of the price system byd. examining the purposes and implications of price ceilings and price floors.Day 1 Price ceilings and floors—oh my!Day 2 Review supply, demand, equilibrium price, determinants of supply & demand,elasticity, price ceilings and price floors81Virginia Council on Economic Education

Page 82

Page 83

EPF.3 The student will demonstrate knowledge of the price system bya: examining the laws of supply and demand and the determinants of eachDays 1 and 2 - The law of demandContent KnowledgeA price is what people pay when they buy a good or service, and what they receive when theysell a good or service. A market exists whenever buyers and sellers exchange goods or services.Market prices are determined through the buying and selling decisions made by buyers andsellers.Higher prices for a good or service provide incentives for buyers to purchase less of that goodor service. Lower prices for a good or service provide incentives for buyers to purchase more ofthat good or service. This well-established relationship between price and quantity demanded,known as the law of demand, exists as long as other factors influencing demand do not change.2VocabularyDemand – The quantity of a good or service that buyers are willing and able to buy at allpossible prices during a period of time.Demand curve – A graph used to show the data from a demand schedule. The vertical axisshows the price and the horizontal access shows the quantity demanded. A demand curve showsan inverse relationship – the curve slopes downward from left to right.Demand schedule – A table showing the quantity demanded of a good or service correspondingto a number of prices.Law of demand – As the price of a good or service rises (or falls), the quantity of that good orservice that people are willing and able to buy during a certain period of time falls (or rises); thatis, price and quantity demanded are inversely related.Wants – Desires that can be satisfied by consuming or using a good or service.Virginia Board of Education FrameworkDemand is the willingness and ability to buy specific quantities of a good or service at differentprices in a specific time period, all things remaining the same. The law of demand states thatpeople will buy more of a good or service at lower prices and less at higher prices, if everythingelse remains the same. When graphing, this is known as a change in quantity demanded.Teaching Tips1) Create a situation where you only have a few of something desirable. Since you don’t haveenough to go around, auction the items. Before you hand them out, ask if the students are happywith this outcome. If not, ask for other alternatives. Discuss.83Virginia Council on Economic Education

Page 84

Why do we say that a market economy uses a “price system?” In a market economy scarceresources and goods and services are allocated by price—rather than lottery,first-come-first-served, or the strongest person.Who sets prices? Where do prices come from? In general, prices are set in the marketplacethrough the forces of supply and demand.2) To introduce demand, introduce an item such as a candy bar. Provide a handout with a rangeof prices for some desirable item with some prices higher and some prices lower than the usualmarket price for the item. (e.g. possible prices for a candy bar: $1.75, $1.50, $1.25, 1.00, .75, .50,.25). The handout will say “For each price, how many candy bars will you buy today (cash only)if this is the price charged? Explain the “willing and able” aspect of demand. If you want to buya candy bar today, you are “willing.” If you have the money to buy a candy bar today, you are“able.” You are not counted in the demand for the candy bar unless you are both “willing andable” to buy. (Often, students will equate want with demand. Desire or want is not the same asdemand. One must actually want to buy and have the money to do so.)Have each student complete the handout noting how many candy bars they would actually buytoday at each price if the candy bars were for sale at that price. After students have completedtheir handouts, ask how many of them would buy candy bars at $.25. Have those students stand.Ask how many candy bars each would buy at that price. Put the total next to $.25 on the board.Go to the next higher price. Repeat. Did some customers drop out or buy fewer candy bars? Askthem why they wouldn’t buy at the higher price. (Answer: They have better things to do withtheir money—which means “opportunity cost”) Repeat through the prices until no one will buyand you have on the board the list of prices and the quantity demanded at each price.Refer to the list and ask what we can observe about the relationship of price and quantitydemanded. (At lower prices people will buy more. At higher prices people will buy fewer.)Explain that this is the law of demand. So, if I can’t sell enough candy bars, and I want to sellmore, one thing I can do is lower the price. If too many people want to buy, I can raise the price.Look at the list again. If I offer the item at a price of $.50, how many could I sell, according toour data? Unfortunately I only have one. In a market economy, how do we decide who to give itto? (The buyer who is willing to give up the most to get it. We generally allocate scarce things byprice.) At this point you can sell the candy bar to the student who said he/she was willing to paythe highest price.3) We can show this same data in a picture. Use the data to derive a demand curve, explainingthat each point on the curve represents their decisions to buy at each price. Explain that the priceis always on the vertical axis and the quantity is always on the horizontal axis. Always label theaxes. Explain that the demand curve is a picture showing that at lower prices, people will buymore.4) Give students data to graph several demand curves for practice.84Virginia Council on Economic Education

Page 85

5) Have students conduct a market survey to learn how many tickets to a local high schoolfootball game (or other event) potential consumers would be willing to buy at a range of prices.Use this information to derive a demand curve.Lessons and ResourcesMaster Curriculum Guides in Economics: Teaching Strategies Lesson 5: Graphing DemandFocus High School Economics Lesson 3: A Classroom Market for Crude OilOnlineEconEdLink, The Lesson on the Supply and Demand of Toy Fads—includes a link to a youtubevideo clip that illustrates supply and demand with the hula hoop as an example:https://www.econedlink.org/resources/a-lesson-on-the-supply-and-demand-of-toy-fads/VideosThe Hudsucker Proxy: Hula Hoop Crazewww.youtube.com/watch?v=Ng3XHPdexNMEconomic Lowdown - Episode 2, Demand (6:53)https://www.youtube.com/watch?v=LqOzRAVOV9oWe The Economy - Supply and Dance, Manhttps://wetheeconomy.com/films/supply-and-dance-man/?autoplay=noKhan academy on the law of demand (8:15)http://www.khanacademy.org/video/law-of-demand?playlist=MicroeconomicsDay 3 - What is supply?Content KnowledgeIf people are having a hard time getting lawn mowing service they will begin offering to paymore to get it done. As the price rises, new people will decide that it is “worth it” to mow lawnsand will enter the business. As the market price rises, people are willing to supply more of agood or service.Higher prices for a good or service provide incentives for producers (as a whole) to make or sellmore of it. Lower prices for a good or service provide incentives for producers to make or sellless of it. This relationship between price and quantity supplied is normally true as long as otherfactors influencing costs of production and supply do not change.2Vocabulary85Virginia Council on Economic Education

Page 86

Supply – The amount of a good or service that producers are willing and able to offer for sale ateach possible price during a given period of time.Law of Supply - Producers will produce more when they can sell at a high price and less at alow price; in other words, price and quantity supplied are directly related.Virginia Board of Education FrameworkSupply is the willingness and ability to bring to market (produce/sell) specific quantities of agood or service at different prices in a specific time period, all other things remaining the same.The law of supply states that producers will increase the quantity supplied at higher prices anddecrease the quantity supplied at lower prices, if everything else remains the same.Teaching Tips1) While demand represents the decisions of buyers, supply represents the decisions of sellers.Supply represents the quantity of a good or service producers are willing and able to bring tomarket at a range of prices. It is easier for students to relate to demand than supply because theyhave had many years of experience as consumers. To understand supply, one must think as aseller. It may be helpful to have students think of goods and services they have had experienceproducing. For example, how many cars would you wash on Saturday at $3, $5, $10, $15, $20,$30, $40? Would you supply more at a higher price or a lower price? Start thinking like abusiness person! At higher prices you would probably supply more car washes.2) Ask whether any students have had baby-sitting experience. Ask about the going rate. Explainthat you want to determine the supply of babysitting on Sunday night. There is going to be aneighborhood party and lots of people will need babysitters. Give out a handout that lists avariety of rates from high to low. Ask students to mark the prices at which they would be willingto babysit from 6:00 PM to 10:00 PM on Sunday night: $100, $80, $60, $40, $30, $20, $10, $5(Some students may not be willing to babysit at any price.) Remind students they should onlysay yes if the are both “willing” and “able.” Willing means you want to earn money babysitting.Able means that you can and will show up on Sunday night to do it.After students have completed the forms, start with the lowest price. Who is willing to babysit atthis price? Stand up. (Probably no one will stand, unless someone loves babysitting and woulddo it cheaply—or is desperate for money. Some people don’t have other job opportunities and sowould work cheaply.) Count and record. Move to the next price. Count and record. Studentsremain standing—because we assume that if they would babysit for $10, they would be evenmore happy to do it at a price of $20 or $50 if they could get it. As new students stand, ask whythey are willing to babysit at the higher price and not the lower one. (Help them see that theyhave opportunity costs—studying, other jobs—and that at the lower prices their opportunitycosts were too high to babysit.) Continue until you have the quantity supplied for all of theprices.Let everyone sit down. What can we say about supply? (At high prices producers will supplymore.) Discuss why more students will babysit at high prices than at low ones.86Virginia Council on Economic Education

Page 87

3) Use the data to derive a supply curve. What does the supply curve show? (Producers willsupply more at higher prices.) Explain that this is what supply curves nearly always looklike—upward sloping to the right.4) Provide data so that students can practice drawing supply curves.5) Understanding the workings of supply and demand is critical to understanding how a marketeconomy works. And, it will come up repeatedly in this course. Take enough time to be surestudents get it.Lessons and ResourcesMaster Curriculum Guides in Economics: Teaching Strategies 5-6 Lesson 9: Producers andSupplyVideosEconomic Lowdown - Supply, Ep. 1 (3:56)https://www.youtube.com/watch?v=6Q_XxwqtwxYMarginal Revolution University - The Supply Curve (2:54)https://www.mruniversity.com/courses/principles-economics-microeconomics/supply-curve-definition-exampleKhan academy on the law of supply (8:23)http://www.khanacademy.org/video/law-of-supply?playlist=Microeconomics87Virginia Council on Economic Education

Page 88

EPF.3 The student will demonstrate knowledge of the price system byb. explaining how the interaction of supply and demand determines equilibrium price.Day 1 - Bringing supply and demand together for equilibrium priceContent KnowledgeUnderstanding supply and demand is vital to understanding how a market economy works—howprices and wages are determined. Why do tickets to the Super Bowl cost so much more thanseats to a regular football game in the same stadium? Why does a brain surgeon earn so muchmore than a restaurant dishwasher? Supply and demand.Both buyers and sellers respond to price changes. When prices change, buyers change thequantity they are willing and able to buy and sellers change the quantity they are willing and ableto bring to market. A graph of the supply and demand curves illustrates these changes. For manystudents, using a supply and demand graph is the most valuable tool for understanding theseimportant concepts —because it creates a “picture” that helps to predict or explain prices in themarketplace.Neither supply nor demand alone can set the price. Price is determined by the interaction ofsupply and demand—working much like a pair of scissors. Where the supply curve and demandcurve intersect, the market is in balance—equilibrium. Everyone who wants to sell at that pricecan sell. Everyone who wants to buy at that price can buy. It’s called the market clearing orequilibrium price for a good or service. It is the one price at which quantity supplied equalsquantity demanded.Markets are always moving toward an equilibrium. If a price is above the market clearing price,it will eventually fall, causing sellers to produce less and buyers to purchase more; if it is belowthe market clearing price, it will eventually rise, causing sellers to produce more and buyers topurchase less.2VocabularyEquilibrium price – The price at which the quantity demanded by buyers equals the quantitysupplied by sellers; also called the market-clearing price.Equilibrium quantity – The quantity demanded and quantity supplied at the equilibrium ormarket-clearing price.Price – The amount of money that people pay when they buy a good or service; the amount theyreceive when they sell a good or a service.Shortage - The situation that results when the quantity demanded for a product exceeds thequantity supplied. Generally happens because the price of the product is below the marketequilibrium price.Surplus - The situation that results when the quantity supplied of a product exceeds the quantitydemanded. Generally happens because the price of the product is above the market equilibriumprice.88Virginia Council on Economic Education

Page 89

Virginia Board of Education FrameworkA market exists when buyers and sellers exchange goods and services. Market prices aredetermined through the buying and selling decisions made by buyers and sellers.The equilibrium price of a good or service is the one price at which quantity supplied equalsquantity demanded. Equilibrium price and quantity are revealed on a supply-and-demand graphwhere the supply and demand curves intersect.If the price is above the equilibrium price, buyers will purchase less than is available, andsuppliers will offer more, creating a surplus. When a surplus exists, prices will decrease untilthey reach the equilibrium price. If the price is below the equilibrium price, buyers will want tobuy more than is available, and suppliers will want to supply less. This will result in a shortage.Buyers will bid the price up until it reaches equilibrium price.Teaching Tips1) We say that prices are determined by supply and demand, but how can we show that?Provide students the following information on quantity demanded and quantity supplied gatheredfrom a market survey for a student organized carwash.PriceQuantity suppliedQuantity demanded$30600$25505$204010$153015$122020$8540$5060Have students work in pairs to graph both the supply and demand curves on one graph. Remindthem to label the demand curve “D” and the supply curve “S.” Be sure to label the vertical axiswith “P” for price and the horizontal axis “Q” for quantity. Labeling is essential. Withoutlabeling it is easy to get confused.2) Draw the students’ attention to the point where the supply and demand curves intersect. Tellthem to draw a broken line to the vertical axis. That is the equilibrium price ($12). Draw abroken line to the horizontal axis. That is the equilibrium quantity (20). At this price the marketis at equilibrium. There are no unsatisfied customers as no customers would be willing and ableto purchase more at this price; and there are no disappointed producers as they would not bewilling and able to produce more at this price.89Virginia Council on Economic Education

Page 90

3) Provide additional opportunities for students to practice drawing supply and demand curvesand finding the equilibrium price and quantity.4) Optional: If the school is involved in a fundraising project, have students conduct a marketsurvey to determine the quantities consumers would buy at various prices. This will show howsupply and demand are used in the real world.5) Assign students to investigate the price for a 30-second advertising spot placed during themost recent Super Bowl and make a list of companies that bought spots. Have students write aparagraph explaining how the price of ads is determined and why businesses would pay thoseprices.Lessons and ResourcesEconomics in Action Lesson 7: A Market in Wheat (This simulation shows how the marketfinds the equilibrium price.)Master Curriculum Guides in Economics: Teaching Strategies 5-6 Lesson 13: Mind Your P’sand Q’sOnlineEconEdLink, Economics in the HeadlinesUses news articles to illustrate changes in supply and demand and how equilibrium price will beaffected.https://www.econedlink.org/resources/economics-in-the-headlines/VideosEconomic Lowdown - Equilibrium, Ep. 3 (5:26)https://www.stlouisfed.org/education/economic-lowdown-video-series/episode-3-equilibriumJodiecongirl - Microeconomics Practice Problem - Economic Equilibrium and Demand andSupply Schedules (12:47)http://www.youtube.com/user/jodiecongirl#p/c/22785443C5FB0F83/20/05_oTFlrYekKhan academy on equilibrium price (10:16)http://www.khanacademy.org/video/market-equilibrium?playlist=MicroeconomicsMarginal Revolution University - The Equilibrium Price and Quantity (4:50)https://www.mruniversity.com/courses/principles-economics-microeconomics/equilibrium-price-supply-demand-exampleMJMFoodie - Episode 14: Equilibrium (5:12)http://www.youtube.com/watch?v=W5nHpAn6FvQ90Virginia Council on Economic Education

Page 91

Page 92

Day 1 - What causes demand to change?Content KnowledgeThe law of demand tells us that people will buy more if we lower our price –which is why storesput things on sale. This is called a change in quantity demanded.But sometimes we buy more or less of something when the price hasn’t changed. When you geta raise, you might go to the movies more. When the price of hot dogs goes up, you might buyfewer buns. When a famous athlete wears a certain shoe, more people may decide to buy it.These are examples of changes in demand. Demand for a product changes when there is achange in consumers’ incomes, preferences, the prices of related products, or in the number ofconsumers in a market. These factors are called the determinants of demand.A key point for graphing is to distinguish between a change in demand and a change in quantitydemanded. A change in the price of a product results in a change in quantity demanded andcauses a movement along the demand curve. A change in demand results from one of thedeterminants of demand and causes the whole demand curve to shift—to the right if it is anincrease and to the left if it is a decrease.VocabularyDeterminants of Demand Factors other than the price of a good or service that change (shift)the demand schedule, causing consumers to buy more or less at every price. Factors includeincome, number of consumers, preferences and prices of related goods.Virginia Board of Education FrameworkThe law of demand states that people will buy more of a good or service at lower prices and lessat higher prices, if everything else remains the same. When graphing, this is known as a changein quantity demanded.Determinants of demand can change demand. A change in demand results from● a change in consumers’ incomes● a change in consumers’ preferences● a change in the prices of related goods or services (complements or substitutes)● a change in the number of consumers in a market● a change in the expectations of buyers.When graphing, this is known as a change in demand.Changes in supply or demand are illustrated by shifts in the supply or demand schedule (curve).These changes will affect the equilibrium price and /or equilibrium quantity.92Virginia Council on Economic Education

Page 93

Teaching Tips1) This is a key point. Review the supply and demand curves to be sure that students understandthat a change in the price of the product itself will be shown as a movement along the supply ordemand curve—not a shift in the curve.2) Explain that the demand curve is like a snapshot of the demand for a good or service at aparticular point in time—ceteris paribus. Ceteris paribus is a Latin phrase which means all thingsremain the same. So, the demand curve says, these will be the quantities that people will demandat these prices…if nothing else changes. But, sometimes, things change. The types of things thatcan change and affect demand are called the determinants of demand.3) Go over each determinant and give examples.What are the types of things that affect consumers’ tastes and preferences? (for example, fads;fashion; information about the product's healthfulness)Complements are things that go together—hot dogs and buns, cars and gasolineExamples of substitutes: Coke and Pepsi; pizza from Pizza Hut versus Dominos---burger fromWendys or McDonaldsNumber of consumers: the World Series brought more consumers to St. Louis in 2011.Population changes cause shifts in demand for different products, such as nursing home care.Expectation of rising prices makes people buy now and vice versa.4) Give students market survey data for a graph that represents the demand for certain shoesbefore an ad campaign and demand after a famous person has begun endorsing the shoes.PriceBeforeAfter$10005$90510$801015$701520$602030Have students graph the numbers in the before column and mark that demand curve “D”Then graph the numbers in the after column and mark that demand curve “D1”Explain that this is called a change in demand; we say the demand curve has shifted to the right.93Virginia Council on Economic Education

Page 94

5) Introduce and give examples for all of the determinants of demand. It’s important for studentsto learn the determinants of demand so that when they hear events in the news they cananticipate what is going to happen to prices in the marketplace.6) Give students many opportunities to practice interpreting causes for changes in demand andshifting demand curves.7) Ask students in groups to complete the table below. Tell them to think of an example of acondition/headline that could change the demand for car washes using four of the determinantsof demand and then:o indicate whether demand would increase or decreaseo indicate which direction the demand curve would shifto indicate what would happen to equilibrium price and quantity.Determinant ofDemandEvent/News StoryDemand(increases ordecreases)Demand Curveshifts left (L) orright (R)?EquilibriumPrice(Up or down?)Equilibrium QuantityDemanded(Up or down?)Be certain that students can distinguish between a change in quantity demanded that resultsfrom a change in the good or service itself, and a change in demand, which results from achange in one of the determinants of demand. Students should know how to shift the demandcurve to show an increase or decrease in demand and show how that will affect the equilibriumprice and equilibrium quantity.Lessons and ResourcesAP Macroeconomics Unit 1, Lesson 4: Demand Curves, Movements Along Demand Curvesand Shifts in Demand CurvesCapstone Lesson 12: How Do Prices Influence My Behavior?Capstone Lesson 13: How Markets Allocate Resources?OnlineEconEdLink, Demand ShiftersHow non-price determinants of demand shift the demand curve.94Virginia Council on Economic Education

Page 95

https://www.econedlink.org/resources/demand-shifters/VideosACDCLeadership - Shifting Demand and Supply (4:5)https://www.youtube.com/watch?v=V0tIOqU7m-c&list=PL6B2DBE4C2FC8F845&index=7KK Fung - Lemonade Economics - Demand vs Quantity Demanded (2:35)http://www.youtube.com/watch?v=JG8PpJxpVvo&feature=relatedMarginal Revolution University - The Demand Curve Shifts (13:59)https://www.mruniversity.com/courses/principles-economics-microeconomics/demand-curve-shiftsDay 2 - What causes supply to change?Content KnowledgeThe law of supply tells us that sellers will bring more to market at higher prices—it’s only athigher gasoline prices that oil companies can afford to build more offshore oil rigs. This is calleda change in quantity supplied.However, businesses may supply more or less of something when the market price hasn’tchanged at all. The supply of gasoline will increase if more companies drill for and strike oil.And, if the price of cotton fabric goes up this will increase the cost of making cotton sheets, somanufacturers will supply fewer cotton sheets at the old market price than they did before.When Cyrus McCormick invented the combine farmers were able to greatly increase theirproductivity—so more wheat was supplied to market at the old price. In fall 2011, certainmedications were not available in the marketplace because producers found it more profitable tomake other drugs. When more and more restaurants build in an area, this increases the supply ofrestaurant food. These are examples of changes in supply. Supply of a product changes whenthere are changes in either the prices of the productive resources used to make the product, thetechnology used to make the product, the profit opportunities available to producers from sellingother products, or the number of sellers in a market. These factors are called determinants ofsupply.A key point for graphing is to distinguish between a change in quantity supplied and a change insupply. A change in the price of the product itself will bring a change in quantity supplied andwill be shown on a graph as a movement to a different point on the same supply curve. A changein one of the determinants of supply will bring a change in supply and that will be represented bya shift in the whole supply curve—to the right if it is an increase in supply and to the left if it is adecrease.Vocabulary95Virginia Council on Economic Education

Page 96

Determinants of Supply --Factors other than the price of a good or service that change (shift)the supply schedule, causing producers to supply more or less at every price. Factors includenumber of producers, production costs, and technology and productivity.Virginia Board of Education FrameworkThe law of supply states that producers will increase the quantity supplied at higher prices anddecrease the quantity supplied at lower prices, if everything else remains the same. Whengraphing supply and demand, this is known as a change in quantity supplied.Determinants of supply can change supply. A change in supply results from● changes in the prices of productive resources used to make the good or the service● changes in the technology used to make the good or the service● changes in the profit opportunities available to producers by selling other goods orservices● changes in the number of sellers in a market● changes in the expectations of producers.When graphing, this is known as a change in supply.Teaching Tips1) This is a key point. Review the supply and demand curves to be sure that students understandthat a change in the price of the product itself will be shown as a movement along the supply ordemand curve—not a shift in the curve.2) Give students market survey data for a graph that represents the supply of babysitters thisweekend before it is announced that a big concert is coming in and wants to hire students for $15per hour.Have students graph the numbers in the “before” column and mark that supply curve “S”Then graph the numbers in the “after” column and mark that demand curve “S1”Price per hourBeforeAfter$203011$15209$12157$8105$552Explain that this is called a change in supply. Ask if the curve shifts to the right or to the left.(left) Ask if it’s an increase or decrease in the supply of babysitting services (decrease).96Virginia Council on Economic Education

Page 97

3) Introduce and give examples for all of the determinants of supply. It’s important for studentsto learn the determinants of supply so that when they hear things in the news they can anticipatewhat is going to happen to prices in the marketplace. For example: “A freeze has destroyed 50%of the orange crop in Florida.” “The price of jet fuel has increased by 50%.”4) Provide students lots of examples and opportunities to practice this. Be sure students arecomfortable with this topic before moving on.Lessons and ResourcesMaster Curriculum Guides in Economics: Teaching Strategies -5-6 Lesson 9: Producers andSupply; Lesson 10, Supply ChangesvideosKhan academy - Factors Affecting Supply (6:57)http://www.khanacademy.org/video/factors-affecting-supply?playlist=MicroeconomicsMarginal Revolution University - The Supply Curve Shifts (12:14)https://www.mruniversity.com/courses/principles-economics-microeconomics/supply-curve-shift“Explorations in Economic Supply”: This three-part lesson uses blue jeans prices to teach theelements (determinants) affecting pricing.https://www.unomaha.edu/college-of-business-administration/center-for-economic-education/teacher-resources/6-8/demand-and-supply-online.pdfDay 3 - Practice/ReviewWhat happens in one market affects other markets. The lesson “How Markets AllocateResources” will show whether students really understand how supply and demand work in themarketplace.Capstone, Unit 2 lesson 13: How Markets Allocate Resources97Virginia Council on Economic Education

Page 98

Day 1 - How responsive are consumers and producers to pricechanges? That’s elasticity!Content KnowledgeYou know that the law of demand says that at lower prices people will buy more—and viceversa. So you decide to run a special on insulin in your drug store. Do you think you would sella lot more insulin? The answer is “no”: people aren’t going to increase their usage of insulinbecause it is cheaper. In economics terms we would say that the demand is inelastic—not veryresponsive to price changes. Increase the price of insulin and people will continue to buy aboutthe same amount.Other products are very responsive to price changes. Raise the price of CocaCola by 20% and thequantity demanded will likely fall more than 20%. Why? Because consumers have many othersubstitute drinks. So, we say the demand is elastic—responsive to price changes.Understanding elasticity is useful in business because it may not be profitable to lower the priceof a product where the demand is inelastic whereas it may be profitable to increase it. It may beprofitable to lower the price on products where demand is elastic—because you would sell more.These ideas are also useful in school—when setting ticket prices to dances as well as prices forbake sales and car washes.VocabularyElasticity of Demand - Price elasticity of demand is the percentage change in quantitydemanded as a result of the percentage change in demand price. Generally, a relative response ofa change in quantity demanded to a relative change in price.Elasticity of Supply - Price elasticity of supply is the percentage change in quantity supplied asa result of the percentage change in demand price. Generally, a relative response of a change inquantity supplied to a relative change in price.Virginia Board of Education FrameworkElasticity describes the degree to which buyers and sellers respond to price changes.98Virginia Council on Economic Education

Page 99

The more elastic supply or demand, the more responsive consumers and producers are to pricechanges (e.g., prices go up 10% and quantity demand goes down by 20%).The more inelastic supply or demand, the less responsive producers are to price changes.Price inelasticity means that consumers or producers are not very responsive to price changes(e.g., prices go up by 10% and quantity demanded goes down by 2%).Price inelastic demand is typical for goods or services that are necessities, have no goodsubstitutes, and/or are inexpensive relative to one’s income (e.g., insulin, electricity, salt).Elasticity of supply is determined by the availability of the raw materials needed for production,available production capacity, and the time period required to produce more of the good orservice. For example, the supply of seats in a football stadium is fixed; thus the supply isinelastic. (Higher prices offered for tickets will not produce more seats in the short run.)The supply of lawn mowing service is elastic. At a higher price more people will be willing tosupply the service. On the other hand, if there is an increase in the price of strawberries, farmerscannot increase their production immediately, so the supply will be inelastic.Price elastic demand is typical for goods or services that are luxuries or have good substitutes(e.g., expensive cars or a brand of soft drink).Teaching Tips1) Hold up a rubber band and stretch it. It’s “elastic”-- it responds when you pull on it. Hold upa pencil—it doesn’t respond when you pull on it. It’s inelastic.2) Ask students—if the price of Coca Cola doubled, would you buy just as much? (Answers willvary. For some, there is no other drink that’s a substitute, and since the price of Coca Cola issmall relative to their income, they may buy just as much. But most will say no—they will buyless or they will switch entirely to other drinks.) If Coca Cola lost more than half its sales as aresult of a 50% increase in price, we would say the demand for Coca Cola is elastic—it respondsto price changes.3) When buyers react to a 10% price increase by buying more than 10% less of a product, we saythe demand is elastic—the response was greater than the price change. When buyers react to a10% price increase by reducing their purchases by less than 10%, we say demand isinelastic—the response was less than the price change.4) Suppose you are planning a school dance. You’re trying to decide what price to charge. Youfind that 125 people will pay up to $10, but if you raise the price 50%, you will lose 20% of your99Virginia Council on Economic Education

Page 100

participants. Is the response greater than the price change, or less than the price change? (It’sless.) So is demand elastic or inelastic? (Inelastic.) When we know that demand is inelastic, weknow we can bring in more money by raising the price—and that we’ll lose money by loweringthe price. (If the goal is raising money, go with the higher price. If the goal is more peopleparticipating, lower the price.)priceDemand for tickets$15100$10125$51505) What kinds of products tend to have inelastic demand? Ask for examples.Price inelastic demand is typical for goods or services that are necessities, have no goodsubstitutes, and/or are inexpensive relative to one’s income (e.g., insulin, electricity, salt).6) What kinds of products tend to have elastic demand? Ask for examplesPrice elastic demand is typical for goods or services that are luxuries or have good substitutes(e.g., expensive cars, a brand of soft drink—not the category soft drinks, but a particular drink.The demand for gasoline is inelastic while the demand for Exxon is elastic…because there aremany substitutes for Exxon gasoline).7) Think about the Super Bowl or the World Series. Many more people want to attend than thereare seats available. Illustrate this with a supply and demand curve (supply curve will be vertical,since the number of seats is fixed). This would be a perfectly inelastic supply curve. Increasesin price bring no increase in the supply of seats.8) The supply of lawn mowing service is elastic. Why? At a higher price more people will bewilling to supply the service. On the other hand, if there is an increase in the price ofstrawberries, farmers cannot increase their production immediately, so the supply will beinelastic.Teaching TipsAP Macroeconomics Elasticity: An IntroductionFocus High School Economics Lesson 7: Price Changes Matter100Virginia Council on Economic Education

Page 101

OnlineEconEdLink, Price Elasticity: From Tires to Toothpickshttps://www.econedlink.org/resources/price-elasticity-from-tires-to-toothpicks/VideosCharacteristics that determine elasticity (1:46)http://www.youtube.com/watch?v=EafTlle73ic&list=UU_xHLAJ_zqPHkmC2aY2MdcA&index=30&feature=plcpPaul Solman video clips on elasticity—there are two parts:http://www.youtube.com/watch?v=OWGwggTyHZc (8:37)http://www.youtube.com/watch?v=m90fyVld23A (5:59)The Economic Lowdown Podcast Series - Elasticity of Demand, Episode 16https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-16-elasticity-of-demandReadings“New Blow to Music as Concerts Fizzle”http://online.wsj.com/article/SB10001424052970204204004576049972873921068.html101Virginia Council on Economic Education

Page 102

Day 1 - Price ceilings and floorsContent KnowledgeIn a market economy prices are generally determined in the marketplace. Thus it is sometimescalled a price system. For example, suppose a concert sells out of tickets and lots of people areleft standing in line wanting to buy. Was the ticket price above the equilibrium price or below?Suppose a concert has lots of empty seats. Was the price above the equilibrium price or below?In each case, what would likely have happened?Sometimes the government believes that the equilibrium price that results from supply anddemand is too high for consumers to afford or too low for producers to earn a profit. To helpconsumers the government might set a price ceiling—saying businesses can’t charge more thanthis for apartment rent, for example. Price ceilings result in a shortage of the good or service. Tohelp producers, government might set a price floor, saying the price of a product, for examplemilk, can’t sell for less than a certain price. Price floors result in a surplus of the good or service.The supply and demand graph shows why this happens.Government-enforced price ceilings set below the market-clearing price andgovernment-enforced price floors set above the market-clearing price distort price signals andincentives to producers and consumers. Price ceilings can cause persistent shortages, while pricefloors can cause persistent surpluses.2VocabularySurplus- The situation that results when the quantity supplied of a product exceeds the quantitydemanded. Generally happens because the price of the product is above the market equilibriumprice.Shortage - The situation that results when the quantity demanded for a product exceeds thequantity supplied. Generally happens because the price of the product is below the marketequilibrium price.Price Ceilings -A price ceiling sets the highest price that can be charged for a good or service.The price is generally set below the equilibrium price and results in a shortage.Price Floors -A price floor sets the lowest price at which one can buy a good or service. Pricefloors are generally set above the equilibrium price and result in a surplus.Virginia Board of Education FrameworkIf the price is above the equilibrium price, buyers will purchase less than is available, andsuppliers will offer more, creating a surplus. When a surplus exists, prices will decrease untilthey reach the equilibrium price. If the price is below the equilibrium price, buyers will want tobuy more than is available, and suppliers will want to supply less. This will result in a shortage.102Virginia Council on Economic Education

Page 103

Buyers will bid the price up until it reaches equilibrium price. Shortages of a product usuallyresult in price increases in a market economy; surpluses usually result in price decreases.Teaching Tips1) Ask students if they’ve ever wanted to buy tickets to a concert or other event and couldn’tbecause they were sold out? Would they have been willing to pay more than the going price toget in? What would have solved this problem? Should the ticket prices have been raised orlowered? (Raised. At some higher price there would have been exactly enough seats for everyonewho was willing and able to pay to get in.)2) Draw a supply and demand curve. Draw the supply curve as a straight vertical line andexplain this is because we assume the theater has a fixed number of seats no matter what theprice. Mark the equilibrium point. Assume this is the equilibrium price for the tickets youwanted. Draw the demand curve as a normal downward sloping curve. Choose a price a bitlower than the equilibrium price. Assume this is the advertised ticket price. Draw a broken line tothe demand curve. What is the quantity demanded at this point? Is it greater or less than thequantity supplied. (It’s greater.)Point out that when a price is established below the equilibrium price, the result will be ashortage. Ask what will happen. Generally, when there is a shortage, prices will rise. People whodidn’t get tickets will offer to pay current ticket holders more.3) Ask what happens in the marketplace when something isn’t selling because the price is toohigh. (Generally, the item is put on sale.) When a price is set above the equilibrium price, notenough people will buy and there will be a surplus. Picture a concert with lots of empty seats.Show this on a supply and demand graph.4) Give students data to diagram supply and demand graphs where the price is above or belowthe equilibrium price. Ask students whether there is going to be a surplus or a shortage.Will that result in a price increase or a decrease? (The price is going to move toward theequilibrium price.)5) Summarize what we know:● People buy more at lower prices.● Sellers want to bring more to market at higher prices.● Prices move toward equilibrium● A price above equilibrium will result in a surplus—and the price will tend to come downas sellers want to sell.● A price below equilibrium will result in a shortage—and the price will tend to move up asbuyers who lost out bid the price up by offering to pay more.6) Ask students if they ever think prices are too high. Rarely the government believes that theequilibrium price for something is too high for consumers to afford and so might set a priceceiling—saying businesses can’t charge more than a certain price. Discuss. What would happen103Virginia Council on Economic Education

Page 104

if government set a price limit on gasoline and said it couldn’t be sold for more than that.Discuss. Do they think that would be a price ceiling or price floor? (Ceiling.) Have them draw asupply and demand curve for gasoline with the price ceiling below the market clearing price.What would happen? (Shortage. Long lines at the gas pumps.) In the 1970’s the governmenttried to keep prices low instead of letting gasoline prices rise. Half the people could buy gas oneven numbered days, half on odd numbered days. These attempts to hold prices down during theshortage resulted in very long lines. This McDonalds commercial includes these long lines:http://www.youtube.com/watch?v=tjXhwevOVAE&feature=related7) A more common, and current example of price ceilings is rent controls—in New York city,and a number of other large cities, governments set limits on how much landlords can charge inrent. The idea is that longtime residents of these cities would be forced out of their apartmentsbecause of rising rental rates caused by increased demand for apartments in these cities. Discusswhether this is a good or bad thing. What do they think the results will be? Have students drawa supply and demand curve and mark the current equilibrium price and quantity. Then make therent lower. What will happen to the quantity demanded? (It will go up, because at the lowerprice even more people will want apartments.) What will happen to the equilibrium quantity?(It will go down as some landlords will convert their apartments to condos and sell them ratherthan rent at lower than market prices.) Who benefits? (People who get the apartments at lowerthan market rates.) Who is hurt? (Landlords who get lower than the market rate in rents. Peoplewho wanted apartments but can’t get them now because of the shortage. People who live inapartments where the landlord no longer keeps them up because of lower rent.)Summarize that price ceilings put a ceiling or limit on how much can be charged for a good orservice. Price ceilings result in a shortage of the good or service.8) The government sometimes steps in when producers say the market price is too low for themto cover their costs. For example, government says that the price dairy owners get for milkcannot be below a certain price. This is an example of a price floor. Illustrate this with a supplyand demand graph. Show the price floor above the equilibrium price. Note the quantitydemanded and the quantity supplied at the equilibrium price. When the price floor isimplemented at the higher price will the quantity supplied be higher or lower? (Higher, becauseat the higher price, milk producers will produce more.) Will the quantity demanded be higher orlower? (Lower, because at the higher price, they will demand less.) The difference between thequantity demanded and the quantity supplied is the milk that is unpurchased in the market. Thatis called a “surplus”. What happens to that milk? The government pays for it.Summarize that price floors put a limit on how low a price may be paid for a good or service.A price floors result in a surplus.9) Governments have implemented price ceilings and floors from time to time throughouthistory. Generally economists have found them inefficient except in states of emergency.Students can read a brief summary here:http://www.econlib.org/library/Enc/PriceControls.html104Virginia Council on Economic Education

Page 105

Lessons and ResourcesCapstone Lesson 14: Secondary Effects: Price Ceilings and Price Floors”Focus: High School Economics Lesson 6: Price Controls: Too High or Too LowOnlineEconEdLink, Who Knows What Inefficiencies Lurk in the Hearts of Rent Controlled HousingMarkets? The Shadow Market Knows!Illustrates the effects of rent controls in New York Cityhttps://www.econedlink.org/resources/who-knows-what-inefficiencies-lurk-in-the-hearts-of-rent-controlled-housing-markets-the-shadow-market-knows/Videosmjmfoodie - Price Floors and Price Ceilings, Episode 15 (6:01)http://www.youtube.com/watch?v=XgBPAucs-W4&list=UU_xHLAJ_zqPHkmC2aY2MdcA&index=15&feature=plcpDay 2 - Review supply, demand, equilibrium price, determinants ofsupply & demand, elasticity, price ceilings and price floorsEVALUATION DAY105Virginia Council on Economic Education

Page 106

Page 107

UNIT 5 - HOW ARE BUSINESSES ORGANIZED? (6 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/When most students enter the workforce they will work for a business or start their ownbusiness. So, it’s important for them to understand the basics of how businesses work. Somepeople want to own their own company so they can be their own boss and just work when theywant to. What they find is that they will be working many more hours than if they worked forsomeone else--because all of the responsibility falls on them. Other folks form partnerships;generally the partners bring resources to the company as well as different skills. Partnership hasthe difficulty of shared decision-making. Both forms have unlimited liability--so the ownerspersonal assets are on the line.Some businesses organize as corporations. With corporations, the owners are shareholders. Manylarge corporations are publicly traded; that is, their shares can be bought and sold on stockexchanges such as the New York Stock Exchange, the American Stock Exchange and theNASDAQ. They answer to their shareholders. Each form of business has advantages anddisadvantages for the owners. Shareholders, for example, have limited liability for actions of thecorporation.All businesses must earn profits to continue--whether they are sole proprietors, partners orcorporations. This impacts what prices they charge for the goods or services they produce. Italso impacts who they hire and what salaries they pay.EPF.2 The student will demonstrate knowledge of the role of producers and consumers in amarket economy byd) comparing the costs and benefits of different forms of business organization including soleproprietorships, partnership, corporation, franchise and cooperative(BUS6120.043)Day 1 and 2 Proprietorship, partnership, franchise, cooperative, corporation—what arethe characteristics as well as the advantages and disadvantages of each?EPF.18 The student will demonstrate knowledge of investment and savings planning byf) describing how the stock market works(BUS6120.137)Day 1 Some corporations go publicDay 2 How are stock prices determined?107Virginia Council for Economic Education

Page 108

Page 109

Day 1 and 2 - Proprietorship, partnership, franchise, cooperative,corporation—what are the characteristics, advantages anddisadvantages of each?Content KnowledgeThe role of an economic system is to get goods and services produced for the members of asociety. In a market economy businesses produce most of the goods and services—based onwhat consumers are willing and able to buy. Businesses may be small or large, have manyowners or just a few. Owners consider the advantages and disadvantages of the various forms ofbusiness and are free to decide which works best for them.VocabularyCooperative – A legal form of business owned by the people who use its services or by thepeople who work there.Corporation – A legal entity owned by shareholders whose liability for the firm's losses islimited to the value of the stock they own.Franchise – A form of business in which one owner uses the model, methods and trademarks ofanother.Partnership – A business with two or more owners who share the firm's profits and losses.Proprietorship – A business with one owner who takes full responsibility for the firm’s profitsand losses.Virginia Board of Education FrameworkSole ProprietorshipBenefits: The owner makes all decisions and keeps all profits.Costs: The owner generally has limited financial resources. The owner also facesunlimited liability, which means if the company fails, the owner can lose personal assetsalong with business assets.PartnershipBenefits: Owners make decisions and keep the profits. They share responsibilities, andeach has a unique set of skills and expertise.Costs: Owners face unlimited liability, limited financial resources, and potential conflictwith partners.CorporationBenefits: Corporations are able to accumulate sufficient financial capital to makelarge-scale investments and achieve economies of scale (i.e., bringing down cost ofproduction by producing in volume). They also have limited liability, meaningshareholder risk is limited to their share of ownership in the corporation. The corporationtranscends the lives of those persons who created it.109Virginia Council for Economic Education

Page 110

Costs: Corporations face tax implications (e.g., double taxation—profits are taxed at thecorporate level and again when distributed to shareholders as dividends). Corporationsare more expensive to establish and are governed by more regulations.CooperativeBenefits: Cooperatives are member-owned and operate for members’ benefit (e.g., creditunions, agricultural cooperatives). Members enjoy discounted products and/or services,may receive refunds at the end of the year, face no personal liability, have a vote in howthe business is run, and have interests similar to other members.Costs: Decisions made by the group may not suit all members, and the decision-makingprocess may be more complex and slower than in other organizations.FranchiseBenefits: Training and marketing is provided by the franchisor. The franchisee gains theexclusive right to sell in an area and benefits from product development.Costs: The franchisee pays high franchise fees, enjoys a limited product line, andoperates under strict guidelines and standards.Most businesses in the United States are organized as sole proprietorships. Corporations generatethe most income.Teaching Tips1) Ask students what kind of work they plan to do when they get out in the world. Suggest thereare really only three types of places they can work. See if they can come up with—business(including owning one’s own business), government or non-profit organization. Have studentswrite down the three categories. In groups have them decide what percentage of the workforce isemployed in each category. Remind them that their answers must total 100%. Write the threecategories on the board. As each group reports, write their answers under the correct heading.Expect them to be surprised when you tell them that approximately 17% work for government(state, local and federal), 10% for non-profits and 75% work for a business. Conclusion: It’s1important to understand how businesses work because you will probably work for one or evenown one.2) Introduce the main forms of business with the advantages and disadvantages of each.3) Discussion points: Students should be asked to suggest advantages and disadvantages of eachform of business. Sole proprietorship and partnership are two organizational forms. In thediscussion, you can suggest that sharing has both an up-side and a down-side and ask thestudents what would be the up-side and down-side of sharing for each factor. For example, if thebusiness needs to replace a machine that has quit working, what are the advantages of having a1Data from OECD “Government at a Glance 2015”(https://www.oecd-ilibrary.org/governance/government-at-a-glance-2015_gov_glance-2015-en) and the Bureau ofLabor Statistics (https://www.bls.gov/opub/ted/2014/ted_20141021.htm).110Virginia Council for Economic Education

Page 111

partner or partners? What are the disadvantages of having a partner or partners? If the businesshas an extremely good year, what is the advantage of having a partner or partners? What is thedisadvantage of having a partner or partners?Franchise is a form of business that many students are probably aware of. Explain that withfranchises, certain decisions are limited to the franchising company (franchisor) and others arethe responsibility of the franchisee. For example: the owner of a McDonald’s franchise hascertain restrictions on what they can offer on the menu. They are also restricted to purchasingcertain products from certain suppliers.The last two forms of business allow for a greater number of owners – the corporation and thecooperative. The corporation was designed as a way to raise large quantities of capital byinvolving a greater number of owners (stockholders). The advantage of the corporation is that thefirm becomes a legal entity or person in its own right. And the liabilities of the firm are limitedto the assets of the firm itself. The stockholder’s loss is limited to the capital invested through thepurchase of stock, while the profit potential is theoretically limited only by the success of thecorporation.Cooperatives are also multi-owner and limited liability firms. They differ from corporations inthat the firm’s owners are either the customers or the employees of the firm. Students may bemost familiar with the customer-owned cooperative as this is the model of most credit unions.(Costco and Sam’s are not cooperatives. They do have members, but the members do not ownthe company.) In both cases, the instructor should make an effort to demonstrate how liabilitiesare limited through this form of ownership and compare it to the more extensive liability of aproprietorship or partnership.4) Give examples of businesses in various situations; let students decide which business formwould meet the needs of that business.5) Look up data on which form of business most companies choose. (Sole Proprietorship) Whatform of business has the greatest total sales? (Corporation)Lessons and ResourcesFocus: Institutions and Markets Lesson 3: Business OrganizationsOnline Readings[Article about cooperative ownership] What Millions of Retiring Small Business Owners CouldMean for Citieshttps://nextcity.org/daily/entry/what-millions-of-retiring-small-business-owners-could-mean-for-citiesFive Steps Before Investing in a Pet Franchisehttps://www.franchising.com/articles/5_steps_to_take_before_investing_in_a_pet_franchise.html111Virginia Council for Economic Education

Page 112

Day 1 - Some corporations go publicContent KnowledgeFinancial markets include banks and insurance as well as the stock and bond markets. Somecorporations grow so quickly that they don’t have enough money to finance the growth. Theymay choose to sell shares of their company (stock) to raise money to expand. The people whobuy those shares of stock become part owners. If the company is profitable the shares will paydividends and increase in value. Sometimes a company will go out of business altogether andtheir shares become worthless. However, because it is a corporation, the shareholders havelimited liability. Shareholders can only lose the money they have invested. They have noadditional liability.VocabularyCorporation - A legal entity owned by shareholders whose liability for the firm's losses islimited to the value of the stock they own.Stock - An ownership share or shares of ownership in a corporation.Stock Market - A market in which the public trades stock that someone already owns; thebuying and selling of stock.Bond - A certificate of indebtedness issued by a government or a publicly held corporation,promising to repay borrowed money to the lender at a fixed rate of interest and at a specifiedtime.Shareholder - One who owns one or more shares of stockDividend - A share of a company's net profits paid to stockholders.IPO - A company's first sale of stock to the public. When a company "goes public," it sellsblocks of stock shares to an investment firm that specializes in initial offerings of stocks andresells them to the public.Primary Market - The market where new securities are offered for sale for the first time.Investment banks buy shares of stocks directly from corporations that issue them and sell theseshares to others.Secondary Market - A market in which stocks can be bought and sold once they are approvedfor public sale; for example, the New York Stock Exchange.Virginia Board of Education FrameworkEPF 18f: When companies make profits, they may keep the profits to help them grow or theymay share the profits with shareholders in the form of dividends. Shareholders can make moneythrough dividends or through capital gains. A capital gain occurs when one sells a share for morethan one paid for it.Teaching Tips1) Ask students if they know the difference between stocks and bonds. Perhaps some haveparticipated in the Stock Market Game or own stock of their own. Define the two terms. Explainthat people who own stock share in the success and failure of a business. If the business is112Virginia Council for Economic Education

Page 113

profitable, the value of its shares may rise (so the owner may be able to sell for more than he/shepaid) and the company may distribute dividends from the profits of the company. In contrast tothe ownership represented by stock, when one buys a bond it is like making a loan to a companyand earning a specific rate of return. The bondholder expects to receive that interest whether thecompany does well or poorly.2) Review limited liability as one of the advantages that corporations enjoy. Why is thisimportant with respect to the stock market? (People would be reluctant to buy stock if it meanttaking on the liabilities of the company.) Why is it important to have a stock market? (Peoplealso would be reluctant to buy stock if they had to go ﬁnd someone to buy their stock when theywanted to sell. Also, the market tells just how much buyers and sellers think a stock is worth.)3) Explain that nearly all corporations started out as small companies and grew. When acompany first comes to market it is called an IPO (Initial Public Offering). Have studentsresearch current public offerings. Did any companies on the New York Stock Exchange start inyour community?4) Look up companies which are headquartered in Virginia and listed on the New York StockExchange, American Stock Exchange or the NASDAQ.5) Time permitting, participate in a simulation that walks students through an IPO.Lessons and ResourcesLearning, Earning and Investing for a New Generation Lesson 10: Financial Institutions in theU.S. Economy.Learning, Earning, and Investing for a New Generation Lesson 3: What is a Stock?Khan academy on what it means to buy a company's stock (13:46)http://www.khanacademy.org/video/what-it-means-to-buy-a-company-s-stock?playlist=Finance“What is a company,” from The Stock Market Game“What is a stock?” from The Stock Market GameDay 2 - How are stock prices determined?Content knowledgeWho sets the price of a stock? Like most other things that are sold in a market economy, the priceof stock is set by supply and demand. Something in the news makes people want to buy a113Virginia Council for Economic Education

Page 114

particular stock. This is an increase in demand. If everything else remains the same, the demandcurve will shift to the right and the price will rise. Suppose there is bad news about a company.Some shareholders will decide to sell. This brings more stocks to the market for sale—anincrease in supply. The supply curve shifts to the right and the price of the stock goes down.Stock prices are based on expectations. If investors expect the price of a stock to go up, they willwant to buy. This brings an increase in demand. If investors expect that the price of a stock isgoing down, they may decide to sell. That would result in an increase in supply. What investorsexpect determines supply and demand and the price of stock.VocabularyDemand - The quantity of a good or service that buyers are willing and able to buy at allpossible prices during a period of time.Expectations - What consumers or businesses anticipate will happen, especially concerningmarkets and prices.Stock - An ownership share or shares of ownership in a corporation.Stock Market - A market in which the public trades stock that someone already owns; thebuying and selling of stock.Supply - The amount of a good or service that producers are willing and able to offer for sale ateach possible price during a given period of time.Virginia Board of Education FrameworkEPF 18f: Stock prices are determined by supply and demand based on investor expectations. If acompany is expected to be profitable in the future, demand for its shares rises and the price rises;when a company’s future looks less-than-profitable, demand decreases and the price falls.When the overall economy is robust and growing, people become optimistic about prospects forbusiness and the stock market goes up. Likewise, when investment interest rates fall, the stockmarket generally rises.When interest rates rise, the market goes down. When the overall economy is in decline,investors lose confidence and the stock market goes down.Teaching Tips1) This is an opportunity to show how supply and demand work in the real world. Use this timeto review and practice using supply and demand curves to show how prices are determined in thestock market.2) Define expectations. Explain how the expectations of buyers and sellers of stock affect pricesin the stock market.3) Prepare cards which read “supply” “demand” “increase” “decrease” “right” “left”. Give eachgroup a set of these cards. Practice with newspaper headlines such as the following anddemonstrate on a supply and demand graph. Think about how the event will affect stock buyers’and stock sellers’ expectations about the future profitability of the company.114Virginia Council for Economic Education

Page 115

“Analysts predict that Coca Cola profits will be higher than expected due to international sales.”Is this likely to affect supply or demand? (both) Will there be an increase or decrease in demandfor Coca Cola stock? (increase) Will the demand curve shift to the right or to the left? (right)Will there be an increase or decrease in the supply of Coca Cola stock for sale? (decrease) Willthe supply curve shift to the right or to the left? (left) Will the price of Coca Cola stock increaseor decrease? (increase)“The XYZ company has been sued for patent infringement.” Will this affect supply or demand?(both) Will there be an increase or decrease in the supply of XYZ stock for sale? (increase) Willthe supply curve shift to the right or to the left? (right) Will there be an increase or decrease inthe demand for XYZ stock? (decrease). Will the demand curve shift to the right or to the left?(left) Will the price of XYZ stock increase or decrease? (decrease)Continue using current news events. Help students think about events from the perspective ofboth the stock buyer and the stock seller. For every trade, there must be both a buyer and seller.One party thinks it’s a good time to sell while the other thinks it’s a good time to buy. They havediffering expectations.Lessons and ResourcesEconEdLink Lesson : “Buy and Hold: A Stock Market Simulation.”https://www.econedlink.org/resources/buy-and-hold-a-stock-market-simulation/Learning, Earning and Investing for a New Generation Lesson 14: How Are Stock PricesDetermined?Ecedweb “What is a stock? or Who Owns McDonalds”https://www.unomaha.edu/college-of-business-administration/center-for-economic-education/teacher-resources/6-8/who-owns-mcdonalds_.pdfNGPF NextGen Personal Finance Lesson 24: ANALYZE: What’s the S&P 500?https://docs.google.com/document/d/17r7G2VTMLEtI0zjw111HMfiouL72kIiqSXzvEOlqh3k/editSimulationThe Stock Market Game in Virginia – Student teams manage a $100,000 portfolio and cancompare their results with other teams in the region and the state. Recognition is given to theteams with the highest portfolios after a state period of time.http://www.vcee.org/programs-awards/view/4The Stock Market Gamehttp://www.smgww.org/115Virginia Council for Economic Education

