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Standards 1-5

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Introduction

October 29, 1996

The inclusion of economics as a core subject in the Goals 2000 Educate America Act recognizes the value of economic understanding in helping people comprehend the modern world, make decisions that shape the future, and strengthen major institutions. The principles of economics bear directly on the ordinary business of life, affecting people in their roles as consumers and producers. Economics also plays an important role in local, state, national, and international public policy. Economic issues frequently influence voters in national, state, and local elections. A better understanding of economics enables people to understand the forces that affect them every day, and helps them identify and evaluate the consequences of private decisions and public policies. Many institutions of a democratic market economy function more effectively when its citizens are articulate and well informed about economics.

Learning how to reason about economic issues is important also because the analytic approach of economics differs in key respects from approaches appropriate for other related subjects such as history and civics. Yet valid economic analysis helps us to master such subjects as well, providing effective ways to examine many of the “why” questions in history, politics, business, and international relations.

Skills, as well as content, play an important part in economic reasoning. The key skills students must develop in economics include an ability to (a) identify economic problems, alternatives, benefits, and costs; (b) analyze the incentives at work in an economic situation; (c) examine the consequences of changes in economic conditions and public policies; (d) collect and organize economic evidence; and (e) compare benefits with costs.

Students should have gained several kinds of economic knowledge by the time they have finished the twelfth grade. First, they should understand basic economic concepts and be able to reason logically about key economic issues that affect their lives as workers, consumers, and citizens, so they can avoid errors that are common among persons who do not understand economics. Second, they should know some pertinent facts about the American economy, including its size and the current rates of unemployment, inflation, and interest. Third, they should understand that there are differing views on some economic issues. This is especially true for topics such as the appropriate size of government in a market economy, how and when the federal government should try to fight unemployment and inflation, and how and when the federal government should try to promote economic growth. Nevertheless, on many issues and in their basic methods of analysis, there is widespread agreement among economists.

The essential principles of economics are identified in the 20 content standards that follow. Each standard is followed by a rationale for its inclusion. Then benchmarks for the teaching of each of the content standards are provided, indicating recommended levels of attainment for students in grades 4, 8, and 12. Finally, samples of what students can do to enhance or demonstrate their understanding of the benchmarks are provided.

Content Standard 1

Students will understand that: Students will be able to use this knowledge to:
Productive resources are limited. Therefore, people cannot have all the goods and services they want; as a result, they must choose some things and give up others. Identify what they gain and what they give up when they make choices.

Students face many choices every day. Is watching TV the best use of their time? Is working at a fast-food restaurant better than the best alternative job or some other use of their time? Identifying and systematically comparing alternatives enables people to make informed decisions and to avoid unforeseen consequences of choices they or others make.

Some students believe that they can have all the goods and services they want from their families or from the government because goods provided by families or governments are free. But this view is mistaken. Resources have alternative uses, even if parents or governments own them. For example, if a city uses land to build a football stadium, the best alternative use of that land must be given up. If additional funds are budgeted for police patrols, less money is available to hire more teachers. Explicitly comparing the value of alternative opportunities that are sacrificed in any choice enables citizens and their political representatives to weigh the alternatives in order to make better economic decisions. This analysis also makes people aware of the consequences of their actions for themselves and others, and leads to a heightened sense of responsibility and accountability.

