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VCEE Scope & Sequence EPF Unit 3

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UNIT 3Producers and Consumers in a Market Economy (11 days)

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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 Education

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Day 2 Improving productivityEPF.2 The student will demonstrate knowledge of the role of producers and consumers in amarket economy byf) describing how increased productivity affects costs of production and standard of livingDay 1 Measuring productivity using GDPEPF.2 The student will demonstrate knowledge of the role of producers and consumers in amarket economy byj) illustrating the circular flow of economic activityDay 1 and Day 2 Understanding circular flowEvaluation DayVirginia Council on Economic Education

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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 Education

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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 Education

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https://www.youtube.com/watch?v=FdiQl7urd2wComicshttp://dilbert.com/strips/comic/2009-08-02/ (incentives and disincentives)Virginia Council on Economic Education

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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 Education

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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 Education

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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 Education

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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 Education

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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 Education

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Virginia Council on Economic Education

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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 Education

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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 Education

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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 Education

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EconEdLink Lesson: Lemonade for Salehttps://www.econedlink.org/resources/lemonade-for-sale/ReadingCan Allowing Customers to Pay As They Wish Increase Profits?http://www.npr.org/blogs/money/2011/01/20/133056468/can-allowing-customers-to-pay-as-they-wish-increase-profitsVirginia Council on Economic Education

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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 Education

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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 Education

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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 Education

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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 Education

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Podcast:Planet Money: Understanding the Productivity Paradoxhttps://www.npr.org/2017/06/02/531173429/understanding-the-productivity-paradoxMusic“It’s in the Way That You Use It” by Eric Clapton (productivity)Virginia Council on Economic Education

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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 Education

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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 Education

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Focus: Understanding Economics in US History Lesson 3: Why Do Economies Grow?Focus: Middle School Economics Unit 4 Lesson 12: What Does the Nation Consume?CIA World Factbook https://www.cia.gov/library/publications/the-world-factbook/VideoGross Domestic Product Economic Lowdown, Ep. 7 (7:51)https://www.youtube.com/watch?v=1Il5IQHcYP8&t=319sVirginia Council on Economic Education

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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 Education

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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 Education

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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 Education

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Virginia Council on Economic Education

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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 Education