Page 116

Day 1 - What are the characteristics of competitive and lesscompetitive markets?Content KnowledgeCompetition makes athletes improve by pushing them to do better. Competition does the samething to businesses. Businesses work to produce better products at lower prices in order to attractcustomers. Consumers benefit from this. Businesses also benefit from competition when they canchoose to buy their supplies from a variety of competing sources, which keeps their costs down.Some industries are more competitive than others. When there are many buyers and manysellers, no one has market power. This is a very competitive market structure. On the otherhand, a monopoly has only one seller and it can use its market power to raise prices and reducethe quantity it brings to market. Oligopoly has a few sellers. Monopolistic competition has manysellers, but is different from perfect competition.Because competition has benefits to consumers, such as lower prices, more choices, and betterquality, the government seeks to keep competition in industries. There are laws againstmonopolizing and collusion which reduce competition.VocabularyBarriers to entry - Factors that restrict entry into an industry and give cost advantages toexisting firms. Examples would include the large size of existing firms, control over an essentialresource or information, and legal rights such as patents and licenses.Competition - Attempts by two or more individuals or organizations to acquire the same goods,services, or productive and financial resources. Consumers compete with other consumers forgoods and services. Producers compete with other producers for sales to consumers.Differentiation – Making a non-price distinction between the features or characteristics of one’sproduct or service from those of similar products and services.Industry - An industry is a distinct group of productive or profit-making enterprises sharingsimilar products or services (e.g., the automobile industry).Monopolistic Competition - A market structure in which slightly differentiated products aresold by a large number of relatively small producers, and in which the barriers to new firmsentering the market are low.Monopoly - A market structure in which there is a single supplier of a good or service. Also, afirm that is the single supplier of a good or service for which there are no close substitutes; alsoknown as a monopolist.Natural Monopoly - An industry in which the advantages of large-scale production make itpossible for a single firm to produce the entire output of the market at a lower average cost than anumber of firms each producing a smaller quantity.Oligopoly - A market structure in which a few, relatively large firms account for all or most ofthe production or sales of a good or service in a particular market, and where barriers to newfirms entering the market are very high. Some oligopolies produce homogeneous products;others produce heterogeneous products.116Virginia Council for Economic Education

Page 117

Perfect - Competition A market structure in which a large number of relatively small firmsproduce and sell identical products and in which there are no significant barriers to entry into orexit from the industry. Firms in perfect competition are price takers and in the long run will earnonly normal profits.Virginia Board of Education FrameworkCompetition among producers and sellers leads to more choices, improved quality, and lowerprices as producers seek to attract customers away from other businesses.Competition among consumers leads to higher prices and allocates goods to those willing to paythe most (e.g., several buyers bidding at an auction push the price up).An industry is a distinct group of productive or profit-making enterprises sharing similarproducts or services (e.g., the automobile industry). The level of competition in an industry isaffected by the ease with which new producers can enter the industry and by consumers’information about the availability, price, and quantity of substitute goods and services.Markets with perfect competition have many buyers with perfect information and sellers allselling identical products. Sellers here have no market power—no control over the market price.(For example, a grower of plain white rice can only sell at the market price; no one will pay morebecause they can get plain white rice from any supplier at that price.)Teaching Tips1) Discuss the benefits of competition to consumers. Discuss the benefits of competition tobusinesses.2) Ask students if businesses like having competitors. (Businesses would rather bemonopolies—so they wouldn’t have the pressure of competition. But they like competition amongtheir suppliers.)3) Draw a continuum on the board with perfect competition at one end and monopoly on theother. Describe and discuss each of the market structures. Explain that the continuum showsdegrees of competition.perfect competitionmonopolisticcompetitionoligopolymonopolyMany buyers andmany sellersHomogeneous productNo market powerLow barriers to entryMany buyers andmany sellersDifferentiated productFew sellersPrice leadershipHigh barriers to entryHomogeneous ordifferentiated productOne sellerUnique productHigh barriers to entryIn perfect competition sellers have no control over the market price. Their product is identical toall others of the same type (homogeneous) —for example winter rye, feed corn. The market117Virginia Council for Economic Education

Page 118

price is set by supply and demand for the product and each supplier has to take the market price--suppliers have no market power to set the price. Buyers will pay no more than the market priceto get the product from one seller when they can get the same product from other sellers at themarket price. This is the market structure farmers face. When good weather brings a bumpercrop the increase in supply may result in a market price that is actually below what it costs thefarmer to grow the crop.Looking at the other end of the continuum, ask students for examples of monopoly (in someplaces cable TV, electrical power, popcorn in movie theaters). How are monopolies able to keepcompetitors out? There are barriers to entry such as patents, copyrights, control of resources,high cost of getting into the business. Discuss prices and sensitivity to customer conveniencewhere there are monopolies. Define natural monopoly. Why does government regulate the priceof electricity and cable tv? (To keep companies from taking advantage of being the singlesupplier and charging a high price). Compare monopoly to perfect competition.There are market structures in between. Oligopoly is a market structure where a few companiesdominate an industry—think soft drinks, cereal, detergents, and automobiles. Observe that softdrink makers make many different drinks—but there are just a few companies. One of thecharacteristics of oligopoly is “price leadership.” Because there are so few companies they canwatch and follow one another. In 2011 some large banks began charging for debit card use.When customers complained, and other big banks did not follow, those who started the trend hadto stop the practice or lose customers to banks who did not charge those fees. Similarly, oneairline started charging for checked luggage—and, with few exceptions, other airlines quicklyfollowed.Monopolistic competition sounds like it should be most like monopoly—but it’s really most likeperfect competition. The chief difference is differentiation. There are many sellers in thisindustry and they differentiate (point out the difference, often in advertising) their goods orservices in hopes that consumers will pay a bit more for them. Examples would be restaurants,auto repair shops, hotels, hair salons.4) Suppose that all the gas stations in town got together and agreed on one price. Would that be agood thing or a bad thing for consumers? For gas station owners? Why is collusion unlawful?Why would businesses want to collude? When the Organization of Petroleum ExportingCountries (OPEC) established a cartel to control oil prices through managing the supply of oil,this was an example of collusion.Lessons and ResourcesCapstone Lesson 22: How Competitive is the Industry?High School Economics Lesson 4: A Classroom Market for Cocoa.http://hseconomics.councilforeconed.org/Videos118Virginia Council for Economic Education

Page 119

“Real World Economics – Market Structure” (13:00)http://www.dailymotion.com/video/x871gq_real-world-economics-market-structu_schoolmjmfoodie - Episode 25: Market Structure (5:51)http://www.youtube.com/watch?v=9Hxy-TuX9fs (about competitive and uncompetitive markets)Stossel: The Fight Against Food Truckshttp://reason.com/reasontv/2017/12/12/stossel-the-fight-against-food-trucksEmily Smith “Types of Markets” https://www.youtube.com/watch?v=QJnP8jzBjvkArticle“Competition in the Food Truck Industry.”https://www.dummies.com/business/start-a-business/competition-in-the-food-truck-industry/“Study Explores the Impact of Uber on the Taxi Industry”https://www.forbes.com/sites/adigaskell/2017/01/26/study-explores-the-impact-of-uber-on-the-taxi-industry/#601855ea16b0“Competition in the Banking Industry Comes From an Unexpected Source.”https://mobilebusinessinsights.com/2017/03/competition-in-the-banking-industry-comes-from-an-unexpected-source/EVALUATION DAY119Virginia Council for Economic Education

Page 120

Page 121

UNIT 6 - WHAT WILL DETERMINE MY INCOME? (7 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/Students will be able to use knowledge from this unit to predict future earnings based on theircurrent plans for education, training, and career options.Understanding the forces affecting wages and other sources of income will be increasinglyimportant in the future, when workers may change employers and careers more often than in thepast. Regardless of the occupations or industries in which today’s students eventually work, theyare likely to find that they will have to continue their education and training to maintain orincrease their earnings.Gaining knowledge and skills is an investment in one’s own human capital.EPF.4 The student will demonstrate knowledge that many factors aﬀect income bya) examining the market value of worker’s skills and knowledgeDay 1 Human capital—just another name for skills and knowledgeDay 2 What determines the market value of my skills and knowledge?EPF.4 The student will demonstrate knowledge that many factors aﬀect income byb) identifying the impact of human capital on production costsDay 1 Why do businesses prefer to hire workers with more skills?EPF.4 The student will demonstrate knowledge that many factors aﬀect income byc) explaining the relationship between a person’s own human capital and the resulting incomepotentialDays 1 and 2 What’s the connection between education and income?EPF.4 The student will demonstrate knowledge that many factors aﬀect income byd) explaining how changes in supply and demand for goods and services aﬀect incomeDay 1 How does demand for other things affect my job?Evaluation Day121Virginia Council on Economic Education

Page 122

Day 1 - Human capital—just another name for skills and knowledgeEPF.4 The student will demonstrate knowledge that many factors aﬀect income bya) examining the market value of worker’s skills and knowledgeContent KnowledgeWhy go to school? Education is an investment in oneself—in one’s human capital.Human capital refers to the combination of a person's education, knowledge, experience, health,habits, training and talent. A person who has acquired more human capital will be able toproduce more. At the individual level, additions to human capital are closely connected toearning higher wages and income. At the level of the national economy, gains in the averagelevel of human capital for the population are a primary source of productivity growth andeconomic growth.3People who have earned degrees have shown their ability in an educational setting. Thisdemonstration of ability, and the productivity of what they learned, will make them valuableemployees. People improve their human capital by investing in themselves in thousands of ways,but most of the ways involve study, practice and self-discipline.3Human capital is more complex than just getting more education. Here is how Gary Becker,who developed the concept of human capital, describes it in his 1999 Nobel Laureate Lecture:“Human capital analysis starts with the assumption that individuals decide on theireducation, training, medical care, and other additions to knowledge and health by weighing thebenefits and costs. Benefits include cultural and other nonmonetary gains along withimprovement in earnings and occupations, whereas costs usually depend mainly on the forgonevalue of the time spent on these investments. The concept of human capital also coversaccumulated work and other habits, even including harmful addictions such as smoking and druguse. Human capital in the form of good work habits or addictions to heavy drinking has majorpositive or negative effects on productivity in both market and nonmarket sectors.The various kinds of behavior included under the rubric of human capital help explain whythe concept is so powerful and useful. It also means that the process of investing ordisinvesting in human capital often alters the very nature of a person: training may changea life-style from one with perennial unemployment to one with stable and good earnings, or122Virginia Council on Economic Education

Page 123

accumulated drinking may destroy a career, health, and even the capacity to thinkstraight.”3VocabularyHuman capital refers to the skills and knowledge a person has acquired through experienceand/or education.Virginia Board of Education FrameworkPeople’s incomes, in part, reflect choices they have made about education, training, skilldevelopment, and careers. People with few marketable skills are likely to earn much less thanpeople with more skills. When people improve their knowledge and skills through educationand/or experience, it is called an investment in their human capital.Teaching Tips1) Another name for skills and knowledge is human capital. The purpose of this session is tointroduce the idea of human capital and help students understand that gaining knowledge andskills is an investment in oneself. Each person is his/her most valuable resource. Gainingadditional knowledge and skills makes one more valuable in the workplace—and thus, morelikely to earn a better income. Investing in one’s own human capital is like exercise—no one cando it for you—but people can help.2) If you didn’t use a human capital inventory with the students in Unit 1, this would be anappropriate place for it. Conduct an activity that helps students identify human capital they havealready acquired (e.g. ability to read, do math, speak in public, knowledge of computers andsoftware, cook, ride a bike, drive a car, fish, organize people or things, etc.)3) Identify someone of interest to students. Have students suggest human capital (skills andknowledge) that person possesses. Then, for each, discuss how he/she might have acquired thatskill or knowledge. (school, coach, practice, reading, observation, innate ability)4) Have students look at jobs in the want ads in a newspaper or online. Tell them to assume theyare old enough to apply for the jobs--are there any jobs for which they might qualify? Lead themto see that nearly all jobs require specific skills and/or credentials (degrees or certificates). Askthem how they plan to get the qualifications to get a job. Point out that public education is free tothem K-12--and they can gather all of the human capital they are willing to work for. After K-12,one must pay for the knowledge and skills one gains.5) Have students name people or careers of interest to them. Let students work in groups. Eachgroup will need a piece of paper with three columns. Instruct them to list in column 1 skills andknowledge people in those careers would need. In column 2 list how those skills and knowledgemight be acquired and in column 3 list any courses in school which might be helpful in acquiringthe needed knowledge and skills.123Virginia Council on Economic Education

Page 124

Lessons and ResourcesLearning, Earning and Investing Lesson 3: Invest in YourselfChoices and Changes 6-8 Lesson 4: I am Part of the EconomyChoices and Changes 6-8 Lesson 6: Long Term ConsequencesChoices and Changes in Life, School and Work Lesson 3: My Skills InventoryKhan Academy video clip defines capital and human capitalhttp://www.youtube.com/watch?v=ivy1QmWUtQIGary Becker lecturing on human capital:http://www.youtube.com/watch?v=QajILZ3S2REDay 2 - What determines the market value of my skills andknowledge?Content KnowledgeIncome for most people is determined by the market value of the productive resources they sell.What workers earn primarily depends on the market value of what they produce and how muchthey add to the process.In a market economy, wages and salaries — the prices of labor services — are determined just asother prices are, by the interaction of buyers and sellers.VocabularyResources - The basic kinds of resources used to produce goods and services: land or naturalresources, human resources (including labor and entrepreneurship), and capital.Market - Places, institutions or technological arrangements where or by means of which goodsor services are exchanged. Also, the set of all sale and purchase transactions that aﬀect the priceof some good or service.Price - The amount of money that people pay when they buy a good or service; the amount theyreceive when they sell a good or service.Human capital - The health, education, experience, training, skills and values of people.124Virginia Council on Economic Education

Page 125

Salary - A regular payment, often at monthly or biweekly intervals, made by an employer to anemployee, especially in the case of professional or white-collar employees. Salaries are paid forservices rendered and are not based on hours worked.Wage - Payments for labor services that are directly tied to time worked, or to the number ofunits of output produced.Supply - The amount of a good or service that producers are willing and able to oﬀer for sale ateach possible price during a given period of time.Demand - The quantity of a good or service that buyers are willing and able to buy at allpossible prices during a period of time.Virginia Board of Education FrameworkTo earn income, people sell productive resources. These include their labor, capital, and naturalresources and entrepreneurial talents.In a market economy, the market value of a resource is determined primarily by the supply anddemand for that resource. A wage or salary is the price of labor; it usually is determined by thesupply of and demand for the skills and knowledge (human capital) a person has.What workers earn depends primarily on the market value of the goods and/or services theyproduce (i.e., what the market is willing and able to pay) and how much they add to the processof its production. For example, a surgeon earns more than the people who assist her in surgerybecause she adds the most value to the production of that service.Workers with skills and education also earn more when there is a smaller supply of people whocan do the job because businesses and consumers who want those skills must pay more.People with more skills and knowledge tend to earn more. For this reason, many people chooseto invest in their human capital.Teaching Tips1) Review: another name for skills and knowledge is human capital. Investing in one’s humancapital generally leads to higher income. Explain: What determines the market value of aresource? (Market value is just another word for price. The market value of something is whatsomeone is willing and able to pay for it. In a market economy, price is determined by supplyand demand.)2) Have students discuss how supply and demand impacts the employment opportunities andwages in the following situations. This could be an opportunity to practice using supply anddemand curves to show the point if helpful.125Virginia Council on Economic Education

Page 126

a. As more correspondence and bill-paying takes place online, people are using the US Mailless. How will this affect the demand for postal workers? (The demand curve will shift tothe left and fewer workers will be employed.)b. As fewer people use checks for transactions, what will happen to the demand for peoplewho do check clearing for the Federal Reserve Bank? (The demand curve will shift to theleft and fewer workers will be employed.)c. As the population ages there will be more people aged 65 and above. How will this affectthe demand for workers in nursing homes? For physical therapists? (The demand curvewill shift to the right and more workers will be hired.)d. During the Dust Bowl many families couldn’t pay their mortgages and lost their farms.Many moved West hoping to get work picking fruit. How did this affect the supply ofworkers and their pay? (The supply curve shifted to the right and worker pay fell.)e. Few professional basketball players can score 30 points a game. Demand for thoseplayers is great. (Show a vertical supply curve and what will happen if demand increasesfor those players. If demand increases, the curve will shift to the right and the price (thewage) will rise.)f. During WWII most working age men went to war. What did this do to the supply oflabor? (It decreased.) The government encouraged women to be patriotic and go to workin factories. When they did, how did this affect the supply of labor? (It increased—shiftedto right)3) What workers earn is affected by the market value of what they produce.and how much theyadd to the process. What does that mean? (Suppose someone mows four lawns in a day andearns $100. Suppose another person is an orthopedic surgeon who does five knee replacementsin one day. The surgeon’s income will be determined by the payment she gets for doing thosesurgeries. Because the value of five knee replacements is much greater than the value of fourlawns mowed, the surgeon’s income will be much higher.)The author of Harry Potter created value for millions of readers who bought the books while theauthor of a book that is read by only a few readers creates less value and will earn much less.Lessons and ResourcesPersonal Decision Making Lesson 4: A Student’s Potential in the Labor Market: It’s a Matter ofSupply and DemandFinancial Fitness for Life 6-8 Lesson 4: Why Stay in School?126Virginia Council on Economic Education

Page 127

EPF.4 The student will demonstrate knowledge that many factors aﬀect income byb) identifying the impact of human capital on production costsDay 1 - Why do businesses prefer to hire workers with more skills?Content KnowledgeProductivity is a measure of the quantity of goods and services produced from a given amount ofresources. Businesses seek to improve productivity in order to reduce production costs and, as aresult, increase profits. Thus, businesses seek to hire the most productive employees.People who have earned degrees have shown their ability in an educational setting. Thisdemonstration of ability, and the productivity of what they learned, will make them valuableemployees. People improve their human capital by investing in themselves in thousands of ways,but most of the ways involve study, practice and self-discipline.3VocabularyProductivity - The amount of output (goods and services) produced per unit of input (productiveresources) usedHuman capital - The health, education, experience, training, skills and values of people.Fixed cost - Costs of production that do not change as a firm's output level changes; costs thatmust be paid whether the firm produces or not.Variable cost - Costs of production that change as a firm's output level changes.Total cost - All costs associated with producing a good or service; the sum of total fixed costsplus total variable costs.Virginia Board of Education FrameworkBusinesses seek to lower production costs in order to increase profits.As workers invest in their own human capital and become more skilled, they become moreproductive (i.e., can produce more in the same amount of time) which can lower the cost ofproduction.When people improve their knowledge and skills through education and/or experience, it iscalled an investment in their human capital. Higher skilled workers increase productivity byproducing more in the same period of time than lower skilled workers. Increases in productivitytend to lower cost of production. If four workers can accomplish the same amount of work in aday as five workers, this is an increase in productivity which saves the business the wages of oneworker.Teaching Tips127Virginia Council on Economic Education

Page 128

1) Set up a demonstration with two computers. Bring in someone who has excellent keyboardskills—perhaps a school secretary-- and find a volunteer who doesn’t type well. Give each apage to type. Time them. Count their mistakes. Presumably the “expert” will be much faster andmore accurate. Calculate how many pages each could type in an hour.Tell students they are running a business typing dissertations for college students and they willcharge $.50 per page.Have students calculate how much revenue each one could generate for their business per hour.Would it make any sense to pay a worker more per hour than the revenue that an hour of theirwork would bring in? (No.)Remind students that what workers earn primarily depends on the market value of the work theyproduce. (The market value of what they produce would be .50 x # of pages correctly typed.)Which typist would you hire? Presumably they would hire the more productive worker(An example of this is in the online EconEdLink lesson below.)2) Review the calculation of profit: Total revenue (money coming in from sales) minus totalcost (sum of all costs of production) = profit. If a worker produces more in the same amount oftime as another worker, then the revenue from his work will be higher, while the cost remains thesame.3) Optional: show the Paul Solman video listed below. Ask why the employer was eager to hireand promote this man. (He invested in his human capital by gaining an education in prison andwas hired because of the skills and knowledge he had gained and his work ethic.) Discuss howthe man’s life might have been different if he had gained an education while in school andavoided prison.4) Discuss how the hope of achieving wealth can aﬀect productivity by energizing people towork harder, while the hopelessness of escaping poverty can discourage people from trying.Lessons and ResourcesEconomics in Action Lesson 8: ProductivityOnlinePaul Solman, PBS NewsHour “Making Sense”, “From Ball and Chain to Cap and Gown: Gettinga B.A. Behind Bars—July 26, 2011https://www.econedlink.org/resources/making-sene-with-paul-solman-from-ball-and-chain-to-cap-and-gown-getting-a-b-a-behind-bars/EconEdLink lesson “If You’re So Smart, Why Aren’t You Rich?https://www.econedlink.org/resources/the-economics-of-income-if-youre-so-smart-why-arent-you-rich/Lecture: Get Rich Investing in Your Own Human Capital128Virginia Council on Economic Education

Page 129

http://www.youtube.com/watch?v=PpvGhCPhMK0Gary Becker lecturing on human capitalhttp://www.youtube.com/watch?v=QajILZ3S2REEPF.4 The student will demonstrate knowledge that many factors aﬀect income byc) explaining the relationship between a person’s own human capital and the resultingincome potentialDay 1 - What’s the connection between education and income?Content KnowledgeThe buyers of labor services are employers. In competitive markets, they are willing to payhigher wages and salaries to those employees who can produce more or better goods or servicesin a given amount of time. Students who understand this will appreciate the value of the skillsthey can acquire by completing high school, and perhaps college or a vocational trainingprogram.Peoples’ incomes, in part, reflect choices they have made about education, training, skilldevelopment, and careers. People with few skills are more likely to be poor.VocabularyProductivity - The amount of output (goods and services) produced per unit of input (productiveresources) usedHuman capital refers to the skills and knowledge a person has acquired through experienceand/or education.Wage or salary - The price of labor; it usually is determined by the supply of and demand forlabor.Virginia Board of Education FrameworkUnskilled workers earn low pay because many people can qualify for that work; employers donot have to pay more to attract these workers.As people gain human capital (knowledge and/or skills) and practice in a field, they becomemore efficient and productive in that field. This can lead to higher income because employersprefer more productive workers.What workers earn depends primarily on the market value of the goods and/or services theyproduce (i.e., what the market is willing and able to pay) and how much they add to the processof its production. For example, a surgeon earns more than the people who assist her in surgerybecause she adds the most value to the production of that service.129Virginia Council on Economic Education

Page 130

Workers with skills and education also earn more when there is a smaller supply of people whocan do the job because businesses and consumers who want those higher skills must pay more.People with more skills and knowledge tend to earn more. For this reason, many people chooseto invest in their human capitalTeaching Tips1) The objective is to help students see· that without human capital--education or marketable skills--they will have difficultyfinding a job and will likely only qualify for low paying jobs.· that education/training is the key to higher income and employment· that employers are looking for skills and good work habits· that with persistence and determination obstacles can be overcome.2). Have students explore job openings in the newspaper or online. Can they find any for whichthey are qualified? What is the pay scale for those jobs? What kinds of qualifications are neededfor the higher paying jobs? What kinds of human capital—skills, education, experience?3) Have students, working in groups, guess the difference in income between a non-high schoolgraduate and high school graduate. Between a high school grad and a college grad?Show data. Show data on unemployment. (People with more education are less likely to beunemployed.) Discuss reasons why high school dropouts frequently end up in poverty.4) Have students list 2 or 3 careers that interest them. Have them research online to findpredicted demand and income for workers in those careers. Point out that many vocationalcareers such as plumbers and electricians earn higher income than some college graduates. TheEconEdlink lesson “Wages and Me” would provide helpful information.5) Discuss obstacles students may face in getting additional education and/or training.Play the “Road to Success” game from the Grades 7-8 Choices and Changes lesson below toallow students to identify possible obstacles to reaching goals and ways to overcome thoseobstacles.Consider showing video clips of people who have overcome obstacles (e.g. Byron Pitts,commentator on 60 Minutes or the Paul Solman video clip which shows how a man invested inhis human capital when he got an education in prison and how this education changed hisemployment opportunities.6) Discuss the opportunity costs of education (lost income one might have been earning, thingswhich might have been bought with the money spent on tuition, books, room and board). What isthe risk of investing in education? (One might learn skills that will not be in demand.)Lessons and Resources130Virginia Council on Economic Education

Page 131

Financial Fitness for Life 9-12 Lesson 6: Why Some Jobs Pay More Than OthersFinancial Fitness for Life 6-8 Lesson 4: Why Stay in School?Financial Fitness for Life 9-12 Lesson 4: Looking for a JobCapstone Lessons 15: Why Do Some People Earn More Than Others? and Lesson 19: Earningan IncomeFocus: High School Economics Lesson 9: Learn More, Earn MoreMathematics and Economics: Connections for Life Lesson 8: Could You Earn a MillionDollars?Choices and Changes in Life, School and Work Grades 7-8 Lesson 8, activity 5: Ways to MakeChoicesChoices and Changes in Life, School and Work Choices and Changes in Life, School and WorkGrade 9-10 Lessons 13: My Human Capital: A Job Application; Lesson 14: How Can IOvercome Obstacles to Achieve My Goals?; and Lesson 15: What Results When People SetGoals and Plan to Achieve Their Goals?Learning Earning and Investing High School Lesson 3: Invest in YourselfEconEdLink Lesson: Martin Luther King Jr. Dayhttp://www.econedlink.org/lessons/index.php?lid=153&type=educatorEconEdlink lesson: Human Capital for Moneyhttp://www.econedlink.org/lessons/index.php?lid=231&type=educatorFuture-Jobs-o-Matichttp://marketplace.publicradio.org/features/future-jobs/EconEdlink lesson: Wages and Mehttps://www.econedlink.org/resources/wages-and-me/Byron Pitts, 60 Minutes correspondent tells his story of overcoming obstacles:http://www.youtube.com/watch?v=HMZIOAbZRiE&feature=relatedPaul Solman, PBS NewsHour “Making Sense” “From Ball and Chain to Cap and Gown: Gettinga B.A. Behind Bars—July 26, 2011https://www.econedlink.org/resources/making-sene-with-paul-solman-from-ball-and-chain-to-cap-and-gown-getting-a-b-a-behind-bars/131Virginia Council on Economic Education

Page 132

Page 133

EPF.4 The student will demonstrate knowledge that many factors aﬀect income byd) explaining how changes in supply and demand for goods and services aﬀect incomeDay 2 - How does demand for other things aﬀect my job?Content KnowledgeChanges in demand for specific goods and services often, in the short run, affect the incomes ofthe workers who make those goods and services.People are buying apps for their phones. This demand results in a derived demand for peoplewho have the skills (human capital) to create apps.When people decide to have a house built, there will be a derived demand for carpenters, roofers,plumbers etc. Thus when many houses are being built there are many jobs for people with thoseskills. However, in 2011, few houses were being built, and thus fewer jobs were available forpeople with those skills.When fewer houses and cars are sold, as in 2008-2011, the derived demand falls for workersinvolved in producing and selling those things. Derived demand also falls for workers who makeinputs for cars and homes (tires, carpet, appliances, engines)VocabularyDerived demand - Demand resulting from what a good or service can produce, not demand forthe good or service itself.Virginia Board of Education FrameworkThe demand for resources, including labor, comes from, or is derived from, the demand for thegoods and services that are produced from these resources. This condition is known as deriveddemand.An increase in the demand for a good or service will lead to an increase in demand for theresources needed to produce that good or service. For example, an increase in demand for newhomes will increase the demand for carpenters. The increase in demand for carpenters will likelylead to an increase in the income of carpenters.A decrease in the demand for a good or service will lead to a decrease in the demand for theresources needed to produce that good or service. This can lead to a decrease in the income ofthose who supply raw materials and other factors or production. For example, the use ofcomputers may lead to decreased demand for notebook paper, which would lead to a decrease inincome for wood pulp producers who sell to paper mills.133Virginia Council on Economic Education

Page 134

Excess supply (surplus) can lead to a decrease in demand for workers to produce additionalsupply. For example, demand for auto workers decreases when sluggish sales results in excessiveinventories of automobiles.Teaching Tips1) Ask students if they know who LeBron James is. Did they think he should move to Miami orstay in Cleveland? Show Paul Solman video clip below and discuss the economic impact ofLeBron James on Cleveland. Define derived demand. What jobs, goods and services deriveddemand from LeBron James? Consider using the lesson on LeBron James below, and using aspider diagram (below) to show the businesses and jobs dependent on James.2) Consider some Virginia employers. Dupont makes Kevlar which is used in things like bulletproof vests. If there is an increase in demand for bullet proof vests, there will be an increase indemand for Kevlar and an increase in demand for people to make Kevlar. That is called deriveddemand. Demand for employees at Phillip Morris is derived from the demand for cigarettes.Use the spider diagram to illustrate those relationships.3) What do we know about the future? (e.g.The population is aging. The Latino population isincreasing.) What do they think will be in demand in the future? What jobs will increase ordecrease?4) How might derived demand affect jobs for students?5) Have students watch the Napoleon Dynamite video and list his skills. Do the students thinkthere will be a derived demand for any of his skills?Napoleon Dynamite (5/5) Movie CLIP - Girls Only Want Boyfriends Who Have Skills (200…Lessons and ResourcesEconEdLink Lesson LeBron James, the Cleveland Cavaliers and Derived Demandhttps://www.econedlink.org/resources/lebron-james-the-cavaliers-and-derived-demand/Spider diagram:https://www.econedlink.org/wp-content/uploads/legacy/951_Spider%20Diagram1.pdfEVALUATION DAY134Virginia Council on Economic Education

Page 135

Page 136

UNIT 7 - THE ROLE OF GOVERNMENT IN A MARKETECONOMY (8 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/One of the most important functions of our government - one that enables our market economyto operate smoothly in an imperfect world - is the government’s enforcement of private propertylaws. There is also a role for government in areas where markets are inefficient or fail to providethe goods and services that people require and many want.EPF.8 The student will demonstrate knowledge of the role of government in a marketeconomy bya) identifying goods and services provided by government to benefit societyDay 1 Public goods and servicesDay 2 Expanding the definition of public goodsDay 3 Tragedy of the commonsEPF.8 The student will demonstrate knowledge of the role of the government in a marketeconomy byb) identifying the role the government plays in providing a legal structure to protect propertyrights and enforce contractsDay 1 Protecting private property and enforcing contractsEPF.8 The student will demonstrate knowledge of the role of the government in a marketeconomy byc) providing examples of government regulation of the marketDay 1 Government regulation and market failuresEPF.8 The student will demonstrate knowledge of the role of the government in a marketeconomy byd) explaining that governments redistribute wealthEPF.16 The student will demonstrate knowledge of taxes byb) exploring how tax structures affect consumers, producers, and business owners differently.Day 1 Transfer programs and tax structures136Virginia Council on Economic Education

Page 137

Page 138

EPF.8 The student will demonstrate knowledge of the role of government in a marketeconomy bya) identifying goods and services provided by government to benefit societyDay 1 - Public goods and servicesContent KnowledgeMost economic decisions in the United States are made in the marketplace—what is frequentlyreferred to as the private sector. However, students need to also realize that government has arole in the economy, often providing goods and services that would not or could not beadequately or equitably provided in a market economy due to the unusual characteristics of thegood or service. These “public goods” make us better off but would not otherwise be provided bythe private sector.There is an economic role for government to play in a market economy whenever the benefits ofa government policy outweigh its costs. Governments often provide for national defense, addressenvironmental concerns, define and protect property rights, and attempt to make markets morecompetitive.2Why does government pay private construction firms to build roads and highways? Why do thefirms that build the roads not own them themselves and charge tolls to users? All kinds of goodsand services are produced and distributed through private markets, so why not roads andhighways, too? In flipping through the pages of the telephone directory, we observe a vast arrayof businesses and government agencies. Why do markets work well to supply much of what wewant, while failing to produce other things we want?2The section on Market and GovernmentFailure in Nexus: Connections between Economics and Civics provides excellent teacherbackground on these topics.3Students should understand the limitations and shortcomings of both markets and governmentpolicies. Learning the economic as well as the political and social reasons for public sectorservices helps citizens make better choices.2Virginia Board of Education FrameworkThe government provides goods and services such as military protection, street lights, and policeprotection. These goods and services may not be provided by the private sector because it wouldnot be profitable for them to do so when non payers might enjoy the benefits.Though schools, roads, and fire protection can be provided by the private sector, the governmentgenerally provides them as these services benefit society as a whole. An educated public benefitsthe whole society. Roads facilitate trade. If one person’s house burns and the fire departmentrefuses to come due to nonpayment, neighboring houses may also catch fire.138Virginia Council on Economic Education

Page 139

Governments may provide an alternative method to supply goods and services when the benefitsto society of doing so outweigh the costs to society.Teaching Tips1) Students have trouble distinguishing between private and public goods. Identify private goodsas "me only" goods, that is, only the person who pays receives benefits from the goods. Identifypublic goods as "shared" goods meaning that many people can benefit whether or not they paidfor the goods.3Brainstorm a list of goods and services (such as schools, police protection, roads,parks, etc.) not usually privately (“me only”) produced.22) To introduce this section, the teacher may want to use the circular flow of goods and services,introduced in EPF.2j. In that version, the circular flow diagram showed the way in whichresources, goods and services, and money flow among households and businesses. Brieflyreview these concepts, but do not include government into the flow yet.Ask students to name services or products that they use or consume that are not provided byprivate businesses. (Students will provide various answers including some of the following:parks, police services, schools, libraries, defense, etc.) Tell them they are known as public goodsand public services. Ask them how these services are provided and how the resources aregathered to make them available. They should reply that government provides them and they arepaid for with taxes.Redirect student attention to the circular flow. The easiest way to add government to the flow isto draw a new sector in the middle of the circle and label it “government.” The instructor cannow begin to add lines to indicate the flow of resources, goods and services and payments. Askstudents how to indicate the flow of public goods and services to households and firms. (Linescan be drawn directly from government to households and firms. Payment (tax) lines can bedrawn directly from households and firms to government.) Ask students how resources andintermediate goods are provided to government. (Lines can be drawn directly from householdsand firms to government. Payment lines can be drawn directly from government to householdsand firms.)Lessons and ResourcesFocus: Understanding Economics in Civics and Government Lesson 4: What are the EconomicFunctions of Government?Old MacDonald to Uncle Sam: Lesson Plans from Writers Around the World Lesson 2: Goodsand Services: Some Are Private, Some Are NotEconEdLink Lesson: No Fireworks on the 4thof Julyhttps://www.econedlink.org/resources/no-fireworks-on-the-4th-of-july/139Virginia Council on Economic Education

Page 140

Day 2 – Expanding the definition of public goodsContent KnowledgeOnce the idea that government provides goods and services is established on Day 1, Day 2 isspent delving more deeply into the concept of public goods. How do we know which goods andservices are best provided by the government? Two concepts that can help us answer thatquestion are the ideas of non-exclusion and shared consumption. Non-exclusion means that it isdifficult to exclude non-payers from receiving the benefit of a good or service. Sharedconsumption means that the consumption of a good or service by one consumer does not reducethe benefit to other consumers.When people can obtain a good or service whether they pay for it or not, they have less incentiveto pay. If consumers have no incentive to pay the costs, then producers will have little incentiveto provide the benefits. As a result, such goods and services will not be produced despite the factthat everyone wants them. This explains why the role of government is so important.Government can provide goods and services when it is difficult to exclude non-payers and whenthe product or service involves shared or non-rival consumption. Through taxation, governmentcan require all citizens to pay for their share so no one gets a “free” good or service. Forexample, everyone desires police protection. However, because it is difficult to exclude peoplefrom the benefits of police protection, government supplies the service to everyone, andeveryone pays for it through taxation.VocabularyPublic goods – Goods and services, provided by the government, that provide benefits to morethan one person at a time (non-excludable), and their use cannot be restricted to only thosepeople who have paid to use them (non-rival in consumption).2Excludable – A good or service for which payment must be made before use. A movie at atheater is an excludable good. A scenic view from a highway is not.Rival – A good or service which, if consumed, prevents another from consuming it. A chocolatebar is a rival good. A radio broadcast is not.Free rider – One who enjoys the benefits of a good or service without paying for it.Virginia Board of Education FrameworkThe government provides goods and services such as military protection, street lights, and policeprotection. These goods and services may not be provided by the private sector because it wouldnot be profitable for them to do so when non payers might enjoy the benefits.Though schools, roads, and fire protection can be provided by the private sector, the governmentgenerally provides them as these services benefit society as a whole. An educated public benefitsthe whole society. Roads facilitate trade. If one person’s house burns and the fire departmentrefuses to come due to nonpayment, neighboring houses may also catch fire.140Virginia Council on Economic Education

Page 141

Governments may provide an alternative method to supply goods and services when the benefitsto society of doing so outweigh the costs to societyTeaching Tips1) When you discuss public goods with your students, discuss the characteristics of rivalry andexcludability. True public goods have neither of these characteristics. They do not exhibitrivalry because when any one person uses a public good, no one else is prohibited from using itas a result. Radio waves, for example, are not suddenly unavailable to you when someone elseturns on her car stereo and tunes in to a station you desire to listen to; you may both "consume"these radio waves simultaneously. Nor do public goods exhibit excludability. That is, there is noway to prohibit any one person or group of persons from using a public good for any reason.The example of radio waves still applies. No one--not individuals, firms or even thegovernment--can exclude a certain group, teenagers, for example, from consuming radio waves.This example also shows that not all public goods must be produced by government. Radioprograms are produced by private businesses because they can sell advertising. Most publicgoods, however, are produced by government.32) Have students explain how tax dollars are used to provide national defense. Discuss whynational defense would not be provided in the private sector.2Lessons and ResourcesFocus: High School Economics Lesson 11: Public Goods and ServicesFocus: Institutions and Markets Lesson 7: Public Goods and ExternalitiesEconEdLink Lesson: The Mystery of is it Mine or Ours?https://www.econedlink.org/resources/the-mystery-of-is-it-mine-or-ours/EconEdLink Lesson: Goods and Services: Some Are Private, Some Are Nothttps://www.econedlink.org/resources/goods-and-services-some-are-private-some-are-not/VideoSeinfeld – “The Pledge” http://www.yadayadayadaecon.com/clip/56/141Virginia Council on Economic Education

Page 142

Day 3 – Tragedy of the commonsEPF.8 The student will demonstrate knowledge of the role of the government in a marketeconomy byb) identifying the role the government plays in providing a legal structure to protect propertyrights and enforce contractsContent KnowledgeWhen property is owned publicly, rather than privately, it is often overused and abused.This problem was noted in 1832 by the economist William Forster Lloyd, who was concernedabout overgrazing on public pasture land in England. Acknowledging the inevitability of theseproblems, the biologist Garrett Hardin coined the now familiar phrase, "the tragedy of thecommons," in 1968.3The “tragedy of the commons” provides students with an important lesson on the value ofmanaging common resources. It can often be applied when discussing many environmentalissues – including overfishing, air and water pollution, and the extinction of the buffalo. Modernsolutions to these problems support the notion of sustainable development, meshing economicgrowth and environmental protection.VocabularyTragedy of the Commons – Overuse or misuse of a commonly-owned resource, such as publicgrazing land or fishing waters.3Teaching Tips1) Introduce an example of a public resource being overused – this could be the extinction of thebuffalo or the over-harvesting of crabs in the Chesapeake Bay. Ask students how governmentmight be used to avoid the “tragedy of the commons.” Discuss examples where governmentalpolicies have been taken to avoid or reverse the “tragedy.” Then ask students how it might bepossible for individuals acting within the market economy to avoid the “tragedy of thecommons.”Lessons and ResourcesCapstone: Exemplary Lessons for High School Economics - Unit 7: Lesson 44 – WorldEnvironmental Issues: Is the Market at Fault?Focus: Understanding Economics in US History Lesson 2: Property Rights Among NorthAmerican Indians142Virginia Council on Economic Education

Page 143

Focus: Economic Systems Lesson 3: Property Rights, the Tragedy of the Commons, and theCoase TheoremEconEdLink Lesson: New Sense, Inc. vs. Fish ‘Till U Drop or Coase vs. Pigouhttps://www.econedlink.org/resources/new-sense-inc-vs-fish-till-u-drop-or-coase-vs-pigou/Reading“Fishy Business in the South China Sea,” The ASEAN Post.https://theaseanpost.com/article/fishy-business-south-china-sea“Mark Carney Warns of ‘Market Failures’ From Overfishing in the World’s Oceans.” Sky News.https://news.sky.com/story/mark-carney-warns-of-market-failures-from-overfishing-in-worlds-oceans-11281909Videos“Anglers Are in Dire Straits Along Istanbul’s Bosporus” (article is behind a paywall, but thevideo is open.http://online.wsj.com/article/SB10001424052748704723104576061990776738036.html#articleTabs%3Dvideo“Thousands of Fishermen Empty Lake in Minutes”http://www.youtube.com/watch?v=_Tc6ywqoL6o143Virginia Council on Economic Education

Page 144

EPF.8 The student will demonstrate knowledge of the role of government in a marketeconomy byb) identifying the role the government plays in providing a legal structure to protect propertyrights and enforce contractsDay 1 – Protecting private property and enforcing contractsContent KnowledgeAn important economic role for government is to define, establish, and enforce property rights.Markets do not allocate resources effectively if property rights are not clearly defined orenforced.2Property rights refer to the legal ownership of resources, which include the right to own, use andsell them. Property rights are essential to the transactions in a market economy, and one of theessential roles of government in a market-oriented economy is to protect property rights. Whengoods, including everything from cars to groceries, are bought and sold, a property right istransferred from one party to the other. Your ownership of your own labor, that is, your propertyrights in your own labor, is what gives you the right to be paid for your work. Without propertyrights and ownership, firms would lack any reason to build factories, produce and innovate,because they wouldn't be able to keep what they made or earned. Similarly, people and firmswould have a greatly reduced incentive to save or invest, because they wouldn't be confident ofreceiving the future value from doing so.3Political opinions differ about how extensive the role of government should be in managing theeconomy. But it is clear that a market-oriented economy requires the backdrop of a rule of lawto function well, in which the government enforces contracts and protects property rights.3VocabularyContract – A legal agreement enforceable by law.Virginia Board of Education FrameworkProperty rights give people the right to use their possessions as they choose (within the limits ofthe law).Property rights, contract enforcement, standards for weights and measures, and liability rulesaffect incentives for people to produce and exchange goods and services..Without property rights there would be little incentive to invest. People invest in what they ownbecause they expect to earn a return on that investment. So, for example, many people landscapethe lawns of homes they own, but few landscape a home they are renting.144Virginia Council on Economic Education

Page 145

People would have less confidence in contracts if there were no guarantee of enforcement. Thuspeople would be less willing to trust contracts to buy, sell, or invest. This would reduceeconomic activity.The government enforcement of weights and measures assures consumers that when they buy tengallons of gas, they are actually getting ten gallons.Teaching Tips1) Predict what would happen to the value of apple orchards if owners were unable to prohibitapple theft. Predict what might happen if there were no legal way to settle boundary disputes orif every state had its own system of weights and measures.22) Lead a student discussion using the following prompts: Why are well defined property rightsso important? First, property ownership encourages wise use of the resource. Are you moreconcerned with changing the oil in a car you own or a car you rent? Second, private ownershipencourages people to use their property productively because this increases its value. Third,private sellers will try to use their property for the benefit of others because this increases itsvalue. Because they will benefit from a higher price, people improve their homes in ways thatmake the homes more attractive to potential buyers. Finally, owning property encourages itswise development and conservation for the future. Why are there more cattle than whales? Whyis commonly owned property often abused?3Lessons and ResourcesEconomics in Action: 14 Greatest Hits for Teaching High School Economics Lesson 4: PropertyRights in a Market EconomyFocus: Institutions and Markets Lesson 2: Property Rights and Contracts as EconomicInstitutionsEconEdLink Lesson: “The Mystery of ‘Is It Mine Or Ours?’”https://www.econedlink.org/resources/the-mystery-of-is-it-mine-or-ours/Property Rights Video and Quiz (Econedlink and VE 4.5)https://www.econedlink.org/interactives/EconEdLink-interactive-tool-player.php?iid=193145Virginia Council on Economic Education

Page 146

EPF.8 The student will demonstrate knowledge of the role of the government in a marketeconomy byc) providing examples of government regulation of the marketEPF.8 The student will demonstrate knowledge of the role of the government in a marketeconomy byd) explaining that governments redistribute wealthDay 1 – Government regulation and market failuresContent KnowledgeA market succeeds when it brings together a willing buyer and willing seller to make a mutuallybeneficial transaction in a way that satisfies the parties involved. However, there are certainwell-recognized conditions under which market failure occurs; this means either that a markettransaction affects third parties not involved in the transaction or that a market has difficulty inproviding certain kinds of products.3Markets do not allocate resources efficiently if: (1) property rights are not clearly defined orenforced; (2) externalities (spillover effects) affecting large numbers of people are associatedwith the production or consumption of a product; or (3) markets are not competitive.2Thesections on Market and Government Failure, and Regulation, in Nexus: Connections betweenEconomics and Civics provides excellent teacher background on these topics.3Examples of Market Failures:3Externalities are situations in which a market transaction affects a third party who is not part ofthe transaction. A classic example is pollution, where people who do not purchase the goodwhose production created the pollution must nevertheless face polluted air or water.A public good is a good where it is difficult to charge people for using it, and where one person'suse of the good does not diminish the good for others. An example is national defense or policeprotection in public places. Because it is hard for private firms to charge people for theseservices, markets often do a poor job of providing them.A monopoly firm that operates without competition, and thus has the power to increase the pricesit charges to consumers, is an example of market failure.Imperfect information is often cited as a market failure. Ideally all market participants wouldhave perfect information, and it is often argued that markets fail when buyers and sellers haveimperfect information. But buyers and sellers always have less than perfect information.Indeed, any attempt to acquire perfect information would be inefficient because it would soonbegin costing more than it was worth.146Virginia Council on Economic Education

Page 147

VocabularyExternalities – Economic side-effects or third-party effects, in which some of the benefits orcosts associated with the production or consumption of a product affect someone other than thedirect producer or consumer of the product. Can be positive or negative.3Market failure – A market failure occurs when the market forces of supply and demand do notlead to the output society desires.1Government failure – A government failure occurs when the cost of solving a market failure isgreater than the benefit.1Virginia Board of Education FrameworkSome examples of government agencies that regulate to protect:• consumers (e.g., Consumer Protection Agency, Food and Drug Administration)• labor (e.g., Occupational Safety and Health Administration)• the environment (e.g., Environmental Protection Agency).Government regulations also aim to remedy market failures. A market failure occurs when themarket forces of supply and demand do not lead to the output society desires.The four primary sources of market failures are as follows:• Public goods, such as military protection and roads, are provided by government since themarket would fail to provide them.• Externalities exist when some of the costs and the benefits associated with production andconsumption of a product fall on someone other than the producers or the consumers of theproduct (e.g., air and water pollution, noisy neighbors). The market cannot solve this; sometimesthe government does (e.g., Environmental Protection Agency).• Market power occurs when a shortage of competition results in rising prices. Government maypass laws such as the Sherman Antitrust Act and regulate through agencies like the Federal TradeCommission. It may regulate “natural monopolies,” such as electrical utilities.• Inequity exists because markets reward people according to their effort and skills. Peoplewithout skills, or who cannot work, are likely to be poor. Governments often redistribute incomein order to alleviate poverty.A government failure occurs when the cost of solving a market failure is greater than the benefit.Teaching Tips1) Use simple examples of positive and negative externalities to illustrate market failures. Asimple positive externality is a flu shot. The person who receives the shot receives the benefit ofthe drug's protection and the cost of pain. Other people do not pay the cost but do receive thebenefit because fewer people spread the flu. A simple negative externality is cigarette smoking.The person who smokes benefits in the short term, but other people nearby have costs associatedwith secondhand smoke.3147Virginia Council on Economic Education

Page 148

2) Have students discuss why there might be a role for government in dealing with pollution,vaccinations, and medical research and what they believe that role should be.3) Explain why state and local governments use public money for elementary education. Whyare tobacco and gasoline heavily taxed? Why are some polluting firms taxed and/or regulated?24) Explain why the Federal Trade Commission might oppose the purchase of one largecorporation by its closest competitor and what the effects might be on consumers, producers, andworkers if the merger were allowed.2Lessons and ResourcesFocus: Economic Systems Lesson 11: No Sacrifice is Too Great for Someone Else to MakeEconomics in Action: 14 Greatest Hits for Teaching High School Economics Lesson 5: The Roleof Government in a Market EconomyFocus: Understanding Economics in United States History Lesson 25: The Economic Effects of19th Century Monopoly.EconEdLink Lesson: Clean Land Thanks to US! (EPA lesson)https://www.econedlink.org/resources/clean-land-thanks-to-us/EconEdLink Lesson: Guess Who’s Coming to Dinner?https://www.econedlink.org/resources/guess-whos-coming-to-dinner/VideosMaking Sense with Paul Solman - What’s Really in Herbal Supplements?https://www.pbs.org/newshour/show/whats-really-in-herbal-supplementsVideo on externalities http://www.youtube.com/watch?v=DOuBxJNIFkY&feature=relatedA Civil Action – DVD – (7:10 to 11:25 and 27:30 to 30:30)Erin Brokovich – DVD – Chapter 19 (2 minutes)148Virginia Council on Economic Education

Page 149

Page 150

EPF.16 The student will demonstrate knowledge of taxes byb) exploring how tax structures affect consumers, producers, and business ownersdifferently.Day 1 – Transfer programs and tax structuresContent KnowledgeGovernments often redistribute income directly when individuals or interest groups are notsatisfied with the income distribution resulting from markets. Governments also redistributeincome indirectly as side-effects of other government actions that affect prices or output levelsfor various goods and services.2One of the roles of government is to redistribute income to promote economic equityor fairness. If the distribution of income among households is considered inequitable,government policies may be used to redistribute income. These include changes in who paystaxes, and the level of benefits provided to some individuals and households through transferpayments (including welfare programs and social security) or programs that provide orpartially subsidize education and training programs. However, because differences inincome reflect differences in productivity and are powerful incentives for workers and firms,government policies to reduce inequality may weaken these incentives.3VocabularyProgressive tax – A tax that take a larger percentage of income from people in higher-incomegroups than from people in lower-income ones; the U.S. federal income tax is an example.3Regressive tax – A tax that takes a larger percentage of income from people in lower-incomegroups than from higher-income ones. A regressive tax applies the same to everyone, but the taxpaid represents a larger share of a poorer taxpayer’s income than of a wealthier tax payer’sincome. Sales taxes and excise taxes are examples.3Virginia Board of Education FrameworkEPF 8d: Governments redistribute income to create a safety net and alleviate poverty.Redistribution may be direct through social service programs.Governments also redistribute income with progressive tax rates. With progressive taxes,marginal tax rates are lower at low incomes and rise with income levels; thus, people with higherincomes pay a larger percentage of their income for taxes.A proportional tax levies the same percentage tax at all income levels. So, people who earn morepay more, but, they pay the same percentage rate.150Virginia Council on Economic Education