Benchmarks

At the completion of Grade 4,students will know that Students will use this knowledge to:
1. People make choices because they cannot have everything they want. 1. Identify some choices they have made and explain why they had to make a choice.
2. Economic wants are desires that can be satisified by consuming a good, service, or leisure activity. 2. Match a list of wants with the correct example of a good, service, or leisure activity that satisfies each want.
3. Goods are objects that can satisfy people’s wants. 3. Create a collage representing goods that they or their families consume.
4. Services are actions that can satisfy people’s wants. 4. Create a collage representing services that they or their families consume.
5. People’s choices about what goods and services to buy and consume determine how resources will be used. 5. Explain why a choice must be made, given some land and a list of alternative uses for the land.
6. Whenever a choice is made, something is given up. 6. Choose a toy from a list of four toys and state what was given up.
7. The opportunity cost of a choice is the value of the best alternative given up. 7. Describe a situation that requires a choice, make a decision, and identify the opportunity cost.
8. People whose wants are satisfied by using goods and services are called consumers. 8. Examine pictorial examples of people using goods and services and identify the goods and services being consumed.
9. Productive resources are the natural resources, human resources, and capital goods available to make goods and services. 9. Identify examples of natural resources, human resources, and capital goods used in the production of a given product.
10. Natural resources, such as land, are “gifts of nature”; they are present without human intervention. 10. Use a resource map of their state to locate examples of natural resources.
11. Human resources are the quantity and quality of human effort directed toward producing goods and services. 11. Draw pictures representing themselves as workers. Also, identify examples of human resources used in the production of education at their school.
12. Capital goods are goods produced and used to make other goods and services. 12. Draw a picture representing a capital good used at school. Also, identify examples of capital goods used to produce goods or services in their community.
13. Human capital refers to the quality of labor resources, which can be improved through investments in education, training, and health. 13. Give examples of how to improve their human capital. Explain how an athlete invests in his or her human capital.
14. Entrepreneurs are people who organize other productive resources to make goods and services. 14. Select an entrepreneur and identify the productive resources the entrepreneur uses to produce a good or service.
15. People who make goods and provide services are called producers. 15. Identify producers of five different types of goods and five different types of services.
At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that: At the completion of Grade 8, students will use this knowledge to:
1. Scarcity is the condition of not being able to have all of the goods and services that one wants. It exists because human wants for goods and services exceed the quantity of goods and services that can be produced using all available resources. 1. Work in groups each representing a scout troop that has volunteered to assist a local nursing home on Saturday morning. The nursing home has a list of 30 possible projects, all of which it would like completed. Explain why all 30 projects cannot be completed on a Saturday morning.
2.Like individuals, governments and societies experience scarcity because human wants exceed what can be made from all available resources. 2. Role play a city council meeting called to allocate a budget of $100,000. The council would like to buy four new police cars at $25,000 each, repair two senior-citizen centers at $50,000 each, and build two new tennis courts at $50,000 each. Explain why a choice must be made, decide how the city council should spend its money, describe the trade-offs made, and identify the opportunity cost of the decision.
3.Choices involve trading off the expected value of one opportunity against the expected value of its best alternative. 3. Determine criteria for selecting a stereo and identify the trade-offs made when selecting one stereo over another.
4. The choices people make have both present and future consequences. 4. Analyze the consequences of choosing not to study for a final exam and tell when those consequences occur.
5. The evaluation of choices and opportunity costs is subjective; such evaluations differ across individuals and societies. 5. Individually develop a solution to a problem that affects everybody in the class and identify the opportunity cost. Compare the solutions and explain why solutions and opportunity costs differ among students.
At the completion of Grade 12, students will know the Grade 4 and Grade 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
Choices made by individuals, firms, or government officials often have long-run unintended consequences that can partially or entirely offset the initial effects of their decisions. Explain how a high school senior’s decision to work 20 hours per week during the school year could reduce her lifetime income. Also, explain how an increase in the legal minimum wage aimed at improving the financial condition of some low income families could reduce the income of some minimum wage earners.

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Content Standard 2

Students will understand that: Students will be able to use this knowledge to:
Effective decision making requires comparing the additional costs of alternatives with the additional benefits. Most choices involve doing a little more or a little less of something; few choices are all-or-nothing decisions. Make effective decisions as consumers, producers, savers, investors, and citizens.

To make decisions that provide the greatest possible return from the resources available, people and organizations must weigh the benefits and costs of using their resources to do a little more of some things and a little less of others. For example, to use their time effectively, students must weigh the additional benefits and costs of spending another hour studying economics rather than listening to music or talking with friends. School officials must decide whether to use some school funds to buy more books for the library, more helmets for the football team, or more equipment for teachers to use in their classrooms. Company managers and directors must choose which products to make and whether to increase or decrease the amount they produce. The President, Congress, and other government officials must decide which public spending programs to increase and which ones to decrease.

Focusing on changes in benefits and comparing them to changes in costs is a way of thinking that distinguishes economics from most social sciences. In applying this approach, students should realize that it is impossible to alter how resources were used in the past. Instead, past decisions only establish the starting points for current decisions about whether to increase, decrease, or leave unchanged resource levels devoted to different activities.

Benchmarks

At the completion of Grade 4, students will know that: At the completion of Grade 4, students will use this knowledge to:
1. Few choices are all-or-nothing decisions; they usually involve getting a little more of one thing by giving up a little of something else. 1. Analyze how to divide their time on a Saturday afternoon when the possibilities are raking leaves to earn money, going roller skating with friends, and shopping at the mall with their aunt. Students will identify the possible uses of their time and explain how devoting more time to one activity leaves less time for another.
2. A cost is what you give up when you decide to do something. 2. List the costs of buying and caring for a pet.
3. A benefit is something that satisfies your wants. 3. List the benefits of buying and caring for a pet.
At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that: At the completion of Grade 8, students will use this knowledge to:
To determine the best level of consumption of a product, people must compare the additional benefits with the additional costs of consuming a little more or a little less. Solve the following problem: Your grandmother gave you $30 for your birthday and you are trying to decide how to spend it. You are considering buying compact discs ($12 each), going to the movies ($5 per ticket), or taking some friends out for pizza ($7.50 per person). You do not have to spend all your money on one thing. You can use some money for one thing and some for another. How would you spend your money to get the greatest satisfaction?
At the completion of Grade 12, students will know the Grade 4 and Grade 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. Marginal benefit is the change in total benefit resulting from an action. Marginal cost is the change in total cost resulting from an action. 1. Explain why beyond some point they are unwilling to buy and consume an additional slice of pizza.
2. As long as the marginal benefit of an activity exceeds the marginal cost, people are better off doing more of it; when the marginal cost exceeds the marginal benefit, they are better off doing less of it. 2. Apply the concepts of marginal benefit and marginal cost to an environmental policy to find the optimal amount of pollution for two firms that have substantially different costs of reducing pollution.
3. To produce the profit-maximizing level of output and hire the optimal number of workers and other resources, producers must compare the marginal benefits and marginal costs of producing a little more with the marginal benefits and marginal costs of producing a little less. 3. Decide how many workers to hire for a profit-maximizing car wash by comparing the cost of hiring each additional worker to the additional revenues derived from hiring each additional worker.
4. To determine the optimal level of a public policy program, voters and government officials must compare the marginal benefits and marginal costs of providing a little more or a little less of the program’s services. 4. Use the concepts of marginal cost and marginal benefit to evaluate proposals for a pollution-control ordinance aimed at maximizing economic efficiency; then select the best proposal and explain why it seems best.

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Content Standard 3

Students will understand that: Students will be able to use this knowledge to:
Different methods can be used to allocate goods and services. People, acting individually or collectively through government, must choose which methods to use to allocate different kinds of goods and services. Evaluate different methods of allocating goods and services by comparing the benefits and costs of each method.

Individuals and organizations routinely use different decision-making systems to determine what should be produced, how it should be produced, and who will consume it. Most high school students already understand the major advantages and disadvantages of selling concert tickets using a first-come-first-served system, rather than a lottery, to select from among those who applied for tickets. Unfortunately, many students have experienced the use of force to allocate resources on the school playground. Students also know that families typically use authoritarian systems to decide how resources are used–that is, Mom and/or Dad decide.

The American economy uses a market system to make many allocation decisions, and it is important for students to understand why the market system is used so extensively. Students also should be able to compare the characteristics of a market system with alternatives used more extensively in some other countries. With this understanding, students can assess the benefits and costs of alternative allocation systems when discussing difficult questions such as how incomes should be divided among people or who should receive a kidney transplant and who should not.