Page 151

With a regressive tax, a higher percentage actually falls on people with lower incomes. The salestax is considered a regressive tax because people at lower incomes pay a higher percentage oftheir income in sales tax. This occurs because people at lower incomes spend more of theirincome on taxable things, whereas people at higher incomes spend a much lower percentage oftheir income on taxable things —saving and investing large percentages of their income. SocialSecurity is also considered a regressive tax in that there is a cap, and income above that cap isnot taxed.EPF 16b: Tax structures may be progressive, regressive, or proportional.A progressive tax system is one in which the tax rate rises as a taxpayer’s income rises. Incometax is a progressive tax.A proportional tax is one in which the same tax rate is paid by people at all income levels.Property tax is a proportional tax.Taxes are regressive when taxpayers who earn lower incomes pay a higher percentage of theirincome than those who earn higher incomes. Sales tax is a regressive tax.Teaching Tips1) Describe a government assistance program, discuss why government provides it, anddetermine which groups in the economy benefit and which groups bear the costs.22) Analyze the following situation: A government has to raise $100 billion of revenues. It can doso through a sales tax or a progressive income tax. Explain the effect of each tax on a lowincome and a high income family.2The lesson below from Teaching the Ethical Foundations ofEconomics is an excellent tool for this purpose.3) Students have difficulty understanding regressive taxes. The problem comes from the fact thatalthough a person's income increases, the percentage of that person's income paid in taxesdeclines. This is because most regressive taxes are consumption taxes and consumption does notincrease in proportion to income. A tax is even more regressive if poor people buy more of thegood or service taxed than rich people. Lottery tickets may be the most regressive tax of all.34) Ask students how they would classify licenses and fees. These are payments to government inexchange for certain services. However, they are different from taxes in that the payment isbased on usage. Would certain licenses or fees be considered progressive, regressive orproportional?Lessons and ResourcesFocus: Understanding Economics in Civics and Government Lesson 11: How ShouldGovernment Structure the Tax System?151Virginia Council on Economic Education

Page 152

Math & Economics: Connections for Life 9-12 Lesson 13: Tax MathCapstone: Exemplary Lessons for High School Economics Unit 5 Lesson 30: Poverty andIncome InequalityTeaching the Ethical Foundations of Economics Lesson 10: What is Economic Justice?Focus: Economic Systems Lesson 12: Income Distribution and Redistribution PoliciesUnderstanding Taxes: The Whys of Taxes – Theme Three: Fairness in Taxeshttp://www.irs.gov/app/understandingTaxes/teacher/whys.jspEconedlink Lesson: Income Inequalityhttps://www.econedlink.org/resources/income-inequality/Econedlink Lesson: Distribution of Incomehttps://www.econedlink.org/resources/distribution-of-income/Econedlink Lesson: UBI - What is Universal Basic Income?https://www.econedlink.org/resources/ubi-what-is-universal-basic-income/VideoMaking Sense with Paul Solman: Does US Economic Inequality Have a Good Side?https://www.econedlink.org/resources/making-sene-with-paul-solman-exploring-the-psychology-of-wealth-pernicious-effects-of-economic-inequality/ReadingsNew York Times: The Rich Really Do Pay Lower Taxes Than Youhttps://www.nytimes.com/interactive/2019/10/06/opinion/income-tax-rate-wealthy.htmlBloomberg: The Rich Really Do Pay Higher Taxes Than Youhttps://www.bloomberg.com/opinion/articles/2019-10-10/the-rich-really-do-pay-higher-taxes-than-you152Virginia Council on Economic Education

Page 153

EPF. 8 The student will demonstrate knowledge of the role of the government in a marketeconomy bye) explaining that taxes and fees fund all government-provided goods and servicesEPF.16 The student will demonstrate knowledge of taxes bya) describing the types and purposes of local, state, and federal taxes and the way each islevied and used.Day 1 – Where does the money come from and where does it go?Content KnowledgeAlthough having to pay taxes may be hard to swallow, the money that taxes raise makesgovernment possible. In a market economy, we need government to enforce private propertylaws and to step in when markets fail. Without taxes, there would be no laws and no courts.“Taxation,” said Supreme Court Justice Oliver Wendell Holmes Jr., “is the price we pay forcivilization.” And those with basic economic literacy understand: “There is no free lunch.”Most federal government tax revenue comes from personal income and payroll taxes. Paymentsto Social Security recipients, the costs of national defense and homeland security, medicalexpenditures (such as Medicare), transfers to state and local governments, and interest paymentson the national debt constitute the bulk of federal government spending.2Most state and local government revenues come from sales taxes, grants from the federalgovernment, personal income taxes, and property taxes. The bulk of state and local governmentrevenue is spent for education, public welfare (including hospitals and health), road constructionand repair, and public safety.2Virginia Board of Education FrameworkEPF 8e: The bulk of federal spending goes toward• national defense• payments to Social Security recipients• the costs of goods and services, medical expenditures (i.e., Medicare and Medicaid)• interest payments on the national debt.Most federal tax revenue comes from federal income tax and payroll taxes.The bulk of state and local government revenue is spent on public education, public welfare,road construction and repair, and public safety.Most state and local government revenues come from sales taxes, grants from the federalgovernment, personal income taxes, and property taxes.153Virginia Council on Economic Education

Page 154

Governments may provide an alternative method to supply goods and services when the benefitsto society of doing so outweigh the costs to society.EPF 16a: The federal government provides goods and services from military defense and theinterstate highway system to the administration of domestic programs and agencies. Most federaltax revenue comes from personal income taxes and payroll taxes.Most state and local government revenue comes from sales taxes, grants from the federalgovernment, personal income taxes, and property taxes. The bulk of state and local governmentrevenue is spent for education, public welfare, road construction and repair, and public safety.Types of taxes:● Income● FICA● Flat● Inheritance● Personal property● Progressive● Proportional● Real estate● Regressive● Sales● Social SecurityTeaching Tips1) Use data from the U.S. federal budget to construct two pie charts, one representing majorcategories of federal revenue and the other representing major categories of federal expenditure.2The resources listed below should be helpful as a source for data.2) Compare the various sources of state and local revenues and various categories of state andlocal expenditures in Virginia and the students’ community with those of the U.S. federalgovernment.23) Have students answer the following question: If the national, state and local governments hadno power to tax, what goods and services would we have to do without?2Lessons and ResourcesFocus: Middle School Economics Lesson 10: Where Does the Money Go?Personal Decision Making: Focus on Economics Lesson 8: The Role of Government: WhoNeeds It?154Virginia Council on Economic Education

Page 155

EconEdLink Lesson: Government Spending: Why Do We Spend the Way We Do?https://www.econedlink.org/resources/government-spending-why-do-we-spend-the-way-we-do/EconEdLink Lesson: Where Does All the Money Come From?https://www.econedlink.org/resources/where-does-the-money-come-from/JFK Presidential Library and Museum - Federal Budget Simulation Lesson Planhttps://www.jfklibrary.org/Education/Teachers/Curricular-Resources/High-School-Curricular-Resources/Federal-Budget-Simulation.aspxDataPolicy Basics: Where Do Our Federal Tax Dollars Go?Policy Basics: Where Do Federal Tax Revenues Come From?https://www.cbpp.org/research/federal-tax/policy-basics-where-do-federal-tax-revenues-come-fromEconedlink Lesson” FRED and the Federal Budget Interactive Lesson.https://www.econedlink.org/resources/fred-and-the-federal-budget-interactive-lesson/Commonwealth of Virginia: spending trends compared with neighboring states.https://ballotpedia.org/Virginia_state_budget_and_financesPortal for data on revenues and expenditures, including state and local governmentshttp://datapoint.apa.virginia.gov/155Virginia Council on Economic Education

Page 156

Page 157

UNIT 8 - HOW DOES THE HEALTH OF THE ECONOMYAFFECT YOU? (6 Days)All teaching resources in this document are free for teachers. Here is how to you accessthem:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resourcecalled Virtual Economics 4.5 or 5.0 (VE). All teachers can and should get thisresource for free by participating in a VCEE training session. Visit www.vcee.orgfor more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/Changes in national levels of economic activity have a profound effect on students’ futurewelfare, their job opportunities, the level of their prospective earnings, and the prices theywill pay for things they buy. It is important, therefore, for students to understand possiblecauses of changes in these levels and how such changes can produce economic problems(such as unemployment and inflation) or opportunities (such as increased employment).Understanding these forces equips students to predict the economic consequences ofproposed government policies and to make informed choices among alternative publicpolicy proposals.EPF.5 The student will demonstrate knowledge of a nation’s economic goals,including full employment, stable prices, and economic growth, bya) describing economic indicators, such as gross domestic product (GDP), consumerprice index (CPI), and unemployment rate.Days 1 and 2 What are the nation’s economic goals and how do we measurethem?EPF.5 The student will demonstrate knowledge of a nation’s economic goals,including full employment, stable prices, and economic growth, byb) describing the causes and effects of unemployment, inflation, and reduced economicgrowth.Days 1 and 2 How do unemployment, inflation and reduced economic growthaffect us?EPF.5 The student will demonstrate knowledge of a nation’s economic goals,including full employment, stable prices, and economic growth, byc) describing the fluctuations of the business cycle.Day 1 The business cycle: a picture of the economy over timeEvaluation DayVirginia Council on Economic Education157

Page 158

Page 159

EPF.5 The student will demonstrate knowledge of a nation’s economic goals,including full employment, stable prices, and economic growth, bya) describing economic indicators, such as gross domestic product (GDP), consumerprice index (CPI), and unemployment rate.Days 1 and 2 - What are the nation’s economic goals and howdo we measure them?Content KnowledgeA nation’s overall levels of income, employment, and prices are determined by theinteraction of spending and production decisions made by households, firms, governmentagencies, foreign markets, and others in the economy.Economic goals include● full employment, which is measured by the unemployment rate● stable prices, measured by indices such as the Consumer Price Index and● economic growth, measured by real gross domestic product (GDP).1VocabularyInflation - A rise in the general or average price level of all the goods and servicesproduced in an economy. Can be caused by pressure from the demand side of the market(demand-pull inflation) or pressure from the supply side of the market (cost-pushinflation).Gross domestic product - The market value of all final goods and services produced in acountry in a calendar year.Real gross domestic product - GDP measured in dollars of constant purchasing power.The measure is obtained by adjusting nominal GDP (GDP measured in current prices) byan appropriate price index, usually the implicit price deflator. Often used as a measure ofeconomic activity.Consumer price index - A price index that measures the cost of a fixed basket ofconsumer goods and services and compares the cost of this basket in one time period withits cost in some base period. Changes in the CPI are used to measure inflation.Unemployment - The number of people without jobs who are actively seeking work.Unemployment rate - The number of unemployed people, expressed as a percentage ofthe labor force.Intermediate good - A good that is used in the production of final goods and servicesVirginia Board of Education FrameworkGross domestic product (GDP) is a basic measure of a nation’s economic output andincome. It is the total market value of all final goods and services produced in theeconomy in one year.Virginia Council on Economic Education159

Page 160

Nominal GDP is measured in current dollars; thus an increase in GDP may reflect notonly increases in the production of goods and services, but also increases in prices. GDPadjusted for price changes is called real GDP. Economic growth is measured by real grossdomestic product.Real GDP per capita is a measure that permits comparison of material living standardsover time and among people in different nations. It is calculated by dividing real GDP bythe population.The potential GDP for a nation is determined by the quantity and quality of its naturalresources, the size and skills of its labor force, and the size and quality of its capitalresources.The consumer price index (CPI) is the most commonly used measure of price-levelchanges. It can be used to compare the price level in one year with price levels in earlieror later periods. (It is an imperfect measure because the market basket of goods includedcannot reflect everyone’s spending, and it does not take into account improvements inthose products.)The unemployment rate indicates the level of unemployment in the country. Theunemployment rate is the percentage of the labor force (not population) who are notworking and are actively seeking paid work. The labor force includes persons over age 16who are working for pay or actively seeking paid work.The unemployment rate is an imperfect measure because it does not (1) include workerswhose job prospects are so poor that they are discouraged from seeking jobs or (2) reflectunder-employed people such as part-time workers who are looking for full-time work.Teaching Tips1) What makes a healthy economy? The economy is growing—producing more goodsand services for its citizens than the year before. Nearly everyone who wants to work hasa job. Prices are stable—not rising or falling very much.2) Why do you want a healthy economy? If you are looking for a job—a healthyeconomy is growing and creating jobs. If you have a job—a healthy economy will helpyour company grow and keep your job secure. A healthy economy will have stable pricesso you can plan, and your money will maintain its purchasing power.3) Explain that just as a doctor needs a thermometer to see if you have a temperature,economists need ways to measure things to see how the economy is doing.Economic growth is measured by the gross domestic product—GDP. This is the sum ofthe prices of all of the final goods and services produced in the country in one year.Explain that intermediate goods are not included—things like tires on a new car. To countboth the value of the new car and the value of the tires on it would lead to doubleVirginia Council on Economic Education160

Page 161

counting. So, only final goods are included. Unpaid work—such as housework and yardwork done for no pay are not included. Things produced in previous years andre-sold—such as homes—are not included because they weren’t produced this year.However, the money earned by the real estate agent is included. GDP can be calculatedby adding up the things that are produced, or by adding up the spending that pays forthem. The latter is calculated C+I+G+(X-M) = GDP—which means spending byconsumers, plus spending by businesses on investment, plus spending by government forgoods and services plus net exports (which is exports minus imports).NOTE: Measuring productivity using GDP is covered in Unit 2. If done there,calculating GDP and what it means need only be refreshed here to the extentnecessary.4) The teacher may wish to show or assign this youtube video on GDP:http://www.youtube.com/watch?v=yUiU_xRPwMc5) Economic growth is generally considered positive because when we produce more as acountry, we can consume more. And more production generally leads to more jobs—anda growing population needs more jobs each year.When inflation pushes prices up, GDP may give the illusion of growth—even when thesame amount is being produced. Thus, it is important to remove the effects of inflation.When GDP is adjusted for inflation, the number that remains is called “real GDP’.6) The economic indicator for full employment is the unemployment rate. Theunemployment rate tells the percentage of people in the labor force (not the population)who are looking for a job and can’t find one. The labor force consists of everyone whohas a job and everyone who is trying to get a job. Some people in the population are notin the labor force perhaps because they do not wish to work, they are too old or tooyoung, they are in prison, or they are unable to work. The formula for the unemploymentrate is# of people seeking jobs divided by the labor force.7) The economic indicator for stable prices is the Consumer Price Index (CPI). The CPImeasures inflation in consumer goods. Inflation is an increase in the overall pricelevel—sometimes referred to as an increase in the cost of living. Inflation is not whengas prices rise or coffee prices rise—it is when prices in general are rising.Monetary inflation results from a money supply that is growing faster than grossdomestic product. There is a direct relationship between the growth of money, thegrowth of output and the price level. If money supply grows faster than output, pricesrise. If money supply grows more slowly than output, prices fall.The Consumer Price Index is calculated using a market basket of items considered typicalof consumer purchases. It includes categories such as housing, transportation, medical,Virginia Council on Economic Education161

Page 162

food (home and restaurant) and recreation. The cost of the items in the market basket inthe base year is set equal to 100. If the CPI increases by 10% in the following year, thenew CPI will be 110. The CPI, then, tells the percentage increase in consumer pricessince the base year. A CPI of 140 would be saying that prices have risen by 40% since thebase year.8) The New York Times interactive below is a very good (although somewhat dated)graphic that can help students see what items are in the CPI and their relative importance.Have students examine the graphic and explain what products or services in the CPIeither don’t apply to them or their family, or that they think may be weighted differently(either heavier or lighter representing more or less use) for their family.9) Suppose news reports are giving the CPI, the Unemployment Rate and the percentagechange in the GDP. How will you know if it is good news or bad news?Have students, in groups, write down all three and guess what a healthy rate would be foreach. Have them write their answers for each in large print on a piece of paper and whenyou ask what would be a good rate for the CPI—have them hold up that answer. It’slikely that answers will vary considerably. For the CPI, a rate of 3% or less is consideredacceptable. If prices are rising more than that, the government and the Federal ReserveBank will be worried about inflation—and perhaps take action. (This subject is addressedin greater depth in Unit 9 on monetary and fiscal policy). For the GDP, a rate in the3-3.5% range is considered good. If GDP growth is less than that, the economy is notcreating enough jobs to provide work for the new people entering the labor force. If GDPgrowth is greater than that, there may be concerns about inflation—if the economy isoperating at full employment. For the unemployment rate, the economy is said to beoperating at full employment when the unemployment rate is 5-6%. There will never be0% unemployment because there will always be some people between jobs (calledfrictional unemployment), and some people whose skills are no longer needed –forexample, typewriter repair (called structural unemployment). When people can’t findjobs because the economy is growing too slowly, it’s called cyclical unemployment.10) Assign students to look up current rates and discuss whether these indicate a healthyeconomy. Current data for these economic indicators and an explanation of what theymean and how they are calculated can always be found on the EconEdLink website setout here and below.http://www.econedlink.org/economic-resources/focus-on-economic-data.php11) Teachers may want to use an activity that compares GDP of various nations to GDPof the various United States. A recent example can be found at the Economist site listedhere.http://www.economist.com/blogs/dailychart/2011/01/comparing_us_states_countries10. GDP per capita is the measure most often used when talking about standard of living.Have the students divide the GDP by the population to arrive at a basic measure ofstandard of living – per capita GDP. (What each person’s share would be if dividedequally.) Explain that the country with the highest GDP may not have the highestVirginia Council on Economic Education162

Page 163

standard of living. A country with a GDP of $500,000 and 500 people would have a GDPper capita of $1,000. Whereas a country with a GDP of $1,000,000 and a population of2,000 would have a GDP per capita $250.Lessons and ResourcesFocus High School Economics Lesson 18: Economic ups and downsCivics and Government: Focus on Economics Lesson18: Economic Indicators forInformed CitizensAP Macroeconomics Lesson 2: Macroeconomic Goals and GDP and Lesson 3: PriceIndexes and Inflation; and Lesson 4: UnemploymentCapstone Lesson 31: Measuring Unemployment: A Labor Market Mystery; and Lesson33: Gross Domestic Product (GDP) and How to MeasureOnlineEconEdLink.org Unemployment Data: Is the Economy Healthy?https://www.econedlink.org/resources/unemployment-data-is-the-economy-healthy/New York Times interactive graphic on the CPI:http://www.nytimes.com/interactive/2008/05/03/business/20080403_SPENDING_GRAPHIC.htmlEconEdLink data on indicators:https://www.econedlink.org/resources/focus-on-economic-data-the-federal-reserve-and-monetary-policy-march-20-2015/Activity comparing GDP of various nations:http://www.economist.com/blogs/dailychart/2011/01/comparing_us_states_countriesPBS Commentator Paul Solman video clip, Tracking Inflation: How Fast are PricesRising?https://www.econedlink.org/resources/making-sene-with-paul-solman-tracking-inflation-how-fast-are-prices-rising/Econedlink lesson: How is our economy doing?https://www.econedlink.org/resources/how-is-our-economy-doing/St. Louis Federal Reserve graphs and data.https://fred.stlouisfed.org/Virginia Council on Economic Education163

Page 164

Page 165

EPF.5 The student will demonstrate knowledge of a nation’s economic goals,including full employment, stable prices, and economic growth, byb) describing the causes and effects of unemployment, inflation, and reducedeconomic growth.Days 1 & 2 - How do unemployment, inflation and reducedeconomic growth affect us?Content KnowledgeInflation and unemployment are costly to individuals and affect economic growth andstandards of living. Some aspects of inflation and unemployment can be addressed withpublic policies. Various political leaders and parties often have different ideas aboutwhich policies should be followed to deal with inflation and unemployment, however.The controversial policies, and the fact that almost everyone is affected by unemploymentor inflation, explain why these two problems and alternative approaches to combat themare so widely reported in the news media, and why understanding them is important topeople in a democratic political system.Unemployment imposes costs on individuals and the overall economy. Inflation, bothexpected and unexpected, also imposes costs on individuals and the overall economy.Unemployment increases during recessions and decreases during recoveries.Students will be able to use this knowledge to make informed decisions by anticipatingthe consequences of inflation and unemployment.2VocabularyUnemployment - The number of people without jobs who are actively seeking work.Unemployment rate - The number of unemployed people, expressed as a percentage ofthe labor force.Deflation - A sustained decrease in the average price level of all the goods and servicesproduced in the economy.Discouraged worker - Unemployed people who have given up looking for work and aretherefore not counted as part of the labor force.Inflation - A rise in the general or average price level of all the goods and servicesproduced in an economy. Can be caused by pressure from the demand side of the market(demand-pull inflation) or pressure from the supply side of the market (cost-pushinflation).Recession - A decline in the rate of national economic activity, usually measured by adecline in real GDP for at least two consecutive quarters (i.e., six months).Virginia Council on Economic Education165

Page 166

Virginia Board of Education FrameworkWhen total demand is greater than the value of a nation’s output of final goods andservices, GDP rises, inflation occurs, and/or employment rises. When desiredexpenditures for consumption, investment, government spending, and net exports are lessthan the nation’s output of final goods and services, GDP decreases and inflation and/oremployment decreases.Unemployment imposes costs on individuals and nations. Unexpected inflation imposescosts on many people and benefits some others. In the long run, inflation results from anincrease in a nation’s money supply that exceeds an increase in its output of goods andservices.Unemployment rates differ for people of different ages, races, and gender. This reflectsdifferences in work experience, education, training, and skills.Unemployment can be caused by people changing jobs, seasonal fluctuations in demand,changes in the skills needed by employers, or cyclical fluctuations in the level of nationalspending. Unemployment has costs for society as well as for individuals. Whenunemployment is high, the economy will not produce as much as it could.Inflation is an increase in the general level of prices. It reduces the value of money. Whenpeople’s incomes increase more slowly than the inflation rate, their purchasing powerdeclines. Cost-push inflation occurs when businesses raise prices to cover increasingcosts, such as higher oil prices or rising wages. Demand-pull inflation occurs whendemand for goods and services is greater than the supply. This can occur when people,anticipating higher prices, buy more in the present and push for higher wages, causing awage-price spiral. Inflation also results from increases in a nation’s money supply thatexceeds increases in its output of goods and services.The costs of inflation are different for different groups. Unexpected inflation hurts saversand people on fixed incomes; it helps people who have borrowed money at fixed rates ofinterest. It can help those who own tangible resources that increase in value (e.g., homes,land).Deflation is a decrease in the general level of prices. It increases the value of money anddecreases the value of tangible assets such as homes. Deflation is generally accompaniedby rising unemployment. Consumers, worried about the future, reduce spending, causingmore unemployment. The process can become a downward spiral.Teaching Tips1) In the previous day’s lessons students learned about inflation, unemployment,economic growth and how they are measured. Now students will learn what causes eachand how they can affect them.Virginia Council on Economic Education166

Page 167

What are the causes and costs of unemployment? Unemployment is caused by aslowdown in the economy. When people are unemployed, a cost to society is that theeconomy produces less than it might otherwise. Unemployed people may also receiveunemployment benefits to help tide them over until they get a job—this is a cost totaxpayers. There are many costs to individuals who are unemployed. In addition to a lossof income, which may cause the loss of a home and other possessions, there is stress onthe individual and the family. Divorce and violence in households increase.The person who has lost his/her job has likely lost health insurance benefits as well. Andthe unemployed person may find his/her skills becoming less strong if unemploymentlasts for many months.3) At this point the teacher may want to show either of the two Paul Solman videos belowon unemployment among ‘99ers and calculating unemployment.4) Causes of unemployment—Some people are unemployed because they have quit onejob and are looking for another. This is called frictional unemployment and economistsdo not worry about this type of unemployment. Some people are unemployed becausethe skills they have are no longer needed. This is called structural unemployment and isof more concern. The government may implement training programs to help people gainskills that will make them employable. When people are unemployed because theeconomy has slowed down it is called cyclical unemployment. (The name comes fromthe idea that they are unemployed because of a downturn in the businesscycle—discussed later in this unit.) In this case, the government works to get theeconomy going and hopes the people who were laid off will be hired back. Some peopleare unemployed because their work is seasonal—farm workers, workers at amusementparks. Thus the causes of unemployment can be different—but the costs to society andthe individual are the same.5) As we previously learned, inflation is a rise in the general price level—not an increasein food, or oil or health care. When prices rise it takes more money to buy things than itdid before. Thus, economists say money loses some of its “purchasing power.” Inflationcan be caused by the availability of too much money in the economy. For example, inGermany after WWI, the government ran the printing presses to pay its bills. As a resultthe value of the money fell. Inflation can be worsened as people buy more thingsbecause they fear they will cost more later. This is called demand pull inflation. Workersdemand wage increases to pay the rising prices of goods and services. This increases thecost of production and pushes up prices. This second kind of inflation is called cost-pushinflation.6) What are the effects of inflation? Some people are helped by inflation while others arehurt. People who are on fixed incomes are hurt because they are receiving the sameamount of money and the things they are buying cost more. Businesses are hurt becausethe cost of the resources they must buy is rising so it costs more to produce their good orservice—and they may not be able to raise their price to consumers to cover that increase.Virginia Council on Economic Education167

Page 168

Businesses are also hurt because the uncertainty caused by inflation makes it difficult toplan. Savers are hurt by inflation because the money they have saved will not buy asmuch as it used to.Other people are helped by inflation. People who own tangible assets such as houses andland will see the value of those assets rise with inflation. (Although cars are tangibleassets, they depreciate with time…unless they are antiques.) People who borrow moneyand pay back at a rate of interest that is less than the rate of inflation will benefit frominflation.7) What is deflation? Deflation is the opposite of inflation—it is falling prices.What are the effects of deflation? The value of people’s assets will fall—sometimes theywill owe more on the asset than the asset is worth (called being upside down). When thevalue of people’s assets fall, they feel less wealthy and do not spend; this can slow theeconomy more.8) What are the causes and effects of reduced economic growth? The economy growswhen more is produced. That can happen when more workers are added or moreresources become available. Generally it happens because of increased productivity. Inthe 20thcentury the US economy grew because of increased productivity due toinnovation and mechanization. Nearly 90% of the workforce was involved in farming in1900. By the end of the century only 3% of the labor force grew the food for the nation.This increase in productivity was largely the result of improved farming practices andimproved equipment. Other industries increased productivity as well. Toward the end ofthe century, computers and the internet greatly increased productivity. When the economygrows it generally produces more jobs.Market economies tend to go through cycles where the economy expands and thencontracts. When the growth slows, fewer goods and services are produced,unemployment increases and the economy contracts.Growth is fueled by the spending of consumers, businesses, government and foreignbuyers (exports). When total spending by these groups goes down, the economy will slowand will not expand again until total spending by these groups increases. In fact, when theeconomy is slow, people worry about the future and save more, rather than spend. Thiscauses the economy to slow even more. Consider viewing “The Paradox of Thrift” listedbelow.9) Consider using the online lesson “What’s happening in the new economy.”Lessons and ResourcesCapstone Lesson 32: The Effects of InflationFocus: Middle School Economics Lesson 6 - InflationVirginia Council on Economic Education168

Page 169

Playful Economics - Lesson 14 -Inflation - When All Prices Rise (Demonstratinginflation using play-doh.)Teaching Financial Crises Lesson 4 - The Japan Comparison. (A lesson about deflation.)The Trial of Ms. Ann Flation A copy can be found here.http://economicsondemand.weebly.com/uploads/4/0/5/0/40509201/unit_3_-_lesson_-_infaltion_-_debate_-_duke.pdfOnlineSeinfeld clip on unemployment:http://www.yadayadayadaecon.com/clip/39/Paul Solman video: Many left uncounted in the unemployment ratehttps://www.econedlink.org/resources/making-sene-with-paul-solman-many-left-uncounted-in-official-jobless-rate/Paul Solman video: Unemployment takes toll on 99’ershttps://www.youtube.com/watch?v=JmC16-sWX4QPaul Solman video: Realities of the Recessionhttps://econedlink.org/resources/making-sene-with-paul-solman-realities-of-the-recession-and-changing-workforce/Paul Solman video—Freelancers lack safety net when jobs are scarcehttps://www.econedlink.org/resources/making-sene-with-paul-solman-freelancers-lack-safety-net-when-jobs-are-scarce/?view=studentPaul Solman video—In a slumping economy, a shift in shopping habitshttps://www.econedlink.org/resources/making-sene-with-paul-solman-in-slumping-economy-a-shift-in-shopping-habits/rVirginia Council on Economic Education169

Page 170

EPF.5 The student will demonstrate knowledge of a nation’s economic goals,including full employment, stable prices, and economic growth, byc) describing the fluctuations of the business cycle.Day 1 - What’s a business cycle?Content KnowledgeFluctuations in a nation’s overall levels of income, employment, and prices aredetermined by the interaction of spending and production decisions made by allhouseholds, firms, government agencies, and others in the economy. Recessions occurwhen overall levels of income and employment decline. Students will be able to use thisknowledge to interpret media reports about current economic conditions and explain howthese conditions can influence decisions made by consumers, producers, and governmentpolicy makers.Changes in national levels of economic activity have a profound effect on students’ futurewelfare, their job opportunities, the level of their prospective earnings, and the prices theywill pay for things they buy. It is important, therefore, for students to understand possiblecauses of changes in these levels and how such changes can produce economic problems(such as unemployment and inflation) or opportunities (such as increased employment).Understanding these forces equips students to predict the economic consequences ofproposed government policies and to make informed choices among alternative publicpolicy proposals.2VocabularyBusiness cycle--Fluctuations in the overall rate of national economic activity withalternating periods of expansion and contraction; these vary in duration and degrees ofseverity; usually measured by real gross domestic product (GDP).Expansionary phase—phase of the business cycle where economic growth is increasingand unemployment is fallingContractionary phase—phase of the business cycle where economic growth isdecreasing and unemployment is risingPeak—point in the business cycle where growth peaks and begins to slow, oftencharacterized by inflation and/or low unemploymentTrough—point in the business cycle where growth hits its low point and has not startedto improve, often characterized by high unemployment and low inflationVirginia Board of Education FrameworkThe business cycle is the pattern of alternating periods of expansion (growth) andcontraction (slowdown) in the economy. The model of the business cycle looks like aroller coaster going up and down but trending upward over time.Virginia Council on Economic Education170

Page 171

The business cycle has several phases. When the business cycle is moving upward it is inthe expansionary phase (B), with unemployment decreasing and growth increasing.Ultimately, the economy will reach a peak (A), likely to be characterized by lowunemployment and inflation. The economy will eventually begin to slow and enter acontractionary phase (D), with unemployment rising and growth slowing. Finally, theeconomy will bottom out in the phase known as the trough (C), where growth will beslow, prices low, and unemployment high. A prolonged contraction is called a recession;if it is especially long and severe it is called a depression. At some point, the economywill begin to grow again and enter the expansionary phase.Classical economists like Adam Smith believed the economy to be self-correcting in thelong run. During the Great Depression, British economist John Maynard Keynesfamously said, “In the long run we’re all dead,” and recommended government action tostimulate demand and get the economy going again.Teaching Tips1) Draw a picture of the business cycle on the board. Ask students what it looks like.More than likely they will say it looks like a roller coaster. Explain that it is a modelcalled the business cycle. It is a picture of economic growth over a period of time. Likeon a roller coaster, people are optimistic as it’s going up, sometimes forgetting that atsome point it’s likely to turn down.2) A business cycle involves fluctuations of real GDP around its potential level. (Thestraight line through the middle represents its potential level.) Fluctuations of real GDParound its potential level occur when overall spending declines, as in a recession, or whenoverall spending increases rapidly, as in recovery from a recession or in an expansion.When real GDP rises above its potential, there is a tendency for inflation to rise. Whenreal GDP is below its potential (as in a recession), there is a tendency for inflation to falland unemployment to rise.4) Be sure that students can draw and label a business cycle, and that they know whateconomic conditions are likely to exist at points A, B, C and D.Virginia Council on Economic Education171

Page 172

5) The roller coaster shaped business cycle is just a sample. Sometimes, the economypops right back up, and the shape between the contraction and the expansion is a “V”.Sometimes the economy stays in the trough a long time and that trough is a “U” shape.Sometimes the economy does a double dip: it starts back up and then goes back down,and looks like a “W”. The government often pursues policies to stimulate the economyin hopes the trough will bounce right back and look like a “V.”Lessons and ResourcesAP Macroeconomics Unit 2: Lesson 5: Business CyclesFocus: High School Economics Lesson 18: Economic Ups and DownsOnlinePaul Solman video, W, V, U or L: How Is the Economic Recovery Shaping Up, Literally?https://www.econedlink.org/resources/making-sene-with-paul-solman-w-v-u-or-l-how-is-the-economic-recovery-shaping-up-literally/?view=studentMJM Foodie video: Business cycles:http://www.youtube.com/watch?v=jGP-vPEHRRE&feature=bf_next&list=PLF2A3693D8481F442&lf=plcpEVALUATION DAYVirginia Council on Economic Education172

Page 173

Page 174

UNIT 9 – MONETARY AND FISCAL POLICY (11 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/The US federal government’s taxation and spending policies, along with the Federal ReserveSystem’s monetary policies are utilized to steady the economy, encourage economic growth andfull employment, while keeping prices stable.EPF.6 The student will demonstrate knowledge of the nation’s ﬁnancial system bya) deﬁning the role of moneyDay 1 Characteristics and functions of moneyEPF.6 The student will demonstrate knowledge of the nation’s ﬁnancial system byb) explaining the role of ﬁnancial markets and ﬁnancial institutionsDay 1 Financial intermediaries and how they workEPF.5 The student will demonstrate knowledge of a nation’s economic goals, including fullemployment, stable prices, and economic growth, byd) describing strategies for achieving national economic goals.Day 1 What can the government do to help the economy reach full employment, stableprices and economic growth?EPF.7 The student will demonstrate knowledge of how monetary and ﬁscal policy inﬂuenceemployment, output and pricesb) describing government’s role in stabilizing the economyDay 1 and Day 2 What fiscal policy tools can the government use to help stabilize theeconomy?EPF.7 The student will demonstrate knowledge of how monetary and ﬁscal policy inﬂuenceemployment, output and prices bya) describing the purpose, structure and function of the Federal Reserve SystemDay 1 What is the role and structure of the Federal Reserve System?Day 2 Tools of monetary policyDay 3 The role of interest ratesEPF.7 The student will demonstrate knowledge of how monetary and ﬁscal policy inﬂuenceemployment, output and prices by174Virginia Council on Economic Education

Page 175

Page 176

EPF.6 The student will demonstrate knowledge of the nation’s ﬁnancial system bya) deﬁning the role of moneyDay 1 - Characteristics and Functions of MoneyContent KnowledgeWe all have unlimited wants. We try to satisfy those unlimited wants and needs by consuminggoods and services. Money makes trade for those goods and services easier. Whether it is anAmerican dollar, a gold coin, or a wampum shell – money has three basic functions. As amedium of exchange, money makes it easier for us to trade for the goods and services that wewant. As a measure of value, it is used to compare the market value of different goods andservices. And, as a store of value, money makes it easier to save and invest.In order to be considered “money,” a dollar or a coin or a shell must be accepted by a seller aspayment for goods or services. Something serving as money is more useful if it has the followingcharacteristics: durability; portability; divisibility; uniformity; limited supply; and acceptability.Paper money that is issued without the backing of gold or any other precious metals isconsidered fiat money. The U.S. dollar is considered fiat money; it is a piece of paper that isbacked by the full faith and credit of the U.S. government. It’s value is determined by the solefact that a seller will accept it in exchange for goods and services. A seller will accept that pieceof paper because the seller knows that others will accept it in payment for goods or services.VocabularyCharacteristics of Money:Durability – Money that lasts over time is more functional than money that deteriorates.Portability – Money is more useful if it can be easily transportable over distances.Divisibility – Money is more useful if it can be easily divided into smaller units.Uniformity – Each unit of money must be the same as the next unit.Limited supply – Whatever is used as money needs to be scarce enough to be valued bybuyers and sellers.Acceptability – Money must be acceptable as payment in exchange for goods orservices.Commodity money – Any good that has value and can be traded becomes commodity moneywhen it is used as a medium of exchange. Salt, shells, furs, and tobacco have all been used ascommodity money.Fiat money – A monetary system where the currency is not based on a commodity but instead isdeclared by law to be acceptable as money.Money Supply – The basic money supply in the United States is made up of currency, coins, andchecking account deposits.Virginia Board of Education Framework176Virginia Council on Economic Education

Page 177

Money makes it easier to trade, borrow, save, invest, and compare the value of goods andservicesMoney is anything widely accepted as final payment for goods and services.Money has six characteristics: durability, portability, divisibility, uniformity, limited supply, andacceptability.Money acts as a medium of exchange, making trade easier.Money encourages specialization by decreasing the costs for exchange.Money acts as a store of value, making it easier to save and invest.Money acts as a measure of value, making it easier to compare the value of goods and services.Commodity money (e.g., gold coin) has value in itself, while fiat money (e.g., U.S. dollar) hasvalue because the government has declared that it is acceptable for paying debts.The basic money supply in the United States is made up of currency, coins, and checking accountdeposits.Teaching Tips1) Demonstrate their understanding of money as a “store of value” in responding to thefollowing: A wheat farmer wants to save for her five-year old daughter’s college education.Why is she better off selling her wheat for money and saving the money than she would be ifshe saved wheat to exchange for her daughter’s college tuition? Then have students explainhow money is a “measure of value” using the following example: Explain the advantages ofbeing able to use money to compare prices of a gallon of milk in three different stores asopposed to when prices are expressed as one gallon of milk equals 10 pencils, or 6 apples, orhalf of a pound of roast beef.22) Explain why deposits in checking accounts are considered money but assets such as stocksand bonds are not. (Because checks are accepted in exchange for goods and services, butstocks and bonds have to be sold –converted into money—to be readily accepted in exchangefor goods and services.) Also explain why a credit card should not be considered money(credit cards represent loans).23) Using a decision grid evaluate the following items based on the six characteristics of money:salt, large stone wheels, cattle, fur, and pieces of paper printed by the government. Have yourstudents choose the item that they think would work best as money.4) You can’t eat money or wear money. It is important for the roles it plays. As a medium ofexchange, it makes trade easier. Conduct a barter activity to show that with bartering thereVirginia Council on Economic Education177

Page 178

must be a “double coincidence of wants.” That is, Bob must find someone who has what hewants and who wants what Bob has. Trading with money solves this problem.Lessons and ResourcesAdvanced Placement Economics: Teacher Resource Manual Macroeconomics Unit 4: Lesson 1:MoneyFocus: Economics Grades 3 – 5 Lesson 10: What Makes Money Acceptable?EconEdLink.org – Money is as Money Doeshttps://www.econedlink.org/resources/money-is-what-money-does/EconEdLink.org – What is Money? Why Does It Have Value?https://www.econedlink.org/resources/what-is-money-why-does-it-have-value/St.Louis Fed online unit Money Circle.https://www.stlouisfed.org/education/classroom-econnections-from-the-fed/episode-2-resources-for-teaching-money-and-banking-in-high-school-classroomsMusic“Can’t Buy Me Love” The Beatles“Money” Pink Floyd“Money, Money, Money” AbbaVideo“Barter” or “This for That” Schoolhouse Rock http://www.youtube.com/watch?v=J7hNOt2Y0J8Stalag 17 – DVD (Chapter 5, Six minutes)178Virginia Council on Economic Education

Page 179

EPF.6 The student will demonstrate knowledge of the nation’s ﬁnancial system byb) explaining the role of ﬁnancial markets and ﬁnancial institutionsDay 1 – Financial intermediaries and how they workContent KnowledgeA financial intermediary is a “middleman” that brings together savers who have surplus moneyto lend and borrowers who have a need for that money. Banks, credit unions and savings andloan associations all act as financial intermediaries.Many students (and adults) tend to think of banks and credit unions as warehouses for money.They may think that financial intermediaries such as banks simply store the money deposited bysavers. Actually, banks are businesses and they make money on the difference between theinterest paid to depositors and the interest charged to borrowers. Thus they try to lend most oftheir deposits. Only a small percentage of a bank’s deposits are in the bank at any time.VocabularyBank – A financial institution that provides various products and services to its customers,including checking and savings accounts, loans and currency exchange.Credit union – A nonprofit financial institution owned by its members; offers various financialservices including accounts and loansIntermediaries – Firms that stand between savers and borrowers, serving to collect excess funds(savings) and convert them to loans.Virginia Board of Education FrameworkFinancial markets bring together people who have money to lend and are willing to take risks toearn a return with people who want to borrow for a specific purpose.Financial institutions act as intermediaries by facilitating the interaction of borrowers and saversin financial markets.In a market economy, scarce goods and services are allocated through the influence of prices onproduction and consumption decisions.A financial institution is an organization that provides financial products and services toconsumers.Financial institutions provide products like checking and other accounts that help consumersmanage money. They provide services and advice to help consumers meet their financial goals.Financial institutions can provide a safe place for individuals to hold money, and they helpchannel money from savers to borrowers.Virginia Council on Economic Education179

Page 180

Banks, credit unions, and insurance companies are examples of financial institutions.Financial institutions attract funds from savers by offering interest rates on savings. Financialinstitutions use depositors’ savings to earn income by lending to borrowers or investing in otherfinancial products.Financial institutions are able to pool the savings of many individuals in order to make loans toborrowers.Banks create money by lending.Government protects consumers in financial markets through regulation and enforcement byagencies such as the Securities and Exchange Commission and the Federal Reserve System.Teaching Tips1) Ask students why banks exist. Brainstorm the challenges that would arise in life without abanking system. (paying bills with cash, no ATMs, keeping money safe, where to get a loan togo to college, buy a home, start a business). A well functioning banking system is crucial intoday’s complex economy.2) Banks are businesses. They channel money from savers to borrowers and make money fromthe difference in interest they earn on loans and the interest they pay on savings deposits.Today banks also provide other services on which they earn fees.3) Without banks, it would be more difficult for borrowers to find lenders. To make this point,consider using an activity such as those from the Learning, Earning and Investing, Focus:Institutions and Markets, or Once Upon a Dime lessons below, in which students act as peoplewith money to lend and those desiring to borrow.4) When banks make loans, the money supply increases; when loans are paid off, the moneysupply decreases. Have students demonstrate how successive deposits and loans made bycommercial banks, resulting from one new deposit in the banking system, cause the moneysupply to expand and how repayment of loans causes the money supply to contract.2The APEconomics and Capstone lessons below provide activities to demonstrate how bank loansaffect the money supply. Banks “create” money by lending.Lessons and ResourcesAdvanced Placement Economics: Macroeconomics. Unit 4, Lesson 2. Banks and the Creation ofMoney.180Virginia Council on Economic Education

Page 181

Capstone: Exemplary Lessons for High School Economics. Unit 6, Lesson 34. Money andMonetary Policy.Financial Fitness for Life Grades 6 – 8 Theme 4: Lesson 11: Let Lenders and Borrowers BeLearning, Earning, and Investing High School Lesson 11: Financial Institutions in the U.S.EconomyFocus: Institutions and Markets Lesson 4: Financial SystemsEconedlink Lesson. Banks and Credit Unions.https://www.econedlink.org/resources/banks-credit-unions-part-i/Once Upon a Dime Video and comic book that explains how financial institutions act asintermediaries between savers and borrowers. Lesson planshttps://www.newyorkfed.org/outreach-and-education/comic-booksVirginia Council on Economic Education181

Page 182

EPF.5 The student will demonstrate knowledge of a nation’s economic goals, includingfull employment, stable prices, and economic growth, byd) describing strategies for achieving national economic goals.Day 1 – What can the government do to help the economy reach fullemployment, stable prices and economic growth?Content KnowledgeStudents need to understand that the government has an important role to play in the economy.The economic goals that the federal government tries to reach include full employment, stablegrowth, and stable prices. Government can pursue policies aimed at reaching the goal of a strong,stable economy. It has various tools at its disposal, each with strengths and limitations. Thesetools are referred to as “fiscal policy.”Fiscal policy refers to how government taxing and spending policy can be used to influence theeconomy. In addition to changing tax policies and making deliberate changes in spending tostimulate or slow the economy, the government can undertake other policies to improve thehealth of the economy.VocabularyFiscal policy – Government policy to influence overall levels of employment, stability, andprices using taxing and spending.Virginia Board of Education FrameworkMarket economies tend to grow because there are incentives which encourage people to work,entrepreneurs to bring innovations to market, and businesses to expand, pursuing increasedprofits.When growth is slow and unemployment high, government can• implement policies such as investment tax credits to encourage businesses to expand andhire more people• implement job training programs to help the unemployed• use fiscal policy (e.g., changes in federal taxes and spending) to help the economy towardfull employment, stable prices, and stable growth.Ongoing governmental economic support includes• working to assure the health of the nation’s financial institutions through regulation andenforcement• supporting unemployment insurance, which helps stabilize the economy in times of slowgrowth• encouraging invention, innovation, and growth through patent and copyright laws182Virginia Council on Economic Education

Page 183

• promoting pure research (e.g., Human Genome Project) through grants and programssuch as NIH (National Institutes of Health).Teaching Tips1) Recall the business cycle which shows how the economy typically goes through stages ofexpansion, peak, contraction, and trough. Peaks generally have the problem of inflationand troughs the problem of unemployment. Remind students of the problems inflation andunemployment bring From Unit 8 (EPF5a), have students review these economicindicators: GDP, CPI, and Unemployment Rate and how to recognize a healthy economy.2) Ask students why government would have any role in stabilizing the economy. Explain thatsince the 1946 Full Employment Act the federal government has assumed the responsibilityfor doing what it can to stabilize the economy. (This act was passed because after WWIIcongress was worried that there might be massive unemployment when the soldiers camehome.) Congress can use fiscal policy, change spending and taxing to increase or decreaseaggregate (total) demand to stimulate growth or slow it down. This will be explored in thenext lesson. Here, explore other government activities the government undertakes toencourage economic growth and full employment--things such as job training, basicresearch and infrastructure. Discuss the purpose/value of these expenditures. Discussquestions such as the following:● What can government do to create an environment that encourages entrepreneurshipsince new companies hire people? (Small Business Administration—expertise andgrants; eliminate unnecessary paperwork and regulations; protect patents andcopyrights)● What can government do to reduce structural unemployment? (Provide re-training.Provide incentives for ﬁrms to hire and re-train)3) Discuss how the programs of the New Deal were designed to stimulate the economythrough government spending and government programs that employed people directly.The St. Louis Fed has a lesson that would be a good fit here: Lesson 4 Dealing with theGreat Depression.Lessons and ResourcesFocus: Understanding Economics in Civics and Government Lesson 5: Government SpendingFocus: High School Economics Lesson 18: Economic Ups and DownsFocus: Understanding Economics in Civics and Government Lesson 5: Government SpendingFocus: High School Economics Lesson 18: Economic Ups and DownsEconEdLink.org – Government Spending: Why Do We Spend the Way We Do?https://www.econedlink.org/resources/government-spending-why-do-we-spend-the-way-we-do/Virginia Council on Economic Education183

Page 184

Federal Reserve Bank of St. Louis--Dealing with the Great Depression--Lesson 4http://www.econedreviews.org/lesson.php?id=1218Making Sense with Paul Solman: Returning Vets Face a New Battle: The Job Market--https://www.econedlink.org/resources/making-sene-with-paul-solman-returning-vets-face-a-new-battle-the-job-market/Making Sense with Paul Solman: So You Have a Liberal Arts Degree and Want a Job?--https://www.econedlink.org/resources/making-sene-with-paul-solman-so-you-have-a-liberal-arts-degree-and-want-a-job/Making Sense with Paul Solman: For Some, Finding Work Proves Extra Difficulthttps://www.econedlink.org/resources/making-sene-with-paul-solman-for-some-finding-work-proves-extra-difficult/184Virginia Council on Economic Education

Page 185

Day 1 and Day 2 – What ﬁscal policy tools can the government useto help stabilize the economy?Content KnowledgeFiscal policies are decisions to change spending and taxation levels by the federal government.As fiscal policies, these decisions are adopted to influence national levels of output, employment,and prices.In the short run, increasing federal spending and/or reducing taxes can promote moreemployment and output, but these policies can also put upward pressure on the price level andinterest rates. Decreased federal spending and/or increased taxes tend to lower price levels andinterest rates, but they reduce employment and output levels in the short run.Policy makers and the general public continue to examine and debate the overall stabilizationeffects of public policy actions (such as stimulus packages), because the consequences are soimportant. Citizens should understand the role of conflicting objectives and the limitations on theeffectiveness of economic stabilization policies in order to develop realistic expectations aboutwhat can be accomplished with taxation, spending, and monetary policies (addressed in thesection about the Federal Reserve System).2VocabularyFiscal policy – Government policy to influence overall levels of employment, stability, andprices using taxing and spending.Virginia Board of Education FrameworkFederal government fiscal policies influence the overall levels of employment, output, andprices. Fiscal policy decisions are decisions to change the level of spending and tax levels by thefederal government. These decisions are adopted to influence national levels of output,employment, and prices.Under conditions of slow growth or high unemployment, expansionary fiscal policy couldstimulate the economy. In the short run, increasing federal spending and/or reducing taxes canpromote more employment and output, but these policies eventually put upward pressure on theprice level and interest rates.Under inﬂationary conditions, the government may choose contractionary ﬁscalpolicy to slow the economy. Decreased federal spending and/or increased taxesVirginia Council on Economic Education185

Page 186

tend to lower price levels and interest rates, but they reduce employment andoutput levels in the short run.Teaching Tips1) Introduce the fiscal policy tools and how they would be used to fight unemployment orinflation. Discuss these questions with students: When would the government be likely topursue expansionary fiscal policy? How would the fiscal policy tools be used in this case?2) Have students look up current economic indicators. If the economy is struggling, what fiscalpolicies would students recommend?3) Ask students if they’ve heard anything in the news about a government economic stimulus.Ask what they think it means. When the economy is growing too slowly and unemploymentis high, congress may try to stimulate the economy by increasing spending and/or decreasingtaxes. This would be called a fiscal stimulus. If the economy is beset by inflation, congressmay try to slow it down by raising taxes and cutting government spending. These actionsrepresent fiscal policy.4) This hands-on lesson is especially effective in showing how fiscal policy works: Economics inAction: 14 Greatest Hits for Teaching High School Economics Lesson 12: Fiscal Policy: ATwo Act Play5) Help students understand that both fiscal and monetary policy work by influencingdemand---either bringing about an increase or a decrease in aggregate (total) demand. Anexcellent lesson for this is on EconEdlink--Fiscal and Monetary Policy.https://www.econedlink.org/resources/fiscal-and-monetary-policy-process-and-interactive-quiz/6) Politicians throughout history have not always agreed on how/when fiscal policy should beimplemented. Show Paul Solman’s video clip on the PBS Newshour and discuss how taxesaffect the economy. Point out that lower tax rates may lead to an increase in the federal budgetdeficit. Does raising taxes really slow the economy or vice versa? What does the data show?Lessons and ResourcesEconomics in Action: 14 Greatest Hits for Teaching High School Economics Lesson 12: FiscalPolicy: A Two Act PlayTeaching Financial Crises Lesson 8: Understanding Financial Markets, 2007-2009Capstone: Exemplary Lessons for High School Economics Unit 6: Lesson 37: Can GovernmentManage the National Economy?EconEdLink.org – The Role of the Government: The Federal Government and Fiscal Policy186Virginia Council on Economic Education

Page 187

https://www.econedlink.org/resources/the-role-of-government-the-federal-government-and-fiscal-policy/Day 1 – What is the role and structure of the Federal ReserveSystem?Content KnowledgeThe Fed is in the daily news, but its purpose and activities are a mystery to many. The Fedperforms vital roles in the US economy and its actions will affect students now and in the future,so it will be helpful for them to understand its mission and activities. Since many students will beborrowing money for cars or to go to college they will care about interest rates. In this unit theywill learn how and why the Fed may influence interest rates.Like most industrialized nations, the United States has a central bank to meet certain needs of itscomplex economy and financial system. Unlike most central banks, however, the U.S. FederalReserve System—often called the Fed—is, in a sense, a “decentralized” central bank. It consistsof a Board of Governors in Washington, D.C., 12 regional Federal Reserve Banks and theirbranches, and the Federal Open Market Committee.Established in December 1913 by the Federal Reserve Act, the Federal Reserve System wasdesigned to address the conditions underlying the money panics that had plagued the country formany years. The act has been amended several times to enhance the Fed's ability to foster asound financial system and a healthy economy.The Federal Reserve System advances this goal in several ways. Its monetary policy decisionsaffect the flow of money and credit in the economy. It contributes to the safety and soundness ofthe nation's financial system by establishing regulations and acting as a commercial banksupervisor. And, by serving as a bank for depository institutions and the federal government, theFed helps ensure that the system of paying for all kinds of transactions works efficiently. Incarrying out these three functions, the Fed also helps to stabilize the financial system and tocontain systemic risk that may arise in financial markets.(From: Federal Reserve Structures and Functionshttps://www.frbatlanta.org/about/publications/fed-structure-and-functionsVirginia Council on Economic Education187