Benchmarks

At the completion of Grade 4, students will know that: At the completion of Grade 4, students will use this knowledge to:
1. No method of distributing goods and services can satisfy all wants. 1. Generate different methods for allocating student time on classroom computers, tell who gains and who loses with each distribution method, and conclude that no distribution method satisfies all wants.
2. There are different ways to distribute goods and services (by prices, command, majority rule, contests, force, first-come-first-served, sharing equally, lottery, personal characteristics, and others), and there are advantages and disadvantages to each. 2. Compare the advantages and disadvantages of different methods of allocating various goods and services, such as cookies, houses, student time on playground equipment at recess, elective class offices, military service in times of war or peace, and athletic championships.
At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that: At the completion of Grade 8, students will use this knowledge to:
1. Scarcity requires the use of some distribution method, whether the method is selected explicitly or not. 1. Describe the distribution methods used to allocate a variety of goods and services, such as parking spaces, prison paroles, access to a new drug treatment for cancer, seats on a bus, milk, and tickets to a popular art exhibit. Then explain why a distribution method is necessary.
2. There are essential differences between a market economy, in which allocations result from individuals making decisions as buyers and sellers, and a command economy, in which resources are allocated according to central authority. 2. Compare the methods used to allocate work responsibilities in homes with those used to allocate work responsibilities in businesses. Also, compare the advantages and disadvantages of economic systems used in different countries and at different times, using as criteria broad social goals such as freedom, efficiency, fairness, and growth.
3. People in all economies must answer three basic questions: What goods and services will be produced? How will these goods and services be produced? Who will consume them? 3. Answer the three economic questions while producing a simple classroom product, such as yarn bracelets, greeting cards, or decorations for a school dance.
4. National economies vary in the extent to which they rely on government directives (central planning) and signals from private markets to allocate scarce goods, services, and productive resources. 4. Compare the relative size and responsibilities of government in several countries.
5. As consumers, people use resources in different ways to satisfy different wants. Productive resources can be used in different ways to produce different goods and services. 5. List the resources used to produce some item and identify other items that could have been made from these resources
At the completion of Grade 12, students will know the Grade 4 and Grade 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. Comparing the benefits and costs of different allocation methods in order to choose the method that is most appropriate for some specific problem can result in more effective allocations and a more effective overall allocation system. 1. Examine economic systems used in different countries, select the one that provides the most effective method for allocating resources, and explain why this method is effective. Also, assess the effectiveness of various systems for allocating organ transplants, hunting and fishing licenses, elective offices, time with a parent, and access to hospital maternity facilities.

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Content Standard 4

Students will understand that: Students will be able to use this knowledge to:
People respond predictably to positive and negative incentives. Identify incentives that affect people’s behavior and explain how incentives affect their own behavior.

Economic incentives are the additional rewards or penalties people receive from engaging in more or less of a particular activity. Understanding rewards and penalties helps people to make the 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 it being provided; taxing or penalizing an activity usually leads to less of it being provided.

People frequently have good reasons to influence the behavior of others. For example, businesses try to encourage people to buy more of their products, workers try to persuade employers to hire them and to pay them higher wages, and governments try to induce the production and consumption of some products and discourage the production and consumption of others. To understand or predict the behavior of people or organizations, students must understand the economic incentives these people or organizations face.

Benchmarks

At the completion of Grade 4, students will know that: At the completion of Grade 4, students will use this knowledge to:
1. Rewards are positive incentives that make people better off. 1. List examples of rewards that are incentives for positive classroom behavior.
2. Penalties are negative incentives that make people worse off. 2. List examples of penalties or negative incentives that discourage inappropriate behavior at home.
3. Both positive and negative incentives affect people’s choices and behavior. 3. Identify examples of incentives and categorize them as positive or negative incentives.
4. People’s views of rewards and penalties differ because people have different values. Therefore, an incentive can influence different individuals in different ways. 4. Identify the incentives that would encourage them to read a book, to return their library books on time, to repay money they borrow from the school cafeteria for lunch, and to complete their homework assignments on time; explain why various students respond differently to incentives to do these things. Also, explain why some students will do extra-credit work and some will not.
At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that: At the completion of Grade 8, students will use this knowledge to:
1. Responses to incentives are predictable because people usually pursue their self-interest. 1. Explain why they would be willing to shovel snow when temperatures are below freezing, mow lawns when their friends are going to a movie, or baby-sit on a weekend evening instead of going with friends to a dance.
2. Changes in incentives cause people to change their behavior in predictable ways. 2. Predict how students’ study habits will change if the grading system changes from letter grades to pass/fail to no grades.
3. Incentives can be monetary or non-monetary. 3. Identify the monetary and non-monetary incentives related to taking a driver’s education class.
At the completion of Grade 12, students will know the Grade 4 and Grade 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. Acting as consumers, producers, workers, savers, investors, and citizens, people respond to incentives in order to allocate their scarce resources in ways that provide the highest possible returns to them. 1. Analyze the impact (on consumers, producers, workers, savers, and investors) of an increase in the minimum wage, a new tax policy, or a change in interest rates.
2. Small and large firms, labor unions, and educational and other not-for-profit organizations have different goals and face different rules and constraints. These goals, rules, and constraints influence the benefits and costs of those who work with or for those organizations and, therefore, their behavior. 2. Compare and contrast the incentives an individual might face in serving as an elected official, the owner of a small business, the president of a large company, and the director of a local United Way office.