Page 188

VocabularyMonetary policy – Changes in the supply of money and the availability of credit initiated by anation's central bank to promote price stability, full employment and reasonable rates ofeconomic growth.Virginia Board of Education FrameworkThe Federal Reserve System, often called the Fed, is the central banking system of the UnitedStates.The goal of the Federal Reserve System is to help the economy achieve stable prices, fullemployment, and economic growth.The structure of the Federal Reserve System helps to ensure that regional information isrepresented in national policy decisions and that the Fed remains accountable to the people.The Federal Reserve System’s responsibilities include conducting monetary policy; supervisingand regulating financial institutions; and providing services to depository institutions, the federalgovernment, and the public.Twelve regional Federal Reserve Banks and their branch offices carry out the day-to-dayresponsibilities of the Federal Reserve System.The Board of Governors of the Federal Reserve System, whose members are appointed by thePresident of the United States and confirmed by the U.S. Senate, provides leadership for theFederal Reserve System.The Federal Open Market Committee (FOMC) is responsible for making monetary policydecisions. The FOMC is composed of members of the Board of Governors and presidents of thetwelve Federal Reserve Banks.The Federal Reserve System supervises and regulates banks to promote the safety and soundnessof the banking system, to foster stability in financial markets, and to ensure compliance withapplicable laws and regulations.The Federal Reserve System provides other services including supplying paper money and cointo banks, processing checks and electronic payments, and protecting consumers throughregulation and education.Teaching Tips1) The teacher should spend some time pointing out that there were two attempts at setting upcentral banks in the United States that failed. One was dominated and controlled by thebanking industry. The other was dominated and controlled by the government. Both of themfailed within 20 years. The Federal Reserve has a controversial and unique structure that188Virginia Council on Economic Education

Page 189

allows for “independence within government.” This means that, to a large extent, themembers of the Board of Governors, once appointed by and approved by government, have acertain amount of political insulation that allows them to make decisions without unduepolitical pressure from any branch of government or political party. At the same time, thePresidents of the regional Federal Reserve Banks provide more diversified input than can befound in a strictly governmental structure. Additionally, the Federal Reserve Banks providethe funds that run the System, keeping it independent of the financial strings that come withbudget control by government.2) Below there are several excellent lessons and videos on the structure of the Fed.Lessons and ResourcesFocus: Understanding Economics in U.S. History Lesson 28: Money Panics and theEstablishment of the Federal Reserve SystemLearning, Earning, and Investing: High School Lesson 21: Lessons from History: Stock MarketCrashesEconEdLink.org – Who is Ben Bernanke?http://www.econedlink.org/lessons/index.php?lid=700&type=educatorIn Plain English: Making Sense of the Federal ReserveVideo, lesson plans https://www.stlouisfed.org/in-plain-englishLesson Plan: Balance of Power – The Political Fight for An Independent Bankhttps://www.kansascityfed.org/education/resources/balance%20of%20power%20teaching%20guideKansas City Fed online unit Money Circle: Theme Four: Money Flowhttps://www.kansascityfed.org/education/moneycircleDay 2 – Tools of Monetary PolicyContent KnowledgeWhy is the Fed pushing interest rates up just when I want to buy a house? Why are they pushinginterest rates down just when I’m ready to retire and need to earn some interest income? It’s notpersonal; they are looking at the big picture--sometimes called the macro economy. The Fed’sjob is to work for the health and stability of the overall economy, safety of the banking systemVirginia Council on Economic Education189

Page 190

and the soundness of the US currency. Understanding how and why the Fed acts will helpstudents make sense of news reports about the Fed. It may also help one better decide the besttiming of certain personal financial decisions.Monetary policies are decisions by the Federal Reserve System that lead to changes in the supplyof money, short term interest rates, and the availability of credit. Changes in the growth rate ofthe money supply can influence overall levels of spending, employment, and prices in theeconomy by inducing changes in the levels of personal and business investment spending.2The Federal Reserve System’s major monetary policy tool is open market purchases or sales ofgovernment securities, which affects the money supply and short-term interest rates. Other policytools used by the Federal Reserve System include making loans to banks (and charging a rate ofinterest called the discount rate). In emergency situations, the Federal Reserve may make loansto other institutions. The Federal Reserve can also influence monetary conditions by changingdepository institutions’ reserve requirements.2A central bank has three tools to influence the money supply and interest rates, all of whichoperate through the banking system. The first and most commonly used tool is open marketoperations, which involves buying and selling government bonds. When the central bank buysbonds, it increases the amount of money in the economy; when the central bank sells bonds, itreduces the amount of money in the economy. In conducting open market operations, the FederalReserve tries to influence the federal funds rate, which is the interest rate a bank charges when itlends excess reserves to another bank. A second tool is the reserve requirement, which is thepercentage of deposits that banks are required to hold and not lend out. A higher reserverequirement reduces the money supply by limiting bank lending; a lower reserve requirementincreases the money supply by increasing bank lending. The third tool is the discount rate,which will be addressed on Day 3.3VocabularyMonetary policy – Changes in the supply of money and the availability of credit initiated by anation's central bank to promote price stability, full employment and reasonable rates ofeconomic growth.Open-market operations – The buying and selling of government bonds by the Federal Reserveto control bank reserves and the money supply.Reserve requirement – The fraction of banks' deposits that they are required by law to keep onhand or with the Federal Reserve.Discount rate – The interest rate the Federal Reserve charges commercial banks for loans.Virginia Board of Education FrameworkMonetary policy can lead to changes in the supply of money and the availability of credit.Changes in the money supply can influence overall levels of spending, employment, and pricesin the economy.The major monetary policy tool of the Federal Reserve System is open market operations(purchases and sales of government securities). Other policy tools include increasing or190Virginia Council on Economic Education

Page 191

decreasing the discount rate charged on loans it makes to banks (and other depositoryinstitutions) and raising or lowering reserve requirements for those same financial institutions.Monetary policy decisions by the Federal Reserve System lead to changes in the supply ofmoney and the availability of credit. Changes in the money supply can influence overall levels ofspending, employment, and prices in the economy.Teaching Tips1) Remind students of the costs of inflation and unemployment. Explain that the individual canmake choices to protect him/herself from inflation and unemployment--but can’t do anythingto fix them for society. Some would say that congress and the Fed should do nothing and justwait for economic conditions to get better. However, if the Fed could use it’s tools to keepinflation down and employment growing that would help society. Introduce the three tools ofthe Fed--explaining how each would be used to combat unemployment and slow growth orinflation. Explain that both monetary and ﬁscal policy actions work by bringing about anincrease or decrease in aggregate (total demand). Aggregate demand includes consumer,investment and government spending and net exports (exports-imports).Playing the roles ofmembers of the Federal Open Market Committee, decide for each of the headlines belowwhether an expansionary policy or a contractionary policy would be more appropriate andhow each of the tools might be used. Newspaper headlines: Unemployment Rate Soars; NewHousing Starts Rise; CPI Rises At Faster Pace for Third Consecutive Month.22) Karl Ochi, economics teacher at Washington High School in San Francisco, uses this "rope ofmonetary policy" analogy to explain how monetary policy works: A sturdy rope is tiedaround the waist of a student volunteer. The teacher holds the other end of the rope. A wallin front of the student is marked with the sign "Y/Full-Employment Output/Capacity." Thestudent is instructed to move, with steady pressure, toward the sign on the wall. At first, theteacher should hold the rope tightly, preventing the student from reaching the target. Thenthe teacher should let the rope loose and the student will fall forward, bumping into thetarget; the excess rope falls to the floor. In this example, the rope represents the moneysupply, the student represents GDP or output, the sign represents capacity (cannot beexceeded by much in the short run) and the teacher represents the Federal Reserve. This is adirect visual depiction of tight and loose monetary policy. Then the teacher should secretlytell the student to move forward and backward erratically to show that monetary policy mustbe dynamic to adjust to changing economic conditions. The students are challenged todetermine the conditions under which tight and loose monetary policy would be appropriateas well as the pitfalls of incorrectly timed policy or of too drastic a policy action.33) Below are several excellent lessons demonstrating the tools of the Fed as well as therelationship of the money supply and inflation.Lessons and ResourcesVirginia Council on Economic Education191

Page 192

Capstone: Exemplary Lessons for High School Economics Unit 6: Lesson 34: Money andMonetary PolicyEconomics in Action: 14 Greatest Hits for Teaching High School Economics Lesson 11: Moneyand InflationThe Great Depression Lesson 6: Could It Happen Again?https://www.stlouisfed.org/education/great-depression-curriculum-unitThe Trial of Monty Terry – Reader’s Theater and lesson planhttps://www.frbatlanta.org/education/classroom-economist/trial-of-monty-terry.aspxEconEdLink.org – It’s a Not So Wonderful Lifehttps://www.econedlink.org/resources/its-a-not-so-wonderful-life/St.Louis Fed online unit Money Circle: Theme Four: Money Fundamentalshttp://www.federalreserveeducation.org/resources/MoneyCircle/Day 3 – The role of interest ratesContent KnowledgeThe Federal Reserve System’s major monetary policy tool is open market purchases or sales ofgovernment securities, which affects the money supply and short-term interest rates. Other policytools used by the Federal Reserve System include making loans to banks (and charging a rate ofinterest called the discount rate). In emergency situations, the Federal Reserve may make loansto other institutions. The Federal Reserve can also influence monetary conditions by changingdepository institutions’ reserve requirements.2The Federal Reserve targets the level of the federal funds rate, a short-term rate that bankscharge one another for the use of excess funds. This target is largely reached by buying andselling existing government securities.2In turn, the fed funds rate inﬂuences other rates since ithelps determine banks' minimum cost of getting funds. Thus when the federal funds rateincreases banks will probably raise the interest rates they charge, rates such as the prime rate, andthing such as rates on mortgages and car loans.The Federal Reserve tends to increase interest rate targets when it feels the economy is growingtoo rapidly and/or the inflation rate is accelerating. It tends to lower rate targets when it wants tostimulate the short-term growth of the economy.2192Virginia Council on Economic Education

Page 193

Along with open market operations and changing the reserve requirement, a third tool that theFed uses to influence the money supply and interest rates is the discount rate. The discount rateis the rate charged by the central bank if individual banks wish to borrow funds. A higherdiscount rate reduces the money supply while a lower discount rate increases the money supply.In times of financial crisis, the Federal Reserve may exercise emergency powers to stabilizefinancial markets or to oversee the winding-down of troubled financial institutions.VocabularyMonetary policy – Changes in the supply of money and the availability of credit initiated by anation's central bank to promote price stability, full employment and reasonable rates ofeconomic growth.Discount rate – The interest rate the Federal Reserve charges commercial banks for loans.Fed Funds rate - The interest rate that banks charge each other when loaning bank reservesthrough the federal funds market. This is a key interest rate in the economy because it helps todetermine banks' minimum cost of getting funds. If the federal funds rate is higher, then banksare likely to raise the interest rates they charge, like the prime rate, home mortgage rate, or rateon car loans. (From AmosWeb)Prime rate - The interest rate banks charge their best, most credit-worthy customers. This is oneof the key interest rates in the economy, and it is watched closely by ﬁnancial types, governmentpolicy makers, and businesses. It's also an interest rate that should be watched closely byconsumers who have loans with adjustable rates, like credit cards, that are "pegged" to the primerate. Any movement in the prime rate triggers an automatic change in these adjustable rates.(From AmosWeb)Virginia Board of Education FrameworkMonetary policy affects interest rates in the economy. Interest rates act as incentives thatinfluence people’s spending and saving decisions.To fight inflationary pressure, the Federal Reserve System could implement monetary policy thatcauses higher interest rates in the economy. Higher interest rates would discourage personal andbusiness borrowing and spending and relieve inflationary pressure.Teaching Tips1) Ask students what they know about interest rates. Perhaps they know about interest rates oncredit cards or car loans. Explain there are many types of rates. The prime rate is the ratebanks charge their best customers. It is set by big banks. The Fed has a rate it chargesmember banks--that is called the discount rate. If the Fed wants to slow the economy it raisesthis rate and vice versa. When it raises the rate, it acts as a signal to banks to tighten credit,which will slow the economy. When it lowers the rate, it signals banks to ease credit. Thediscount rate is one of the Fed’s monetary policy tools, along with the reserve requirementand open market operations. Open market operations is the tool the Fed uses most. Studentswill explain how a change in the target rate of interest may act as an incentive to banks,savers and lenders to change their behavior.Virginia Council on Economic Education193

Page 194

2) An interest rate that is frequently in the news is the Fed Funds Rate. This is the rate bankscharge each other for overnight loans. Ask why a bank might need an overnight loan. (Banksare required to hold a percentage of their deposits on reserve at the Fed--based on the Fed’sReserve Requirement. If their reserves fall below those levels, they can borrow from the Fedto make up the diﬀerence or they can borrow from a bank that has more reserves than itneeds. ) When the Fed is pursuing an “easy money” policy--where credit is easier to get--ittakes actions to bring down the Fed Funds Rate. When the Fed is pursuing a “tight money”policy--where credit is harder to get--it takes actions to increase the Fed Funds Rate.3) To explain the effect of the supply of money on interest rates, use a supply and demand graphwith the vertical (Price) axis as the price of money (the interest rate – what we have to pay toborrow money) and the horizontal axis Quantity of Money. Draw a supply curve sloping upand to the right. By increasing the supply of money (shifting the supply curve to the right),note the effect on the interest rate: it declines. When the supply of money decreases (shiftsto the left), the interest rate increases. Explain that the Fed targets the interest rate(specifically, the federal funds rate) by increasing or decreasing the supply of money throughits open market operations – it does not set the interest rate.4) To help students understand the importance of credit in the economy, show the PBS PaulSolman video clip “Small Businesses Battle the Credit Crunch” to see how businesses arehurt when credit is tight. http://www.econedreviews.org/lesson.php?id=13805) Ask students to explain how a change in the target rate of interest may act as an incentive tobanks, savers and lenders to change their behavior. Begin by reminding students that banksmust keep reserves at a certain level or the bank can be closed. Most banks have sufficientreserves or have a surplus of reserves when they file a report. Only a relative few will need toborrow. Those will borrow at the prevailing Fed Funds rate and they will continue until thenext time they have to report. But if the Federal Reserve chooses to change the target rate forFed Funds, the situation will change.6) If the Federal Reserve raises the target for Fed Funds, banks that need reserves are forced topay a higher rate of interest. To meet this additional expense, they can do two things. First,they can raise the rate of interest they pay on deposits. This will attract more deposits fromcustomers and maybe even some new customers who are seeking better returns on savings.While this adds to their expense, it also adds to their deposits and may eliminate the need toborrow reserves. Second, they can increase the rate of interest on loans. This will decreasethe number of loans made because the higher rate will keep some people from borrowing.This will bring in additional revenues to cover the additional expense. Either way, interestrates rise.7) Write an article for the business section of the local newspaper explaining how changes inmonetary policy affect the money supply, interest rates, and the path of economic activity intheir community.2194Virginia Council on Economic Education

Page 195

Lessons and ResourcesFocus: High School Economics Lesson 19: Money, Interest, and Monetary PolicyTeaching Financial Crises Lesson 5: Monetary Policy in the Recent Financial CrisisAdvanced Placement Economics: Teacher Resource Manual Macroeconomics Unit 4: Lesson 6:Interest Rates and Monetary Policy in the Short Run and the Long RunEconEdLink.org – Fiscal and Monetary Policyhttps://www.econedlink.org/resources/fiscal-and-monetary-policy-process-and-interactive-quiz/EconEdLink.org – The Federal Reserve Overview Lessonhttps://www.econedlink.org/resources/the-federal-reserve-system-overview-lesson/Open and Operating: The Federal Reserve Responds to September 11 – lessons and videohttp://www.frbsf.org/education/teachers/open/Making Sen$e with Paul Solman: Small Businesses Battle the Credit Crunchto see how businesses are hurt when credit is tight because banks are not lending.https://www.econedlink.org/resources/making-sene-with-paul-solman-small-businesses-battle-the-credit-crunch/VideoMaking Sense with Paul Solman: Problem of Transparency Nothing New to the Fedhttps://econedlink.org/resources/making-sene-with-paul-solman-problem-of-transparency-nothing-new-to-the-fed/?view=projectorVirginia Council on Economic Education195

Page 196

Day 1 – Government budgets and their eﬀect on the economyContent KnowledgeWhat is the difference between the budget deficit and the National Debt? Is there ever a timewhen it would be appropriate for the federal government to run a deficit (borrow money to covercurrent expenses)?In any given year, the government collects tax revenues and makes expenditures. If taxescollected exceed government expenditures in a given year, the government has a budget surplus.If taxes collected are exactly equal to expenditures in a given year, the government has abalanced budget. If taxes collected are less than the money spent in a given year, the governmenthas a budget deficit. When a budget deficit occurs, the government borrows the money that itneeds to finance its expenditures. For example, the U.S. government borrows by issuing Treasurybonds.3Public debt refers to the total accumulation of all the annual government deficits and/or surplusesfrom years past. For example, imagine that at some point in time, the government has nooutstanding debt. Then, in the next three years, it has a budget deficit of $100 in the first year, abudget surplus of $50 in the second year and a budget deficit of $80 in the third year. Totalpublic debt would be $130, which is the sum of the yearly deficits and surpluses. Public debt issometimes called government debt held by the public or just government debt.3VocabularyBudget deﬁcit – Refers to national budgets; occurs when government spending is greater thangovernment income in a given year. A yearly deficit adds to the public debt.Budget surplus – Refers to national budgets; occurs when government income is greater thangovernment spending in a given year.National debt – The total amount owed by the national government to those from whom it hasborrowed to finance the accumulated difference between annual budget deficits and annualbudget surpluses; also called public debt.Virginia Board of Education FrameworkWhen federal government revenues and expenditures are equal, the budget is balanced.The federal budget is in deficit when the government’s expenditures exceed its revenues.The federal budget is in surplus when the government’s revenues exceed its expenditures.196Virginia Council on Economic Education

Page 197

When the budget is in deficit, the government must borrow by selling securities to individuals,corporations, financial institutions, and/or other governments to finance that deficit.The national debt is the total amount of money the federal government owes. This is the sum ofall its past annual deficits and surpluses. The government pays interest on the money it borrowsto finance the national debt. The money spent on this debt service (interest) is not available topay for other government priorities.The federal government’s annual budget is balanced when its revenues from taxes and user feesequal its expenditures.A budget deficit results when spending exceeds revenues.The national debt is the sum of what the federal government owes.Teaching Tips1) Predict the costs that would be imposed on the public if federal taxes were increased tobalance the budget when the economy is in recession, and explain how political goalsconflict with economic goals.22) Budget Puzzle Simulation: You Fix the BudgetThis is an excellent group exercise. Put the students in groups of four or five. Then have eachgroup go through the various “choices” presented. They should be trying to solve theproblem, but they should also be aware of the trade-offs involved in each option. After thestudents have had time to work through the simulation, ask each group to report out. How didthey do? What were they able to do? What was the most difficult choice they had to make?http://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html3) Who holds the US debt? Ask your students to whom they think the federal debt is owed.Sometimes students want to know to whom the public (or federal or national) debt is owed.Currently, about 74 percent of the debt is owed to U.S. citizens (individuals, businesses, andfederal, state and local governments). The remainder is owed to foreign individuals,businesses, and governments.4) Some argue for a balanced budget amendment to force congress to live within its budget. But,is there ever an occasion when the government should run a deficit--spend more than it takesin? Some would say yes. Balancing the budget in times of recession would increaseunemployment, as happened under President Hoover in the Great Depression. They arguefor balancing the budget over the business cycle--this means running a budget deficit duringdownturns and running a surplus (spending less than they take in) during times of inflation.Have students read the description on AmosWeb and debate the merits of each.http://www.amosweb.com/cgi-bin/awb_nav.pl?s=pdg&c=dsp&k=21Virginia Council on Economic Education197

Page 198

Page 199

EPF.7 The student will demonstrate knowledge of how monetary and ﬁscal policyinﬂuence employment, output and prices byc) describing sources of government revenueDay 1 – Sources of national, state, and local revenueContent KnowledgeWith a federal deficit and a very large National Debt some call for tax increases while others callfor cutting programs such as national defense, education, social security, and medicare, and stillothers stress the need to both decrease expenditures and increase revenue from taxes as a meansto balance our budget and reduce the National Debt. Where do local, state and federalgovernments get the money to pay for the goods and services they provide? Most federalgovernment tax revenue comes from personal income and payroll taxes. Payments to SocialSecurity recipients, the costs of national defense and homeland security, medical expenditures(such as Medicare), transfers to state and local governments, and interest payments on thenational debt constitute the bulk of federal government spending.Most state and local government revenues come from sales taxes, grants from the federalgovernment, personal income taxes, and property taxes. The bulk of state and local governmentrevenue is spent for education, public welfare (including hospitals and health), road constructionand repair, and public safety.2VocabularyTariﬀ – A tax on imported goods.Excise Tax – A tax on the manufacture or sale of a good or service. They are typically levied ongoods and services a government wants to regulate. Sometimes excise taxes are called “sintaxes.”Property tax – Taxes that are commonly levied on real property, which consists of land andbuildings. Some governments also tax personal property, such as cars and boats.Virginia Board of Education FrameworkFederal, state, and local governments collect taxes and fees to pay for the goods and servicesthey provide.Most local governments depend primarily on property taxes.Most state governments depend on sales and income taxes.The federal government gets the largest percentage of its revenue from individual income taxes.Other sources include• payroll taxes for Social Security and Medicare programs (i.e., Federal InsuranceContributions Act – FICA)Virginia Council on Economic Education199

Page 200

• corporate income taxes• excise taxes (e.g., tax on cigarettes and alcohol)• fees (e.g., park entrance fees)• taris (i.e., taxes on certain imports, such as steel and sugar, for the purpose ofprotecting domestic producers)Teaching Tips1) Compare the various sources of state and local revenues and various categories of state andlocal expenditures in their state and community with those of the U.S. federal government.22) Analyze the following situation: A government has to raise $100 billion of revenues. It cando so through a sales tax or a progressive income tax. Explain the effect of each tax on a lowincome and a high income family.23) Have students analyze pie charts and determine the source of federal revenues: Charts areavailable at Concord Coalition.http://www.concordcoalition.org/learn/budget/federal-budget-pie-chartsLessons and ResourcesMathematics and Economics: Connections for Life – 9 – 12 Lesson 13: Tax MathFocus: Middle School Economics Lesson 11: Where Does the Money Come From?Concord Coalition--Federal Revenues and Expenditures:http://www.concordcoalition.org/learn/budget/federal-budget-pie-chartsEconEdLink.org – Why Cities Provide Tax Breaks Even When They Are Strapped for Revenue?https://www.econedlink.org/resources/why-cities-provide-tax-breaks-even-when-they-are-strapped-for-revenue/Making Sen$e with Paul Solman What Do Tax Rates' Ups and Downs Mean for EconomicGrowth?https://www.econedlink.org/resources/making-sene-with-paul-solman-what-do-tax-rates-ups-and-downs-mean-for-economic-growth/NOTE: These last two days can be incorporated with and added to Unit 7 on theRole of Government.200Virginia Council on Economic Education

Page 201

Page 202

UNIT 10 – WE ARE PART OF THE GLOBAL ECONOMY (9Days)All teaching resources in this document are free for teachers. Here is how to you accessthem:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resourcecalled Virtual Economics 4.5 or 5.0 (VE). All teachers can and should get thisresource for free by participating in a VCEE training session. Visit www.vcee.orgfor more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/As globalization increases and nations’ economies grow more integrated, there are costsand benefits. For example, we know when people trade willingly (voluntarily), both arebetter off. We know that trade allows people and regions to do what they do best andtrade for the rest. And this increases global output of goods and services. Trade also givesconsumers greater variety in what they consume. In the US for example, without trade wewould have to give up coffee, chocolate, many spices--not to mention imported oil.Globalization creates competition which lowers prices which is good for consumers. Atthe same time, US producers may be forced out of business because they cannot produceat those lower prices (e.g. few shoes, textiles, televisions are produced in the U.S. today.)Greater connectivity through the Internet and otherwise allows businesses to hire skilledpeople in other countries to do work at lower wages. This lowers costs of production forbusinesses and can lead to lower prices for consumers. However, it creates morecompetition for U.S. jobs. U.S. students entering the workforce will be competing withthose foreign workers as well as other U.S. workers. Thus U.S. students, to becompetitive, must invest in their human capital. There will be few jobs for theunskilled--and those will offer very low pay.With greater integration of nations, what happens in one affects others. When the U.S.economy slows, fewer imports are purchased from other countries and their economiesslow as well. If a country defaults on its debts, other countries will be affected becauseforeign banks and individuals will have made loans to that country.Globalization has brought change--both costs and benefits. It has created some new jobsand destroyed others. Students entering the workforce will be better prepared if theyunderstand the nature of the global economy.EPF.9 The student will demonstrate knowledge of the global economy bya) explaining that when parties trade voluntarily, all benefit.202Virginia Council on Economic Education

Page 203

Day 1 Why do people trade?EPF.9 The student will demonstrate knowledge of the global economy byb) distinguishing between absolute advantage and comparative advantage.Day 1 Do you have an absolute or comparative advantage?EPF.9 The student will demonstrate knowledge of the global economy byc) distinguishing between trade deficit and trade surplus.Day 1 What’s the difference between a trade deficit and a trade surplus?EPF.9 The student will demonstrate knowledge of the global economy byd) explaining exchange rates, and the impact of a strong dollar and weak dollar oneconomic decisions.Days 1 and 2 Changing exchange rates: who is helped and who is hurt when thedollar strengthens or weakens?EPF.9 The student will demonstrate knowledge of the global economy bye) describing the costs and benefits of trade barriers.Day 1 Who is helped and who is hurt by trade barriers?EPF.9 The student will demonstrate knowledge of the global economy byf) describing the effects of international trade agreements and the World TradeOrganization.Day 1 How do trade agreements increase trade?EPF.9 The student will demonstrate knowledge of the global economy byg) explaining growing economic interdependence.Day 1 How does globalization make countries more interdependent?Evaluation Day203Virginia Council on Economic Education

Page 204

EPF.9 The student will demonstrate knowledge of the global economy bya) explaining that when parties trade voluntarily, all benefit.Day 1 - Why do people trade?Content KnowledgeVoluntary exchange occurs only when all participating parties expect to gain. This is truefor trade among individuals or organizations within a nation, and among individuals ororganizations in different nations. Students will be able to use this knowledge tonegotiate exchanges and identify the gains to themselves and others.As a result of their competitive experiences in sports and games, students usually havelearned to expect that, in most contests when one person or team wins, another person or teammust lose. Voluntary exchanges, on the other hand, are cooperative activities in which bothsides expect to gain, and both usually do. Because all of the parties to a voluntary exchangeexpect to gain from trade, institutions that make trading easier usually improve social welfare.Understanding the win-win nature of voluntary exchange helps students learn that people andorganizations trade with one another only when each party oers something that the otherparty values more than whatever he or she has to trade. For example, an employer will hire astudent at a wage rate of $8 per hour only if the employer expects to receive labor services fromthe student that are worth at least that much. And the student will voluntarily work for $8 perhour only if the student values the $8 more than the best alternative use of his or her time. Theprinciple that voluntary trade can improve each participant’s situation applies to all voluntaryexchanges, including trade between people or organizations in dierent parts of the samecountry, or among people or organizations in dierent countries.2VocabularyGains from trade – The increased output resulting from trade; with trade, eachindividual, region or nation is able to concentrate on producing goods and services that itproduces efficiently, while trading to obtain goods and services that it does not produceVoluntary exchange - Trading goods and services with other people because both partiesexpect to benefit from the tradeVirginia Board of Education FrameworkVoluntary exchange occurs only when all participating parties expect to gain. This is truefor trade among individuals or organizations within a nation and among individuals ororganizations in different nations.What does it mean to trade voluntarily?204Virginia Council on Economic Education

Page 205

When people trade voluntarily, that is, willingly and without coercion, both partiesbenefit.What are some of the benefits of trade?Voluntary exchange among people or organizations in different countries gives people abroader range of choices in buying goods and services and often lowers prices.Teaching Tips1) Explain that voluntary exchange among people or organizations gives people a broaderrange of choices in buying goods and services. Discuss how students’ daily lives wouldbe different if people in the United States did not trade with people in other countries.2) Conduct a trading activity to show students that both parties benefit when people tradevoluntarily. Be sure to do “The Magic of Markets,” which is a classic lesson, and easy touse. (Online variants are in development. Reach out to Stephen Day (shday@vcu.edu)with any questions about access to these.)Lessons and ResourcesFoundation for Teaching Economics Lesson: “The Magic of Markets.”https://www.fte.org/teachers/teacher-resources/lesson-plans/rslessons/the-magic-of-markets-trade-creates-wealth/Capstone Unit 7, Lesson 40: Why Do People Trade Across National Borders?Focus: Globalization Lesson 2: Why People Trade, Domestically and InternationallyEd Tech:Econedlink video and Kahoot: Benefits of Trade Video and Quizhttps://www.econedlink.org/resources/benefits-of-trade-comparative-advantage-video-and-quiz/205Virginia Council on Economic Education

Page 206

EPF.9 The student will demonstrate knowledge of the global economy byb) distinguishing between absolute advantage and comparative advantage.Day 1 - Do you have an absolute or comparative advantage?Content KnowledgeIndividuals and nations have a comparative advantage in the production of goods orservices if they can produce a product at a lower opportunity cost than other individualsor nations.VocabularyAbsolute advantage - The ability to produce more units of a good or service than someother producer, using the same quantity of resources.Comparative advantage - The ability to produce a good or service at a loweropportunity cost than some other producer. This is the economic basis for specializationand trade.Specialization - A situation in which people produce a narrower range of goods andservices than they consume. Specialization increases productivity; it also requires tradeand increases interdependence.Opportunity cost - The second-best alternative (or the value of that alternative) thatmust be given up when scarce resources are used for one purpose instead of another.Transaction costs - Costs associated with buying or selling goods and services that arenot included in the money prices of those goods and services. Examples include obtaininginformation on prices and product quality, searching for sellers, and bargaining costs.Virginia Board of Education FrameworkAn individual, business, or country that can produce a certain good with fewer resourcesthan other countries is said to have an absolute advantage.An individual, business, or country that can produce a certain good at a lower opportunitycost than its trading partners is said to have a comparative advantage.Specialization occurs when an individual, business, or country focuses its resources onproducing a few goods or services and expects to trade for other goods and services itwants.Total world production is greater when nations specialize in the production of thoseproducts that they can produce most efficiently.Teaching Tips206Virginia Council on Economic Education

Page 207

1) Questions students should be able to answer at the end of this lesson: What is thedifference between absolute advantage and comparative advantage? What isspecialization and how is it related to trade and total output? What is the primaryunderlying factor driving international trade? When nations trade based on comparativeadvantage, how are total production and consumption affected?2) Should the person who is best at a task always be the one to do it? For example, if alawyer is better at representing clients and better at typing than her secretary, should shedo both tasks?3) Explain when trading the person with the comparative advantage is the one whoshould do each task. That will be the one with the lowest opportunity cost. Practiceproblems determining who has the comparative advantage in various situations.4) Be sure that students understand the difference between absolute advantage andcomparative advantage.5) Explain that this is important because when people, businesses or countries specializein the goods or services where they have a comparative advantage, total output increases.6) Have students apply the concepts of opportunity cost and comparativeadvantage to the following problem: The Netherlands can produce in one day either fourdrill presses or eight embroidered tablecloths. Using the same amount of resources,Portugal can produce either two drill presses or seven embroidered tablecloths. Whichcountry should specialize in producing drill presses and import tablecloths and why?Which country should specialize in producing table cloths and import drill presses, andwhy?27) International trade stems mainly from factors that confer comparative advantage,including international differences in the availability of productive resources anddifferences in relative prices. Name three things, such as bananas, coffee andEucalyptus oil, that could be produced in the continental United States, althoughproduction would be very costly. Explain in terms of opportunity costs why the UnitedStates is probably better off importing such goods.28) Transaction costs are costs (not to be confused with the price of the good or service)that are associated with the purchase of a good or service, such as the cost of locatingbuyers or sellers, negotiating the terms of an exchange, and insuring that the exchangeoccurs on the agreed upon terms. When transaction costs decrease, trade increases. Havestudents identify transaction costs associated with the purchase of a good or service.Also, discuss why each of the following encourages more efficient exchange: (1) trucksthat can carry larger loads for the same fuel costs; (2) automated teller machines; and (3)credit cards.2207Virginia Council on Economic Education

Page 208

9) The goods or services that an individual, region, or nation can produce at lowestopportunity cost depend on many factors (which may vary over time), includingavailable resources, technology, and political and economic institutions. Have studentsuse their understanding of available resources, technology, and political and economicinstitutions in the U.S. and other countries, to explain why the U.S. no longer has acomparative advantage in the production of shoes.210) Like trade among individuals within one country, international trade promotesspecialization and division of labor and increases the productivity of labor, output andconsumption. Have students explain how the process of specialization and division oflabor results in increased productivity of labor, output, and overall consumption.211) These are challenging concepts. It will be helpful to provide practice by using alesson such as the Economics in Action lesson listed below.Lessons and ResourcesCapstone Unit 7, Lesson 41: Why People Trade: Comparative AdvantageEconomics in Action Lesson 13: Comparative Advantage and Trade in a GlobalEconomyFocus: Globalization Lesson 3: Finding a Comparative Advantage Including Your OwnEconedlink Lesson. Should Lebron James Mow His Own Lawn?https://www.econedlink.org/resources/should-lebron-james-mow-his-own-lawn/VideosThe Terminal – DVD (Chapter 10 – 3 minutes)http://www.youtube.com/watch?v=38hvvAzgXZY (absolute and comparative advantage)Khan academy on comparative advantage and absolute advantagehttp://www.khanacademy.org/video/comparative-advantage-and-absolute-advantage?playlist=MicroeconomicsKhan academy on specialization, comparative advantage and gains from tradehttp://www.khanacademy.org/video/comparative-advantage-specialization-and-gains-from-trade?playlist=Microeconomics208Virginia Council on Economic Education

Page 209

EPF.9 The student will demonstrate knowledge of the global economy byc) distinguishing between trade deficit and trade surplus.Day 1 - What’s the difference between a trade deficit and atrade surplus?Content KnowledgeNet exports equal the value of exports (goods and services sold to other countries) minusthe value of imports (goods and services bought from other countries). Net exports can beeither positive (trade surplus) or negative (trade deficit).2Thus, when a country exportsmore than it imports, it has a trade surplus. When a country imports more than it exports,it has a trade deficit.VocabularyImports - foreign goods and services that are purchased from sellers in other nations.Exports - domestic goods and services that are sold to buyers in other nations.Trade deficit - when one country buys more foreign goods than it sells to other countriesTrade surplus - when one country sells more goods to other countries than it buysVirginia Board of Education FrameworkA trade deficit occurs when one country buys more foreign goods than it sells to othercountries. A trade surplus occurs when one country sells more goods to other countriesthan it buys.Teaching Tips1) Ask students if they are exporters or importers. What do they buy that is imported?Explain that buying an import sends money out of the country. When foreigners buythings from the U.S. money is coming into the country. Ask students if they think theU.S. exports more to other countries or imports more. Explain that exports minus importsis called “net exports.” Net exports can be a positive or negative number. When the U.S.buys more from other countries than it sells to them, the result is a negative number andis called a trade deficit. Find current data at this source:https://www.census.gov/foreign-trade/data/index.htmll2) Have students calculate what has happened to net U.S. exports (exports minus imports)because of changes in exports and imports over the last 10 years. Identify whether therehas been a trade surplus or trade deficit over these years. Find data on the governmentwebsite FRASER: Select “international statistics” and then U.S. International Trade in209Virginia Council on Economic Education

Page 210

3) Imports are foreign goods and services that are purchased from sellers in other nations.Have students examine labels of products in their homes and compile a list of importedproducts and the countries from which they are imported.24) Exports are domestic goods and services that are sold to buyers in other nations. Havestudents determine what major products are produced in their community or state forexport and the countries to which they are exported.25) Have students describe how their daily lives would be different if people in the UnitedStates did not trade with people in other countries.Lessons and ResourcesFocus: Globalization Lesson 12: Trade, Investment, and the Balance of Payments; andAppendix B: What Is a Trade Deficit?Online resource for current trade balance:https://www.census.gov/foreign-trade/data/index.htmlOnline resource: FRASER: Select “international statistics” and then U.S. InternationalTrade in Goods and Services.www.gpo.gov/fdsys/browse/collection.action?collectionCode=ECONI&browsePath=2010%2F12%2F7&isCollapsed=false&leafLevelBrowse=false&isDocumentResults=true&ycord=203Census Bureau: U.S. Trading Partnershttps://www.census.gov/foreign-trade/statistics/highlights/toppartners.html210Virginia Council on Economic Education

Page 211

EPF.9 The student will demonstrate knowledge of the global economy byd) explaining exchange rates, and the impact of a strong dollar and weak dollar oneconomic decisions.Days 1 & 2 - Changing exchange rates: who is helped and whois hurt when the dollar strengthens or weakens?Content KnowledgeAn exchange rate is the price of one nation’s currency in terms of another nation’scurrency. Like other prices, exchange rates are determined by the forces of supply anddemand. Foreign exchange markets allocate international currencies.When the exchange rate between two currencies changes, the relative prices of the goodsand services traded among countries using those currencies change; as a result, somegroups gain and others lose.2VocabularyExchange rates - The price of one nation's currency in terms of another nation'scurrency.Strong currency – When a currency grows stronger, it purchases more units of anothernation’s currency than it has before. Stronger currencies tend to lead to increased importsand decreased exports.Weak currency – When a currency grows weaker, it purchases fewer units of anothernation’s currency than it has before. Weaker currencies tend to lead to decreased importsand increased exports.Virginia Board of Education FrameworkAn exchange rate is the price of one nation’s currency relative to another nation’scurrency. Like prices, exchange rates are determined by supply and demand. When thedollar grows stronger against another currency, it means people holding dollars get moreof the other currency for each of their dollars (e.g., a stronger dollar would get moreeuros per dollar).A stronger dollar helps Americans traveling abroad or buying imports because it makesforeign hotels and goods less expensive. A stronger dollar hurts Americans sellingexports to shoppers in other countries, because it makes the United States goods moreexpensive.A weaker dollar hurts Americans who travel abroad or buy imports because it makesforeign hotels and goods more expensive. A weaker dollar helps Americans producingand selling exports to shoppers in other countries, because the United States goods arethen cheaper to foreigners.211Virginia Council on Economic Education

Page 212

Teaching Tips1) Discuss traveling to countries and the process of exchanging currency. Let studentsdescribe their experiences.2) Look at the exchange rates between the US dollar and the Euro since 2002. At somepoints one could buy a Euro for 80 cents –which is the same as getting a 20% discountfrom the price. At other points a Euro cost $1.50—which means that something that costs10 Euros actually would cost someone from the US $15. So, exchange rates matter.3) Ask students who sets exchange rates. Government? No. Exchange rates aredetermined through supply and demand. If more people want to buy American goods orif people think the US dollar is the safest currency, the value of the dollar should rise, andvice versa.4) Teach students to calculate currency exchanges. Calculate the following: a) If theBritish pound is worth $2.10, how much would you have to pay in England for a shirtthat costs $16.00? b) If the Mexican peso is equal to $0.10 in U.S. dollars, what is thepeso equivalent of $15.00? c) If it takes 33 Indian rupees to buy $1.00, how much is anIndian sweater purchased for 1,000 rupees in U.S. dollars?25) Use the following scenarios to analyze the effects on trade of a change in exchangerates: In one year, the U.S. dollar equaled 150 Japanese yen; in the following year, theU.S. dollar equaled 100 yen; and in the third year, it equaled 125 yen. If a camera costs60,000 yen and a radio costs 10,000 yen: a) What will be the price in dollars of these twoproducts in each year for an American? b) Will an American want to buy more or fewerJapanese products in year one, in year two, or in year three? Explain.6) Show the Paul Solman video on currency choices “Made in China”. Ask: Did the USwant the dollar to be stronger or weaker against the Chinese currency and why? What didthe Chinese want? (Questions to go with this video clip are on the same page.)Lessons and ResourcesCapstone Unit 7, Lesson 42: Foreign Currencies and Foreign ExchangeEconomics in Action Lesson 14: Exchange Rates: Money Around the WorldAP Economics: Macroeconomics - Student Activities Macro Unit 6, Lesson 3: Activity53 - Exchange Rates212Virginia Council on Economic Education

Page 213

Making Sense with Paul Solman: Dollar's Weakness Inspires Modern-day Gold Rushhttps://www.econedlink.org/resources/making-sene-with-paul-solman-dollars-weakness-inspires-modern-day-gold-rush/Making Sense with Paul Solman: How Currency Choices 'Made in China' Have BigImpact on U.S. Economyhttps://www.econedlink.org/resources/making-sene-with-paul-solman-how-currency-choices-made-in-china-have-big-impact-on-u-s-economy/Videos“The Money Song,” by Monty Python’s Flying Circushttp://www.youtube.com/watch?v=crARnAJv1EMhttp://www.youtube.com/watch?v=xwtgByffoUw (exchange rates)CartoonsFrank and Earnest on exchange rateshttps://www.cartoonistgroup.com/subject/The-Currency+exchange-Comics-and-Cartoons-by-Frank+and+Ernest.php213Virginia Council on Economic Education

Page 214

EPF.9 The student will demonstrate knowledge of the global economy bye) describing the costs and benefits of trade barriers.Day 1 - Who is helped and who is hurt by trade barriers?Content KnowledgeAlthough barriers to international trade usually impose higher costs than benefits, theyare often advocated by people and groups who expect to gain substantially from them.Because the costs of these barriers are typically spread over a large number of peoplewho each pay only a little and may not recognize the cost, policies supporting tradebarriers are often adopted through the political process.Students will be able to use this knowledge to negotiate exchanges and identify the gainsto themselves and others. Students will also be able to compare the benefits and costs ofpolicies that alter trade barriers between nations, such as tariffs and quotas.1VocabularyEmbargo - a policy forbidding trade in a certain good (e.g., ivory) or with a certaincountryTrade barriers - Restrictions that prevent free trade among nations. Examples includetariffs, import and export quotas, and nontariff restrictions such as licensing requirementsand bureaucratic red tape.Tariff - A tax on an imported good or service.Quota - In international trade, the limit on the quantity of a product that may be importedor exported, established by government laws or regulations; in command economies,more typically a production target assigned by government planning agencies to theproducers of a good or service.Virginia Board of Education FrameworkTrade barriers include tariff — a tax on imports quota — a limit on the quantity of a good allowed into a countryembargo — a policy forbidding trade in a certain good (e.g., ivory) or with acertain countryTrade barriers reduce trade thus reducing competition for domestic producers andreducing choices for consumers.Trade barriers help domestic producers of the protected good by reducing the competitionfor their good (e.g., sugar).214Virginia Council on Economic Education

Page 215

Trade barriers hurt consumers by raising prices of the protected good (e.g., sugar) andhurt foreign producers of the good who wish to export to the United States.Although barriers to international trade usually impose more costs than benefits, they areoften advocated by people and groups who expect to gain substantially from them.Incentives exist for political leaders to implement policies that disperse costs widely overlarge groups of people and benefit small, politically powerful groups of people.Because the costs of these barriers are typically spread over a large number of people,each of whom pays only a little and may not recognize the cost, policies supporting tradebarriers are often adopted through the political process.When imports are restricted by public policies, consumers pay higher prices, and jobopportunities and profits in importing firms decrease.Teaching Tips1) Free trade increases worldwide material standards of living. Identify the net benefitswhen a trade barrier such as sugar or automobile import quotas is eliminated.22) The gains from free trade are not distributed equally, and some individuals or groupsmay lose more than they gain when trade barriers are reduced. . Explain how free trade inthe automobile industry makes consumers better off while some auto workers lose theirjobs.23) Despite the mutual benefits from trade among people in different countries, manynations employ trade barriers to restrict free trade for national defense reasons, to protectkey industries, or because some companies and workers are hurt by free trade. Havestudents look at historical examples of periods when the United States has imposed tradebarriers and explain why the U.S. government would impose trade barriers given themutual benefits of free trade.24) When imports are restricted by public policies, consumers pay higher prices and jobopportunities and profits in exporting firms may decrease. Have students analyze thepolitical and economic implications of a proposed ban on imported products.25) Explain why a political leader would support an idea that helps only a few whileharming many, such as a tariff on imported luggage.26) The Wide World of Trade lesson is a particularly good hands-on activity demonstratingwho is hurt and who is helped by trade barriers.Lessons and ResourcesAP Economics: Macroeconomics – Student Activities Macro Unit 6, Lesson 2: activity51 - Barriers to Trade215Virginia Council on Economic Education

Page 216

Economics in Action Lesson 13, activity 13.2: Comparative Advantage and Trade in aGlobal EconomyFocus: Globalization Lesson 10: Protecting the US Sugar Industry from ForeignOutsourcing: A Bittersweet IdeaWide World of Trade Lesson 9: Why Restrict Trade?Econedlink lesson. The U.S. Sugar Program - A Matter of National Security or CorporateWelfare?https://econedlink.org/resources/the-u-s-sugar-program-a-matter-of-national-security-or-corporate-welfare/ReadingsU.S. - China Trade War Timeline. “All items made in Hong Kong to be labeled ‘Made inChina.’”https://www.china-briefing.com/news/the-us-china-trade-war-a-timeline/VideoMJM Foodie: Barriers to Trade. http://www.youtube.com/watch?v=Y2X3KPilAt0216Virginia Council on Economic Education

Page 217

EPF.9 The student will demonstrate knowledge of the global economy byf) describing the effects of international trade agreements and the World TradeOrganization.Day 1 - How do trade agreements increase trade?Content Knowledge.International trade agreements such as the North American Free Trade Agreement(NAFTA) have tended to reduce trade barriers. Likewise, the World Trade Organization(WTO) seeks freer trade among nations.1VocabularyEuropean Union (EU) – An association of European nations created by the MaastrichtTreaty signed in 1992. The EU has eliminated quotas and tariffs among its members andcreated other common economic policies.North American Free Trade Agreement (NAFTA) – A treaty signed by Canada,Mexico and the United States in the 1990s which promises to reduce trade barriers of allkinds between the member nations.Trade agreement – A formal treaty or structure that is designed to improve the flow oftrade between participating nations.World Trade Organization (WTO) – A trade agreement among over 100 nations thatspecifies the level of tariffs among the signatories and attempts to resolve trade disputes.Virginia Board of Education FrameworkTrade agreements establish rules about trade that all parties agree to. These agreementshave generally reduced the barriers to trade.The North American Free Trade Agreement (NAFTA) established a free-trade zone(Canada, Mexico, and the United States) with the intention of eliminating trade barriers,promoting fair competition, and increasing investment opportunities.The World Trade Organization (WTO) administers trade agreements, handles disputes,and provides a venue for negotiating among its member nations.The European Union (EU) is a regional trade organization formed to promote tradeamong countries in Europe by reducing trade barriers and adopting a common currency,the euro.Teaching Tips1) What is the purpose of establishing trade agreements? Trade agreements establish rulesabout trade that all parties agree to. These agreements have generally reduced the barriersto trade.1217Virginia Council on Economic Education

Page 218

2) Review the benefits of trade. Remind students that trade barriers tend to benefit a fewand raise costs to many.3) What is NAFTA? Who are its participants? What is its purpose? Who are theparticipants in NAFTA? The North American Free Trade Agreement (NAFTA)established a free-trade zone (Canada, Mexico, and the United States) with the intentionof eliminating trade barriers, promoting fair competition, and increasing investmentopportunities.14) What is the role of the World Trade Organization (WTO)? The World TradeOrganization (WTO) administers trade agreements, handles disputes, and provides avenue for negotiating among its member nations.15) What is the European Union (EU)? The European Union (EU) is a regional tradeorganization formed to promote trade among countries in Europe by reducing tradebarriers and adopting a common currency, the euro.1Lessons and ResourcesFocus: Globalization Lesson 1: Why is Globalization So Controversial?Focus: International Economics Lesson 18: The NAFTA DebateFocus: Institutions and Markets Lesson 11: Hey, Hey, Ho, Ho, Why Do We Need theWTO?Econedlink Inquiry Lesson. NAFTA: Did Jobs Get Sucked Out of the U.S.?https://econedlink.org/resources/nafta-are-jobs-being-sucked-out-of-the-united-states/VideoHistory of GATT and WTO http://www.youtube.com/watch?v=27J3CByXKowWhat is the E.U.? http://www.youtube.com/watch?v=b2-4gpRIkUE218Virginia Council on Economic Education

Page 219

EPF.9 The student will demonstrate knowledge of the global economy byg) explaining growing economic interdependence.Day 1 - How does globalization make countries moreinterdependent?Content KnowledgeGreater specialization leads to interdependence between producers and consumers. As aresult of growing international interdependence, economic conditions and policies in onenation increasingly affect economic conditions and policies in other nations.1VocabularyInterdependence - A situation in which decisions made by one person affect decisionsmade by other people, or events in one part of the world or sector of the economy affectother parts of the world or other sectors of the economy.Globalization - Although there is no one precise definition, the term usually refers to theincreased flow of trade, people, investment, technology, culture and ideas amongcountries.Outsourcing occurs when a firm in one country hires people in other countries to dowork.Offshoring occurs when a firm in one country tries to reduce costs by locatingproduction facilities in other countries.Virginia Board of Education FrameworkThe economy of the United States depends on resources and markets around the worldfor the production and sale of goods and services.When other economies slow, they may buy less from the United States, and this can slowthe United States economy. When other economies expand, they may buy more from theUnited States, stimulating the United States economy.To be competitive and increase profits, businesses seek to reduce costs of production.When natural or human resources are cheaper in other countries, United States businessesuse foreign resources when they can, affecting the United States labor market. This mayinvolve moving production to other countries (i.e., offshoring) or sending work via theInternet to workers in other countries (i.e., outsourcing).When foreign goods are cheaper or better, United States consumers may buy them,affecting the demand for United States goods and services and the jobs of those whoproduce them.219Virginia Council on Economic Education

Page 220

Teaching Tips1) Have students brainstorm benefits and costs of globalization in their lifetime. Highschool students might enjoy this video made by an Auburn University student:http://www.youtube.com/watch?v=LtmvksvSvtc Or you may want to show this eightminute video. http://www.youtube.com/watch?v=3oTLyPPrZE4Discuss the factors that have increased globalization. What have been some of thecosts and benefits?2) Help students understand that some people favor and some oppose globalization. Thelesson below from Focus: Globalization helps explain why people have differentopinions.3) What are some ways in which globalization has increased interdependence?● When other economies slow, they may buy less from the United States, and thiscan slow the United States economy.● When other economies expand, they may buy more from the United States,stimulating the United States economy.● To be competitive and increase profits, businesses seek to reduce costs ofproduction. When natural or human resources are cheaper in other countries,United States businesses use foreign resources when they can, affecting theUnited States labor market. This may involve moving production to othercountries (i.e., offshoring) or sending work via the Internet to workers in othercountries (i.e., outsourcing).● When foreign goods are cheaper or better, United States consumers may buythem, affecting the demand for United States goods and services and the jobs ofthose who produce them.4) As a result of growing international economic interdependence, economic conditionsand policies in one nation increasingly affect economic conditions and policies in othernations. Have students analyze data on the kinds and value of goods that Japan, Canada,Mexico, and Germany export to the United States and predict the likely effect of arecession in the United States on the economies of these countries. Have students explainhow a tariff on imported cacao beans affects the production of chocolate candy in theUnited States and how it affects people in cacao-growing countries.2Lessons and ResourcesFocus: Globalization Lesson 1: Why is Globalization So Controversial? See lessondemonstration at:https://www.econedlink.org/resources/why-is-globalization-so-controversial-lesson-demo/Capstone Unit 7, Lesson 39: Why Go Global?220Virginia Council on Economic Education

Page 221

Page 222

Page 223

UNIT 11 - GOALS, SAVING, INTEREST AND BANKING (13days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/Setting goals and creating a plan to achieve them sets a path to follow. Learning about thereasons people often fail to meet goals prepares students to be on guard against the pitfalls thatundermine achievement of goals. Understanding interest as a payment for the use of money,which is not only paid out by borrowers but also received by savers, is important in taking thelifelong view of one’s finances. Being banked is necessary as a preliminary means to saving andreceiving interest.EPF.17 The student will demonstrate knowledge of personal financial planning bya) identifying short-term and long-term personal financial goalsf) explaining how economics influences a personal financial planDay 1 Saving requires foregoing spending; goals and why they’re so hard to achieveDay 2 Creating a plan to help achieve goalsEPF.10 The student will develop consumer skills byd) determining the consequences of conspicuous consumption.h) examining the impact of advertising and marketing on consumer demand anddecision-making in the global marketplaceDay 1 Stay on track towards meeting your goalsEPF.18 The student will demonstrate knowledge of investment and savings planning bya) comparing the impact of simple interest vs. compound interest on savings.Day 1 What is interest? Calculating simple interestDay 2 Compound interest, the rule of 72, and the time value of moneyEPF.12 The student will demonstrate knowledge of banking transactions bya) comparing the types of financial institutions.b) comparing how financial institutions affect personal financial planningDay 1 Financial institutions, check cashing, and payday loansEPF.12 The student will demonstrate knowledge of banking transactions byc) evaluating services and related costs associated with personal bankingd) differentiating among types of electronic money transactions223Virginia Council on Economic Education

Page 224

Day 1 Understanding how funds are transferred and calculating the costs and benefits ofbankingEPF.12 The student will demonstrate knowledge of banking transactions bye) preparing all forms necessary for opening and maintaining a checking and saving accountDay 1 Completing application forms and examining a bank statementEPF.12 The student will demonstrate knowledge of banking transactions byf) reconciling bank statementsDay 1 Finding the errorsEPF.12 The student will demonstrate knowledge of banking transactions byg) comparing costs and benefits of online and traditional bankingDay 1 Traditional and online bankingEPF.12 The student will demonstrate knowledge of banking transactions byh) explaining how certain historical events have influenced the banking system and otherfinancial institutionsDay 1 Panics, depressions, inflations and recessionsDay 2 September 11 and the financial crisis of 2007-2009Evaluation Day224Virginia Council on Economic Education

Page 225

EPF.17 The student will demonstrate knowledge of personal financial planning bya) identifying short-term and long-term personal financial goalsf) explaining how economics influences a personal financial plan.Day 1 - Saving requires foregoing spending; goals and why they'reso hard to achieveContent KnowledgeStudents want many things—but, like everyone else, they can’t have everything they want. Theymust choose some things and give up others. The consequences of their choices will lie in thefuture. Understanding why people fail to save and spend wisely can give students insight thatcan help them make and stick to a plan to succeed.VocabularyLong-term Goal - Something a person or organization plans to achieve at least five years in thefuture.Short-term Goal - Something a person or organization plans to achieve within a one-year timeperiod.Virginia Board of Education FrameworkEPF.17a: A short-term financial goal is to have funds to buy things that require money abovewhat is normally allowed by a budget (e.g., emergencies, vacations, social events, automobileand home repairs, gifts).A long-term financial goal anticipates major purchases that require extensive saving (e.g., homeownership, education, retirement, investments).EPF.17f: Key economics principles that influence personal financial planning include thefollowing:● People must make choices due to scarcity.● Every choice incurs an opportunity cost.● All choices have consequences.● Secondary effects of choices are important.Applying these key principles to financial planning means the following:● A budget details how one plans to use limited income to satisfy wants.● There is a tradeoff between spending now and saving.● Financial plans and financial products should take into account the goals of theindividuals.Teaching Tips225Virginia Council on Economic Education

Page 226

1) Review scarcity and opportunity cost. What is opportunity cost? and What do we giveup, when we put money aside in savings? (We sacrifice the use and enjoyment of goodsand services that could have been purchased now.)2) Lead students in a brief discussion of what they spend money on, and whether they havebeen able to save.3) Why is it a problem if we don't save? How do the students want to be living when theyare adults? Get several volunteers to share their dreams for the future, and have themelaborate on their future past college, past marriage & having children, on into old age.As they mention things that would qualify as goals, list them, but without explicitlycalling them goals. Ask whether there's a word describing all of these items as a whole:things that they want in the future - "goals".4) Engage students in a discussion of immediate goals. Discuss immediate goals in thecontext of the current day; tomorrow; next month; etc.5) Ask: Do you always meet your goals? If not, why? What's easier, achieving immediategoals, or the future goals? Why do people have trouble meeting goals?6) At this point you may choose to implement an activity from the suggested lessons listedbelow. The Guide to Economic Reasoning states that we weigh our costs and benefitswhen we make choices, that we respond to incentives, and that important consequencesof our choices lie in the future. Elaborate on the current sacrifice of spending that savingrequires. Often, the problem is stated as, the future is uncertain; therefore, we have anatural tendency to prefer immediate rewards over ones that take longer to achieve.Discuss behavioral goals as well as ones that require money outlay. Can we come upwith incentives to get ourselves to behave in ways that are in our long-term best interest?Suggested homework: Assign the reading from more.com for the next instructional day.Have students write an essay or blog entry on how they could apply at least threemethods to assist themselves in reaching a short term goal (within 1 year), a medium termgoal (more than 1 but less than 5 years) and a longer term goal (5 years or more in thefuture).Lessons and ResourcesCapstone Lesson 1: Economic Reasoning: Why Are We a Nation of Couch Potatoes?Lesson demonstration found at:https://www.econedlink.org/resources/economic-reasoning-why-are-we-a-nation-of-couch-potatoes-lesson-demo/Financial Fitness for Life Grades 9-12 Lesson 2: The Economic Way of ThinkingLearning, Earning and Investing Lesson 15: Why Don't People Save?226Virginia Council on Economic Education

Page 227

Day 2 – Creating a plan to help achieve goalsContent KnowledgeIt’s common knowledge that failing to plan means planning to fail. Making and implementingplans gives students a start on a sensible path towards positive futures.Teaching Tips1) Ask for student volunteers to share short, medium, and long-term goals from theirhomework (suggested on the previous day.)2) Ask: What will be needed to achieve the goals? What are some sacrifices that could bemade towards achieving the goals? (First discuss goals that require changes in behaviorother than spending; then discuss money requirements for some of their goals.)3) Assign students to research average costs of their goals. Be sure to have them useexamples from each of the three categories (short-, medium-, and long-term goals).4) Ask: What are some sources of money to achieve your goals? (Parents, gifts from otherrelatives, own earnings, loans.) Have them select one short, one medium, and onelong-term goal and calculate the amount of money per week or per month that should beset aside to achieve each goal. (Students should keep these calculations to use againlater.)Provide students with a template that provides space for listing goals in priority order,with each goal having space to indicate its estimated cost, months to achieve it, and sumto be set aside monthly towards achieving the goal.5) Many or most students will see that they are unable to meet medium and long term goalswith their current sources of money. Stress that this is why these are not short term goals.What can they do now that will set them on a path to achieving these goals? Remindthem that they already learned something about the importance of human capital. Theywill learn more about that in a later unit (unit 13). They will also learn about putting thesavings that they are able to achieve, to work to earn more money. It’s too soon to losehope of achieving their goals!6) But before they get into those topics, they need to look further at obstacles to saving.Assign students to bring in either a physical piece of advertising from a newspaper ormagazine, or a description of a television advertisement, that they find persuasive.Lessons and ResourcesLearning, Earning and Investing: High School Lesson 1: Why Save?227Virginia Council on Economic Education

Page 228

Take Charge Today lesson: Introduction to Spending Planshttps://takechargetoday.arizona.edu/system/files/Introduction_to_Spending_Plans_Lesson_Plan_1.2.4.pdfResource bank:Investing in a College Education topic from Econedlink.https://www.econedlink.org/topics/12EPF.10 The student will develop consumer skills byd) determining the consequences of conspicuous consumption.h) examining the impact of advertising and marketing on consumer demand anddecision-making in the global marketplaceDay 1 – Stay on track towards meeting your goalsContent KnowledgeA financial plan is not worth much if there’s no follow-through. Temptations abound that canderail a financial plan. Students need to engage in reflection and discussion to understandadvertising and status-seeking motives that can lead them astray from their goals, and intoconspicuous consumption.VocabularyConspicuous Consumption – Purchasing goods or services with the intent of having them seenby others, usually in an effort to signal status or wealth.Virginia Board of Education FrameworkEPF.10d: Conspicuous consumption refers to buying goods and services not for their intrinsicvalue but for the purpose of impressing others in hopes of improving one’s social status.Conspicuous consumption can lead to spending beyond one’s means. This requires borrowing,and excessive borrowing can lead to credit problems.EPF.10h: Examination should address the impacts of marketing strategies on consumerdecisions, with emphasis on advertising features that may be informative and features that maybe misleading (e.g., infomercials, celebrity endorsements).Teaching Tips1) As an introductory activity, play the Millionaire Game from Financial Fitness for Life lesson1 (below). As you debrief the game, be sure to contrast the sober behavior that millionairesexhibit, with conspicuous consumption.228Virginia Council on Economic Education

Page 229

2) Ask: Have you ever intended to save, but instead spent money on things you wanted? Whatinfluenced you to spend instead of save? Does advertising influence you? Are advertisers justtrying to make you aware of products, or trying to motivate you to buy? How important islooking cool in front of your friends? Is looking cool really important in the long run? Contrastthe temporary nature of looking cool, with the important goals for which they need to plan.Discuss conspicuous consumption and how it can derail good intentions to save. You may wantto use the video as a humorous piece indicating that it seems simple to save, but remind studentsof what they’ve learned about what makes saving difficult.3) Some people use social reinforcement to help achieve goals. For example, some find thatwhile they have trouble motivating themselves to work out alone, they do better when they take aclass. They find that the shared experience of working to improve their fitness, and the fact thatothers are expecting their participation makes it easier. Likewise, some people find it helpful toparticipate in investment clubs, where the members work together to research investments and tosave in order to invest. Do they have friends or relatives that they could work with to reinforcesaving behavior?4) Ask: How can you guard against spending that keeps you from attaining savings goals?(Having a plan that we revisit regularly; keeping an illustration in view to remind ourselves ofour goals; thinking critically about advertising; using social support to remind ourselves not tospend unnecessarily; keeping money where we don't have immediate access to it.) Encouragestudents to locate or create pictures to remind them of their goals.5) Discussion: Remind them about the calculations they did the previous day. Some goalsrequire funds beyond what students have currently. Does saving mean just putting money asidefrom earnings, or does it mean the saved money can earn more money? Introduce the idea thatmoney can earn additional money, by means of interest, dividends, and increased value ofinvestments.6) Assign those students who have savings accounts or whose parents have savings accounts tofind out what rate of interest the account is currently paying.Lessons and ResourcesFinancial Fitness for Life Grades 9-12 Lesson 1: How to Really be a MillionaireChoices and Changes in Life, School and Work: Grades 7–8, Lesson 6: Choices Have Benefitsand CostsChoices and Changes: In Life, School and Work Grades 9-10 Lesson: Planning for Action: AContract with MyselfEconEdLink.org Deceptive Advertising: Crossing the Linehttps://www.econedlink.org/resources/deceptive-advertising-crossing-the-line/229Virginia Council on Economic Education

Page 230

Page 231

EPF.18 The student will demonstrate knowledge of investment and savings planning bya) comparing the impact of simple interest vs. compound interest on savings.Day 1 - What is interest? Calculating Simple InterestContent KnowledgePutting to work, money that has been set aside, is crucial to achieving long term goals.Students need to recognize that interest is a payment in compensation of opportunity cost for asaver/lender. People or firms that provide funds for loans are sacrificing the opportunity to usethe money for their own consumption. In foregoing this use, they are entitled to compensation.Students should also be able to make simple interest calculations to arrive at estimates of theirearnings on savings, or their costs of borrowing.VocabularyInterest - Money paid regularly, at a particular rate, for the use of borrowed money.Maturity – The length of time money is borrowed or invested.Principal - An original amount of money invested or lent.Virginia Board of Education FrameworkSimple interest is paid annually on the principal.Teaching Tips1) Understanding the concept of interest—whether it is interest paid to a saver, or interestthat a borrower must pay on a loan, leans partially on the idea of opportunity cost. Whenborrowing money, the rate of interest that is paid is partially a compensation ofopportunity cost. The saver or lender of funds could do any number of things with themoney involved, including spending it on goods and services. The saver/lender choosesto postpone consumption (opportunity cost) in return for payment in compensation. Thesize of the payment (how high the interest rate is) depends on the degree of risk involved.2) Calculating simple interest is based on the equation: Interest = Principal x Rate x Time.The amount of interest is based on how much is owed, multiplied by the rate of interest(usually expressed as an annual or yearly rate) multiplied by the number of time periods(usually years) in the loan. Thus, the simple interest on a loan of $1,000 (principal) at arate of 3% for one year would be expressed as Interest = 1,000 x .03 x 1. This equals $30.The teacher can create additional problems. It is advisable to provide alternate problemswhere the amount of interest is provided and other factors have to be calculated.(Example: What is the simple rate of interest on a $1,500 loan over two years, if theinterest payment is $225? The problem can be set up as $225 = $1,500 x Rate x 2 or$225/($1,500 x 2) = Rate. Answer is 7.5% or .075)Lessons and Resources231Virginia Council on Economic Education

Page 232

Financial Fitness for Life Grades 6-8 Lesson 13: Who Pays and Who Receives?Financial Fitness for Life Grades 9-12 Lesson 14: All About InterestLearning, Earning, and Investing: High School Lesson 12: Building Wealth Over the Long TermEconEdLink Lesson Timing Is Everythinghttps://www.econedlink.org/resources/timing-is-everything/EconEdLink Lesson. Calculating Simple Interesthttps://www.econedlink.org/resources/calculating-simple-interest/Econedlink Ed Tech: Compound Interest Calculatorhttps://www.econedlink.org/resources/compound-interest-calculator/Day 2 - Compound interest, the rule of 72, and the time value ofmoneyContent KnowledgeStudents need to understand that by allowing interest or dividends to continue growing (that is,allowing money to “work” for them), they can achieve significant results. The Rule of 72provides a simple way to estimate how long it will take a sum to double given a particular rate ofinterest. The time value of money permits comparison of the value of money to be paid in thefuture, with money in the present.VocabularyCompound Interest - Interest that is earned not only on the principal but also on the interestalready earned.Rule of 72 - A mathematical rule for determining the number of years it will take for aninvestment to double in value. The number of years is determined by dividing 72 by the annualrate of return. Thus, an investment expected to earn interest at a rate of 8 percent will double aninvestor's funds in 72/8, or nine years. Dividing 72 by the number of years in which an investorwishes to double his or her return will yield the necessary rate.Time Value of Money – This is the value of a sum of money at a different period of time. It canbe expressed as the future value of a sum when the present amount, the rate of interest or return,and the maturity; or the present value when the future value, the rate of interest or return and thematurity are known.232Virginia Council on Economic Education

Page 233

Virginia Board of Education FrameworkThe rule of 72 reveals how long it takes for an investment to double in value:72 ÷ interest rate = number of years it will take for the money to doubleThe value of money today is greater than the value of the same amount of money in the future.The time value of money is the amount of money one would need to receive today to equal acertain sum in the future. For example, a lottery winner who wins $1 million has a choice of (1)receiving a certain amount of money every year until the total is $1 million or (2) receiving asum today (present value), which when invested at current interest rates would yield $1 million(future value) over the same period of time.Teaching Tips1) Start by reviewing the previous day’s learning on interest. Ask: What would happen ifyour interest earned interest? Demonstrate the effect of a rate of return of 8% on a$1,000 investment over a period of nine years, compounding the interest (e.g., at the endof year one, the investment is worth $1,080; at the end of year two, the investment isworth $1,166.40; at the end of year three, the investment is worth $1,259.71; at the end ofyear three, the investment is worth, $1,360.49; etc.). The middle school lesson listedbelow, Who Pays and Who Receives? in student exercise 13b, includes a table that spellsout the calculations for determining compound interest. Have students notice when theamount of the investment has doubled.2) The teacher should tell students there is a way to estimate doubling time that is quick andsimple. Explain the rule of 72 (72 / interest rate = doubling time).3) Students should be given a number of interest or growth rates to practice finding theestimated doubling time. Ask: What rate of growth (interest rate) would allow theirinvestment to double in 5 years, in 10 years, in 15 years? (The formula is simply72/doubling time = interest rate (which is the same as growth rate)).4) Have students calculate the doubling time on an investment yielding 6%. (Doubling timeis 12 years.) Have students determine how many 12s are between their current age and ananticipated retirement age of 67. (If the student is 17, there are 50 years, so there areapproximately four 12s. Have them double an investment four times ($10,000 x 2 x 2 x 2x 2).5) Emphasize the importance of time in the formula for calculating interest earnings. This iswhy it is so crucial that they start saving at a young age. The high school FinancialFitness lesson listed below, “What's the Cost of Saving and Spending?” emphasizes thispoint.6) Explain the concept of the time value of money by pointing out that if you have a sum ofmoney now, it can be generating income right now; whereas if you don’t receive it untilsome time in the future, it amounts to receiving less, because you’re lost the interest that233Virginia Council on Economic Education

Page 234

could have been earned between now and when you receive the funds. We need a meansof comparing the value of a sum received in the future, with a sum in hand now. This isdone by calculating the present value of the future sum. In preparation for teaching thismaterial, you may want to refer to the Khan Academy video cited below. Consider usingthe Family Economics and Financial Education lesson below with your class.7) As an introduction for the next day, ask: Where does the money have to be, to earninterest? (In a financial institution.)8) For homework, have each student who has a relationship with, or whose parent(s)has/have a relationship with a financial institution, report the name of the institution.Lessons and ResourcesFinancial Fitness for Life Grades 6-8 Lesson 13: Who Pays and Who Receives?Financial Fitness for Life Grades 9-12 Lesson 20 : What's the cost of saving and spending?Learning, Earning & Investing Lesson 12: Building Wealth over the Long TermEconEdLink Lesson. Time Value of Moneyhttps://www.econedlink.org/resources/time-value-of-money/It’s Your Paycheck, Lesson 5: Savvy Savershttp://www.stlouisfed.org/education_resources/paycheck.cfmCompound Interest Calculator - Interactivehttps://www.econedlink.org/resources/compound-interest-calculator/VideoKahn Academy, Time Value of Moneyhttp://www.youtube.com/watch?v=As1QpFGlGbg234Virginia Council on Economic Education

Page 235

EPF.12 The student will demonstrate knowledge of banking transactions bya) comparing the types of financial institutionsb) comparing how financial institutions affect personal financial planningDay 1 - Financial Institutions, Check Cashing & Payday LoansContent KnowledgeKeeping one’s money in a bank, credit union or other financial institution allows one to earninterest, and to cash or directly deposit paychecks free of charge. It can also keep money out ofone’s hands to help one resist the urge to spend it unwisely. In contrast, use of check cashingservices and payday loan companies is expensive. The use of payday loan companies cansabotage a financial plan. Due to the financial complexity of today’s world, students need tounderstand the various types of institutions that are available to them, identify basic services,evaluate costs and benefits connected with each, and decide on their banking status. Many oftoday’s banks include brokerages and insurance companies within service offerings.VocabularyBank – A financial institution that provides various products and services to its customers,including checking and savings accounts, loans and currency exchange.Broker – an individual who provides investment services to other individuals, assisting in thebuying and selling of stocks, bonds and other investment instruments.Certificate of Deposit (CD) – A certificate issued by a bank to a person depositing money in anaccount for a specified period of time (often six months, one year or two years). A penalty ischarged for early withdrawal from CD accounts.Check – A written order to a financial institution directing the financial institution to pay a statedamount of money, as instructed, from the customer's account.Checking Account – A financial account into which people deposit money and from which theywithdraw money by writing checks.Consumer Loan – A loan made to an individual or household for purposes of buying or payingfor a consumer good (car, appliance, etc.).Credit Union – A nonprofit financial institution owned by its members; offers various financialservices including accounts and loans; regulated by the National Credit Union Association(NCUA).National Credit Union Administration (NCUA) – The federal agency that regulates creditunions and administers the insurance fund that insures member credit unions' deposits.Depositors' accounts with member credit unions are insured up to $250,000..Deposit – Money put into a financial account. Also, to place money in a financial account.Federal Deposit Insurance Corporation (FDIC) – A federal agency that guarantees depositors'savings up to $250,000 per account in most commercial banks, savings banks and savingsassociations.Pay-day Loan Company – A loan issued to a borrower who writes a post-dated check made outto a lender (usually a company specializing in payday loans and other financial services targetedto low-income customers) for the amount he or she wishes to borrow plus a fee. The lender then235Virginia Council on Economic Education

Page 236

gives the borrower cash in the amount stated on the check, minus the fee, and holds the checkuntil the borrower's next payday, when the lender cashes it. No credit background check isrequired. The cost (in fees and interest) to those who use payday loans is often high, however,when calculated as an APR.Savings Account – An interest-bearing account (passbook or statement) at a financial institution.Savings and Loan – A type of financial institutions that specializes in but is not restricted tolending money to consumers for mortgages.Virginia Board of Education FrameworkCredit unions, banks, and savings and loan companies generally offer checking accounts, savingsaccounts, consumer loans, certificates of deposit, and check cashing for depositors.Banks and savings and loan companies are generally insured by the Federal Deposit InsuranceCorporation (FDIC) and credit unions by the National Credit Union Share Insurance Fund(NUSIF). Consumers should be aware that not all deposits are insured.Some consumers do not have bank accounts and use check-cashing services when they must casha check. Companies charge a very high fee for this service.Payday loan and check-cashing companies typically charge higher rates than banks for theirservices.Many banks offer brokerage and insurance services, as well as financial management advisors.Teaching TipsToday’s lesson might encompass three distinct components.1) The first should be a discussion of the basic services one expects from banks and othersimilar financial institutions, and how using a financial institution can contribute toachieving one’s financial goals. The basic services include transaction accounts(checking), savings accounts, and loans. Note: you can start by reminding students thatin Unit 9 they learned that financial institutions serve as intermediaries.2) The second should be an exploration of the types of financial institutions that exist inyour area. These will likely include banks and credit unions, but may also include savingsand loans (called thrifts in some areas). Include a very brief explanation of the twoorganizations that provide deposit insurance for customers. The Federal DepositInsurance Corporation (FDIC) covers banks and savings & loans (thrifts) and is agovernment entity. The National Credit Union Share Insurance Fund insures creditunions. Deposits are only insured up to a certain amount.3) Explain and explore how check cashing services and payday loan companies work, andhow detrimental they can be to one’s financial health if you are careful.Lessons and Resources236Virginia Council on Economic Education

Page 237

Financial Fitness for Life Grades 9-12 Lesson 9: Banking BasicsLearning, Earning & Investing Lesson 11: Financial Institutions in the US EconomyOnlineMoney Smart: A Financial Education Curriculumhttp://www.fdic.gov/consumers/consumer/moneysmart/It’s Your Paycheck Lesson 3: Cash the Check and Track the Dough, Handout 3.2: What do youknow? http://www.stlouisfed.org/education_resources/paycheck.cfmIt’s Your Paycheck Lesson 8: So How Much Are You Really Paying for that Loan?https://www.stlouisfed.org/~/media/Education/Curriculum/pdf/Its-Your-Paycheck-Lesson-8.pdf?la=enMeka’s Story. Video of a payday loan victim (Facebook).https://www.facebook.com/watch/?v=1767071170011758237Virginia Council on Economic Education

Page 238

Day 1 - Understanding how funds are transferred and calculatingthe costs and benefits of bankingContent KnowledgeThe technological changes in banking mean that the array of services offered has becomebroader. The availability of online banking, remote deposits and withdrawals, and the securityrisks that can accompany such transactions, all affect the benefits and costs associated with usingfinancial institutions.VocabularyAutomated Bill Payment – a process that allows consumers to make regular bill payments fromtheir banking accounts using electronic methods such as consumers and arranged drafts.Automated Clearing House (ACH) – An electronic network for financial transactions in theU.S. The network processes batches of debits and credits to various financial institutionsallowing for fast, safe and efficient transfer of funds.Automated Teller Machines (ATM) – A machine that provides cash and performs bankingservices (for deposits and transfers of funds between accounts, for example) automatically whenaccessed by customers using plastic cards coded with personal identification numbers (PINs).Check Clearing for the 21stCentury Act (Check 21) – An act of Congress that allows banks touse and transmit digital images of checks rather than transport paper checks for return. Thisallows for services like remote deposit of checks and facilitates bill-paying.Checking Account – A financial account into which people deposit money and from which theywithdraw money by writing checks or using an ATM or debit card.Credit Cards – A small, specially coded plastic card issued by a bank, business, etc.,authorizing the cardholder to purchase goods or services on credit.Debit Card – A small, specially coded plastic card issued by a bank; allows the cardholder totransfer funds electronically and immediately from his or her checking account, as if thecardholder were writing a check to pay for a purchase.Direct Deposit – The electronic transfer of a payment (for a month's salary, for example) directlyfrom the payer's account to the recipient's account.Loans – An amount of money provide by one party to another with the understanding that themoney will be returned, in full, often with interest.Remote Deposit – This is the process of depositing funds from a home or office without visitinga financial institution. The customer scans an image of the check and then transmits it to thefinancial institution where the transaction is completed.Savings Account – An interest-bearing account (passbook or statement) at a financial institution.Funds are accessed by withdrawing funds at the institution or using an ATM or debit card.Virginia Board of Education Framework238Virginia Council on Economic Education

Page 239

EPF 12 c: Benefits of services provided by financial institutions include:● check cashing● interest earned● debit cards● ease of bill paying● online account management● direct deposit● automated teller machine (ATM)● improved access to loans.Costs for services provided by financial institutions include interest on loans and fees, such as:● ATM Fees● late fees● minimum balance fees● returned check fees.Consumers who are unbanked may have difficulty:● establishing credit● cashing checks without paying a service fee● mailing bill payments● acquiring loans● receiving direct deposit income● keeping income safe.EPF 12d: Types of electronic monetary transactions include● direct deposit● remote deposits● check cards and debit cards● automated teller machine (ATM) banking● online banking and bill paying● online investments● wiring of funds.The Automated Clearing House (ACH) is the system used to process electronic monetarytransactions.The Check Clearing for the 21st Century Act, or Check 21, makes check processing easier andless expensive for financial institutions by creating substitute checks that can be exchangedelectronically.Teaching Tips1) If computers are available, provide a vocabulary list and have students seek outdefinitions of the vocabulary terms and how funds are transferred electronically. Have239Virginia Council on Economic Education

Page 240

them visit financial institutions’ websites, and record fees associated with variousservices.2) Bring the class back together to discuss the information gathered including the costs andbenefits of using financial institutions within the discussion. Use the PACED decisionmaking model to help facilitate the selection of a financial institution based on individualstudent’s financial future goals.Lessons and ResourcesThe Great Economic Mysteries Book: A Guide to Teaching Economic Reasoning Grades 9-12Chapter 3, Lesson 15: Why are ATMs Everywhere? Big Piggy Bank MysteryFinancial Fitness for Life: 9-12 Theme 3, Lesson 9: Banking BasicsOnlineEconEdLink.org The Role of a Bank Tellerhttp://www.econedlink.org/lessons/docs_lessons/367_activityone1.docIt’s Your Paycheck Curriculum http://www.stlouisfed.org/education_resources/paycheck.cfm240Virginia Council on Economic Education

Page 241

EPF.12 The student will demonstrate knowledge of banking transactions byf) reconciling bank statements(BUS6120.066)Day 1 - Completing application forms and reading a bank statementContent KnowledgeWhile many students may have accounts, often these were set up for them by parents,grandparents, or guardians. Students need practice preparing the forms for opening accounts,writing checks, deposit and withdrawal slips. Practice reading a bank statement will prepare theway for reconciling statements the following day.VocabularyBank Account - An arrangement by which a bank holds funds on behalf of a depositor. Also, thebalance of funds held under such an arrangement, credited to and subject to withdrawal by thedepositor.Bank Statement - A monthly summary providing the status of a depositor's financial accounts(checking and/or savings).Check Register - A form (usually located in the back of a checkbook) on which users ofchecking accounts may record checks they have written and deposits they have made.Information thus recorded helps people keep track of balances in their accounts.Checking Account - A financial account into which people deposit money and from which theywithdraw money by writing checks or using a debit card.Savings Account - An interest-bearing account (passbook or statement) at a financial institution.Funds are accessed by withdrawing funds at the financial institution or by using an ATM or debitcard.Signature Card – A document bearing a person's signature, held on file in a financial institution.In cases of suspected forgery, signatures of doubtful origin can be checked against those recordedon signature cards.Virginia Board of Education FrameworkOpening and maintaining a checking or savings account involves● completing an application● completing a signature card● presenting approved identification document● writing/maintaining checks, stubs, and check register● endorsing checks● completing deposit and withdrawal documents.Teaching Tips241Virginia Council on Economic Education

Page 242

1) There are a number of banking units available from state and national trade groups. Mostwill have sample documents that can be reproduced. Sample documents can also beobtained from local financial institutions in order to compare and contrast the informationrequired on forms.2) In showing the students how to read a bank statement, discuss the effect of individualtransactions as well as total transactions. Also, draw students’ attention to variousservice charges that may be listed.Lessons and ResourcesFinancial Fitness for Life: Grades 6-8 Theme 3, Lesson 8: Choosing and Using a CheckingAccountEconEdLink.org Using an Excel Checkbookhttps://www.econedlink.org/resources/using-an-excel-checkbook/Banking Basics – publication that provides an overview of banking for teenagershttp://www.bos.frb.org/education/pubs/banking2.pdfVideoHow to Open a Bank Account http://www.youtube.com/watch?v=or-_aXJQbygUnderstanding Your Bank Statement http://www.youtube.com/watch?v=YK9o3eNcGE0242Virginia Council on Economic Education

Page 243

Day 1 - Finding the errorsContent KnowledgeReconciling a bank statement is an important aspect of maintaining and securing your financialhealth. Too many people don’t do it.VocabularyReconciliation – The process of comparing one’s financial records (checkbook or passbook) tothe records of the financial institution (bank statement) to find errors.Virginia Board of Education FrameworkReconciliation is the process of bringing the checkbook register into agreement with the bankstatement. This may be done electronically or manually.Teaching Tips1) If the teacher doesn’t reconcile his or her bank statement, this lesson may be harder thanit appears. Be sure to run the process through before demonstrating in class.2) When searching for errors, there are two steps:a) If the amount is an even number, look for an error of half the amount but posted to thewrong side. A $25.00 deposit mistakenly entered as a $25.00 withdrawal will result in a$50.00 error.b) Likewise if the amount of discrepancy is divisible by nine, the error is likely to be atransposition error. $73.00 mistakenly entered as $37.00 will result in a discrepancy of$36.00. The amount is divisible by nine. Additionally, the product (4) indicates thedifference between the numbers transcribed. (7 – 3 = 4).Lessons and ResourcesTwilight – Reconciling Edward Cullen’s Bank Statementhttp://studylib.net/doc/8417563/twilight---reconciling-edward-cullen-s-bank-statementFamily Economics and Financial Education lesson plan – Checking Account SimulationTake Charge Today lesson: Checking Account and Debit Card Simulation.http://wp.lps.org/bjames/files/2015/03/Student-Assessment-Checking-and-Debit-Account-Simulation.pdfVideo243Virginia Council on Economic Education

Page 244

Page 245

EPF.12 The student will demonstrate knowledge of banking transactions byg) comparing costs and benefits of online and traditional banking(BUS6120.067)Day 1 - Traditional and online bankingContent KnowledgeCustomers of financial institutions have an increasingly wide array of options for makingpayment. While paper-based transactions (checks, physical deposits) still are used, more andmore people are choosing options like automatic withdrawal, automated bill-payment andelectronic deposits. These options present advantages and disadvantages for the consumer.Virginia Board of Education FrameworkBenefits of traditional banking may include● comfort of the familiar● confidence about privacy and security● availability of expert advice and customer service.Costs of traditional banking may include● limited access● more paper to file● possible account fees.Benefits of online banking may include● convenience● 24-7 availability● ease of updating transaction records.Costs may include● time to learn system● concern about privacy and security● reduced relationship with bank● possible account fees.Teaching Tips1) Discuss how to establish automated payments through a creditor (like your mortgagelender or utility company) and/or the bank (regular transfer payments to a family memberor other entity).2) Discuss the trade-offs and the costs & benefits of traditional paper-based payments vs.electronic payments. In the discussion, include aspects like memory (forgetting that a245Virginia Council on Economic Education

Page 246

payment is withdrawn regularly) and timing (knowing when the payment arrives at thecreditor and when the money is withdrawn). If the PACED decision model (referencedin Unit 1) was not used in evaluating which financial institution to use, have students useit to decide whether electronic online services are best for themLessons and ResourcesFinancial Fitness for Life, 3rd Edition. Lesson 9 - Financial Institutions and Services.It’s Your Paycheck Lesson Plan – Choosing a Bank Account. “Cash the Check and Track theDough.”https://www.stlouisfed.org/~/media/education/curriculum/pdf/its-your-paycheck-lesson-3.pdfThe Financial Literacy Project Online Banking SimulatorInstructions: http://finlitproject.com/products/insurance/Simulator: http://finlitproject.com/simulator/Ed Tech:My Kids Bank. A free, easy-to-use online play banking experience for students. Great for use inclassroom mini-economies.http://mykidsbank.org/246Virginia Council on Economic Education

Page 247

Day 1 - Panics, depressions, inflations and recessionsContent KnowledgeIt would be easy to think that banks have always been as safe and convenient as they are today.But that would not be true. Believe it or not, at one time, different parts of the country even haddifferent currencies. A look at U.S. history will show that bank failures were not uncommonprior to the establishment of the Federal Reserve System and the FDIC (Federal DepositInsurance Corporation). The Great Depression occurred soon after the establishment of the Fedand many feel the Fed was ineffective in controlling bank failures. Many depositors who losttheir savings in bank failures never trusted banks again. The Federal Deposit InsuranceCorporation was established to guarantee savers that they would not lose their savings. Today, ifyour bank fails, the FDIC will cover your losses. Naturally, because the FDIC has to make goodon deposits in failed banks, they want rules to protect depositors and rules that keep banks fromengaging in risky behavior.An understanding of the history of financial panics, depressions, and other economic crises willgive students perspective on the historical development of our financial system and thedevelopment of the Federal Reserve System.VocabularyGreat Depression – The period from 1929 to 1939. It was a series of severe recessionscharacterized by high unemployment, falling prices, and large numbers of bank failures.Panic of 1907 – A financial crisis brought about by an attempt to corner the copper market. Theensuing collapse of the market led to first to widespread failure of banks, and ultimately to thecreation of the Federal Reserve System.Virginia Board of Education Framework18th and 19th centuriesThe Industrial Revolution brought an economic shift in the United States from bartering andtrading to exchange of currency for goods and services; individuals moved from beingself-supporting to working for others; increased use of money allowed for purchases and theinitiation of consumer credit, as well as seasonal bank loans for farmers; the period also saw highbank interest rates.● 1791 — First Bank of the United States established● 1816 — Second Bank of the United States established20th century Transition from an agricultural economy to an industrial economy and anexpansion of purchasing power and credit● World War I — War debt incurred by United States247Virginia Council on Economic Education

Page 248

● Panic of 1907● 1913 — Federal Reserve System established● 1920s — Stronger credit● 1920–1980 — Credit made available to most Americans● 1929 — Stock Market Crash● 1930s — Great Depression; decade of consumer distrust of credit and investment● 1940s–1960s — Stable inflation rates; low interest rates● 1970s — Rapid economic growth; overuse of credit; high inflation rate; consumer creditprotection legislation; birth of credit counseling● 1990s — Credit as a major marketing tool across industries; major stock market gains;longest peace time expansionTeaching Tips1) Use a timeline for this lesson. First, it will show that financial crises are impossible toavoid. Regardless of the financial structure and regulation, problems occur. Second, itwill show that financial crises can teach us lessons about ways to improve the economicenvironment, by revealing weaknesses in the financial system.2) Consider using the bank panic simulation from lesson 3 of The Great Depressioncurriculum below.Lessons and ResourcesTeaching Financial Crises Lesson 1: A Comparison of the Panic of 1907 to the Crisis that Beganin 2007Focus: Understanding Economics in U.S. History Lesson 16: Andrew Jackson and the SecondBank of the United StatesThe Great Depression: A Curriculum for High School Students Lesson 3: What Really Causedthe Great Depression?https://www.stlouisfed.org/education/great-depression-curriculum-unitReadings“The First Bank of the United States”https://www.philadelphiafed.org/-/media/publications/economic-education/first-bank.pdfA Lesson to Accompany “The First Bank of the United States: A Chapter in the History ofCentral Banking”https://fraser.stlouisfed.org/files/docs/publications/education/frbphi-chapters-first-bank-lesson.pdf248Virginia Council on Economic Education

Page 249

The Panic of 1907http://www.bostonfed.org/about/pubs/panicof1.pdfClosed for the Holiday: The Bank Holiday of 1933http://www.bos.frb.org/about/pubs/closed.pdfVideoThe Bank Run from It’s a Wonderful Lifehttps://www.youtube.com/watch?v=iPkJH6BT7dMDay 2 - September 11 and the Financial Crisis of 2007-2009Content KnowledgeToday’s students were very young in 2001, so the events of September 11 need to be discussed,as they affect current financial markets. Currently, the US continues to experience repercussionsfrom the recent financial collapse involving credit default swaps and the collapse of housingvalues. Students need to come to an understanding of these events in order to participate asinformed citizens in political issues regarding regulation of the banking system and fiscal andmonetary policy.Virginia Board of Education Framework21st centurySeptember 11, 2001 — Terrorist attacks on the World Trade Center, the Pentagon, andPennsylvania led to major stock market losses. Threats of further terrorism continue to influencethe financial markets.The latter part of the first decade was marked by a significant economic recession that resulted infailed banks, foreclosures, and high unemployment.Teaching Tips1) Ask students what they know of September 11, and in particular whether they recognizeit as a seminal event for our country. Describe the atmosphere of shock that envelopedthe US and the repercussions worldwide that resulted. Address the effects on oureconomy by using the Open and Operating video below.2) Use a simulation of the effects of securitization on investing in the housing market, andthe use of leveraging, contained in Lesson 6 of Teaching Financial Crises.3) You may wish to assign as homework, the article by economist Joseph Stiglitz listedbelow. Assign students to write an essay on Stiglitz’s explanation for what caused the249Virginia Council on Economic Education

Page 250

Great Depression and what ails the economy in 2012. Require them to contrast Stiglitz’sexplanation of the Great Depression with the explanation in lesson 3 of The GreatDepression curriculum.Lessons and ResourcesTeaching Financial Crises Lesson 6: The Role of Housing in the Financial Crisis of 2007-2009;Lesson 7: The Instruments and Institutions of Modern Financial Markets; Lesson 8:Understanding Financial Markets, 2007-2009“The Subprime Mortgage Crisis: Who Messed Up?” Lesson plan and skit available through theVCU Center for Economic Education (available by request, shday@vcu.edu).The Great Depression: A Curriculum for High School Students Lesson 3: What Really Causedthe Great Depression? https://www.stlouisfed.org/education/great-depression-curriculum-unitVideoOpen and Operating : The Federal Reserve Responds to September 11http://www.frbsf.org/education/teachers/open/index.htmlReadingArticle: The Book of Jobs by Joseph E. Stiglitzhttp://www.vanityfair.com/politics/2012/01/stiglitz-depression-201201EVALUATION DAY250Virginia Council on Economic Education

Page 251

Page 252

UNIT 12 - INVESTMENT & SAVINGS PLANNING (11 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/A comprehensive financial plan requires understanding the various types of investment vehiclesthat can be used for short, medium and long term goals, as well as income from pensions andsocial security. As a background to all investing and saving, however, one must first understandthe relationship between risk and reward.EPF.18 The student will demonstrate knowledge of investment and savings planning byb) comparing and contrasting investment and savings optionsDay 1 Risk and rewardDay 2 Calculating outcomesEPF.18 The student will demonstrate knowledge of investment and savings planning byc) comparing costs and income sources for investmentsDay 1 Where can the money come from?Day 2 What does it cost to save?EPF.18 The student will demonstrate knowledge of investment and savings planning byd) examining the fundamental workings of Social Security and the system’s effects onretirement planningDay 1 Examining Social SecurityEPF.18 The student will demonstrate knowledge of investment and savings planning bye) contrasting alternative retirement plansDay 1 IRAs, 401(k)s, pensions and annuitiesDay 2 Help from your employerEPF.18 The student will demonstrate knowledge of investment and savings planning byf) describing how the stock market worksDay 1 What are stocks? The difference between speculating and investingDay 2 What makes a stock rise or fall?EPF.10 The student will develop consumer skills byi) accessing reliable financial information from a variety of sources.Day 1 Evaluating sources of information252Virginia Council on Economic Education

Page 253

Evaluation DayEPF.18 The student will demonstrate knowledge of investment and savings planning byb) comparing and contrasting investment and savings optionsDay 1 - Risk and RewardContent KnowledgeBefore making any investment or saving decision, it is important to recognize its potential risksand rewards and consider that in making your decision. Rates of return and interest rates providea way that individuals can assess risk. The higher the potential reward (the higher the rate ofreturn or the interest paid out), the greater the risk. Thus, the safer the investment, the lowerwill be the reward. High returns are a necessary inducement paid to people in return for theirwillingness to take on significant risk. Savings vehicles such as passbook savings generally paylittle interest, because they are very liquid – that is, they can be easily converted into cash. Sincepeople are sacrificing very little opportunity to spend by leaving the funds in passbook savings,not much inducement is needed to encourage people to hold their funds this way.VocabularyConvenience – This is a sense of the relative ease with which a financial instrument orinstitution can be accessed in terms of time and location.Liquidity – This is a measure of how quickly a financial instrument can be converted to cash.Reward – The benefit or return gained from an investment.Risk – The chance of losing money.Virginia Board of Education FrameworkSavings options includesavings accountscertificates of depositmoney market fundsSome investments options includestocksbondsgovernment savings bondsmutual fundsreal estateretirement plansFactors used to compare savings and/or investment options includerisk253Virginia Council on Economic Education

Page 254

rewardconvenienceliquidityTeaching Tips1) Introduce the relationship between risk and reward, and the concept of liquidity. Ingeneral, if funds are being invested for a goal that is more distant in time, riskieralternatives may be appropriate, since there is more time to recover from possible losses.Discuss this idea with respect to short, medium, and long term goals that studentsidentified at the start of the previous Unit 11 – Goals, Saving, Interest and Banking.2) An alternative to the above lesson introduction can be the Risk and Return Grab Bag(Bell Ringer Activity from the Atlanta Federal Reserve Bank) can be used.3) Have students research the average rate of return for a number of investment options.These can include passbook/statement savings at a local financial institution,money-market funds at local financial institution, certificate of deposit (one-yearmaturity) at a local financial institution, a 1-year U.S. Treasury security, a U.S. savingsbond, the stock of a familiar corporation, and a mutual fund based on the S&P 500.4) The researched information can be used as a review of the PACED decision makingmodel from the previous Unit. Students should create a decision-grid and follow thesteps below.a. Define the problem at the top (Which investment option should I choose to meet Xgoal?),b. List the various alternatives along the vertical axisc. List the criteria characteristics of risk, reward, liquidity, and convenience alongthe horizontal axis. Keep the focus on the goals that they identified at the start ofthe previous Unit.d. Evaluate the various alternatives, using the criteria characteristics to determinewhat may be the best alternative for them.e. Students should explain their choices, identifying the trade-offs for each and theirpersonal opportunity cost (the next best alternative). Goals having different timeframes should result in different choices.5) If you have already recently used the PACED model with your class and prefer a moreactive alternative, lesson 9: Building Wealth Over the Long Term in Learning, Earningand Investing for a New Generation can be used instead. This lesson can also be found onVirtual Economics 4.5.6) A student’s personal tolerance for risk is also a factor to consider in making theirinvestment decisions. The risk tolerance online assessment cited below could beassigned for homework or used as an extension activity.254Virginia Council on Economic Education

Page 255

Lessons and ResourcesFinancial Fitness for Life Grades 9-12 Lesson 21: There is No Free Lunch in InvestingLearning, Earning & Investing for a New Generation Lesson 9, Building Wealth Over the LongTerm:Khan academy on the difference between stocks and bonds (9:20)https://www.khanacademy.org/economics-finance-domain/core-finance/stock-and-bonds/stocks-intro-tutorial/v/bonds-vs-stocksInvestment Risk Tolerance Quiz, http://njaes.rutgers.edu/money/riskquiz/Risk and Return Grab Bag (Bell Ringer Activity - Atlanta Federal Reserve Bank)https://www.frbatlanta.org/-/media/documents/education/lessons-and-activities/bell-ringer/risk-and-return-grab-bag.pdfThe Pros and Cons of Saving and Investing (Atlanta Federal Reserve Bank)https://www.frbatlanta.org/-/media/documents/education/publications/extra-credit/2016/fall/lessons-and-activities/high-school/personal-finance/saving-and-investing-activities/extra-credit_pros-and-cons-of-saving-and-investing-activity.pdfDay 2 - Calculating outcomesContent KnowledgeToo often people make financial decisions by looking at a single aspect of the investment – rateof return or risk. Consequently, they may not reach their financial goal. By focusing on both theimpact of the rate of return and the risk/reward trade-off, people can make more informedinvestment decisions.VocabularyBonds - A certificate of indebtedness issued by a government or a publicly held corporation,promising to repay borrowed money to the lender a fixed rate of interest and at a specified time.(Optional: Bonds are rated according to their perceived risk. AAA is the highest rating. B- or B3is the lowest for a bond of a firm or government that is not in default.)Certificates of Deposit (CD) - A (interest bearing) certificate issued by a bank to a persondepositing money in an account for a specified period of time (often six months, one year or twoyears). A penalty is charged for early withdrawal from CD accounts.Money Market Account - An interest-bearing account similar to a checking account. Depositsmay be added at any time; some money market accounts limit the withdrawals depositors maymake without paying a penalty. Also known as money market deposit account.255Virginia Council on Economic Education

Page 256

Mutual Funds - A pool of money used by a company to purchase a variety of stocks, bonds ormoney market instruments. Provides diversification and professional management for investors.Real Estate - Property such as land, houses and office buildings.Stocks - An ownership share or shares of ownership in a corporation.Treasury Securities – Bonds issued by the United States Treasury to investors when the federalgovernment borrows money. (Treasury bills have maturity of one year or less. Treasury noteshave maturity of one to ten years. Treasury bonds have maturity of more than 10 years.)Teaching Tips1) This is an extension of the Day 1 activity. Have students use average rates of return for allinvestment vehicles suggested in the Day 1 activity. It does not matter if students haveslightly different rates of return, as they may be using different financial institutions,different stocks, etc. Once students have gathered the information, make a list of theinstruments and rates of return on the board. Have students calculate doubling time for a$2,000 investment for each instrument. This doubling time can be determined by usingthe Rule of 72. Divide 72 by the rate of return to determine the time it will take theinvestment to double. Have students also estimate the number of times their investmentshould double between now and a retirement age of 70.2) Ask: Which investment will potentially provide you with the best retirement fund. Why?What are the advantages and disadvantages of each instrument in terms of return and risk,based on what you have already learned? Can you provide examples or hypotheticalsituations? What would you do as an individual investor?3) Discuss the results of their risk tolerance assessments, contrasting the differing resultsamong students.Lessons and ResourcesPersonal Decision Making: Focus on Economics Lesson 14: Savings and Personal Investment: IfYou’re So Smart, Why Aren’t You Rich?Learning, Earning, and Investing for a New Generation Lesson 1: Why SaveYour Credit Counts Section 5: Strategies for Wealth BuildingAsset Management – lessons and videohttp://www.pbs.org/teachers/access-analyze-act-economy/curriculum/assets/asset-managementKhan Academy tutorial on how to compare investments by calculating return on capitalhttp://www.khanacademy.org/video/return-on-capital?playlist=Finance256Virginia Council on Economic Education

Page 257

EPF.18 The student will demonstrate knowledge of investment and savings byc) comparing costs and income sources for investmentsDay 1 - Where can the money come from?Content KnowledgeMany people plan to begin saving later in life, but never do. Too often individuals will put theirhopes for savings on sources of funds that are unpredictable as to timing and size.VocabularyGifts – A voluntary present of money or some other valuable asset.Inheritance – Money or other assets given to a party upon one’s death, also known as a bequest.Market Gains – Proceeds from previous investments in the form of interest payments, dividends(regular distribution of profits) or capital gains (realized income from selling an investment at ahigher price than was paid for it).Savings - Money set aside for a future use that is held in easily-accessed accounts, such assavings accounts and certificates of deposit (CDs)Virginia Board of Education FrameworkSources of income funds for investing includesavingsgiftsinheritancesmarket gains.Cost to consider when investing includefinance charges and feesopportunity costsRisks to consider when investing includemarket lossesinterest rate risk.Teaching Tips1) Have the students examine the sources of funds for investing. Savings can be the easiestas they depend on income and can be as predictable as one wants. Gifts and inheritancecan be unpredictable both as to frequency and size. Market gains can fall between theseextremes. Some investments produce regular payments either as dividends or interestpayments, while others only produce capital gains which are subject to swings in themarket and perceived value of the investment. And one can lose money invested in themarket as well.257Virginia Council on Economic Education

Page 258

2) If readily available, students can use their research from Day 2 of Unit 11 (the amount ofmoney it would take to reach various goals). Also, using the information from theprevious day, have students calculate how long it will take to accumulate enough moneyto reach various goals using the alternatives from the recent PACED chart. Have studentsvary the age at which they begin saving or investing to see the effect on goal attainment.Lessons and ResourcesFinancial Fitness for Life (Grades 6-8) Lesson 12: Types of Savings Plans and InvestmentsRate of Return – powerpoint and lessonhttp://educateiowa.gov/index.php?option=com_docman&task=cat_view&gid=1025&limit=5&limitstart=0&order=hits&dir=ASC&Itemid=4434Day 2 - What does it cost to save?Content KnowledgeInvestors are often captivated by low fees, or low loads and end up paying more for aninvestment than they anticipated. This combined with natural investment volatility, can result ina lower nest egg for future use. Students need to be able to identify the costs associated withvarious investments and to understand how costs affect return on an investment by reducing theprincipal or the return. While no-load funds offer clear advantages, loads are not necessarily a“bad” thing. This is because no-load funds typically have higher annual costs, on average. Thatmeans, depending on how long you own the fund, you may be better off with a load.VocabularyFinance Charges/Fees - The total cost of credit, including interest and transaction fees.Interest Rate Risk - The chance that interest rates may change (upward) while the saver is"locked in" to a (lower) rate for a time deposit (a CD, for example) or a bond. Also the chancethat interest rates may change (downward) while a borrower is “locked in” to a (higher rate) on aloan.Load – A fee charged for purchasing (front-end) or selling (back-end) shares of a mutual fund.Loads are usually calculated as a percentage of the amount of the transaction. Some mutual fundsare no-load funds.Market Gains/Losses – The loss of value of an investment due to market conditions.Teaching TipsThe teacher will want to examine and explain the various types of fees that some investmentsmay carry. This will include annual maintenance fees, loads, and per transaction fees.258Virginia Council on Economic Education