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Content Standard 5

Students will understand that: Students will be able to use this knowledge to:
Voluntary exchange occurs only when all participating parties expect to gain. This is true for trade among individuals or organizations within a nation, and among individuals or organizations in different nations. Negotiate exchanges and identify the gains to themselves and others. Compare the benefits and costs of policies that alter trade barriers between nations, such as tariffs and quotas.

As a result of their competitive experiences in sports and games, students usually have learned to expect that, in most contests, when one person or team wins, another person or team must lose. Voluntary exchanges, on the other hand, are cooperative activities in which both sides expect to gain, and both usually do. Because all the parties to a voluntary exchange expect 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 and organizations trade with one another only when each party offers something that the other party values more than whatever he or she has to trade. For example, an employer will hire a student at a wage rate of $6 per hour only if the employer expects to receive labor services from the student that are worth at least that much. And the student will voluntarily work for $6 per hour only if the student values the $6 more than the best alternative use of his or her time. The principle that voluntary trade can improve each participant’s situation applies to all voluntary exchanges, including trade between people or organizations in different parts of the same country or among people or organizations in different countries.

Benchmarks

At the completion of Grade 4, students will know that: At the completion of Grade 4, students will use this knowledge to:
1. Exchange is trading goods and services with people for other goods and services or for money. 1. Identify exchanges they have made and tell whether they were monetary or barter exchanges.
2. The oldest form of exchange is barter—the direct trading of goods and services between people. 2. Identify current and historical examples of barter exchanges.
3. People voluntarily exchange goods and services because they expect to be better off after the exchange. 3. Describe a trade they have made, such as one with baseball cards, stickers, or lunch desserts, and explain why they agreed to trade.
At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that: At the completion of Grade 8, students will use this knowledge to:
1. When people buy something, they value it more than it costs them; when people sell something, they value it less than the payment they receive. 1. Describe recent monetary transactions they have made; as buyers or sellers, explain why they were willing to trade.
2. Free trade increases worldwide material standards of living. 2. Identify the benefits when a trade barrier such as sugar or automobile import quotas is eliminated.
3. Despite the mutual benefits from trade among people in different countries, many nations employ trade barriers to restrict free trade for national defense reasons or because some companies and workers are hurt by free trade. 3. Look at historical examples of periods when the United States has imposed trade barriers and explain why U. S. citizens would impose trade barriers, given the mutual benefits of free trade.
4. Imports are foreign goods and services purchased from sellers in other nations. 4. Examine labels of products in their homes to compile a list of imported products and the countries from which they are imported.
5. Exports are domestic goods and services sold to buyers in other nations. 5. Determine what major products are produced in their community for export and the countries to which they are exported.
6. Voluntary exchange among people or organizations in different countries gives people a broader range of choices in buying goods and services. 6. Describe how their daily lives would be different if people in the United States did not trade with people in other countries.
At the completion of Grade 12, students will know the Grade 4 and Grade 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. A nation pays for its imports with its exports. 1. Participate in a trading simulation where students represent different countries with specific goods to sell and specific goods they wish to buy; conclude that a nation pays for its imports with its exports, or by borrowing.
2. When imports are restricted by public policies, consumers pay higher prices and job opportunities and profits in exporting firms decrease. 2. Analyze the political and economic implications of a proposed ban on imported television sets.

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