Page 259

Hypothetical:Fund A Fund BNo load 5 % front-loadAnnual fee 1.5% Annual fee .75%Initial investment - $10,000 $10,000Rate of return 6% Rate of return 6%Ending Balance Year 1Investment + 6% - 1.5% Investment – 5% + 6% - 0.75%$10,441 $9,994.47Ending Balance Year 2Preceding balance + 6% - 1.5% Preceding balance + 6% - 0.75%$10,901.45 $10,514.68Ending Balance Year 3Preceding balance + 6% - 1.5% Preceding balance + 6% - 0.75%$11,382.20 $11,061.97Ending Balance Year 4Preceding balance + 6% - 1.5% Preceding balance + 6% - 0.75%$11,884.16 $11,637.75Ending Balance Year 5Preceding balance + 6% - 1.5% Preceding balance + 6% - 0.75%$12,408.25 $12,243.49Ending Balance Year 6Preceding balance + 6% - 1.5% Preceding balance + 6% - 0.75%$12,955.45 $12,880.76Ending Balance Year 7Preceding balance + 6% - 1.5% Preceding balance + 6% - 0.75%$13,526.79 $13,551.20By the end of year 7, the difference in annual maintenance fees more than offsets theload.Lessons and ResourcesEconEdLink.org The Five Stages of Investinghttps://www.econedlink.org/resources/the-five-stages-of-investing/259Virginia Council on Economic Education

Page 260

Page 261

EPF.18 The student will demonstrate knowledge of investment and savings planning byd) examining the fundamental workings of Social Security and the system’s effects onretirement planningDay 1 - Examining Social SecurityContent KnowledgeThe Social Security system is a key part of the U.S. financial support system, providing benefitsfor retirees, the disabled and the survivors of workers. Everyone needs to understand what itmeans for them during their working lifetimes (how FICA affects their gross pay) and inretirement (how much income they can expect to receive from social security).VocabularyBenefits – monetary payments paid to workers who have contributed to the system when theyare retired or disabled or to their survivors in case of death.Federal Insurance Contributions Act (F.I.C.A.) - A federal system of old-age, survivors,disability and health-care insurance (Medicare) which requires employers to withhold (ortransfer) wages from employees' paychecks and deposit that money in designated accounts.Social Security System - A federal system of old-age, survivors', disability and hospital care(Medicare) insurance which requires employers to withhold (or transfer) wages from employees'paychecks and deposit that money in designated accounts.Virginia Board of Education FrameworkSocial Security was designed as a safety net to provide income to older people when they couldno longer work.Social Security benefits are determined by the amount an individual has contributed to thesystem and the individual’s age when claiming benefits. Social Security benefits includedisability and survivor benefits, as well as retirement income.For retirement planning, Social Security payments are likely to be less than income has been.Most retirees will need to supplement through savings, investments, continued employment, oradjusted lifestyle.Teaching Tip1) The video cited below can be used as an introduction. Upon completion of the video, askstudents key questions about how social security operates, how it is structured, and whocan receive benefits and under what conditions.Lessons and Resources261Virginia Council on Economic Education

Page 262

Page 263

EPF.18 The student will demonstrate knowledge of investment and savings bye) contrasting alternative retirement plansDay 1 - IRAs, 401(k)s, Pensions and AnnuitiesContent KnowledgeIndividuals who are fortunate to have some form of retirement benefits through their employerare no longer restricted to traditional pensions, and defined-benefit pensions are becoming rarer.In some circumstances, individuals can augment their retirement with IRAs. And manyemployers offer 401(k) plans. Individuals are increasingly responsible for making choices thatwill affect the funds available for their retirements.Vocabulary401(k) – A type of retirement savings account allowed in the United States. This account isfunded a variety of ways involving contributions from the employee and employer. In somecircumstances, funds are contributed pre-tax and the proceeds are taxed upon withdrawal.Annuity – A financial contract where an individual makes a series of payments over time. At anagreed-upon time, the individual stops making payments and begins to receive payments, eitherfor the rest of their life or for a defined period of time.Individual Retirement Account (IRA) - An account in which an individual may set asideearned income in a tax-deferred savings plan for his or her retirement. There are two types ofIRAs, traditional and Roth, each with its own qualifications and rules governing contributionsand withdrawals.Keogh Plan - A federally-approved, tax-deferred savings program for self-employed people,allowing them to set money aside for their retirement.Pension Fund - An account established by a business to fund retirement benefits for its workers.Pension funds invest in stocks, bonds, mutual funds and real estate. Funds can either be definedbenefit (the amount withdrawn upon retirement is set in advance – frequently as a percentage ofsalary); or defined contribution – where the amount contributed is defined and the amountwithdrawn is dependent upon market performance and investment choices.Pre-tax – A portion of the wage or salary that has not had taxes withheld prior to being allocatedto a retirement plan or other approved benefit.Virginia Board of Education FrameworkSome retirement plans currently available includeIndividual Retirement Account (IRA)Tax-sheltered annuity (TSA)Keogh planannuityemployer retirement planpublic pension plan.263Virginia Council on Economic Education

Page 264

Evaluating retirement plans requires knowledge of the costs and benefits of each type. Forexample, one cost of an IRA is the severe early-withdrawal fee, which is countered by the benefitof contributions reducing taxable income.Teaching Tips1) The teacher should spend time with the students discussing and constructing a table orchart as shown below.2) Have students complete a costs and benefits comparison of each retirement investmentoption.RetirementInvestmentWhocontributesmoneyRiskPayoutTax Issues401K -retirementsavings plansponsored by anemployer.Employeescontribute apercentage oftheir income intothe fund.Many employerswill willcontributematches to theemployeescontributions.Employees cancontrol how theirfunds areinvested. Mostplans offer aspread of mutualfunds composedof stocks, bonds,and moneymarketinvestments. Themost popularoption tends to betarget-date funds,a combination ofstocks and bondsthat graduallybecome moreconservative asyou reachretirement.No access to yourfunds before age59 ½ or if youleave youremployer at age55 or older.If you dip in early,expect a 10%penalty — on topof the usual taxbill.Contributionsare made onpre-tax dollars.Withdrawals aresubject toincome tax.403B - alsoknown as atax-shelteredannuity (TSA)plan, is aretirement planfor certainEmployeescontribute someof their salary tothe plan. Theemployer mayalso contributeto the plan forEmployees cancontrol how theirfunds areinvested. Mostplans offer aspread of mutualfunds composedMost plans allowemployees totake money outof the plan whenthey:reach age 59½;There aresignificant taxadvantages forparticipants in a403(b),including pre-taxcontributions to264Virginia Council on Economic Education

Page 265

employees ofpublic schools,employees ofcertaintax-exemptorganizations,and certainministers.employees.of stocks, bonds,and moneymarketinvestments. Themost popularoption tends tobe target-datefunds, acombination ofstocks and bondsthat graduallybecome moreconservative asyou reachretirementhave a severancefromemployment;becomedisabled;die; orencounter afinancialhardship.If an employee isfully vested, heor she may electto withdraw theaccumulatedbenefits and besubject to certaintax liabilitiesand/or penalties,or transfer it toan IndividualRetirementAccount (IRA)or, in somecases, to anotheremployer plan.a 403(b) planand earnings onthese amountsare not taxeduntil they aredistributed fromthe plan.Annuity - is afinancial productthat pays out afixed stream ofpayments to anindividual,primarily used asan incomestream forretirees.Annuities arecreated and soldby financialinstitutions,which acceptand invest fundsfrom individualsWhile variableannuities carrysome market riskand the potentialto lose principal.The lump sumput into theannuity isilliquid andsubject towithdrawalpenalties.Annuities can becreated so that,uponannuitization,payments willcontinue so longas either theannuitant or theirspouse (ifsurvivorshipbenefit iselected) is alive.Alternatively,annuities can bestructured to payout funds for aAnnuity earningsare subject toincome tax whenpayouts arereceived. Iftaken out beforeage 59½, may besubject to a 10%IRS penalty.265Virginia Council on Economic Education

Page 266

fixed amount oftime, such as 20years, regardlessof how long theannuitant lives.Furthermore,annuities canbeginimmediatelyupon deposit of alump sum, orthey can bestructured asdeferredbenefits.Traditional IRA- a way to savefor retirementthat gives youtax advantages.You makecontributions toa traditional IRAwhich may befully or partiallydeductible,depending onyourcircumstances.General marketrisk.Withdrawals canbegin at age 59½, butwithdrawalsmade prior tothat age aregenerally subjectto a 10% penalty.Earnings aretax-deferreduntil withdrawn.Pension - aretirementaccount that anemployermaintains to giveyou a fixedpayout when youretire.Your employermakescontributionsinto your cashbalance pension.A pension thatincludes cliffvesting typicallymeans that if youleave the job infive years orless, you lose allpension benefits.A pension thatincludes gradedvesting you willreceive aminimum of20% of yourbenefit if youleave after threeyears andultimatelyYour payouttypicallydepends on howlong you workedfor youremployer and onyour salary.When you retire,you can choosebetween alump-sumpayout or amonthly"annuity"payment.You will payincome taxesupon receivingpayouts fromyour pension.266Virginia Council on Economic Education

Page 267

receive 100%after seven yearsof employment.Keogh Plan -tax-deferredpension planavailable toself-employedindividuals.Theself-employedindividual willcontribute apercentage ofprofit into theplan.General marketrisk.Also, Keoghplans have moreadministrativeburdens andhigher upkeepcosts 401(k)plans, but thecontributionlimits are higher.Funds can beaccessed as earlyas age 59.5, andwithdrawalsmust begin byage 70.5.You will payincome taxesupon receivingpayouts from theplan.Lessons and ResourcesRetirement Planning Project (Atlanta Federal Reserve Education)https://www.frbatlanta.org/-/media/documents/education/publications/extra-credit/2015/spring/lessons-and-activities/high-school/personal-finance/project-based-learning-for-personal-finance-classroom/projects/10-retirement-planning.pdfPBS Frontline: How Much Will You Have When You Retire?http://www.pbs.org/wgbh/pages/frontline/teach/retirement/lesson1.htmlReadingWhy We Can All Learn a Lesson From Michael Jackson (estate planning)http://retiresecure.com/why-we-can-all-learn-a-lesson-from-michael-jackson/Day 2 - Help from your employerContent KnowledgeSome employers offer a monetary match for funds the employee contributes toward a retirementplan. Too many people choose not to participate in employer match programs. Essentially, theychoose to not collect part of their salary.Teaching Tips267Virginia Council on Economic Education

Page 268

1) This is an extension of the previous day’s activity. Have students calculate the value ofemployer contributions and employer matching programs for various types of retirementinvestments. Ask students what the opportunity cost of not participating in an employermatched plan means in terms of their total compensation – how much are they reallymaking if they participate fully vs. not participate at all?2) Refer to the principles of economic reasoning to understand why people fail to act toobtain the benefit of matching funds from their employers. See Unit 11, Day 1. Why dopeople fail to do what they know they should do? (Because the effects of many of ourdecisions are felt in the future, and humans have a natural tendency to deal with needsthat have immediate impact rather than taking time to arrange for benefits that will beexperienced in the future.) Discuss how students can set aside time to address their futurefinancial needs on a regular basis. Keeping a picture that represents fulfillment of afuture goal, in a prominent place, may help one to take action towards that goal.268Virginia Council on Economic Education

Page 269

EPF.18 The student will demonstrate knowledge of investment and savings byf) describing how the stock market works.Day 1 - What are stocks? What is the difference betweenspeculating and investing?Content KnowledgeUnderstanding what stocks are and how the stock market works will help students better evaluateinvestment decisions.VocabularyBroker – an individual license to buy and sell stocks on behalf of others.Capital Gains - A profit realized from the sale of property, stocks or other investments.Dividend - A share of a company's net profits paid to stockholders.Exchange – A place for the buying and selling of stocks, bonds or other investmentsInvesting - The process of putting money someplace in the long-term with the intention ofmaking a financial gain. Investment possibilities include stocks, bonds, mutual funds, real estate,and other financial instruments or ventures.Specialist – An individual who works at an exchange and whose job is to make a market whennone exists, essentially buying stocks when there is no buyer and selling stocks when there is noseller.Speculating – The process of putting money someplace in the short-term with the intent ofmaking a profit from market movement.Stock - An ownership share or shares of ownership in a corporation.Virginia Board of Education FrameworkCompanies that wish to raise funds for growth can borrow money or sell shares (stock) of theircompany. To issue stock, firms generally go to investment banks that put together a prospectuswith information for potential investors, help determine the market price of the offering, andissue the stocks in the primary market, where they are purchased. This provides businesses withfunds to finance growth.A stock exchange where buyers sell their shares is called the secondary market. Trades here areconducted between buyers; none of the money goes to the company.In the secondary market, for every buyer there must be a seller. If there is no buyer or seller, a“specialist” at the stock exchange is required to “make a market.” Buyers and sellers may workthrough a local broker who works through a floor broker at the stock exchange, or they mayplace orders for trades online. In either case, a commission is charged to pay the costs of thebrokerage firms and the stock exchange.269Virginia Council on Economic Education

Page 270

When companies make profits, they may keep the profits to help them grow or they may sharethe profits with shareholders in the form of dividends. Shareholders can make money throughdividends or through capital gains. A capital gain occurs when one sells a share for more thanone paid for it. Stock prices are determined by supply and demand based on investorexpectations. If a company is expected to be profitable in the future, demand for its shares risesand the price rises; when a company’s future looks less-than-profitable, demand decreases andthe price falls.Teaching Tips1) The teacher may want to refer to material covered in Unit 5 which addresses what stocks are,how they are created and traded, and why people choose to invest in them. Time should also bespent explaining the difference between investing and speculating.2) One activity is to have students select stocks and begin to track the movement of the stockover the period of a week or two, or longer. Students can use online or traditional media as a wayto find prices. Students should be encouraged to track the stock by creating a graph using Excelor other spreadsheet software.If students have not already used an online stock market simulation, this would be an appropriatetime to introduce such a simulation.Lessons and ResourcesLearning, Earning & Investing for a New Generation Lesson 3: What is a Stock?, Lesson 4:Finding Financial Information Online, and Lesson 7: What are Stock Markets?EconEdLink.org Developing a Financial Investment Portfoliohttps://www.econedlink.org/resources/developing-a-financial-investment-portfolio/Teaching about the Stock Market – Lesson Plans and Teacher Materialshttp://www.vcee.org/Teacher_MaterialEconEdLink.org NYSE Made Easyhttps://www.econedlink.org/resources/nyse-made-easy-lesson-plan/VideoUnderstanding Capital Markets - Tools for Enhancing The Stock Market Game™: Invest itForward™, Episode 1 (5:32)https://www.stlouisfed.org/education/tools-for-enhancing-the-stock-market-game-invest-it-forward/episode-1-understanding-capital-marketsSimulation270Virginia Council on Economic Education

Page 271

The Stock Market Game in Virginia – Student teams manage a $100,000 portfolio and cancompare their results with other teams in the region and the state. Recognition is given to theteams with the highest portfolios after a stated period of time (traditionally 10 weeks.)http://www.vcee.org/programs-awards/view/4The Stock Market Gamehttp://www.smgww.org/Day 2 - What makes a stock rise or fall?Content KnowledgeThe stock market reacts to reality and to expectations. Students can benefit from understandingthe difference and from distinguishing examples of each.Virginia Board of Education FrameworkStock prices are determined by supply and demand based on investor expectations. If a companyis expected to be profitable in the future, demand for its shares rises and the price rises; when acompany’s future looks less-than-profitable, demand decreases and the price falls.When the overall economy is robust and growing, people become optimistic about prospects forbusiness and the stock market goes up. Likewise, when investment interest rates fall, the stockmarket generally rises. When interest rates rise, the market goes down. When the overalleconomy is in decline, investors lose confidence and the stock market goes down.Teaching Tips1) The teacher should pick a stock and ask: What is likely to happen to demand for the stock(and its price) for each of the following headlines:Company reports 50% increase in sales.Company to pay all-time high dividend to stockholders of record at end of last month.Company being sued for damages – injuries to children by product.Company largest supplier files for bankruptcy – supplies uncertain.Company to open new store in largest shopping malls.Fifty new retail outlets open in largest cities of China, India.Lawsuit against company dismissed, appeal promised.New use found for company’s oldest product – may cure cancer.In each case, ask students to explain why they think the action will take place. If helpful tostudent understanding, this is an excellent opportunity to use a supply and demand graph toreview events that cause moves along the lines or cause the line to shift. Draw a supply/demandgraph where it can be seen by the class. Adjust the chart for each of the headlines above (moveone of the curves, move both of the curves or move along the curves)271Virginia Council on Economic Education

Page 272

2) Students should then be encouraged to use resources available to look for news items aboutknown companies and suggest whether they think this would make the company more attractiveor less attractive to investors and provide an explanation.Lessons and ResourcesLearning, Earning & Investing for a New Generation Lesson 14: How are Stock PricesDetermined?EconEdLink.org Here’s Your Chance to Make Millions in the Stock Markethttps://www.econedlink.org/resources/heres-your-chance-to-make-millions-in-the-stock-market-part-1/EconEdLink.org Stock Market Price Historyhttps://www.econedlink.org/resources/stock-market-price-history/272Virginia Council on Economic Education

Page 273

EPF.10i The student will develop consumer skills byi) accessing reliable financial information from a variety of sources.Day 1 - Evaluating sources of informationContent KnowledgeJust as there are news sources that can’t be trusted or may not present the entire picture, somefinancial sources are more reliable than others. Students need to be able to evaluate sources ofinformation before relying on them to help make investment decisions.Virginia Board of Education FrameworkData may be gathered from print, electronic, and verbal sources such as• newspaper financial pages• Internet sources• investor services and newsletters• financial magazines• brokers• banks• credit unions• financial advisors• annual reports.Financial data must be evaluated for reliability:• Some information sources have an incentive to sell a product.• Statistical data can be misrepresented, for example, to imply cause and effect.• Some information sources are opinion programs, and others are news programs.• Some advisors are more skilled than others.• Past performance is no guarantee of future performance.• It is the consumer’s responsibility to determine the reliability of the information.Teaching Tips1) This is an extension of the previous day. Ask: What makes a source of information reliable?Why do you believe things you are told by some people and not by others? Can you apply someof these “filters” to what you read or hear about financial information?Lessons and ResourcesEconedlink lesson: Evaluating Websites.https://www.econedlink.org/resources/cybersecurity-and-economics-evaluating-websites/273Virginia Council on Economic Education

Page 274

Page 275

Page 276

UNIT 13 – LABOR MARKETS, HUMAN CAPITAL ANDINCOME (9 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/A student’s lifetime income will depend on the choices he/she makes in high school andpost-secondary education. Due to the importance of bringing this home to students, this unitelaborates on the theme of developing one’s human capital for which the foundation was laid inUnit 6, “What will determine my income?” More than ever before, people will change careersand occupations. Also, more and more, the existence (or non existence) of jobs is influenced byglobalization as discussed in Unit 10. An understanding of labor markets provides an essentialunderpinning to making choices about developing one’s human capital. Details regarding typesof income and employment benefits complete the income picture prior to tax considerations inthe next unit.EPF.10 The student will develop consumer skills byb) examining the effect of supply and demand on wages and priceDays 1 and 2 Demand for laborDay 3 Supply of laborEPF.15 The student will demonstrate knowledge of income earning and reporting bya) examining how personal choices about education, training, skill development and careersimpact earningsDays 1 and 2 How and where can you develop your human capital?EPF.15 The student will demonstrate knowledge of income earning and reporting byb) differentiating among sources of incomeDay 1 Wages, interest, profitsEPF.15 The student will demonstrate knowledge of income earning and reporting byd) investigating employee benefits and incentivesDays 1 and 2 Benefits and incentivesEvaluation DayVirginia Council on Economic Education276

Page 277

EPF.10 The student will develop consumer skills byb) examining the effect of supply and demand on wages and pricesDays 1 & 2 - Demand for laborContent KnowledgeDemand for labor changes with the demand for skills, which changes with the demand for goodsand services. Comprehending this requires a review of what causes demand to change. Studentsneed to realize that employability depends on having skills that are transferable among differentjobs and that are in demand.VocabularyDerived Demand - Demand resulting from what a good or service can produce, not demand forthe good or service itself.Determinants of Demand - Factors other than the price of a good or service that change (shift)the demand schedule, causing consumers to buy more or less at every price. Factors includeincome, number of consumers, preferences and prices of related goods.Productivity - The amount of output (goods and services) produced per unit of input (productiveresources) used. In this case, the value of a worker’s output compared to the worker’s wage.Virginia Board of Education FrameworkWorkers who invest in their own human capital generally become more productive. Productiveworkers lower the cost of production, thus employers seek to hire the more productive workers.Workers with more knowledge and skill generally earn more than unskilled workers.The demand for workers is derived from the demand for the goods and services they make.When demand for a good or service falls, demand for the workers who produce the good orservice rises, demand for workers does too.According to the law of demand, people buy more at lower prices and less at higher prices. Allelse being equal, prices rise with an increase in demand and fall when demand decreases.Demand is affected by non-price factors such as changes in the number of consumers, consumerincome, taste, expectations, and the price of related goods (i.e., complements and substitutes).Teaching TipsVirginia Council on Economic Education277

Page 278

1) Remind students that they learned about supply and demand in Unit 4. Ask a student toname a product. [If helpful for the later development of this example, have a studentcome to the board and draw a graph illustrating the supply and demand for that product.Numbers need not be included in the graph.] Ask the class: What resources go intoproducing this product? (Guide the students into naming labor). Ask: What determineshow much labor is needed? Students should come to recognize that when there is moredemand for the product, there is more need for labor to produce the product. Explain thatthis is the concept of derived demand – the quantity of resources, including labor that isdemanded, depends on demand for the product. This is true across all products andservices. Therefore, the desire of employers to hire employees depends on the existenceof demand for their products.2) Remind students of the determinants of demand, in preparation for working with thesuggested article on dying industries. What are the causes of shifts in demand? Theteacher may wish to review Unit 4, “The Price System” in preparation for teaching thisday’s lesson. Use the student-drawn supply and demand graph to go over some examplesof how each determinant causes the demand curve to shift.3) Have students read portions of the article on dying industries, or assign it for homework.(The teacher may choose to highlight the relevant sections.) Ask: What types of jobs maybe affected? What is causing these industries to die? (In many of the technologicaladvance cases, it is a change in demand for the products that they produce; however, theexternal competition factor relates primarily to supply, rather than to changes in demandfor the products. Supply will be addressed on the following day.)4) In cases where it is a change in demand causing the decline, what are the changes indeterminants of demand that are shifting demand for these products? (In some cases, thedeterminant is prices of related goods. For example, once a family has a computer, thepresence of free content on the internet means that news from internet sources (asubstitute good) is free, so demand for newspapers, which are not free, falls.Photofinishing is similar: once one has a digital camera, computer, and printer, homeprinting (a substitute for photofinishing) is very inexpensive, so people are switching tothe substitute.)5) Continue the discussion of jobs being lost in the dying industries. Have students thinkbeyond the retail to include manufacturing and service/support. Ask students to suggestindustries that might require similar employees. What type of jobs would be available andhow might they be affected by the shift? What type of skills will be necessary?Lessons and ResourcesReadingUSA Today: Dying Industrieshttps://www.usatoday.com/story/money/economy/2017/12/28/americas-25-dying-industries-include-sound-studios-textiles-newspapers/982514001/Virginia Council on Economic Education278

Page 279

Day 3 - Supply of laborContent KnowledgeThe days of choosing a career, getting trained for it, and then settling into it have changed to areality of rapid change and evolution. Students need to understand how earnings relate to supplyand demand, and how they can seek out careers with good potential by building and continuouslyimproving skills to make themselves employable.VocabularyDeterminants of Supply - Factors other than the price of a good or service that change (shift)the supply schedule, causing producers to supply more or less at every price. Factors includenumber of producers, production costs, and technology and productivity.Human Capital - The health, education, experience, training, skills and values of people. Alsoknown as human resources.Human Capital Investment - Investment of time, effort and resources in education andtraining--to increase one's own knowledge, skills, health, etc., or to develop those assets inothers.Virginia Board of Education FrameworkAn increase in the supply of workers with a specific skill tends to decrease their wages, while alimited supply of such workers tends to increase wages.Prices fall with an increase in supply and rise with a decrease in supply. Supply is affected bychanges in the number of suppliers, cost of production, technology, expectations, governmentpolicies, and catastrophic events (e.g., hurricanes, wars).Teaching Tips1) In the dying industries article discussed on the previous day, several of the industrieswere suffering from external competition. Explain that lower priced labor in other partsof the world is replacing the use of US labor in many areas of manufacturing. This isparticularly true with regard to manufacturing that uses unskilled labor.2) The teacher may wish to use the simulation activity from the Personal Decision Makinglesson below; however, the teacher will want to update the wage amounts to reflectcurrent wages.3) Explain that a supply and demand graph can be used to understand the pay that peoplereceive for their labor. Have students tell you step by step how to draw a supply anddemand graph. Label the graph “Supply and demand for labor in an industry”. The ideabehind this graph is that it illustrates the supply and demand for the labor that employeessupply. So, the suppliers in this graph are workers. Ask: Who are the demanders oflabor? (Employers.) Ask them to recall what they learned about derived demand. So ifVirginia Council on Economic Education279

Page 280

consumers want to buy a lot of the products that this industry makes, how will it changethe appearance of the graph? (Demand will shift to the right.) What does the price axisrepresent on this graph? (The price of labor, which is the rate of pay to workers.) Whateffect will the rightward shift have on workers’ pay? (An increase.) What effect willthere be if many people want to work in this industry? (Supply shifts right.) How willthat affect pay? (It will decrease.)4) What can we conclude about the characteristics of industries in which we want to work,assuming we want to earn high pay? (We would like to find industries where demand fortheir products is projected to be strong, and where there is not a large supply of workers.)What makes for a more limited supply of workers in an industry? Ask: Do you knowmany people whose parents are heart surgeons or nuclear physicists? (Most likely not.The supply of workers will be more limited if special skills and education are required.)5) The teacher can provide pages of the Occupational Outlook Handbook, or have studentsvisit the site and look for pre-selected careers or careers of interest. Students should befocused on the career requirements, training and job outlook over the next 10 years.Students should be reminded that in some cases, they may be in training for a goodportion of that period.Lessons and ResourcesPersonal Decision Making Lesson 4: A Student’s Potential in the Labor Market: It’s a Matter ofSupply and Demand.ReadingsOccupational Outlook Handbookhttps://www.bls.gov/ooh/Add St. Louis Fed Labor Market video day 3.https://www.stlouisfed.org/education/economic-lowdown-video-series/episode-4-the-labor-marketVirginia Council on Economic Education280

Page 281

EPF.15 The student will demonstrate knowledge of income earning and reporting bya) examining how personal choices about education, training, skill development and careersimpact earningsDays 1 & 2 - How and where can you develop your human capital?Content KnowledgeJobs and careers are changing. Students need to build an awareness of careers that can build ontheir natural abilities and interests, and the kinds and locations of training those careers require.Virginia Board of Education FrameworkHuman capital refers to the knowledge and skills a person possesses.People invest in their own human capital when they gain knowledge and skills througheducation, training, and experience.People with more education and skills tend to earn higher incomes than uneducated and unskilledworkers.Teaching Tips1) As a reintroduction to the important role of human capital, the teacher may wish to use theactivity simulating different levels of human capital in the lesson “Invest in Yourself” (below).2) The teacher may wish to review Unit 6, “What will determine my income?” in preparation fortoday’s lesson. Students may already have participated in an inventory of their human capital. Ifso, refer them back to the results of that inventory. If not, refer to the resources set out at Day 1of Unit 6. The guidance department may also have a variety of assessments of skills andinterests.3) Have students continue to seek information from the Occupational Outlook Handbook orelsewhere on jobs that may be of interest. Whereas the previous day’s focus was on the outlookfor various occupations, focus now should be on the students’ aptitudes and interests, theparticular education, training, and skill requirements. In addition to those requirements, studentsshould consider geographical factors (are they willing to move; whether the type of training orschooling necessary is available nearby), and salaries.4) Using materials in the guidance office as well as electronic media, students should investigatefurther what type of training is necessary for their job interest, where it is available, and howmuch it would cost. Students should also look critically at the job placement rate of the traininginstitution.Virginia Council on Economic Education281

Page 282

5) Direct students once again to their goals and the estimated cost of achieving those goals. Dotheir cost estimates for post-secondary education need revision? How might they fund theirpost-secondary training? Are there alternatives that may be acceptable? Have students evaluatealternatives and possible funding schemes. You may wish to have them use the PACED decisionmodel for this purpose.Lessons and ResourcesOnlineOccupational Outlook Handbookhttps://www.bls.gov/ooh/It’s Your Paycheck Curriculum, Lesson 1 “Invest in Yourself”http://www.stlouisfed.org/education_resources/paycheck.cfmPACED Decision Gridhttp://www.econedlink.org/lessons/docs_lessons/764_PACED1.pdfAdd the following:1. Lesson 1 of https://www.investinwhatsnext.org/2. The Invest in What’s Next Human Capital Line Activity3. Atlanta Fed Human Capital Infographic and part 1 of the Human Capital lesson.https://www.frbatlanta.org/education/publications/extra-credit/2016/spring/lessons-and-activities/high-school/personal-finance/teaching-human-capital.aspx?d=1&s=freVirginia Council on Economic Education282

Page 283

EPF.15 The student will demonstrate knowledge of income earning and reporting byb) differentiating among sources of incomeDay 1 - Wages, interest, profitsContent KnowledgeSome compensation packages involve different types of pay. Students need to understand whateach kind is and how to calculate it.VocabularyBonuses – Additional compensation received in addition to wage or salary, usually awarded formeeting certain targets or successful completion of a project.Commission – Compensation based on the amount of business transacted, usually measured as apercentage of sales.Overtime – Additional compensation based on hours worked in excess of a maximum during agiven period. In the U.S., overtime is usually awarded for time worked in excess of 40 hours perweek, and usually at a rate equivalent to 1 ½ times the regular wage.Piece Rate – Compensation based on the number of units produced.Salary – A regular payment, often at monthly or biweekly intervals, made by an employer to anemployee, especially in the case of professional or white-collar employees. Salaries are paid forservices rendered and are not based on hours worked.Tips – Additional compensation provided by customers to workers in certain service sector jobs.Tips are frequently given for services like waiting on tables or personal services like hair care.Wage – Payments for labor services that are directly tied to time worked, or to the number ofunits of output produced.Virginia Board of Education FrameworkIncome can be earned or unearned.Earned income includes:● Salary● Hourly wages● Overtime● Tips● Commissions● Bonuses● Piece rateUnearned income includes● Interest● Return on investment● Inheritance● GiftsVirginia Council on Economic Education283

Page 284

Teaching Tips1) Explain that income is divided into two categories, earned and unearned. Ask: What do youthink unearned income refers to? (Interest, returns on investment, inheritance and gifts.) Are allof those really unearned? (They may have some interesting thoughts on whether inheritance andgifts are unearned.) Remind them what they learned about savers earning interest as a paymentin return for forgoing spending their money (Unit 11). In Unit 12 they learned about therelationship between risk and reward, where riskier investments pay higher interest as aninducement to take on greater risk. So from an economic point of view, interest and returns couldbe seen as “earned” by savers and lenders—but the convention is to term all of these items“unearned income.”2) On a surface where all of the students can see, demonstrate how different types ofcompensation are calculated, using the following examples:Salary$42,500 per year paid monthly =$42,500 per year paid bi-weekly (remind students there are 52 weeks in a year) =Bonus5% of the above salary =Commission2.5 % of weekly sales of $900 =1.5% of weekly sales of $1,350 =Wage$8.75 per hour for 35 hours =$10.25 per hour for 40 hours =OvertimeCalculated on the first rate above, time-and-a-half for 8 hours =Calculated on the second rate above, time and half for 5 hours =Piece Rate125 units at $2.50 per unit =75 units at $6.10 per unit =Tips15% on a check of $30.00 =18% on a check of $42.00 =Virginia Council on Economic Education284

Page 285

The teacher should provide additional examples, perhaps including combinations. Example:Work as a salesman with a basic wage of $3.25 per hour for 20 hours and commission of 2% ofweekly sales of $1,650.Add St. Louis Fed It’s Your Paycheck Curriculum, Lesson 2 ‘W is for Wages, W-4, and W-2lesson. https://www.stlouisfed.org/education/its-your-paycheck-curriculum-unit/EPF.15 The student will demonstrate knowledge of income earning and reporting byd) investigating employee benefits and incentivesDays 1 and 2 - Benefits and incentivesContent KnowledgeThe total compensation package for many jobs goes far beyond the basic wage or salary. Anunderstanding of the value of benefits is essential in choosing which job opportunities to pursue.VocabularyChild Care – Deductions made from gross pay to fund certain kinds of child care expenses.Deductions may be made pre-tax.Elder Care – Deductions made from gross pay to fund certain kinds of elder care expenses.Deductions may be made pre-tax.Health Insurance Plans – Deductions made from gross pay to help pay all or part of healthinsurance premiums. These can include basic health, major medical, dental and vision plans.Some employees will pay the entire monthly premium. Some will pay part of the monthlypremium with employees paying the rest. Some will make insurance available if the employeewants to purchase it – paying the full premium.Matching Contributions – Additions made to gross pay by an employer to fund certain types ofdeductions like saving for retirement plans.Paid Sick Days – Compensation given to employees when they are ill and can’t work. This isusually made at the daily rate for a limited number of days.Paid Vacation – Compensation given to employees during vacation time. This is usually made atthe daily rate for a limited number of days.Parking – Deductions from or additions made to gross pay to pay for parking in certain areas.Profit Sharing – Additions made to gross pay of employees from profits. Employees receive ashare of profits of the employer when certain levels are met or exceeded.Savings Plans – Deductions from gross pay to help fund retirement or other savings vehicles.Deductions may be made pre-tax and may be partially matched by employers.Virginia Board of Education FrameworkBenefits are part of an employee’s compensation, over and above wages or salary. They add tothe financial value of a job and may include● Matching contributions to tax sheltered annuities, such a 401 (k) and 403 (b)retirement savings plansVirginia Council on Economic Education285

Page 286

● Saving plans● Parking● Health insurance plans (medical, dental)● Child care● Elder care● Paid vacation● Paid sick days● Profit sharingIncentives are offered as motivation for employees to perform well and may include● Bonuses● Profit sharing● Free travel or merchandiseTeaching Tips1) Ask students to speculate about the difference between benefits and incentives. While all ofthe items on the above list from the Virginia Board of Education Framework would qualify asincentives to accept one job over another that offers fewer benefits, “incentives” in this contextrefers to extra compensation that is tied to how well the employee performs.2) The teacher should spend time explaining basic and less common benefits. As background, theteacher will want to investigate the Bureau of Labor Statistics (www.bls.gov) resources devotedto employee benefits (below). Point out the dollar value of benefits such as paid vacation andpaid sick leave and other readily quantifiable benefits such as matching contributions, paidparking, or employer-provided childcare. For the value of other benefits, one would need specificinformation about insurance costs, etc.3) If computers are available, have students investigate benefits available at well knownemployers, or employers that they might like to work for, in government, business, or thenonprofit sector. Many company and organization websites include information about theirbenefits packages.4) Use the second day to have students report on their findings.Lessons and ResourcesOccupational Outlook Quarterly Summer 2005, An overview of employee benefitshttp://www.bls.gov/opub/ooq/2005/summer/art02.pdfEmployee Benefits Surveyhttp://www.bls.gov/ncs/ebs/Article: How to Build a Competitive Employee Benefits Packagehttp://www.inc.com/guides/2010/04/offering-competitive-employee-benefits.htmlVirginia Council on Economic Education286

Page 287

Page 288

Page 289

UNIT 14 – TAXES (7 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/Governments provide a means to obtain goods and services that the marketplace operatingwithout government would not provide. In order to provide goods and services, governments taxtheir citizens. Students need to understand their tax obligations and how income, sales,personal property, real property, and estate taxes affect them, as well as the deductions andcredits available to them.EPF.16 The student will demonstrate knowledge of taxes bya) describing the types and purposes of local, state, and federal taxes and the way each islevied and used.Day 1 Why should citizens pay taxes – what’s in it for us?EPF.15 The student will demonstrate knowledge of income earning and reporting byc) calculating net paye) completing a standard W-4 formEFP.16 The student will demonstrate knowledge of taxes bye) explaining the content and purpose of a standard W-2 form.Day 1 Gross pay, withholding, and net payEFP.16 The student will demonstrate knowledge of taxes byd) examining potential tax deductions and credits on a tax return.Day 1 Tax deductions and tax creditsDay 2 Completing a 1040 EZ and determining your tax bracket and average tax rateEFP.16 The student will demonstrate knowledge of taxes byc) computing local taxes on products and services.Day 1 Computing local taxesEFP.16 The student will demonstrate knowledge of taxes byf) explaining the similarities and differences between state and federal taxation ofinheritances.Day 1 Inheritance and estate taxes - what’s the difference?289Virginia Council on Economic Education

Page 290

Page 291

EPF.16 The student will demonstrate knowledge of taxes bya) describing the types and purposes of local, state, and federal taxes and the way each islevied and used.Day 1 - Why should citizens pay taxes – what’s in it for us?Content KnowledgePolitical rhetoric can obscure the fact that without taxes, many essential government functionscannot operate. At this juncture it is useful to remind students of what they learned in Unit 7about the role of government in a market economy, and reinforce that learning with concreteexamples from local, state, and national government.Teaching Tips1) The teacher may want to review the material from Unit 7 in preparation for this day’s lesson.2) Have the students brainstorm local, state, and national functions of government and what isneeded to accomplish those functions. For example, local police protection requires squad cars,gas, mechanical services, employment of officers, desks, a building to house the policedepartment, utilities for that building, employment of dispatchers, etc. At the state level, lawenforcement requires laboratories, employment of forensic experts and laboratory personnel,buildings in which to carry out those functions, employment of state troopers to be able to pursuecriminals beyond the limits of the local jurisdiction, cars for them, etc. At the national level, theFBI enables the pursuit of criminals across state lines, and it requires many of the same kinds ofitems and employees. The same could be done for education, courts, etc.The teacher may want to distribute a schema in which students can note particulars needed ateach of the local, state, and national level for any of a variety of government functions.3) Ask: Which of these functions can be fulfilled by private enterprises? Why will some ofthese functions not be fulfilled in the absence of funding to the government? Review the role ofincentives. Ask: What is the primary incentive in a market system? (Profit.) Can privateenterprises profitably fulfill all of the functions that we ordinarily ask government to fulfill?(Private entities can fulfill some of the functions – for example, private schools – but not all ofthem. Private schools provide education for the children of people with middle and upperincomes, but not the level of education that we find desirable for society as a whole includinglower income families. Private roads and airports are possible in some cases, but the greatexpense of construction and maintenance in most cases of long distance roads and large airportscan’t practically be recaptured in fees charged to those using the roads and airports. Nationaldefense can only be provided through government, because there is no workable way for privateenterprises to extract payment from people who are benefited but who would not voluntarily291Virginia Council on Economic Education

Page 292

pay.) Because many of these functions can’t profitably be performed by private enterprises, weseek fulfillment of many functions from government. For government to be able to fulfill thesefunctions, citizens must pay taxes.4) The teacher may wish to use one of the activities from the first three lessons below, which aredirected at demonstrating the concept of public goods. The fourth lesson includes a game thatstudents can use as a review of the types of taxes and where the revenue is used.Lessons and ResourcesEconomics in Action Lesson 5: The Role of Government in a Market EconomyFocus: High School Economics Lesson 11: Public Goods and ServicesOld McDonald to Uncle Sam: Lesson Plans from Writers Around the World Lesson 6: PublicGoods and ServicesEconEdLink Lesson: Tic Tac Taxes https://www.econedlink.org/resources/tic-tac-taxes/292Virginia Council on Economic Education

Page 293

EPF.15 The student will demonstrate knowledge of income earning and reporting byc) calculating net paye) completing a standard W-4 formDay 1 – Gross pay, withholding and net payContent KnowledgeIt is important to understand what deductions (mandatory or voluntary) are, or may be, takenfrom your gross pay in order to determine your “take home pay.” By properly calculatingdeductions, an individual can avoid over-withholding, which results in an income tax refund, orunder-withholding, which results in owing additional income taxes.Employers are compelled by law to require their employees to complete W-4 forms. Employeesuse the Form W-4 to report allowances and filing status to their employer. The numbers yousubmit will be used by your employer to determine your withholding amounts for Federalincome tax only. Social Security and Medicare are calculated as flat percentages and are notaffected by your filing status. Employers use the W-2 to report annual wages paid to theiremployees. If you have more than one job, you will receive one W-2 per employer. The numbersin those boxes are used by your tax preparer to determine your tax liabilityVocabularyChildcare Reimbursement – Deductions from gross pay to fund accounts to help employeespay for childcare.Federal Insurance Contributions Act (FICA) – Deductions from gross wages or salaries tofund contributions to Social Security benefits.Federal Withholding Tax – Deductions from gross pay for federal income tax payments.Insurance – Deductions from gross pay for various types of insurance (health, dental, life, etc.)Medical Reimbursement – Deductions made from gross pay to fund accounts that allowemployees to us “pre-tax” dollars to pay for certain medical expenses like co-pays andpharmaceuticals.Retirement – Deductions made from gross pay to fund employee retirement accounts.Savings – Deductions made from gross pay to fund other savings plans, including the purchaseof savings bonds.State Withholding Tax – Deductions from gross pay for state income tax payments.W-2 – A federal income tax document that employers complete and send to their employees andto the Internal Revenue Service at the end of a year; shows employee compensation and taxeswithheld.W-4 – A federal income tax document that instructs an employer about how much money towithhold from an employee's paycheck for tax purposes.Virginia Board of Education Framework293Virginia Council on Economic Education

Page 294

EPF 15c: Gross pay is total money earned before deductions.EPF 15e: The information provided on the W-4 form determines how much is withheld fromone’s gross pay.EPF 16e: The W-2 form is issued by employers and is an end-of-year summary of one’s grosstaxable income and withholdings.It is required by the Internal Revenue Service and included when individuals file their incometax returns.Some deductions are required; some may be voluntary.Net pay results when deductions such as the following are subtracted from gross pay:● Federal Insurance Contributions Act (FICA) contributions● State and federal taxes● Insurance● Savings● Retirement● Medical reimbursement (pre-tax deduction)● Child care reimbursement (pre-tax deduction)Teaching Tips1) It is recommended that the teacher go through these activities in this order – W-4 (setting upwithholding), the pay stub (for example, handout 2.1 from the It’s Your Paycheck curriculum),and W-2 (the yearly totals). Prepare a worksheet for students to use to calculate the savings fromusing pre-tax dollars for medical or child care reimbursement.2) The teacher should have W-4 forms available to distribute to the class. Guide students throughthe process of completing the form. Make sure they understand the purpose of the W-4 form andits effect on one’s pay. Ask them to explain why the federal and state income tax systems requirewithholding. (It makes tax collection much easier for governments.)3) Explain gross and net pay. Go through the deductions from gross pay shown on the pay stubto determine net pay. Exercise 7.1 from the Financial Fitness lesson below provides some usefulcharts summarizing mandatory and voluntary deductions.4) Explain why a taxpayer would want to make voluntary payments using pre-tax dollars.Exercise 7.2 from the same Financial Fitness lesson addresses such tax saving strategies. Havestudents calculate the savings from using medical or childcare reimbursement funding frompre-tax dollars, using the workshop you have prepared.5) Once students have a grasp of the deductions, provide an example of a W-2 form and workthrough it with the students.294Virginia Council on Economic Education

Page 295

Page 296

EFP.16 The student will demonstrate knowledge of taxes bye) explaining the content and purpose of a standard W-2 form.Day 1 – Tax deductions and tax creditsContent KnowledgePeople respond to the tax systems’ incentives by making charitable contributions, buying homes,obtaining higher education, and making improvements that save energy. Responding to theseincentives can make a large difference in the amount of income tax one pays.Tax deductions are subtracted from income on a tax form, to arrive at taxable income. Taxcredits are subtracted from the tax owed, directly reducing the amount of tax payable.Virginia Board of Education FrameworkA tax deduction is a reduction in one’s taxable income. Some examples of tax deductions include•local taxes paid•student loans•charitable contributions•interest paid on home mortgage.A tax credit is a reduction of the tax itself. Tax credits may result from the purchase of, forexample, energy-saving vehicles and appliancesTeaching Tips1) Explain the difference between tax credits and tax deductions on a tax form. Provide copiesof a 1040 EZ form and a standard form 1040. Have enough tax forms and instructions that eachstudent can read the instructions and see how the credits and deductions function.2) Contrast the simplicity of the 1040 EZ form, which provides for certain tax credits butminimal deductions, with the 1040, which provides for a much wider variety of deductions aswell as credits. Introduce the difference between itemizing and taking a standard deduction.3) Provide copies of the state tax form and instructions. Review the credits and deductionsavailable under Virginia law.4) Ask students to speculate on why the tax codes provide these particular deductions andcredits. (To provide incentives to get more education, to donate to charity, to save energy, etc.)Lessons and ResourcesCapstone Unit 5, Lesson 29: Can taxes be incentives?296Virginia Council on Economic Education

Page 297

Page 298

EFP.16 The student will demonstrate knowledge of taxes byd) examining potential tax deductions and credits on a tax return.Day 2 – Completing a 1040EZ and determining your tax bracketand average tax rateContent KnowledgeCompleting a 1040EZ tax form will solidify students’ understanding of the income taxationprocess, credits and deductions.The fairness or unfairness of our federal income tax system is a subject of ongoing publicdiscussion. Understanding one’s average tax rate, and how it differs from one’s top marginal taxbracket, is important information for participating as a citizen in public discussions of tax policy.Teaching Tips1) Guide the students through completing a sample 1040 EZ income tax form, based on theinformation provided in the W-2. Then have the students complete Exercise 7.3 on Jack’s W-2and 1040EZ from the Financial Fitness lesson below.2) Explain the difference between one’s top marginal tax bracket, and one’s average (sometimesreferred as “effective”) tax rate. Exercise 7.2 from the Financial Fitness lesson below, addressestax bracket and average tax rate. Provide a problem set for students to use to determine taxbrackets and average tax rates.3) The teacher may wish to locate and assign current news articles involving tax brackets andeffective tax rates, such as the example provided below.Lessons and ResourcesFinancial Fitness for Life 9-12 Lesson 7: Uncle Sam Takes a Bite, exercise 7.2, Tax savingstrategies, and exercise 7.3, Is it better to get a tax refund, or to have fewer taxes withheld?Preparing Your Form 1040https://www.econedlink.org/resources/preparing-a-1040ez-income-tax-form/1040 EZ forms and instructions:http://www.irs.gov/pub/irs-pdf/f1040ez.pdfReading298Virginia Council on Economic Education

Page 299

Page 300

EFP.16 The student will demonstrate knowledge of taxes byc) computing local taxes on products and services.Day 1 - Computing local taxesContent KnowledgeIn planning spending, students need to know that in the United States, quoted prices ordinarilydo not include sales taxes, and to be able to calculate the tax depending on where the goods orservices are purchased. Understanding why additional taxes are added to some items but not toother items, gives students an economic perspective on taxes. Students also need to understandthat they will be responsible for real and personal property taxes, to the extent that they own suchproperty.Virginia Board of Education FrameworkEPF 16a: Most state and local government revenue comes from sales taxes, grants from thefederal government, personal income taxes, and property taxes.EPF 16c: Sales taxes are collected on the sale of most goods and services.A base sales tax may be established by a state, and a locality may add additional sales taxes (e.g.,meals tax).Teaching Tips1) The teacher will want to collect information on the sales tax and real and personal property taxrates for their locality and for nearby counties, cities, and states. What is the base sales tax rate?Are there meals or lodging tax rates that apply in addition? What personal property is taxed?How are real property taxes assessed? A problem set should be prepared for students to use incalculating real and personal property taxes.2) Provide students with information on sales taxes. Ask: What are some reasons why mealsand lodging may have additional taxation? Do they fall primarily on local residents, or onpeople from outside the locality? (These taxes are often enacted as a means to collect revenuefrom outsiders. People would rather tax others than themselves. However, as the culture hasmoved towards more eating out, meals taxes are increasingly affecting local residents.)3) Explain personal property tax and real property tax and lead students through samplecalculations. Have students practice calculating these taxes using the problem set the teacher hasprepared.Lessons and ResourcesFinancial Fitness for Life: Grades 6-8 Theme 3: Lesson 9: What Taxes Affect You?300Virginia Council on Economic Education

Page 301

Page 302

EFP.16 The student will demonstrate knowledge of taxes byf) explaining the similarities and differences between state and federal taxation ofinheritances.Day 1 - Inheritance and estate taxes – what’s the difference?Content KnowledgeWhile both estate and inheritance taxes refer to taxes that come into effect upon someone’s deathand the distribution of their property, federal estate taxes are payable by the estate and not by theperson receiving the property. In some states, inheritance taxes are owed by the person whoreceives property from an estate. An understanding of these taxes is important in planning one’sestate.VocabularyBequest – the process of giving stocks, bonds, or any other assets to beneficiaries through theprovisions of a will.Distribution – the bequest of assets to heirs and the settlement of estate taxes.Estate – All of the valuable things an individual owns, such as real estate, art collections,collectibles, antiques, jewelry, investments, and life insurance.Estate planning – The collection of preparation tasks that serve to manage an individual’s assetbase in the event of their incapacitation or death, including the bequest of assets to heirs and thesettlement of estate taxes. Most estate plans are set up with the help of an attorney experiencedin estate law.Inheritance – All or part of a person’s estate/assets that is given to an heir once the person isdeceased.Probate – The legal process in which a will is reviewed to determine whether it is valid andauthentic. Probate also refers to the general administering of a deceased person’s will or theestate of a deceased person without a will.Virginia Department of Education FrameworkEstate planning involves decisions regarding wills, trusts, and joint tenancy and seeks toaccomplish the following:•To state how a person wants his or her estate distributed after death•To appoint the person who should distribute the estate•To record other information, such as one's wishes regarding care of minor children•To avoid probate, or to reduce taxes or other costs.Current state and federal taxes must be considered when planning an estate (e.g., estate taxes,inheritance taxes, death taxes, gift taxes, federal/state income taxes) and any deductions andexemptions that apply to such taxes.302Virginia Council on Economic Education

Page 303

Estates exceeding the exempt amount are taxed by the federal government. The tax applies to thedecedent’s gross estate, with a large portion of the estate exempted by a tax credit.Inheritance tax is levied on gifts and bequests received by a taxpayer. Taxes vary based on theproperty inherited and the relationship of the inheritor to the decedent.Teaching Tips1) The teacher will need to be sure s/he has up to date information, as the federal estate tax hasbeen in flux recently. For 2012, estates worth five million dollars or less are exempt from federalestate tax. For larger estates, an estate tax rate of 35% applies.2) Explain the difference between estate tax (paid from the funds of an estate, before it isdistributed) and inheritance tax (paid from the funds inherited). Explain that some object tothese taxes especially to the extent that they affect estates that have valuable real propertywithout sufficient other assets to pay the tax, causing the heirs to have to sell the real estate inorder to pay the tax.3) Explain that several states have inheritance taxes, but not Virginia. However a Virginiaresident inheriting property from another state could be affected.4) Ask: Who should be consulted with respect to estate tax matters, or other complicated taxmatters? (A certified public accountant.) Who should be consulted about how to leave one’sproperty after death? (An attorney who handles wills and estates).Lessons and ResourcesFinancial Fitness for Life, These 2, Lesson 7 - Uncle Sam Takes a Bite.Estate tax extension through 2012http://dontmesswithtaxes.typepad.com/dont_mess_with_taxes/2010/12/estate-tax-extension-through-2012-nudging-mama-off-the-train-in-two-years.htmlMcGuire Woods State Death Tax Chart Revised Jan. 3, 2012http://media.mcguirewoods.com/publications/State-Death-Tax-Chart.pdfState laws: Estate taxeshttp://estate.findlaw.com/estate-planning/estate-planning-law/estate-planning-law-state-taxes.html303Virginia Council on Economic Education

Page 304

Page 305

Page 306

UNIT 15 – BUDGETING AND CONSUMER SKILLS (10 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/A budget provides the framework within which spending decisions should be made. With theframework in place, students can learn about different kinds of expenses and how to makesensible choices so that spending does not undermine saving for one’s goals. Protecting onethrough consumer protection laws, recordkeeping, and precautions against identity theft furthercontribute to a secure future.EPF.17 The student will demonstrate knowledge of personal ﬁnancial planning byd) developing a personal budgetDay 1 Constructing the budget – income firstDay 2 Constructing the budget – choosing expensesDay 3 Revisiting the budgetEPF.10 The student will develop consumer skills bya) examining basic economic concepts and their relation to product prices and consumerspendingDay 1 Prices and decisionsEPF.10 The student will develop consumer skills byc) describing the steps in making a purchasing decision, including the roles of marginalbeneﬁt and marginal costf) demonstrating comparison-shopping skillsDays 1 and 2 Deciding whether and when to buyEPF.10 The student will develop consumer skills bye) describing common types of contracts and the implications of eachDay 1 Understanding contract basicsEPF.10 The student will develop consumer skills byj) explaining consumer rights, responsibilities, remedies and the importance of consumervigilanceDay 1 Consumer rights, responsibilities and remediesEPF.10 The student will develop consumer skills byVirginia Council on Economic Education306

Page 307

g) maintaining a ﬁling system for personal ﬁnancial recordsk) examining precautions for protecting identity and other personal informationDay 1 Protecting yourselfEvaluation DayEPF.17 The student will demonstrate knowledge of personal ﬁnancial planning byd) developing a personal budgetDay 1 - Constructing the budget – income ﬁrstContent KnowledgeA budget is an important tool for managing one’s money to achieve short- and long-term goals.1Once students understand income and taxes, they have the starting point for creating a budget.Budgeting allows one to “pay oneself first,” that is, intentionally saving towards achieving goals.Going without a budget, or beginning with expenses rather than income, means that one willsave only what’s left over.VocabularyBudget – A spending-and-savings plan, based on estimated income and expenses for anindividual or an organization, covering a specific time period.Expenses – Payments for goods and services.Income – Payments earned by households for selling or renting their productive resources. Mayinclude salaries, wages, interest and dividends.Virginia Board of Education FrameworkA budget is an important tool for managing one’s money to achieve short- and long-term goals.Developing a budget includes the following:· Writing a statement of long-term and short-term goals· Presenting a plan for managing one’s money over a short-term period· Outlining a long-term plan for managing money.A budget should allow for discretionary income (i.e., that which is available after paying for theessentials--- food, clothing, shelter) and take into account the impact of inflation.A budget should also include funds set aside to use in the event of an emergency.Teaching Tips1) Have students construct a budget. It should begin with goals. If the teacher followed thesuggestion in Unit 11, “Goals, Saving, Interest & Banking,” students have already listed some oftheir goals. They can review their goals and estimate how much they need to save for them.Virginia Council on Economic Education307

Page 308

This should include estimates for educational expenses arrived at in Unit 13, “Labor Markets,Human Capital and Income.”2) The teacher may want to visit several budget sites to show students different models. Askstudents to identify what all of the models have in common.3) Ask: What kinds of income would you expect to have in your budget? This is a good reviewof types of income from Unit 13. How consistent is the income? Do they need to construct aweekly, monthly or annual budget? Why?4) The income amount that students use for in class activities should be based on the mediansalary from one of the careers that they selected after research in Unit 13. However, encouragestudents who have jobs to develop their own present-day budget using their actual income.When addressing the class on this subject, stress the point that budgets need to be revisited andrevised as circumstances change.Lessons and ResourcesFinancial Fitness for Life Grades 9-12 Lesson 8:Managing Your MoneyOnlineIt’s Your Paycheck Curriculumhttp://www.stlouisfed.org/education_resources/paycheck.cfmMoney Management/Budgeting Concept Video (3:25)https://www.econedlink.org/resources/budgeting-video-and-quiz/Better Money Habitshttps://econisok.org/wp-content/uploads/2015/04/MS-Lesson-2-Budgeting.pdfDay 2 - Constructing the budget – choosing expensesContent KnowledgeThe first expense item on students’ budgets should be money that goes into savings to use foremergencies and toward reaching goals. Ordinarily when starting out, the creation of anemergency fund of at least six months’ income should be a primary goal. After setting aside thatportion of income, attention should be directed to essential spending on housing, utilities, food,transportation, and insurance.Teaching TipsVirginia Council on Economic Education308

Page 309

1) This is an extension of the previous day’s lesson. Begin by reminding students aboutshort-term and long-term financial goals. Ask: What amount would you need to save on aregular basis to help meet your goals? This needs to be the first item on the expense portion ofthe budget.2) Ask: What other categories of expenses do you have in your budget? Do you have a categoryfor clothing, entertainment, food, transportation, gifts (for family and friends)? Have studentsprioritize their categories and allocate income left after saving. How did you prioritize yourcategories? Have students explain their reasoning.3) The teacher may wish to have students estimate their actual expenses for a period of a week toa month. Then, assign students to keep a record of their actual expenses for the period. Havethem categorize their expenses and compare the actual expenses to the estimated expenses. Mostwill have underestimated their actual expenses. Did any use their estimated expense figures tolimit their spending? Did having a plan help keep spending down? If not, discuss what causedspending to exceed the estimates. Point out that while budgets often need adjustment, failure tobudget and to keep the budget in mind when spending results in overspending. Overspending isan obstacle to goal achievement.Lessons and ResourcesLesson: The REAL Cost of Collegehttps://www.thirteen.org/edonline/lessons/fe_collegecosts/index.htmlLesson: Financial Fitness for Life (6-8)- Lesson 7 Managing CashEconedlink Lesson: Creating a Financial Safety Nethttps://www.econedlink.org/resources/creating-a-financial-safety-net/Day 3 - Revisiting the budget.Content KnowledgeOften, people will see a major change in their income but either overestimate or underestimatethe impact on their spending. This can cause them to break their budget or to miss opportunitiesto meet goals.Teaching Tips1) As an extension of the previous two days’ lessons, ask: How would you change your budgetif: you received a 10% raise, a 20% one-time bonus, or your rent or transportation expensesincreased by 10%? How would you reallocate your income or re-prioritize your expenses?Remind students that they have goals to guide them, in the case of unanticipated income.Virginia Council on Economic Education309

Page 310

2) If students have used the median salary from a career of interest, the teacher may wish tohave students consider a career that is a step above or a step below the one they used to createtheir original budget—one in the same field, but requiring more or less education and training.Using the median salary for that altered career, have them remake their budgets. How does theadditional, or the reduced, salary affect what they are able to have? How does it affectattainment of their goals?Lessons and ResourcesLesson 3: The Art of Budgeting (free registration required), student activity 3.5 Rework a budgethttps://www.practicalmoneyskills.com/foreducators/lesson_plans/teens.phpVirginia Council on Economic Education310

Page 311

EPF.10 The student will develop consumer skills bya) examining basic economic concepts and their relation to product prices and consumerspendingDay 1 - Prices and decisionsContent KnowledgeThe economic way of thinking learned in earlier units is a valuable tool in personal financedecisions. In this unit, the focus is on budgeting and consumer skills. Remind students thateveryone faces scarcity--we can’t have everything we want. Everyone must make choices andall choices have opportunity costs--things we give up to get our choices. The goal is to use ourresources to get the most of what we want--keeping in mind that we don’t all want the samethings. Having goals makes it easier for one to prioritize choices. A budget is just a spendingplan that helps one control one’s money to reflect one's priorities.Remembering some other basic economic concepts will be useful as students learn to be moreeffective consumers. The incentive of consumers is to get the most for their money. Theincentive of producers (companies/businesses) is to earn a profit. First--companies are seekingto earn a profit and are competing for the business of consumers--so, it’s worthwhile to shoparound to see who is offering the best product, service and price. Remind students that prices aredetermined by supply and demand. A consumer who must see a new movie the first week itcomes out, or buy a new Ipad its first week on the market, can expect to pay a higher price thana consumer who waits. Remind students that they have a role in the economy as both consumersand producers (if they have jobs) by reviewing the circular flow diagram.VocabularyCircular Flow - The movement of output and income from one sector of the economy toanother; often illustrated as a circular flow diagram.Demand – The quantity of a good or service that buyers are willing and able to buy at allpossible prices during a period of time.Incentive – Any reward or benefit, such as money, advantage or good feeling that motivatespeople to do something.Price – The amount of money that people pay when they buy a good or service; the amount theyreceive when they sell a good or service.Proﬁt – Income received for entrepreneurial skills and risk taking, calculated by subtracting allof a firm's explicit and implicit costs from its total revenues.Supply – The amount of a good or service that producers are willing and able to offer for sale ateach possible price during a given period of time.Virginia Board of Education FrameworkEconomic concepts such as profit, incentive, consumer sovereignty, supply and demand, andcompetition all relate to product prices and consumer spending:Virginia Council on Economic Education311

Page 312

· Profit is an incentive for producers.· Businesses produce what consumers demand, a concept known as consumer sovereignty.· If the cost of production goes up, supply will decrease and prices will rise; if the cost ofproduction goes down, supply will increase and prices will fall.· An increase in productivity lowers the cost of production and thus increases supply,leading to a decrease in price.· Competition among businesses affects consumer prices.· Changes in income affect the demand for goods and services; an increase in incomeincreases demand for most products, and vice versa.· Interest income is an incentive to save money.· Supply and demand for a product or service determine price.Teaching Tips1) In this lesson you will be using some of the economics concepts taught earlier, bringing themto bear on consumer decision-making. Display a circular flow chart for review. (The circularflow model was discussed in Unit 3 and is explained at EPF 2j.) Ask students where they fit asconsumers. (In the goods and services market) Point to the goods and services market and askstudents if they have favorite places to shop for athletic shoes. How do they decide where toshop? If several stores carry the same shoes, do they all charge the same price? Remind studentsthat stores often compete on price--so, it can be worthwhile to shop around. In what other waysdo stores compete? (Oﬀering better service, generous return policies, convenient shopping hours)Why do stores work hard competing for your business? (They must earn a proﬁt to stay inbusiness.) What happens to stores which don’t make consumers happy? (They go out of businessand their employees lose their jobs.)The teacher may wish to use the lesson from Financial Fitness for Life (below), whichemphasizes the competition between producers, and the concept of consumer sovereignty.Remind students that goods and services are exchanged by firms for money from households inproduct markets, and that factors of production are exchanged by households for money fromfirms in factor (resource) markets. Draw attention to the fact that both flows are equal. Askstudents what this indicates about the perceived value of the products or factors? (In each case,the party receiving must value what they receive more highly than what they give up.)2) Post the following quotation from the explanation of Markets and Prices in VirtualEconomics, and lead a class discussion of it:Prices provide incentives to both buyers and sellers. For example, if poorweather in Brazil causes a reduction in the supply of coffee and an increase in theprice of coffee, then at least some buyers of coffee will react to the higher price byreducing the amount of coffee they drink or by substituting some other drink. If thedemand for fresh fruits and vegetables increases, causing the price to rise, then atleast some suppliers will react to the higher price by producing more. In this way,flexible and adjustable prices are messengers in a market economy, revealingVirginia Council on Economic Education312

Page 313

information on supply and demand conditions and providing incentives for marketparticipants to respond appropriately to that information.How does this explain the response of buyers and sellers to incentives? Ask students ifthey have ever switched from buying one product to another when the price went up? Ifthe price of Pepsi went up, would you consider switching to Coke? Being aware ofprices and switching to lower priced products can help one save money which can beused to reach their most important goals.3) Remind students that small changes in choices can make a big difference. Justsubstituting a glass of water for a soft drink in a restaurant can save $1-$2. Making thatchoice once a day for a year could save $365-$730 plus tax per year! Have studentsrefer to their calculations about how much they will have to save to achieve their goalsand look at how much closer they could be to achieving a goal with that additional sum.Ask them what is their opportunity cost of consuming a soft drink once a day for a year?(If their next best choice would be to save, the opportunity cost could be achievement ofa goal with that additional savings.)Lessons and ResourcesFinancial Fitness for Life Grades 6-8 Lesson 1: Resources Are ScarceEntrepreneurship in the U.S. Economy Lesson 9: The Circular Flow Between Consumers andEntrepreneursEconedlink Lesson, The Best Deal. https://www.econedlink.org/resources/the-best-deal/VideoWhat if there were no prices?https://www.learnliberty.org/videos/what-if-there-were-no-prices-railroad-thought-experiment/Virginia Council on Economic Education313

Page 314

EPF.10 The student will develop consumer skills byc) describing the steps in making a purchasing decision, including the roles of marginalbeneﬁt and marginal costf) demonstrating comparison-shopping skillsDays 1 & 2 – Deciding whether and when to buyContent KnowledgeShopping is a national sport. That said, careful shopping can result in getting better products andbetter prices. Applying economic tools such as weighing marginal costs and marginal benefitsand using decision-models such as the PACED model can help clarify choices and make forbetter decisions. Information about reliability of products and sellers can make a difference inpurchasing decisions. Learning how to research products and having a method for comparisonshopping can provide the basic information needed to apply the PACED model.VocabularyMarginal Beneﬁt – The additional gain from consuming or producing one more unit of a goodor service; can be measured in dollars or satisfaction.Marginal Cost – The increase in a producer's total cost when it increases its output by one unit.PACED Decision-making Model – A decision-making process designed to help people solveproblems in a rational, systematic way. It includes the following steps: State the Problem, ListAlternatives, Identify Criteria, Evaluate Alternatives, and Make a Decision.Virginia Department of Education FrameworkEPF.10c: Purchase decisions are made more easily when marginal benefit and marginal cost areconsidered.The use of decision models can improve purchase decision-making.Marginal benefits are the additional benefits of consuming one more of something. Marginalcosts are the additional costs (i.e., what one must give up) of getting one more. For example, themarginal benefit of buying one more pair of jeans might be the time saved by having to washjeans less frequently. The marginal cost of one more pair of jeans might be giving up buying anew shirt or pair of shoes.Sample Decision Model (PACED)Step 1: Determine the problem.Step 2: List the alternatives.Step 3: Establish criteria.Step 4: Evaluate each alternative according to the criteria.Step 5: Decide.Virginia Council on Economic Education314

Page 315

Other steps which could improve decision-making include· researching prices for commonly purchased items· using comparison shopping· weighing the pros and cons of sales incentives, guarantees, warranties, and rebates· understanding sales terminology· planning purchases and avoiding impulse buying· computing unit prices· reading labels· reading contracts· computing total costs· checking references of businesses· patronizing reputable businesses.EPF.10f: Comparison shopping involves consideration of•value•time•convenience•dollar costs•payment options•negotiations of prices and terms•the consequences of conspicuous consumption•opportunity cost•costs and benefits.Teaching Tips1) Marginal benefit is the change in total benefit resulting from an action. Marginal cost is thechange in total cost resulting from an action. Have students identify the marginal benefit ofbuying and consuming additional granola bars. Contrast this with the marginal cost of acquiringadditional granola bars. Remind students that as one consumes more and more of the samething, diminishing marginal utility sets in. Explain that with each purchase, it’s helpful to ask,“What are the benefits I’m going to get from this?” and “What are the costs--that is, what are thebenefits I would get from the thing I’m giving up, my opportunity cost?” “Would I rather have afourth pair of running shoes or would something else give me more benefits?”2) Remind students, as long as the marginal benefit of an activity exceeds the marginal cost,people are better off doing more of it; if the marginal cost exceeds the marginal benefit, they arebetter off doing less of it. Ask if any students lift weights. If you go to the gym, do you lift thesame weight over and over for an hour? Why not? (At some point, the marginal benefits ofadditional lifts would not be helpful; they might in fact make you quite sore.) You wouldexperience diminishing marginal utility. Ask students for examples of how this would apply tospending decisions.3) Ask students how they ordinarily make shopping decisions. Is it important to do researchbefore buying? (In some cases, it can be very important—for expensive and complex products.Virginia Council on Economic Education315

Page 316

In the case of some simple or inexpensive products, it may be less important and therefore thecost of the time required for research may not be worth the benefits that can be achieved; butsome kinds of research are readily available, such as comparing unit prices of products at thegrocery store. The savings may be considerable and therefore make it worth the effort even forsimple and inexpensive products.) What are some other methods of research, besides comparingunit prices at the grocery store? (Discussions with friends and relatives about the value andconvenience of products; online research; in-store research)Is all information that’s available, equally reliable? (No.) How can people evaluate the reliabilityof information about products? (They can consider the motives of the entity providing theinformation.) Is the information from the seller? Sellers want happy customers, but they alsohave an incentive to encourage sales. Does the seller have a reputation for providing reliableinformation? Is the information from an independent source such as Consumer Reports? Is itfrom online customer reviews? If so, do the reviews indicate how long the customer has ownedthe product? A person who has had the product only a short time won’t be able to evaluate theproduct’s durability. Which customers are most likely to submit reviews? (Those who are themost unhappy or the most happy with the product.)4) Is it important to evaluate the seller from whom you are considering buying? (In cases wherethe product does not have a long track record, or is nonstandard (for example, with usedproducts, or custom services), it can be very important.) How can one find out about thereputation of a seller? (Better Business Bureau; Virginia Department of Agriculture andConsumer Services Complaint Database; people you know who have done business with theseller)5) Introduce the idea of negotiation. Do all products and services have set prices? (While we arefamilier with buying things at set prices, some items can be negotiated as to prices or terms.Priceline is one example, in which buyers can bid on hotel rooms. Negotiation is the rule withauto purchases. And home purchases also typically involve negotiation as to both price andterms.) Is research important if you plan to negotiate with a seller? Where can you getinformation to help you negotiate? (Consumer Reports and others offer information about autodealers’ costs; online public records have information on sales prices and tax assessments forhomes.)6) Introduce the seven-step method for comparing products and making purchase decisions in theFinancial Fitness for Life lesson below. Refer to the Teacher Guide and discuss the stepsinvolved in researching a purchase. Assign students in teams of 2-4 to research products such asthose listed in the lesson, or appropriate alternatives. The teacher may wish to separate theresearch portion of the process from the decision making, and have the students use the PACEDmodel on Day 2 to arrive at decisions, after students have reported on their research.Lessons and ResourcesFinancial Fitness for Life Grades 6-8 Lesson 17: Comparison Shopping, student exercise 17.2Virginia Council on Economic Education316

Page 317

Page 318

EPF.10 The student will develop consumer skills bye) describing common types of contracts and the implications of eachDay 1 - Understanding contract basicsContent KnowledgeVarious types of contracts affect consumers. Before signing a contract, one needs to understandthe provisions in it and how they may affect the signer, because they are enforceable by law.Contracts often contain an explicit right to rescission, but the length of time may vary. Manyyoung people need a cosigner to enter into a contract.VocabularyContract – A formal agreement between parties that specifies what each party is going to do inreturn for receiving something from the other party.Co-Signer – A party to agrees to become part of a contract, guaranteeing payment if one of theparties defaults.Rescission – A part of many contracts that allows one or the other party to change their mind andvoid the contract within a specified period of time.Virginia Board of Education FrameworkVarious types on contracts impact consumers.A contract is a binding legal agreement that is enforceable by law.Examples of contracts include· movie rental memberships· property rentals· cell phone agreements· online contracts (e.g., for networking space, cell phone ringtones)· payday loans· title loans· rent-to-own agreements.There are legal consequences for failure to comply with contract requirements.Implications and related concepts include· three-day rescission period· circumstances requiring co-signatures· legal ramifications of adults (e.g., roommates) sharing financial responsibilities involvinga contractTeaching TipsVirginia Council on Economic Education318

Page 319

1) Explain that once a person qualified to enter into a contract, does so in writing, and somethingis exchanged, the contract ordinarily is enforceable by law. Because of its legal effect, a personwho is considering entering into a contract needs to read and understand all of the provisions ofthe contract before signing. In the case of online transactions, a “signature” can be electronic.The teacher may wish to use lesson one from the Contract and Consumer Law lesson series (linkbelow) teach contract basics.2) Obtain and review examples of movie rental/streaming memberships, property rentals, cellphone agreements, online contracts (e.g., for networking space, cell phone ringtones), paydayloans, title loans, and rent-to-own agreements, pointing out any rescission provisions andenumerated penalties for breaching the contract3) You may want to invite a lawyer or a loan officer to address the class. Have the guest discusscircumstances in which a co-signer may be required.4) Explain that in the case of property rental contracts; ordinarily the person (lessee) who signsthe contract with the owner is entirely responsible to the owner, even if the lessee shares theapartment with others. The presence of others having the use of the apartment does not relievethe lessee from fulfilling all obligations set out in the contract.5) Using lesson six from the Contract and Consumer Law lesson series (link below), havestudents read about sample consumer cases and produce a Powerpoint to present the issues.Lessons and ResourcesFocus Institutions and Markets Lesson 2: Property Rights and Contracts as EconomicInstitutionsVirginia Attorney General, Residential Landlord-Tenant Issueshttps://oag.state.va.us/13-resource/634-residential-landlord-tenant-issues?highlight=WyJsYW5kbG9yZCJdFederal Trade Commission: Buyer’s Remorse - the FTC’s Cooling Off Rule May Helphttps://www.consumer.ftc.gov/articles/buyers-remorse-ftcs-cooling-rule-may-helpConsumer Protection Tools from the Consumer Financial Protection Bureau (CFPB)https://www.consumerfinance.gov/consumer-tools/Virginia Council on Economic Education319

Page 320

EPF.10 The student will develop consumer skills byj) explaining consumer rights, responsibilities, remedies and the importance of consumervigilanceDay 1 - Consumer rights, responsibilities and remediesContent KnowledgeConsumers have rights, responsibilities, and remedies. They also have a responsibility to bevigilant.1Virginia Board of Education FrameworkConsumers have the right• to be informed• to be safe• to choose• to be heard• to have avenues for redress of consumer grievances (e.g., state and federal agencies,consumer protection laws, private groups such as Common Cause and Better BusinessBureau).Consumer responsibilities include• verifying receipts and statements• contesting an incorrect bill• maintaining consumer vigilance• safeguarding against fraud.Remedies should include• maintaining awareness of the rights and responsibilities of minors• contesting an incorrect bill• registering a consumer complaint.Consumer skills include comprehending and using• consumer protection laws, such as those related to product recalls and product labeling• government agencies responsible for enforcing consumer protection laws• private groups that work for consumer protection.Teaching Tips1) Ask students if they have ever felt mistreated or cheated in a business transaction. What dothey think they can do? What do they think their rights are? The teacher may wish to project thewebpage Filing Consumer Complaints (below) and go over some of the terms with which theVirginia Council on Economic Education320

Page 321

students may be unfamiliar, such as third parties, consumer advocacy, fraud and scams, and tradeassociations.2) Ask students whether they are aware of anyone being seriously harmed or killed as a result ofusing a product. If a person experiences harm from a product, what should a person do to helpprevent harm to others? (Report: problems with drugs to the US Food and Drug Administration;problems with other unsafe products to Consumer Product Safety Commission)Are there other consumer grievances that one should report to help the public? (Potential,attempted, or accomplished identity theft, telemarketing, email spam, debt collection, databreach, and credit reporting should be reported to the Federal Trade Commission Bureau ofConsumer Protection)3) Assign students to research the sites listed below and then write letters of complaint using thetemplate provided at the Filing Consumer Complaints site.Lessons and ResourcesFinancial Fitness for Life, Lesson 18 - Consumer Credit ProtectionFiling Consumer Complaintshttp://www.usa.gov/topics/consumer/complaint.shtmlUS Food and Drug Administration reportinghttp://www.fda.gov/Safety/ReportaProblem/default.htmConsumer Product Safety Commission reportinghttp://www.cpsc.gov/Federal Trade Commissionhttps://www.ftccomplaintassistant.gov/Virginia Council on Economic Education321

Page 322

EPF.10 The student will develop consumer skills byg) maintaining a ﬁling system for personal ﬁnancial recordsk) examining precautions for protecting identity and other personal informationDay 1 - Protecting yourselfContent KnowledgeProtecting oneself requires maintaining records of transactions, and vigilance against identitytheft and other kinds of fraud.Virginia Board of Education FrameworkEPF.10g: A well maintained filing system gives one access to personal records when needed.A well maintained filing system includes ease of storage retrieval and shredding of documents.Manual and electronic are the primary types of filing systems.Systems can have numeric, chronological, and/or tickler access.EPF.10k: Types of identity theft change regularly. Consumers must be aware of current methodsand how to protect their identity.Ways to avoid becoming a victim may include• safeguarding financial documents• refusing to give personal information to phone or e-mail solicitations• shredding documents that contain personal information• using secure Internet sites• being aware of surroundings when making financial transactions• immediately reporting theft or loss of identification, checks, credit cards, and personalfinancial documents and data• checking financial statements regularlyTeaching Tips1) Explain basic types of filing systems – alphabetical by place purchased, categorical by type ofpurchase, chronological by date purchased. Explain the advantages and disadvantages of each.Ask students to consider which they feel would be most useful to them and ask them to explaintheir thinking.2) The lesson “Coming to grips with your finances” describes a filing system and has excellenthandouts detailing what to keep and what to discard.Virginia Council on Economic Education322

Page 323

3) Have students use the internet sources listed below to research and report on credit card fraudand protective measures one should take in using the internet.4) Direct students to the identity theft prevention sites below. Have them produce powerpoints orvideos to explain how to protect oneself from identity theft.Lessons and ResourcesFinancial Fitness for Life, Lesson 19 - Don’t Be ScammedComing to grips with your finances--lesson 2https://ﬁles.eric.ed.gov/fulltext/ED364714.pdfGuide to online protection:https://www.vita.virginia.gov/commonwealth-security/awareness-toolkit/citizen-awareness/guide-to-online-protection/Avoiding ID and credit card fraud:http://www.idbylandau.com/v/vspfiles/resource/avoiding-id-and-credit-fraud.htmlPhiladelphia Federal Reserve Bank: Protecting Yourself from Identity Thefthttps://www.philadelphiafed.org/-/media/consumer-resources/publications/protecting-yourself-against-identify-theft.pdfFederal Trade Commission Identity Theft Site: http://www.ftc.gov/bcp/edu/microsites/idtheft/EVALUATION DAYVirginia Council on Economic Education323

Page 324

Page 325

UNIT 16 – PLANNING FOR LIVING AND LEISURE (7 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/Once students have learned how to create a budget that includes setting aside money forlong-term goals as well as day-to-day expenses, and have learned in general terms aboutcomparison shopping, contracts, sources of reliable information, and consumer protection, theyneed more specific information about major household expenses such as rent or mortgage,utilities and a vehicle, and their associated rental and sales contracts.EPF.11 The student will demonstrate knowledge of planning for living and leisure expensesbya) comparing the costs and benefits purchasing vs. leasing a vehicleDay 1 Purchase or lease a vehicle?EPF.11 The student will demonstrate knowledge of planning for living a leisure expenses byb) comparing the advantages and disadvantages of renting vs. purchasing a homeDay 1 Purchase or rent a home?EPF.11 The student will demonstrate knowledge of planning for living and leisure expensesbyc) describing the process of renting housingDay 1 Going through a standard rental/lease agreementEPF.11 The student will demonstrate knowledge of planning for living and leisure expensesbyd) describing the process of purchasing a homeDay 1 Main points of the purchase processEPF.11 The student will demonstrate knowledge of planning for living and leisure expensesbye) calculating the costs of utilities, services, maintenance and other housing expensesDay 1 Household expenses beyond the rent or mortgageEPF.11 The student will demonstrate knowledge of planning for living and leisure expensesbyf) evaluating discretionary spending decisions325Virginia Council on Economic Education

Page 326

Day 1 Understanding discretionary spendingEvaluation DayEPF.11 The student will demonstrate knowledge of planning for living and leisure expensesbya) comparing the costs and benefits purchasing vs. leasing a vehicleDay 1 - Purchase or lease a vehicle?Content KnowledgeA vehicle is often the first major purchase a student makes. It will be valuable for the student tolearn the types of questions that should be asked or researched so that they can weigh the costsand benefits of purchasing a vehicle. They should also recognize that leasing a vehicle is anoption and should be able to weigh the costs and benefits of this approach for their situation.Virginia Board of Education FrameworkConsiderations in purchasing or leasing a vehicle may include● Performance● Safety● Odometer mileage● Average miles driven annually● Fuel consumption● Size● Appearance● Price/payment limit● Insurance costs, taxes, and maintenance● Options/features● Warranty● Depreciation and resale.Consumers should identify several alternative vehicles, including new and used.Consumers should gather information and test-drive multiple vehicles. Consumers shouldcompare each alternative to the criteria established to determine which vehicles best meet them,keeping in mind that not all criteria are equally important.Information should include both subjective resources (e.g., advertisements, sales representatives)and objective resources (e.g., statistically based research)Teaching Tips326Virginia Council on Economic Education

Page 327

1) Using local auto dealers, collect information on some basic vehicles with popular features.Have dealers provide information on purchase vs. lease, as well as the features of the lease.Financing of a purchase should be comparable in length to the term of the lease.2) Using PACED decision grid, have students do a comparison of the lease vs. purchase of avehicle of their choice. Students should be able to justify their decision using the criteria theyselect.3) A PACED decision grid can be used to decide what car to buy with each student decidingwhat criteria is most important for them. Based on their research as to what is available, theyshould narrow their choices to two or three and decide which one they would purchase based onthe criteria they had established as important.Lessons and ResourcesFinancial Fitness for Life: Grades 9-12 Lesson 20: What’s the Cost of Spending and Saving?Mathematics and Economics: Connections for Life – 9 – 12 Lesson 12: AutonomicsThe Road Ahead: Can You Afford Your Dream Car? – lesson planhttps://www.nh.gov/banking/consumer-assistance/documents/the-road-ahead-home.pdfCars, Cards, and Currency Lesson 4: The Car Deal Package. St. Louis Fed,https://www.stlouisfed.org/~/media/Education/Curriculum/pdf/Cards-Cars-and-Currency-Complete-Unit.pdfPACED Decision Gridhttps://www.econedlink.org/wp-content/uploads/legacy/584_decision%20making%20grid1.pdfLook Before You Lease – Federal Trade Commission Consumer Alert Bulletinhttp://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt005.shtmLease or Buy A Car – Calculatorhttp://www.smartmoney.com/calculator/autos/buy-or-lease-a-car-1302833645461/327Virginia Council on Economic Education

Page 328

EPF.11 The student will demonstrate knowledge of planning for living a leisure expenses byb) comparing the advantages and disadvantages of renting vs. purchasing a homeDay 1 - Purchase or rent a home?Content KnowledgePurchasing a home is the largest financial decision many people make. Regardless of rent orpurchase, paying for your shelter is a significant portion of a household budget.Virginia Board of Education FrameworkThe benefits of renting include● Less initial capital outlay● Increased mobility● Fewer maintenance● No property taxesThe costs of renting include● Building no equity● No tax deduction for interest paid● Limited ability or incentive to upgradeThe benefits of buying a home include● Possibility of building equity● Right to deduct interest on Federal Income tax● Opportunity to personalize to own tasteThe costs of buying a home generally include● Down payment● Property taxes● Maintenance of structure and yard● Limited mobilityTeaching Tips1) Gather information ahead of time on different levels of housing (both purchased and rented) inthe community. Local financial institutions could be utilized by providing example mortgagepayments (30-year, 20-year, 15-year, etc.) assuming a 10% down payment and acceptable creditrating.2) Provide the accumulated information to students. Place a PACED Model grid where allstudents can see it. Have the students select two comparable housing choices – one apartment torent, one house to purchase. Both should have a similar number of bedrooms and bathrooms.Have students suggest criteria for evaluation. (Be sure to include “size of payment” and “buildequity” as two of the criteria.)328Virginia Council on Economic Education

Page 329

Have students use the PACED decision grid to make a selection. Each student should be allowedto make and defend their own decision, based on their evaluation of the alternatives using thecriteria.Lessons and ResourcesPersonal Decision Making: Focus on Economics Lesson 2: Applying a Decision Making Model,and Lesson 11: Housing: Deciding to Rent or BuyPACED Decision Gridhttps://www.econedlink.org/wp-content/uploads/legacy/584_decision%20making%20grid1.pdfIs it Better to Buy or Rent a Home – Calculatorhttp://www.nytimes.com/interactive/business/buy-rent-calculator.htmlFirst Time Home Buyers Guidehttps://themortgagereports.com/first-time-home-buyers-guideVideoKhan academy on renting vs buying (11:37)https://www.khanacademy.org/economics-finance-domain/core-finance/housing/renting-v-buying/v/renting-versus-buying-a-home329Virginia Council on Economic Education

Page 330

EPF.11 The student will demonstrate knowledge of planning for living and leisureexpenses byc) describing the process of renting housingDay 1 - Going through a standard rental/lease agreementContent KnowledgeRegardless of their preferences, many students will rent an apartment as their first independentliving experience.VocabularyMonthly Payment – The amount of money paid to a landlord by the renter for use of the rentedproperty.Renters Insurance – An insurance policy, similar to homeowner’s insurance that protects arenter from loss due to theft, fire or other events.Security Deposit – An amount of money paid in advance of a rental as a guarantee againstnon-payment of rent or damage by the renter.Virginia Board of Education FrameworkThe first step in a decision model in selecting rental housing is to list alternatives (options).The second step is establishing criteria, which should be stated in positive terms such as● the monthly payment is no more than the budget allows● the property is conveniently located (to work, school, public transportation, shopping,friends, family)● the property has enough space● the property has amenities.Criteria are personal; each person decides what factors are important. Individuals should visit allproperties that appear to meet the criteriaAdditional factors for consideration include● the renter’s credit score● the specifics of each rental agreement● rental inspections● landlord/tenant responsibilities● estimated moving expenses and installation chargesSelection of a rental property is made when the renter decides which alternative best meets theestablished criteria.330Virginia Council on Economic Education

Page 331

Teaching Tips1) If there are apartment complexes nearby, the teacher may want to ask if a copy of the leasecould be used in class. If that is not an option, there are a number of standard lease formsavailable online. Secure copies of several leases. Provide copies for the students or placeenlarged copies where they can be seen.2) Have students compare basic aspects of the lease including monthly payment, securitydeposit, responsibility for utilities, liability for damages, and loss due to theft, fire, etc.Lessons and ResourcesVirtual Economics: Insurance Lessons Lesson 4: Why Renter’s Insurance?Virginia Office of Consumer Affairs – Landlord Tenant FAQhttps://www.oag.state.va.us/index.php?option=com_content&view=article&id=634Free Landlord forms – including rental leases/agreementshttp://www.thelpa.com/lpa/free-forms.html331Virginia Council on Economic Education

Page 332

EPF.11 The student will demonstrate knowledge of planning for living and leisureexpenses byd) describing the process of purchasing a homeDay 1 - Main points of the purchase processContent KnowledgeBuying a home includes choosing a home, signing a contract, securing a down payment,financing the home, and identifying other costs associated with the purchase and ownership ofthe home.1The down payment can significantly affect the size of the mortgage payment andhomeowners insurance which is required in many states to secure the mortgage loan.VocabularyDown Payment – A portion of the purchase price that is paid in advance to secure some equityin the purchased property and minimize default.Mortgage – An agreement to borrow funds to purchase real property. The loan is then repaidover time, with interest through a series of monthly payments.Homeowners Insurance – An insurance policy that protects the homeowner from financial lossin the event of theft, fire or other misfortunes.Virginia Board of Education FrameworkThe buyer can use a decision model, which includes the step of establishing criteria, stated inpositive terms such as● the home is in a desirable location● the monthly payment is no more than the budget allows● the home is convenient (to work, school, bus routes, friends, family)● the home has enough space● the home has good expected resale value● property taxes, insurance costs, utility costs, community fees, and estimatedmaintenance costs fit in the buyer’s budget.Criteria are personal; each person decides what factors are important. Individuals should visit allproperties that appear to meet the criteria.The process of purchasing a home also includes● submitting to a credit check● making a down payment● obtaining homeowners insurance● securing financingTeaching Tips332Virginia Council on Economic Education

Page 333

Page 334

EPF.11 The student will demonstrate knowledge of planning for living and leisureexpenses bye) Calculating the costs of utilities, services, maintenance and other housing expensesDay 1 - Household expenses beyond the rent or mortgageContent KnowledgeThere’s more to owning a home than just making the mortgage payments.VocabularyInsurance – A contract that allows one party to make regular payments over time in return forpayments that cover certain types of losses.Property Taxes – Taxes paid to a governmental unit, based on the value of piece of real orpersonal property.Utilities – Electricity, gas, water, sewer, waste disposal and other services.Virginia Board of Education FrameworkSome expenses related to utilities include● installation● deposits● monthly payments for service● equipment maintenance and repairs related to electricity, gas, oil, water, cable,Internet service, and telephoneAdditional costs to be considered include● homeowners insurance● property taxes● appliances and furniture● maintenance (e.g., painting, carpet cleaning/repair, plumbing)● equipment● suppliesTeaching Tips1) Have students research rates and information to service a home. This should includeinsurance, property taxes, and utility costs. A table should be created showing different insurancerates. The same can be done for other contracted services such as waste disposal,phone/internet/cable, etc.2) Have students review their budgets. Verify that reasonable estimates of these expenses havebeen used.334Virginia Council on Economic Education

Page 335

Page 336

EPF.11 The student will demonstrate knowledge of planning for living and leisureexpenses byf) evaluating discretionary spending decisionsDay 1 - Understanding discretionary spendingContent KnowledgeIt’s easy to think of some services as necessary until one realizes that others are more necessary.Virginia Board of Education FrameworkDiscretionary spending is spending for goods and services beyond the essentials of food, shelter,and clothing.Discretionary spending allows consumers freedom of choice in what to purchase and how muchto spend on such things as education, health care, entertainment, transportation, andcommunication technology.Consumers can weigh costs and benefits of alternative spending choices.Consumers can use decision models to clarify choices.Consumers can consider saving as an alternative to current spending.Teaching Tips1) Students should compare discretionary spending categories to necessary spending categories(utilities, insurance, etc.).2) Lead a discussion comparing the satisfaction of purchasing less essential discretionary itemsin contrast with the satisfaction of achieving long term goals. How long does the pleasure ofbuying new clothes, or going out to eat, last? How long does the satisfaction of owning one’sown home last? Reiterate the strategy of keeping one’s long term goals in view, to counter thedesire for immediate gratification.Lessons and ResourcesYour Credit Counts Challenge: Trainer’s Guide Section One: Income and ChoicesMaking Personal Finance Decisions (lesson series) Unit 5: Budgetinghttps://www.mcee.umn.edu/sites/mcee.umn.edu/files/mpfd2016.pdfBudget Game: Living on a twenty square salaryhttp://ohiotreasurer.gov/Documents/CMS/BudgetGame8%205x11.pdf336Virginia Council on Economic Education

Page 337

Page 338

Page 339

UNIT 17 - CREDIT (14 Days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/Understanding credit and the impact of its use and misuse are crucial to financial health.EPF.13 The student will demonstrate knowledge of credit and loan functions bya) evaluating the various methods of financing a purchaseDays 1 and 2 Credit: Is it free? Is it worth it?EPF.13 The student will demonstrate the knowledge of credit and loan functions bye) comparing terms and conditions of various sources of consumer creditDay 1 Where is credit obtained?EPF.13 The student will demonstrate the knowledge of credit and loan functions byc) identifying qualifications needed to obtain creditg) explaining the need for a good credit ratingDay 1 Creditworthiness and credit ratingsDay 2 Why credit ratings matter and what you can do to improve themDay 3 Why credit ratings matter and what you can do to improve them, continuedEPF.13 The student will demonstrate the knowledge of credit and loan functions byb) analyzing credit card features and their impact on personal financial planningDay 1 Understanding your credit cardsEPF.13 The student will demonstrate the knowledge of credit and loan functions byd) identifying basic provisions of credit and loan lawsDay 1 and 2 Consumer loan lawsEPF.13 The student will demonstrate the knowledge of credit and loan functions byf) identifying strategies for effective debt management, including sources of assistanceDay 1 Managing your debtEPF.13 The student will demonstrate the knowledge of credit and loan functions byh) comparing the costs and conditions of secured and unsecured loansDay 1 What is a secured loan and what does it cost? What is an unsecured loan and whatdoes it cost?Virginia Council on Economic Education339

Page 340

Page 341

EPF.13 The student will demonstrate knowledge of credit and loan functions bya) evaluating the various methods of financing a purchaseDay 1 and Day 2 – Credit: Is it free? Is it worth it?Content KnowledgeCredit is not free. Before borrowing money, consumers need to determine what the costs areand whether the benefits of obtaining credit are greater than those costs.VocabularyClosed-end Credit – A loan where the entire amount is loaned at the beginning and allrepayment and interest must be repaid by a specific date.Collateral - Something of value (often a house or a car) pledged by a borrower as security for aloan. If the borrower fails to make payments on the loan, the collateral may be sold; proceedsfrom the sale may then be used to pay down the unpaid debt.Installment Plan – A credit system where payment for goods is made with fixed payments overa period of time.Layaway – A system where period payments are made on goods and upon final payment, thegoods are delivered.Open-end Credit – A loan where a total amount is set and the borrower can use any or the entireloan, repaying it over time, also known as a line of credit.Rent-to-Own – An arrangement whereby consumers rent something (often furniture), makingregular rental payments, and become owners of the rented object(s) after a specified period oftime--sometimes automatically and sometimes with an additional payment. A legal business butvery costly to consumers.Revolving Credit – A credit system whereby the borrower can make periodic purchases andpayments.Secured Loan – Credit with collateral (for example, a house or a car) for the lender.Unsecured Loan – Debt without collateral; credit card debt, for example.Virginia Board of Education FrameworkSome methods of financing a purchase are● Installment plan● Layaway● Secured and unsecured loansSome sources of financing are● Retail stores● Banks and credit unions● Finance companies● Pawn shops● Payday loansVirginia Council on Economic Education341

Page 342

● Title loans● Private lendersSome types of credit are● Open-end credit● Closed-end credit● Service credit● Revolving credit● Secured loans● Unsecured loansTo use a decision model to determine which type of financing would be best, first establish thecriteria.The opportunity cost of using credit is the resulting decrease in future purchasing power; theindividual will have less money to spend in the future as some of it will go toward repaying theloan or paying a credit card bill.Teaching Tips1) Discuss with students that most people who use credit, pay interest to use it. There are afew cases in which interest is not paid:a. People who pay off their credit card bill every month pay no interest, though thereis usually an annual fee for the card.b. Layaway does not include payment of interest (and technically is not credit, sinceone does not have the use of the goods until they are paid off), but may involverestocking fees if the consumer changes his/her mind, and cash refunds may notbe available. (See Consumer Reports article on layaway below.)c. Merchants often offer, for example, “90 days same as cash”, and as long as onepays off the balance within the specified number of days, there is no cost to thecredit—however, there may be traps for the unwary in the form of additional fees.(Take a look at the MSNBC article below).2) Conclude with a discussion of the benefits of credit in addition to allowing one to have theimmediate use of the items purchased on credit. These can include rewards for using a creditcard, the ability to use the card in an emergency, dispute resolution procedures that can allowone to avoid payment for a defective product or service, and the building of a credit historytowards obtaining a loan for a car or a mortgage. In preparation for the next day’s lesson,leave students with the following question: “Can anyone get credit?”3) Continue with an explanation of the rest of the types of credit listed in the framework.Make a chart of advantages and disadvantages of each type. Come back to the original pointthat use of almost any form of credit costs more than paying in full up front. The first thing aconsumer needs to determine is whether to use credit at all. Is having the item at all, orVirginia Council on Economic Education342

Page 343

having it now rather than later, worth the cost of what you’ll pay in interest and fees? (Thelessons listed below contain scenarios that students use to decide whether the situation is anappropriate occasion for the use of credit.)4) The budget needs to be the touchstone used in deciding whether any nonemergency use ofcredit can be repaid within a reasonable amount of time as to avoid overpaying for the item.Ask: How long will it take to repay, given the amount one can afford to spend within theitem’s budget category? If one takes advantage of a sale by using a credit card, but is unableto pay off the credit card immediately, the interest cost needs to be added to the sale price tosee whether one is actually benefiting from the sale or in fact overpaying.Lessons and ResourcesFinancial Fitness for Life 9-12 Lesson 11: What is Credit?Econedlink Lesson. Credit for Beginnershttps://www.econedlink.org/resources/credit-for-beginners/Online readingConsumer Reports article. “Layaway Grows in Popularity, But There Are Risks.”https://www.consumerreports.org/cro/news/2011/11/layaway-grows-in-popularity-but-there-are-risks/index.htmMSNBC article. “P2P payments: How To Protect Yourself From Scammers.”https://www.nbcnews.com/better/lifestyle/use-payment-apps-venmo-zelle-cashapp-here-s-how-protect-ncna1015851Virginia Council on Economic Education343

Page 344

EPF.13 The student will demonstrate the knowledge of credit and loan functions bye) comparing terms and conditions of various sources of consumer creditDay 1 - Where is credit obtained?Content KnowledgeCredit is available from retailers, banks, credit unions, finance companies, payday loan and titleloan companies and pawnbrokers. Terms offered by the various sources need to be compared toevaluate whether obtaining credit there is desirable.Virginia Board of Education FrameworkConsumers of credit should compare● Percentage rates● Annual fees● Transaction fees● Finance charges● Risk of losing assets.Consumers should consider costs and benefits of various sources, including● Retailers● Banks● Credit unions● Finance companies● Risk-based lending companies (e.g., payday loan services, pawnbrokers, title loanservices).Teaching Tips1) Based on their study of credit card statements, students should be able to offer some ofthe characteristics that determine the cost of a loan, including interest rate, annual fees,and late fees and penalties. Once a chart is developed, students can research currentterms for loans from the various sources, either online or by obtaining information fromlocal businesses.2) Ask: Have you heard of “rent to own”? Is that a form of credit? (Yes, and an expensiveone: consumers may pay two or three times the retail price of an item. See FTC reportand Consumer Reports article on rent to own below.) What about pawn shops? (Manystudents may have seen television shows involving pawn shops.) Explain how pawnshops work.Virginia Council on Economic Education344

Page 345

2) Encourage your students to compare loans on the basis of the annual percentage rate(APR) and finance charge. Under the federal Truth in Lending Act, lenders must disclosethese figures. Many people compare loans on the basis of the monthly payment. Themonthly payment becomes lower if the repayment period is longer. Unfortunately, thisalso increases the finance charge. Avoid this confusion by determining the principal andrepayment period first and then shop for the lowest APR.Lessons and ResourcesPersonal Decision Making : Focus on Economics Lesson 10: Consumer Credit: Buy Now, PayLater, and More Also online at:https://www.unomaha.edu/college-of-business-administration/center-for-economic-education/teacher-resources/6-8/consumer-credit-buy-now-pay-later.pdfFederal Trade Commission report on rent to ownhttp://www.ftc.gov/reports/renttoown/rtosummary.shtmConsumer Reports article on rates of interest for rent-to-ownhttp://pressroom.consumerreports.org/pressroom/2011/06/rent-to-own-services-can-have-equivalent-interest-rates-as-high-as-311-percent-.htmlVirginia Council on Economic Education345

Page 346

EPF.13 The student will demonstrate the knowledge of credit and loan functions byc) identifying qualifications needed to obtain creditg) explaining the need for a good credit ratingDay 1 - Creditworthiness and credit ratingsContent KnowledgeStudents should understand that lenders’ decisions whether to grant credit are in some respectsjust an extension of decisions we make as individuals about whether to lend our money orproperty. The characteristics that make one a reliable bet as a borrower can be summed up infive Cs: Capacity, Capital, Character, Collateral and Conditions. Sometimes these fivecharacteristics are combined to create three – Capacity, Character and Collateral. Capital isusually part of Collateral and Conditions would be included under Capacity. If borrowers don’tmeet all these characteristics then they pose a greater risk to the lender, and will pay higher ratesof interest to obtain credit.VocabularyAnnual Fee – The yearly charge for having a credit card or credit account.Capacity – In the context of credit transactions, capacity is one of the Cs of Credit. It is anindicator of how creditworthy a prospective borrower is likely to be, as determined by theborrower's current and future earnings relative to current debt. High earnings and low debt, forexample, indicate a strong capacity to make payments on the loan in question.Capital – In the context of credit transactions, capital is one of the Cs of Credit. It is an indicatorof how creditworthy a prospective borrower is likely to be as determined by the borrower'scurrent financial assets and net worth.Character – In the context of credit transactions, character is one of the Cs of Credit. It is anindicator of how creditworthy a prospective borrower is likely to be, as determined by theborrower's handling of past debts and his or her stability in jobs and residences.Collateral – Something of value (often a house or a car) pledged by a borrower as security for aloan. If the borrower fails to make payments on the loan, the collateral may be sold; proceedsfrom the sale may then be used to pay down the unpaid debt.Conditions – The general state of the economy. In periods of slow economic activity, lendersmay be reluctant to lend out of fear that the borrower will be unable to pay.Finance Charges – The total cost of credit, including interest and transaction fees.Interest Rates – The price paid for using someone else's money, expressed as a percentage of theamount borrowed.Transaction Fees – A charge for making a transaction. Transaction fees may be a percentage ofthe total amount or a flat rate regardless of size.Virginia Board of Education Framework13c: Character, capacity, capital, conditions and collateral are factors that determinecreditworthiness.Virginia Council on Economic Education346

Page 347

Character refers to a borrower’s history of paying obligations.Capacity refers to one’s ability to repay and is usually measured by current income and level ofoutstanding debt.Capital refers to savings and other assets one can use to repay.Conditions refer to other circumstances that may impact the ability to obtain credit (e.g.,economic conditions).Collateral refers to assets the borrower has that could be taken by the lender if the borrower failsto repay.13g: Credit reporting agencies have established formulas to produce credit scores for eachborrower.Credit ratings are based on information in a person’s credit record, including income, paymenthistory, employment record, and other personal factors.Teaching Tips1) Begin by asking the class about lending and borrowing in their everyday lives. Havethey ever regretted lending money or something else to a friend or relative? Did it affecttheir willingness to lend again? If they had a bad experience, did they put morerestrictions on lending to the same person a second time? Are there any parallels to theinteractions between institutional lenders and their customers?2) Ask: Can anyone qualify for a loan? Why not? What do lenders consider when making adecision whether to extend credit? The teacher should spend a considerable amount oftime on the Cs of credit. Introduce the concept of credit ratings and credit score.3) Ask: Is it simply a matter of qualifying or not qualifying for credit? If one does notqualify for one type of credit, are there alternatives? (Often there are –more expensivealternatives, such as payday loans.) Remind students about what they learned about riskand reward in studying types of investments. If lenders view consumers as a greater risk,they will demand higher interest to compensate for the additional risk. When thecharacteristics are better, the risk of making the loan will be lower--which often results ina lower interest rate. The teacher may want to use the video on the 5 Cs of Credit belowas a summation.Lessons and ResourcesFinancial Fitness for Life Grades 6-8 Lesson 16: Establishing CreditVirginia Council on Economic Education347

Page 348

Financial Fitness for Life 9-12 Lesson 12: Making Credit ChoicesHands On Banking Topic 4 Lesson 2: What is Credit? (addresses the 5 Cs)http://www.handsonbanking.org/en/resources/Adults_4_WhatIsCredit.pdfVideo5 Cs of Credithttp://www.youtube.com/watch?v=Tw3wHYeASWUInteractiveDeveloping Good Credit Habitshttps://www.econedlink.org/resources/developing-good-credit-habits/Day 2 - Why credit ratings matter and what you can do to improvethemContent KnowledgeMany people don’t know how to access their credit rating, or why they should.VocabularyEquifax – One of three credit reporting agencies.Experian – One of three credit reporting agencies.TransUnion – One of three credit reporting agencies.Virginia Board of Education Framework13.g: Making payments (e.g., bills, rent) on time helps an individual establish and maintain goodcredit.Good credit scores may enhance one’s ability to borrow and the interest rate charged.Credit scores may also help decrease one’s insurance rates and improve employment options.Poor credit can adversely affect one’s ability to get a job, rent an apartment, obtain a car loan,obtain a security clearance—and may even bring an increase in car insurance.Individuals should access their own credit reports before applying for credit or when deniedcredit.To correct errors in one’s credit report, an individual should tell the consumer reportingcompany, in writing and with supporting documents, what information is inaccurate.The consumer reporting company then must investigate the issue and correct the error.Virginia Council on Economic Education348

Page 349

Teaching Tips1) Ask students if they have seen any commercials advertising “free credit reports.” Havethem go online to determine if the reports from these sites are actually free. Then havestudents access the web page on Credit Reporting Agencies listed in the Lessons andResources. Draw attention to the fact that everyone is entitled to one free credit reportfrom each agency each year. Students should note they don’t have to pay for a creditreport.2) Break students into three groups and have each group report back on one of the threeagencies. Be sure to have them also research how to report an error. Identity theft comesinto this topic in that when identity theft has occurred, information will appear abouttransactions that were not entered into by the identity theft victim. Review what theylearned in Unit 15 about how to avoid becoming a victim of identity theft.3) Discuss the fact that employers, landlords, insurers, and auto finance companies are allinterested in credit scores. Security clearances can also be affected.Lessons and ResourcesFinancial Fitness for Life, 9-12, Lesson 13 - Credit Reports and Credit Scores.Econedlink Lesson, Building Good Credit Habitshttps://www.econedlink.org/resources/building-good-credit-scores/OnlineAnnual Credit Report websitehttps://www.annualcreditreport.com/cra/index.jspDay 3 - Why credit ratings matter and what you can do to improvethem, continuedContent KnowledgeIf there’s an error, it can cost you. You can end up paying more for a loan or you may not evenreceive a loan based on erroneous information on your report.Teaching TipsVirginia Council on Economic Education349

Page 350

Page 351

EPF.13 The student will demonstrate the knowledge of credit and loan functions byb) analyzing credit card features and their impact on personal financial planningDay 1 - Understanding your credit cardsContent KnowledgeThe information on a credit card is not just there to confuse. It is important information aboutwhich the cardholder needs to be aware.VocabularyAnnual Percentage Rate (APR) – The percentage of the principal of a loan to be paid asinterest in one year. Differs from an add-on rate in that an APR is calculated on the decliningbalance of the loan. The Truth in Lending Act requires lenders to disclose APRs to prospectiveborrowers.Compound Interest – Interest that is earned not only on the principal but also on the interestalready earned.Credit Line – The maximum amount of money that will be extended to a person by a financialinstitution or credit-card issuer. Also known as credit limit.Float – deferred payment.Minimum Payments – the minimum amount a credit cardholder is required to repay each billingperiod on an open balance.Penalty Charges – Additional charges to an account for late payment, missed payment orexceeding the credit limit.Promotional Incentives – Rates or payment options used to induce consumers to apply forcertain types of credit cards. Included are low or zero-interest rate cards (sometimes called teaserrates) that last only for a short period. Also used are “no interest” if paid within a certain timeperiod.Rewards – Points or cash-back offers that can be used to redeem for products. Airlines, hotelsand some retailers offer rewards. These rewards often raise the total cost of a card in terms ofannual fee or a higher interest rate.Virginia Board of Education FrameworkConsumers should consider the impact on personal financial planning of credit card features,such as● annual percentage rate (APR)● annual fees● compound interest● penalty charges● credit line● promotional incentives● account disclosure statement● minimum paymentsVirginia Council on Economic Education351

Page 352

To use a decision model in selecting a credit card, the consumer needs to decide what featuresare most important in order to establish criteria.The benefits of using credit cards include● float (deferred payment)● convenience● compatibility to conduct online transactions● rewards● purchase protection● fraud protection● payment over time● establishing creditThe costs of using credit cards include● interest● fees (e.g., late, annual, over-the-limit)● risk of identity theft● risk of borrowing beyond the ability to repay● length of time to pay off the balance when paying only the minimum payment.Teaching Tips1) The teacher should list the types of charges involved in using credit. Find sample creditcard statements and discuss annual fee, interest paid, and transaction fees and show howthe total compares to the rate of interest paid (and advertised). The teacher may want tolet students know about current efforts on the part of consumer protection advocates tosimplify credit card statements (see the Consumer Financial Protection Bureau homepagelisted below).2) One way to teach this lesson is to bring in “junk mail”. Compare rates, fees, charges, andrewards using a table or PACED grid. Ask students which card they think is the “bestdeal” and ask them to explain their reasoning. Students can also view the information athttp://www.creditorweb.com/ and do there own research to “fact check” the informationand see how reliable they find it to be.3) Remind students what they learned about compound interest in Unit 11. The samecompounding that benefits savers, hurts borrowers who make minimum payments. Usingthe Minimum Payment Calculator below, show students the true cost (and time to payoff) a purchase of a high-end computer (iPad) using minimum payments. Note thedifference in cost and ask students what else could be done with the difference (what isthe opportunity cost of the extra spending).Lessons and ResourcesVirginia Council on Economic Education352

Page 353

Financial Fitness for Life Grades 9-12 Lesson 15: Shopping for a credit cardLearning, Earning and Investing Lesson 14: Credit: Your Best Friend or Your Worst EnemyYour Credit Counts Challenge: Trainer’s Guide Section 3: Managing Credit (part 3.19 – 3.27)Econedlink Lesson, The Credit Card Mysteryhttps://www.econedlink.org/resources/the-credit-card-mystery/Video curriculumRisky Business: What Every Teenager Needs to Know About Living Smart part 3, Using CreditWisely. Activity 3.3 can be found online: Analyzing a credit card statement,http://riskybusiness.councilforeconed.org/resources/wlg/RiskyBusiness.3.3r.pdfOnlineConsumer Financial Protection Bureau homepage – efforts to simplify credit card statementshttp://www.consumerfinance.gov/Minimum Payment Calculatorhttp://www.bankrate.com/calculators/managing-debt/minimum-payment-calculator.aspxConsumer Financial Protection Bureau article on shopping for a credit card:http://www.consumerfinance.gov/how-do-i-shop-for-a-credit-card/Virginia Council on Economic Education353

Page 354

EPF.13 The student will demonstrate the knowledge of credit and loan functions byd) identifying basic provisions of credit and loan lawsDay 1 and Day 2 - Basic consumer loan lawsContent KnowledgeWhen lenders, landlords, merchants or collection agencies fail to treat consumers properly, thereare remedies for the consumer—but unless students are made aware, they can’t pursue thoseremedies. These laws provide significant consumer protection and outline responsibilities.VocabularyFair Credit Billing Act – A federal law that requires creditors to mail out bills at least 14 daysbefore payment is due and also establishes procedures for resolving billing errors on creditaccounts.Fair Credit Reporting Act – A federal law governing the activities of credit bureaus andcreditors. It requires creditors to furnish accurate and complete information to borrowers; it alsoestablishes a process consumers may use to correct inaccuracies in credit reports.Fair Debt Collection Practices Act – A federal law that bars collection agencies from usingthreats, harassment or abuse in their efforts to collect debts.Credit Card Accountability, Responsibility and Disclosure Act (CARD ) – An act ofCongress that establishes responsibilities of card issuers and protections for cardholdersregarding interest rates, grace periods, pay-off times and other information.Equal Credit Opportunity Act – an act of Congress that makes it unlawful for a credit grantorto discriminate on the basis of race, color, religion, national origin, sex, marital status, or age(provided the applicant is legally able to enter into a contract).Virginia Board of Education FrameworkSome laws that affect credit and loans● Fair Credit Reporting Act- regulates consumer reporting agencies and the use ofconsumer credit information● Fair Credit Billing Act- protects consumers against inaccurate and unfair creditbilling and credit card practices and provides consumers with a mechanism foraddressing billing errors● Equal Credit Opportunity Act- prohibits creditors from discriminating against a creditapplicant on the basis of race, color, religion, national origin, sex, marital status, orage or because the applicant receives public assistance● Fair Debt Collection Practices Act- prevents abusive and deceptive practices by debtcollectors● Credit Card Accountability, Responsibility, and Disclosure (CARD) Act- bans unfairrate increases and unfair fees, requires that credit card contract terms be presented toconsumers in clear language, and ensures accountability from credit card issuers andregulatorsVirginia Council on Economic Education354

Page 355

Teaching Tips1) Break the students into five groups and have each group research one of the consumerprotection laws listed above. Then have each group in turn report to the class.Lessons and ResourcesFinancial Fitness for Life Grades 9-12 Lesson 18: Consumer Credit ProtectionReadingWhat the Credit Card Act Means to Youhttp://bucks.blogs.nytimes.com/2010/02/22/what-the-credit-card-act-means-for-you/OnlineConsumers Guide to Credit Cardshttp://www.federalreserve.gov/creditcard/It’s Your Paycheck Curriculum - lessonshttp://www.stlouisfed.org/education_resources/paycheck.cfmFair Credit Billinghttp://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre16.shtmVirginia Council on Economic Education355

Page 356

EPF.13 The student will demonstrate the knowledge of credit and loan functions byf) identifying strategies for effective debt management, including sources of assistanceDay 1 - Managing Your DebtContent KnowledgeIncome and assets will determine how much debt a consumer can manage. When consumerstake on too much debt, there are sources of assistance.1Virginia Board of Education FrameworkSome strategies for effective debt management include● Maintaining accurate financial records● Making payments on time to avoid penalties and other debt problems (e.g., liens,foreclosures, garnishment, repossessions, evictions)● Using early payoffs, if advantageous● Ensuring against identity theftSigns that a consumer is getting into credit trouble include● Inability to pay bills● Making only the minimum payment● Using one credit card to pay other credit card balances● Receiving collection agency calls.When considering sources of assistance for debt management, individuals should● Distinguish between discrimination and legitimate credit denial● Ensure the right to appeal a credit denial● Apply knowledge of laws’ protection of consumers who have credit problems● Review the ramifications of bankruptcy● Check telephone directories and internet sites for credit counseling services andcommercial debt-adjustment firms that can help clients address credit problems,manage debt and rebuild credit● Evaluate sources for reliability and effectivenessTeaching Tips1) Have students answer the following questions based on their research: What steps arenecessary to successfully manage debt? How should current debt be prioritized? How doyou focus on multiple debts? The teacher can have students examine the two sourceslisted in the Lessons and Resources, or have them find their own sources by entering“debt repayment strategies” or “debt management strategies” in a search engine.Virginia Council on Economic Education356

Page 357

2) Have students look for “debt counseling” resources. Have students seek out informationon several organizations and compare the organizations using a PACED decision grid.Students should explain their alternatives, criteria, evaluation, and eventual choice.Lessons and ResourcesFinancial Fitness for Life Grades, 9-12, Lesson 13 - Credit Reports and Credit Scores.Capstone: Exemplary Lessons for High School Economics – Teacher’s Guide Unit 3 Lesson 18:Credit ManagementOnline9 Smart Debt Management Strategieshttp://www.bankrate.com/finance/personal-finance/9-smart-debt-strategies-in-2009-1.aspxPayment Pushhttp://www.bankrate.com/bm/news/cc/20020405b.aspKnee Deep in Debt?http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre19.shtm15 Signs of Serious Debt Troublehttp://www.bankrate.com/finance/debt/15-signs-of-serious-debt-trouble.aspxVirginia Council on Economic Education357

Page 358

EPF.13 The student will demonstrate the knowledge of credit and loan functions byh) comparing the costs and conditions of secured and unsecured loansDay 1 - What is a secured loan and what does it cost? What is anunsecured loan and what does it cost?Content KnowledgeSecured loans have different requirements than unsecured loans. Secured and unsecured loansshould be analyzed with regard to the costs and conditions of the loan. Secured loan amounts areoften larger, and the time to repay may be longer.Virginia Board of Education FrameworkA secured loan is one in which the borrower risks loss of an asset (e.g., automobile, house) ifunable to repay.An unsecured loan is made without the borrower offering any assets and is based on theborrower’s credit rating alone.Some costs and conditions to consider with secured and unsecured loans include● Annual percentage rates● Finance charges● Monthly payments● Annual rates● Transaction fees● Length of time to repay the loan● Total amount required to pay off the loan● Loss incurred should the loan not be repaid on time.Teaching Tips1) Draw a table with two columns where it can be seen by everyone. On one side, place securedloans. On the other side place unsecured loans. List the characteristics of a secured loan and anunsecured loan under the appropriate columns. Have students address size, time to repay, interestrate, and repossession at minimum. Have students suggest what types of loans might fit undereach category and explain why. Include auto loans, mortgage loans, student loans, home equityloans, business loans, credit cards, personal loans. Ask students to explain from the lender’sperspective why each of these loans might be secured or unsecured.2) Have students research the economic concept of micro-financing or micro-lending to helpthem understand the difference between a secured loan and an unsecured loan. Discuss how theprovision of unsecured loans to low-income, small-scale entrepreneurs in the developing worldVirginia Council on Economic Education358

Page 359

Page 360

EPF.13 The student will demonstrate the knowledge of credit and loan functions byi) comparing the types of voluntary and involuntary bankruptcy and the implications of eachDay 1 and Day 2 - Understanding bankruptcyContent KnowledgeBankruptcy is a very serious step with serious repercussions. People need to understand when itmay be appropriate and recognize that it should not be entered into lightly.VocabularyBankruptcy – A process whereby a debtor may liquidate or adjust their debts. Bankruptcy maybe considered when an individual’s debts exceed their assets.Virginia Board of Economic FrameworkThe two most common types of bankruptcy for individuals are Chapter 7 bankruptcy andChapter 13 bankruptcy.Chapter 7 is the chapter of the U.S. Bankruptcy Code providing for “liquidation” (i.e., the sale ofa debtor’s nonexempt property and the distribution of the proceeds to creditors.)Chapter 13 is the chapter of the U.S. Bankruptcy Code providing for adjustment of debts of anindividual with regular income. (Chapter 13 allows a debtor to keep property and pay debts overtime, usually three to five years.)In most cases, an individual files for bankruptcy voluntarily. However, creditors can forcedebtors into involuntary bankruptcy.The most common causes of bankruptcy are● illness or injury● failure to plan and budget● small business failure● job loss● impulse, emotional spending● economic downturnBankruptcy generally affects one’s ability to obtain credit for a period of time and may affectemployment.An attorney should be consulted for legal advice on when and how to file for bankruptcy.Virginia Council on Economic Education360

Page 361

Teaching Tips1) The Lessons and Resources for this lesson require online access. As an alternative, theteacher may wish to reproduce or summarize material for the students. Break the students intothree groups. Assign one group to the basics, one group to Chapter 7, and one group to Chapter13. Have each group research their topic and report back to the class.2) A local bankruptcy attorney or judge would make a great guest speaker.Lessons and ResourcesYour Credit Counts Challenge: Trainer’s Guide Section 3: Managing Credit (part 3.14 only)OnlineBefore You File for Personal Bankruptcyhttp://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre41.shtmBankruptcy Basicshttp://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics.aspxChapter 7http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter7.aspxChapter 13http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter13.aspxKhan Academy on chapter 7 bankruptcyhttp://www.youtube.com/user/khanacademy#p/c/CADCB4565CFACEBF/7/-oW4M3vpuRMKhan Academy on chapter 11 bankruptcyhttp://www.youtube.com/user/khanacademy#p/c/CADCB4565CFACEBF/7/-oW4M3vpuRMEVALUATION DAYVirginia Council on Economic Education361

Page 362

Page 363

UNIT 18 - EVENTS AFFECTING THE PLAN (11 days)All teaching resources in this document are free for teachers. Here is how to you access them:1. Many are hyperlinked in the document, so you can get started right away.2. Lessons that do not have a hyperlink can be found on the lesson plan resource calledVirtual Economics 4.5 or 5.0 (VE). All teachers can and should get this resource for freeby participating in a VCEE training session. Visit www.vcee.org for more information.3. Lessons from Financial Fitness for Life are on VE. They also have educationaltechnology tools that can be found here:https://www.econedlink.org/resources/collection/fffl-9-12/This concluding unit addresses how to cope with uncertainty and change as they affect one’sfinancial plan. The unit first focuses on how to best take advantage of unexpected opportunitiesand how to protect oneself against loss. It then takes a broader view, helping students to analyzeand foresee the effect of government actions and economic events so as to successfully adapttheir budgets and personal financial plans over time.EPF.17 The student will demonstrate knowledge of personal financial planning byb) identifying anticipated and unanticipated income and expensesDay 1 Dealing with unanticipated eventsEPF.14 The student will demonstrate knowledge of the role of insurance in riskmanagementa) evaluating insurance as a risk management strategyDay 1 What is insurance?EPF.14 The student will demonstrate knowledge of the role of insurance in riskmanagement byb) distinguishing among the types, costs, and benefits of insurance coverage includingautomobile, life, property, health, and professional liability insuranceDay 1 Auto insuranceDay 2 Property and professional liability insuranceDay 3 Life and health insuranceEPF.14 The student will demonstrate knowledge of the roles of insurance in riskmanagement byc) explaining the role of insurance in financial planningDay 1 Protection or investmentEPF.17 The student will demonstrate knowledge of personal financial planning byc) examining components and purposes of a personal net worth statementDay 1 Calculating net worthEPF.17 The student will demonstrate knowledge of personal financial planning by363Virginia Council on Economic Education

Page 364

Page 365

EPF.17 The student will demonstrate knowledge of personal financial planning byb) identifying anticipated and unanticipated income and expensesDay 1 - Dealing with unanticipated eventsContent KnowledgeUnanticipated expenses can throw a budget off. Likewise, unanticipated income can too easily bewasted without showing a benefit or progress towards a short-term or long-term goal.VocabularyAllowance - A sum of money paid regularly to a person, often by a parent to a child; sometimespaid in compensation for services rendered.Anticipated Expenses – Regular payments that must be made to cover certain regularexpenditures. These could include rent, utility bills, and groceries.Anticipated Income – Regular receipts of funds that come as part of a contractual obligation.These can include wages, salary payments or certain conditional payments such as scholarships.Bonuses – An amount of money received in excess of a previously agreed upon amount, often inrecognition of exceptional service or completion of an important project.Educational Grants or Scholarships – Funds received to help offset the costs of education.They are often conditional on maintaining grades and/or other factors.Fixed Costs - Costs which remain the same each month.Gifts – Unanticipated receipt of funds or other things of value.Inheritances – Gifts received from another party upon their death, also known as bequest.Salary - A regular payment, often at monthly or biweekly intervals, made by an employer to anemployee, especially in the case of professional or white-collar employees. Salaries are paid forservices rendered and are not based on hours worked.Unanticipated Expenses – Expenses that are not foreseen and may happen at irregular intervals.Examples can include medical expenses, auto or appliance repairs or losses from naturaldisasters.Unanticipated Income – Payments received that are not foreseen or may happen at irregularintervals. These can include bonuses and gifts.Variable Costs – Costs are anticipated but may vary from month to month. Examples mayinclude entertainment, hobbies or certain educational expenses.Wage - Payments for labor services that are directly tied to time worked, or to the number ofunits of output produced.Virginia Board of Education FrameworkExamples of anticipated income:● Salary● Allowance● Wages● Educational grants or scholarships365Virginia Council on Economic Education

Page 366

Examples of unanticipated income:● Gifts● Bonuses● InheritancesExamples of anticipated expenses:● Fixed costs, which remain the same each month (e.g., rent, house payment,automobile loan payment)● Variable costs (e.g., video rentals, restaurant meals, sports activities)Examples of possible unanticipated expenses:● Car repairs● Medical bills● Losses from natural disaster or theftTeaching Tips1) Begin the lesson by asking: What would you do if you won a large sum of money in araffle? How much, if any, would you put toward an investment or savings? Why? Howwould you finance a major setback (e.g. apartment catching fire and all of yourpossessions are lost, or a major accident puts you or a member of our family in thehospital)? Have you known people who experienced such a major setback? Were theyable to come back from it relatively unscathed, or did it become a long term problem?2) Explain that having a financial plan will not eliminate the bad, but it can enhance thegood and minimize the bad. Having a “rainy day” fund, or putting unanticipated incomeinto retirement or savings can provide a cushion for unanticipated expenses.3) As an introduction to the following day, ask if they are aware of any strategies in additionto saving, to address unanticipated losses. Probe what they know, or think they know,about insurance, and record their remarks in order to address any misconceptions in thecoming days.Lessons and ResourcesFinancial Fitness for Life Grades 9-12 Lesson 1: How to Really be a MillionaireFinancial Fitness for Life Grades 9-12 Lesson 8: Managing Your MoneyYour Credit Counts Challenge Section 1: Income and Choices366Virginia Council on Economic Education

Page 367

EPF.14 The student will demonstrate knowledge of the role of insurance in riskmanagementa) evaluating insurance as a risk management strategyDay 1 - What is insurance?Content KnowledgeEveryday life involves many risks. The degree of loss associated with risk varies according to therisk itself. To guard against risks, individuals and businesses purchase insurance. There is awide array of insurance policies available within the insurance industry. To determine yourinsurance needs, individuals and businesses should first assess their potential risks, financialposition, and financial goals. Overtime, individuals should reassess their potential risks andfinances. For example, one should reevaluate their insurance needs when major events happen intheir life. (i.e. marriage, children, renting/purchasing a home, relocating, etc.) Sometimesindividuals see insurance as a gamble and a waste of money rather than a way to protect theirassets in case of accident. However, it is recommended to evaluate insurance decisions based ona cost/benefit analysis.There are many types of insurance, including automobile, life, property, health, and professionalliability. Individuals have many choices to make in selecting insurance.1VocabularyInsurance – A practice or arrangement whereby a company provides a guarantee ofcompensation for specified forms of loss, damage, injury or death. People obtain such guaranteesby buying insurance policies, for which they pay premiums. The process allows for the spreadingout of risk over a pool of insurance policyholders, with the expectation that only a fewpolicyholders will actually experience losses for which claims must be made. Types of insuranceinclude automobile, health, renter's, homeowner's, disability and life.Virginia Board of Education FrameworkInsurance can reduce financial risk.There are pros and cons of insurance as a risk management strategy in financial planning.Insurance provides protection from loss due to unforeseen or unavoidable events orcircumstances (e.g., illness, death, fire, theft, liability, act of nature, automobile).Teaching Tip1) Share with the class a listing of potential risk that you faced this morning on your way towork. (see list below for suggestions)367Virginia Council on Economic Education

Page 368

a. A power outage overnight caused your alarm clock to not work, thus youoverslept and are late to work.b. Your coffee maker did not work, you did not have your morning cup of coffee,and you are in a bad mood. You are rude to your friend. Your friend does notwant to hang around you anymore.c. You trip over the coffee table, fall, and break your arm.d. You are in a car accident on the way to schoole. Your region experienced out of the ordinary heavy rain, your basement is flooded2) Ask your students to assess their potential risks. Ask for volunteers to share their risks.Make a list of risks on the board.3) Discuss the disadvantage of risk: loss. Discuss the potential cost of loss associated withrisks that have been discussed in class.4) Ask the students how they can guard against risk. Make a list of suggested way on theboard.5) Conduct the lesson “Why Insurance and How Does It Work” from the lessons list below.This lesson contains a day in the life of a teenager activity, and an interview with aninsurance policy.6) Show the video on the history of insurance listed in the Lessons and Resources. Aftercompletion, ask students about the protective features of insurance. Who was protected inHammurabi’s time? In medieval times? What were they protected against? How didpooling money provide protection? Why would it matter what the level of risk is? Howdoes risk relate to size of the premium? Does it provide an incentive to reduce risk, ifpossible? How?Lessons and ResourcesVirtual Economics: Insurance Lessons Lesson 1: Why Insurance and How Does It WorkFinancial Fitness for Life Grades 9-12 Lesson 10: Managing RiskVideo curriculumRisky Business: What Every Teenager Needs to Know About Living Smart part 4, Expect theUnexpected: Managing Risk and Insuring Your Future. Available upon request from VCEE.VideoHistory of Insurancehttp://www.youtube.com/watch?v=8AGiWyJXvm0368Virginia Council on Economic Education

Page 369

EPF.14 The student will demonstrate knowledge of the role of insurance in riskmanagement byb) distinguishing among the types, costs, and benefits of insurance coverage includingautomobile, life, property, health, and professional liability insuranceDay 1 - Auto insuranceContent KnowledgeThe freedom of the open road is very exciting for most teenagers. However, with the reward ofthis freedom comes many a wide range of possible risks. To reduce these risks, many statesrequire drivers to purchase automobile insurance. The Commonwealth of Virginia has anautomobile insurance requirement. To purchase license plates, one must certify that the vehicleis covered by the minimum insurance requirements or pay the uninsured motor vehicle fee.Virginia requires minimum insurance coverage: Bodily injury/death of one person $25,000,Bodily injury/death of two or more persons $50,000 and Property damage o $20,000 forminimum coverage.Evaluating automobile insurance policies can be a daunting task. There are many variables to beconsidered. These variables include such things as Bodily-Injury Liability, Property-DamageLiability, Collision, Comprehensive, Medical Payments, Personal Injury, Deductibles, andDiscounts. Some people purchase minimum coverage and are surprised by what is covered andwhat isn’t. However, it is recommended to evaluate automobile insurance decisions based on acost/benefit analysis. Comparison shopping is also recommended.VocabularyAssigned Risk – A driver or class of drivers that would be denied insurance coverage but mustcarry auto insurance under state law.Collision – Insurance that pays for repairs to an automobile, or replacement of the automobile(minus the deductible in each case), if the automobile is hit by another car.Comprehensive – Insurance that pays for repairs to an automobile, or replacement of anautomobile (minus the deductible in each case), if the automobile is stolen or damaged bysomething other than a collision (for example, by a hail storm).Deductible – Regarding insurance policies: A set amount an insured person must pay per lossbefore the insurance company will pay a claim.Liability – Automobile insurance that pays for costs of bodily injury and property damage whenthe insured person damages someone or something with his or her car.No Fault – In some states, insurance claims are not paid by the party at fault for an accident.Instead, each party in an accident is compensated by their own company, regardless of whichparty caused the accident.Personal Injury Protection – A portion of auto insurance that pays for medical injuries.369Virginia Council on Economic Education

Page 370

Uninsured/Underinsured Motorist – Insurance coverage that will pay a driver who is injuredor otherwise suffers damages due to actions of a driver of another vehicle who is uninsured ordoes not cover sufficient insurance to pay all the damages.Virginia Board of Education FrameworkImportant topics to understand about automobile insurance include● deductible● collision● comprehensive● liability● personal injury protection● no fault● uninsured/underinsured motorist● assigned riskUmbrella liability insurance provides additional protection should other policies not besufficient.Teaching Tips1) Ask your students the following and discuss:a. How many have their driver’s license?b. How many have their own car?c. How many have automobile insurance?d. What type of automobile coverage do you have?e. In order to operate a vehicle in the Commonwealth of Virginia, are you requiredto have automobile insurance?2) Have your students access the following website and read about automobile insurancerequirements for the Commonwealth of Virginia.http://www.dmv.state.va.us/webdoc/citizen/vehicles/insurance.asp3) Have your students access the following “Teenagers Guide to Auto Insurance” brochure,or print copies and distribute to your students.http://www.scc.virginia.gov/boi/pubs/auto_teen.pdf4) Instruct your students to read the brochure.5) Assign your students to develop a PowerPoint presentation to persuade a fellow teenagerthe importance of purchasing auto insurance. Have the students discuss each type ofinsurance completely.6) Invite an insurance agent into your classroom to explain different types of automobilecoverage.370Virginia Council on Economic Education

Page 371

7) Use Lesson 3 listed below to discuss varying types of auto insurance.8) Use the Risky Business activity below to help students understand the business of autoinsurance underwriting. Are there some things they can do to keep the cost of theirpremium down? Are there factors affecting the cost that are outside of their control?Why is that?Lessons and ResourcesVirtual Economics: Insurance Lessons Lesson 3: Everything You Ever Wanted to Know AboutAutomobile InsuranceOnlineRisky Business: What Every Teenager Needs to Know About Living Smart Activity 4.2,Choosing Sides: Which Drivers Would You Insure? Available upon request from VCEE.http://riskybusiness.councilforeconed.org/resources/wlg/RiskyBusiness.4.2r.pdfSeveral publications on auto insurance from the state Bureau of Insurance can be found at:http://www.scc.virginia.gov/boi/pubs.aspxShow Me the Money (lesson)http://www.econedlink.org/lessons/index.php?lid=388&type=educator371Virginia Council on Economic Education

Page 372

EPF.14 The student will demonstrate knowledge of the role of insurance in riskmanagement byb) distinguishing among the types, costs, and benefits of insurance coverage includingautomobile, life, property, health, and professional liability insuranceDay 2 - Property and professional liabilityContent KnowledgeProperty insurance is an important consideration. Without any homeowner’s or renter’sinsurance, an individual would be liable for the entire cost of personal property if a loss occurred.Without adequate coverage, many people are surprised when they have a claim and find out theydon’t have full coverage. Therefore, it is important to have this coverage and periodicallymonitor the coverage as you experience changes in your life. Again, it is recommended toevaluate property insurance decisions based on a cost/benefit analysis. Comparison shopping isalso recommended.Professional liability insurance is a type of insurance purchased by attorneys and health careproviders to protect against malpractice and other litigation.VocabularyEndorsements – a written document attached to an insurance policy that modifies the policy bychanging the coverage afforded under the policy. An endorsement can add coverage for acts orthings that are not covered as a part of the original policy and can be added at the inception of thepolicy or later during the term of the policy.Floaters – A type of insurance policy that covers property that is easily movable and providesadditional coverage over what normal insurance policies do not. This can cover anything fromjewelry to expensive stereo equipment.Professional Liability – Insurance designed to protect professionals from claims due to errors oromissions, also known as malpractice insurance.Umbrella – A liability policy designed to protect assets and future income of a policy-holderfrom claims against them.Virginia Board of Education FrameworkSome concepts to understand about property insurance:● Its purpose is to protect a person from losses due to damage, theft, and liability.● It includes basic coverage, broad form, special form, renter, comprehensive, andcondominium owner,● There are disadvantages of under-insuring and over-insuring.● The insured must pay a deductible toward a loss before the insurance companycontributes. Policies with lower deductibles have higher premiums, and vice versa.● Insurance floaters cover items not covered by standard insurance policies, such as artcollections or jewelry.372Virginia Council on Economic Education

Page 373

● Endorsements can be written to change a policy’s coverage.Professional liability insurance is often purchased by attorneys, health care providers, andeducators to protect against malpractice and other litigation.Umbrella liability insurance provides additional protection should other policies not besufficient.Teaching Tips1) Ask your students to take a personal inventory of their belongings. Included on thisshould be a replacement value of the items. You may want to have students compile thislist with prices prior to coming to class.2) Ask students how they would replace these items, if they were lost in a disaster. Do theycurrently have enough saved money to replace the items? If not, ask how they couldguarantee the replacement if such an event occurred. Direct the students’ discussion intohomeowner’s insurance and renter’s insurance.3) Have students access the following link for a Homeowner’s Insurance Consumer’sGuide. http://www.scc.virginia.gov/boi/pubs/hoguide.pdf Following the evaluation ofthis document, instruct students to complete the Homeowners Insurance QuotationWorksheet at the end of the document.4) The following is a link to the Homeowner’s Insurance Sample Premium Table(2011-2012) which can be a good planning tool when budgeting for property insurance.http://www.scc.virginia.gov/boi/pubs/ho_sampprem.pdf5) Also, consider inviting an insurance agent into your classroom. Have them discuss howpremiums are affected by endorsements, floaters, and deductibles. Have them alsoaddress professional liability insurance.Lessons and ResourcesVirtual Economics: Insurance Lessons, Lesson 4: Why Renter’s Insurance?OnlineSeveral publications on homeowners’ and renters’ insurance from the state Bureau of Insurancecan be found at: http://www.scc.virginia.gov/boi/pubs.aspx373Virginia Council on Economic Education

Page 374

EPF.14 The student will demonstrate knowledge of the role of insurance in riskmanagement byb) distinguishing among the types, costs, and benefits of insurance coverage includingautomobile, life, property, health, and professional liability insuranceDay 3 - Life and healthContent KnowledgeNot all health insurance plans cover everything. Knowing what is and isn’t covered can helpconsumers make informed decisions.VocabularyCo-pays – The portion of a medical service charge paid by the insured. This is paid first and thebalance of the charge is submitted to the insurer for payment.Dental – A specific type of medical insurance designed to cover care of the teeth and gums.Disability – A type of insurance meant to provide long-term coverage and care if the insured isunable to work due to illness or injury.Major Medical – Insurance that covers most serious medical expenses up to a maximum limit,usually after a deductible has been met.Term Life –delete An insurance policy with a set duration limit on the coverage period. Once thepolicy is expired, it is up to the policy owner to decide whether to renew the term life insurancepolicy or to let the coverage end. This type of insurance policy contrasts with permanent lifeinsurance, in which duration extends until the policy owner reaches 100 years of age (i.e. death).Vision – A specific type of medical insurance designed to cover basic optometric needs like eyeexams, glasses and contacts.Whole Life –A life insurance contract with level premiums that has both an insurance and aninvestment component. The insurance component pays a stated amount upon death of theinsured. The investment component accumulates a cash value that the policyholder can withdrawor borrow against.Virginia Board of Education FrameworkTypes of life insurance include● Temporary insurance (term, decreasing term, level term, and credit life)● Permanent insurance (straight life, limited pay, universal, and variable).Some concepts to understand about health insurance:● Basic health insurance covers doctor visit, routine service, and hospital and surgicalexpenses.● Major medical insurance insures a person from large and catastrophic expensesresulting from illness or injury.● Dental and vision care insurance are generally sold separately from basic insurancecoverage.374Virginia Council on Economic Education

Page 375

● Disability insurance offers workers protection in case of job-related injury.● There are both advantages and disadvantages of managed and unmanaged healthinsurance plans.● Co-pays (i.e., payment by the insured for medical services) are requirement of mosthealth insurance plans.Teaching Tips1) Survey the students to determine how risky they are. How many like to rock climb?How many enjoy riding ATVs? How many have ever talked on the phone while driving?How many have not washed their hands before eating in the school cafeteria?2) Ask the students about their last visit to the doctor. Did you pay for the visit? Have youever had a broken bone? What type of medical attention was required? How costly doyou think the medical visits were? Do you have enough saved money to cover suchunforeseen events? Can we always predict when we will need medical attention andbudget for this expense? Direct the students’ discussion into the unanticipated medicalexpenses that tend to occur in life. Explain that health insurance can lessen the cost ofmedical needs.3) Explain that the majority of individuals obtain health insurance through their employer.However, it is worth discussing health insurance for entrepreneurs. Businesses typicallycomparison shop health insurance companies for the best plans for their organization’sneeds. Within the organization there may be several plans available for employees tochoose.4) You may wish to secure health insurance information from the school division’s HRdepartment to use as an example, or ask local businesses that offer health insurancebenefits to provide information.5) Use a PACED decision-making grid to compare different plans or different componentsof plans (compare vision plans, compare dental plans).Lessons and ResourcesVirtual Economics: Insurance Lessons, Lesson 2: The Basics of Life InsuranceOnlineSeveral publications on life and health insurance from the State Bureau of Insurance can befound at: http://www.scc.virginia.gov/boi/pubs.aspxKhan Academy, Practical Money Skills. Term or Whole Life Insurance.https://www.practicalmoneyskills.com/resources/videos/term_and_whole_life_insurance_policies375Virginia Council on Economic Education

Page 376

Page 377

EPF.14 The student will demonstrate knowledge of the roles of insurance in riskmanagement byc) explaining the role of insurance in financial planningDay 1 - Protection or investmentContent KnowledgeInsurance can play an important role in financial planning. Some life insurance can be used aspart of an investment plan.An annuity is a financial product that receives and grows funds from an individual. Later, it paysout a stream of payments to the individual. Annuities are primarily used for retirement.An Individual Retirement Account (IRA) is an investing tool that earns and allocates funds forretirement savings. There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLEIRAs and SEP IRAs.A Health Savings Account is an account that may be offered with high-deductible health plansfor the purpose of saving for medical expenses that high-deductible health plans do not cover.Contributions are made into the account by the individual and/or the employer and are limited toa maximum amount each year. The contributions are invested over time and can be used to payfor qualified medical expenses, which may include dental, vision and over-the-counter drugs.It is important to consider several factors including your financial goals and provisions for yourfamily. Comparison Shopping is recommended as the life insurance industry is in a competitivemarket. Much of the competition focuses on price. Conducting a cost/benefit analysis is helpfulin finding the best value for your money.VocabularyCash Value – the cash amount offered to the policyholder by the life insurance company. Cancellationof the contract – may not apply to some kinds of life insurance contracts.Virginia Board of Education FrameworkInsurance can play the following roles in financial planning:● Protection against risk of financial loss● Assistance for individuals and families preparing financially for risks such asdisability, unemployment, long-term care and death● Provision for retirement income● Accumulation of savings (for family expenses)● Provision of cash value that can be borrowed.It is important to make periodic reviews of insurance coverage.377Virginia Council on Economic Education

Page 378

Teaching Tips1) Have students access the following link to calculate their estimated life expectancy.http://www.360financialliteracy.org/Topics/Insurance/Life-Insurance/Life-ExpectancyHave students refer to their financial goals. With both sets of information, students shouldbe encouraged to make a list of insurance needs. Have students contemplate theirretirement goals as well.2) Have students examine different types of insurance from their above list. Life insuranceshould be included. Also have students examine annuities and IRAs. Research could befacilitated using the on-line resources below and/or the previous day’s notes. Studentscould present their findings by means of a PowerPoint Presentation, newspaper article,Prezi Presentation, or short report.Lessons and ResourcesFinancial Fitness for Life: 9-12, Lesson 21: There Is No Free Lunch in InvestingTeaching Financial Crises Lesson 7: The Instruments and Institutions of Modern FinancialMarketsMathematics and Economics: Connections for Life Lesson 11: Cash or Annuity?Online360 degrees of Financial Literacy (American Institute of CPAs)http://www.360financialliteracy.org/Topics/InsuranceBuilding Wealth Guide from the Federal Reserve Dallas (includes planning for, shopping for, andbudgeting for insurance. http://www.dallasfed.org/ca/wealth/index.cfmSeveral publications from the state Bureau of Insurance can be found at:http://www.scc.virginia.gov/boi/pubs.aspx378Virginia Council on Economic Education

Page 379

EPF.17 The student will demonstrate knowledge of personal financial planningbyc) examining components and purposes of a personal net worth statementDay 1 - Calculating net worthContent KnowledgeA net worth statement shows one’s financial position.1A personal inventory is needed both toestablish the parameters for insurance coverage, and in case of claims. The inventory is onecomponent of a net worth statement, which is used in making and adjusting the financial plan,and in obtaining credit.VocabularyAsset – Something of monetary value owned by an individual or an organization.Liability – Legal responsibility to pay a debt or for damages or losses one has caused.Net Worth – The current value of a person's assets minus liabilities.Personal Inventory – A listing of all the items in your home, often used in insurance claims.Virginia Board of Education FrameworkAn individual’s net worth statement provides the total value of a person’s financial holdings.Net worth is calculated by deducting liabilities (e.g., debts) from assets (e.g., property).Examples of assets include checking and savings account balances, car value, and personalproperty value.Examples of liabilities include balances on car loans, bank loans, mortgage loans, and creditcards.A net worth statement is useful as an analytical tool for individuals and provides valuable insightto creditors, investors, lenders, and financial advisors.A personal inventory is a list of all of one’s personal property. This is useful in cases of fire,theft, and property damage. This inventory can be supplemented with photographs. It isimportant to keep the record in a safe place away from the primary residence.Teaching Tips1) Ask students to define wealth. Write responses on the board. Ask students to defineassets and liabilities. Again record responses on the board. Then show the relationshipamong the three terms by writing the following equation on the board. Assets =379Virginia Council on Economic Education

Page 380

Liabilities + Net Worth Then, take a moment to rearrange the equation to the following.Net Worth = Assets – Liabilities.2) Assign students to take a personal inventory. It does not have to include financial assets,but they should begin by trying to think of all of their personal belongings in their room.Have them research what the belongings would be valued at and/or what it would cost toreplace them. Have them categorize their belongings: furniture, clothing, sportsequipment, electronics, books and music, etc. Don’t ask them to share values, but askthem what categories are the largest. Are they surprised by what they own and its value?Are they surprised by which categories are the largest?3) Have students prepare a net worth statement from a (fictional) personal inventory andinformation about financial assets and liabilities. You may choose to have students usean electronic net worth calculator.http://www.360financialliteracy.org/Topics/Budgeting-Spending/Budgeting-and-Saving/Net-Worth/(language)/eng-US4) Conduct the online Lesson 1 – Budget to Save: What Does It Mean to Be Wealthy.Lessons and ResourcesFinancial Fitness for Life Grades 9-12 Lesson 8: Managing Your MoneyOnlineLesson 1 – Budget to Save: What Does It Mean to Be Wealthyhttp://www.dallasfed.org/educate/pubs/wealth_classroom/01_lesson.pdfCalculating Your Net Worthhttp://www.360financialliteracy.org/Topics/Budgeting-Spending/Budgeting-and-Saving/Net-Worth/(language)/eng-USFederal Reserve Bank of Dallas, Building Wealth Guide. Includes planning for, shopping for, andbudgeting for insurance. https://www.dallasfed.org/-/media/microsites/cd/wealth/index.html380Virginia Council on Economic Education

Page 381

EPF.17 The student will demonstrate knowledge of personal financial planning bye) investigating the effects of government actions and economic conditions on personalfinancial planningf) explaining how economics inﬂuences a personal ﬁnancial planDay 1 – Tax policies and financial planningContent KnowledgeTeenagers are often surprised to discover the amount of taxes deducted from their earnings. Thereality is that there are many factors that influence the amount we have to spend and save. Thesefactors include a variety of taxes, inflation, and interest rates. Much of the tax code is written tohelp shape our decision-making about how we spend or save our money. There are taxadvantages to certain expenditure that, if known, may be a factor in our deciding to undertakecertain expenditures (e.g. deductions for mortgage payments, charitable contributions.) Studentsneed to understand that taxes can affect their finances which ultimately should affect theirfinancial planning.VocabularyDeductions – Amounts that are allowed to be subtracted from income before calculating tax.Common deductions include contributions to charity and mortgage interest.Taxes – Compulsory payments to governments by households and businesses.Virginia Board of Education FrameworkGovernment actions, such as changes in taxes, affect personal financial planning.Government tax policies, including what expenses are tax-deductible, influence financialplanning. These tax policies may shift over time.Teaching Tips1) Take this opportunity to review marginal cost and marginal benefit. List the followingitems where all students can see them: charitable contributions, interest on debt, andeducation. Ask students to recall the law of demand. What happens when the price ofsomething is reduced? (We consume more). Ask: “What would be the result if the cost ofeach of the items listed is reduced?” (People will tend to make more charitablecontributions, take on more debt, and pursue more education.)Explore the tax deductions for charitable contributions, for home mortgage interest, andfor education expenses. Remind students that a deduction reduces the amount of incomethat is taxed; therefore, the cost is reduced by the rate of the tax. If one is paying taxes ata rate of 10%, what is the resulting tax benefit of a $1,000 charitable contribution?($100). What is the result of borrowing $100,000 at 8% to buy a home? ($100,000 x .08 x381Virginia Council on Economic Education

Page 382

.10 or $800) What is the result of spending $15,000 on tuition and books to attendcollege? ($1,500). How does this act as an incentive to contribute, learn or borrow tobecome a homeowner? What is the impact if the taxpayer pays 15%? 20%?Lessons and ResourcesFinancial Fitness for Life 9-12 Theme 2, Lesson 7: Uncle Sam Takes a BiteAdvanced Placement Economics Macroeconomics Unit 2, Lesson 3: Price Indexes and InflationDay 2 - Economic conditions and ﬁnancial planningContent KnowledgeEconomic conditions change expectations. Expectations change how we choose.Changing economic conditions affect individuals.Changes in national levels of economic activity have a profound effect on students’ futurewelfare, their job opportunities, the level of their prospective earnings, and the prices they willpay for things they buy. It is important, therefore, for students to understand possible causes ofchanges in these levels and how such changes can produce economic problems (such asunemployment and inflation) or opportunities (such as increased employment). Understandingthese forces equips students to predict the economic consequences of proposed governmentpolicies and to make informed choices among alternative public policy proposals.2Students who graduate at a time when unemployment is high will likely find it more difficult tofind a job. In an effort to fight unemployment by stimulating the economy, the Fed may usemonetary policy to keep interest rates low. Low interest rates help students borrowing money forcollege or cars, young families buying homes and entrepreneurs building businesses. At the sametime, low interest rates hurt retirees who may be counting on income from interest on theirsavings.Students who graduate when the economy is growing fast and inflation is the challenge will facedifferent challenges. In a booming economy, there will be “help wanted” signs everywhere.Students will find it easier to get jobs. However, the Fed may start taking actions to fightinflation. Inflation is an increase in the overall price level that reduces the value of money,making prices of goods rise each year. (In 1979-1980 the rate of inflation was over 13%.)Inflation is a problem for savers because their savings lose value each year. It is a problem forpeople on fixed incomes (e.g. retirees) because their income is staying the same while the thingsthey are buying are going up in price. It is a problem for businesses because of the uncertainty it382Virginia Council on Economic Education

Page 383

causes. (What will I have to pay for my resources next year? Will I be able to increase my pricesto cover those costs?) Because of the problems inflation causes, the Fed may use monetarypolicy to cause interest rates to rise to slow the economy.Most people would like to have more money. Students, however, often fail to understand that thereal value of money is determined by the goods and services money can buy. Doubling theamount of money in an economy overnight would not, by itself, make people better off, becausethere would still be the same amount of goods and services produced and consumed, only athigher prices. Understanding what determines the real buying power of money and earnings willhelp students make better decisions in their personal and professional lives.2VocabularyDeflation – A sustained decrease in the average price level of all the goods and servicesproduced in the economy.Inflation – A rise in the general or average price level of all the goods and services produced inan economy. Can be caused by pressure from the demand side of the market (demand-pullinflation) or pressure from the supply side of the market (cost-push inflation).Virginia Department of Education FrameworkEPF.17e Monetary and fiscal policy actions can affect personal financial planning.Economic conditions such as inflation and deflation affect financial planning.Planning should anticipate the possibility of inflation or deflation in the future by includingsafeguards against both.EPF.17f Changing economic conditions can influence a personal financial plan in the followingways:· Inflation can negatively impact savings by eroding the purchasing power of savingsover time.· Unemployment can affect financial plans by making it more difficult for individualsto budget, save, and meet financial obligations.· Deflation can reduce the value of assets one might own.· Slow economic growth can lead to a rise in unemployment rates.Fiscal policy actions can affect an individual’s current and future income. For example, actionsof the Federal Reserve System affect interest rates and the availability of credit; thus it isimportant to be aware of what the Fed is doing and to understand what it means to one’s financialassets.Teaching Tips1) This lesson should help students answer these questions:383Virginia Council on Economic Education

Page 384

--How can economic conditions such as inflation, deflation or unemployment affect myfinances? What can I do to prepare?--What economic conditions might cause the Fed to change interest rates and in whatdirection? How might that affect my finances?2) If students have previously studied economic conditions such as unemployment andinflation and monetary and fiscal policies for addressing those issues, take some time toreview. If this is new to them, it will be necessary to introduce this content. Content andstrategies can be found in units 8 and 9. Be certain students understand that the economygoes through a business cycle of “booms (high growth often characterized by inflation)and busts (often characterized by unemployment and sometimes deflation)” Explain whois helped and who is hurt by inflation and the costs of unemployment. Introduce the CPI asa measure of inflation, GDP as a measure of economic growth and the unemployment rateas the percentage of people in the workforce who are seeking work and unable to find it.3) Have students look up these current economic indicators--CPI, Unemployment Rate, GDP.How healthy does the economy look? (Most textbooks indicate that a healthy economywould have CPI between 1-3, Unemployment 4-6% , GDP growing at least 3%. Are any ofthe indicators too high or too low?) If inflation is too high, what do students think the Fedmight do to interest rates? (They might raise interest rates and make credit harder to get.)Who might that help? Who might that hurt? If the unemployment rate is too high, what dostudents think the Fed might do to interest rates? (They might lower interest rates andmake credit easier to get.) Who might that help? Who might that hurt?4) Compare the groceries that could be purchased for $10 in 1977 with those that can bepurchased for $10 today and explain how the value of money has changed. Students willbe able to use this knowledge to explain how their lives would be more difficult in a worldwhere money sharply lost its value.25) Ask students how people change their behavior in times of inflation. (People buy inadvance, assuming that prices will be higher in the future.) Ask how savers would beaffected by inflation. (The purchasing power--what their money will buy--falls.) What dosome people do to protect themselves from inflation? (They may buy tangible assets whichtend to increase in value with inﬂation. Remind students that most cars, electronicequipment and clothing, though tangible, decrease in value with time. They may put theirmoney in bonds where rates are adjusted for inﬂation. They may seek jobs whereemployees receive cost of living adjustments.)6) Show the business cycle. Point out that the economy tends to go through these periods of“boom” followed by periods of “bust” but that we don’t know how long each is going tolast. So, knowing that at some point the economy will slow and they might findthemselves unemployed. How should they prepare for this in their financial planning?(Always have an emergency fund that is equal to at least six months of one’s income.Unemployment compensation will not cover your expenses. Engage in continuous learning384Virginia Council on Economic Education

Page 385

to keep skills current. In the workplace seek to be indispensable so your employer won’twant to lay you oﬀ.)7) Focus High School Economics Lesson 18, Economic Ups and Downs activity 4 is a onepage handout that asks students what economic conditions they would prefer upongraduation.Lessons and ResourcesFocus High School Economics Lesson 18: Economic Ups and DownsLearning, Earning and Investing Lesson 20: The Stock Market and the Future, Can You Forecastthe Future?Advanced Placement Economics Macroeconomics Unit 4, Lesson 4: The Federal ReserveSystem and Its Tools; Lesson 5: The Money Market and Monetary Policy; Lesson 6: InterestRates and Monetary Policy in the Short Run and the Long Run; Unit 5, Lesson 2: Monetary andFiscal Policy InteractEconedlink Topic (Lesson plan collection): Understanding Fiscal Responsibility.https://www.econedlink.org/resources/collection/understanding-fiscal-responsibility/OnlineEconedlink Economic Data Lesson, Economic Policy Options.https://www.econedlink.org/resources/economic-data-lesson-economic-policy-options/385Virginia Council on Economic Education

Page 386

EPF.17 The student will demonstrate knowledge of personal ﬁnancial planning byf) explaining how economics inﬂuences a personal ﬁnancial planDay 1 - Understanding decisions and choicesContent KnowledgeEconomic concepts are not just theory; they are real life tools to help people make choices thataffect their personal well-being.Virginia Board of Education FrameworkKey economics principles that influence personal financial planning include the following:· People must make choices due to scarcity· Every choice incurs an opportunity cost· All choices have consequences· Secondary effects of choices are important· Decisions are made based on marginal analysisApplying these key principles to financial planning means the following:· A budget details how one plans to use limited income to satisfy wants.· There is a tradeoff between spending now and saving· People make decisions about which financial products to consume based on severalfactors, including expected return and the associated risk of the product.· Financial plans and financial products should take into account the goals of theindividualsTeaching Tips1) How to Really be a Millionaire, lesson 1 in Financial Fitness for Life 9-12. If this activityhas not been done previously, it makes a nice summary.2) List the economic concepts from the framework where all students can see them. Askstudents to give examples of how each concept is used in financial planning3) Divide students into groups and assign each one a scenario about an individual or family.The students’ assignment is to produce a financial plan for this family. (All students maybe working on the same family or different ones. Provide enough information for studentsto create a budget. Require the use of a PACED decision model to solve a family choice.Require them to show that they are prepared for unemployment. Tell them to explain howthey will respond to inflation should the economy be faced with that. Be sure theyunderstand the nature of risk and take that into account. Require students to make classpresentations of their plans. Optional, bring in a “pretend” family of guests (principal,386Virginia Council on Economic Education