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Standards 6-10

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Content Standard 6

Students will understand that: Students will be able to use this knowledge to:
When individuals, regions, and nations specialize in what they can produce at the lowest cost and then trade with others, both production and consumption increase. Explain how they can benefit themselves and others by developing special skills and strengths.

Everyone specializes to some degree, and everyone depends on others to produce many of the things he or she consumes. As future producers and workers, students should understand that they will earn more by specializing in doing the things they can do well and that entail the least sacrifice in forgone opportunities. They also should understand that specialization can lead to increased production, even when everyone has similar skills and resources, because concentrating production of some goods or services in one location can sometimes reduce production costs.

This understanding will help students appreciate why an economy in which people specialize and trade voluntarily with one another results in higher overall levels of production and consumption, for individuals, regions, and nations.

Benchmarks

At the completion of Grade 4,students will know that Students will use this knowledge to:
1. Economic specialization occurs when people concentrate their production on fewer kinds of goods and services than they consume. 1. Name several adults in the school or community who specialize in the production of a good or service (e.g., baker, law enforcement officer, teacher, etc.), and identify other goods and services that these individuals consume but do not produce for themselves.
2. Division of labor occurs when the production of a good is broken down into numerous separate tasks, with different workers performing each task. 2. Participate in a simulated assembly line and identify the separate operations and the different tasks involved.
3. Specialization and division of labor usually increase the productivity of workers. 3. Work individually to produce a product and then work as a member of a small group to produce the same product. Explain why more goods usually are produced when each member of the group performs a particular task in making the good.
4. Greater specialization leads to increased interdependence among producers and consumers. 4. Compare the extent of specialization and interdependence of a shipwrecked sailor living on an isolated Pacific island with a family that owns a cattle ranch in New Mexico.
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. Labor productivity is output per worker. 1. Produce a product using a simulated assembly line process and compute output per worker.
2. Like trade among individuals within one country, international trade promotes specialization and division of labor and increases output and consumption. 2. Explain why Canada produces relatively more ice hockey players and the United States produces relatively more baseball players.
3. As a result of growing international economic interdependence, economic conditions and policies in one nation increasingly affect economic conditions and policies in other nations. 3. Explain how a tariff on imported cacao beans affects the production of chocolate candy in the United States and how it affects people in cacao-growing countries. Also, 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 a recession in the United States on the economies of these 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. Two factors that prompt international trade are international differences in the availability of productive resources and differences in relative prices. 1. Name three things, such as bananas, coffee, and Eucalyptus oil, that could be produced in the continental United States, although production would be very costly, and explain in terms of opportunity costs why the United States is probably better off importing such goods.
2. Transaction costs are costs (other than price) that are associated with the purchase of a good or service. When transaction costs decrease, trade increases. 2. Identify transaction costs associated with the purchase of a good or service. Also, explain why each of the following encourages exchange: (1) more efficient trucks that can carry larger loads for the same fuel costs; (2) automated teller machines; (3) credit cards; and (4) classified advertising.
3. Individuals and nations have a comparative advantage in the production of goods or services if they can produce a product at a lower opportunity cost than other individuals or nations. 3. Apply the concepts of opportunity cost and comparative advantage to the following problem: The Netherlands can produce in one day either four drill presses or eight embroidered tablecloths. Using the same amount of resources, Portugal can produce either two drill presses or seven embroidered tablecloths. Which country should specialize in drill presses and import tablecloths, and why? Which country should specialize in tablecloths and import drill presses, and why?
4. Comparative advantages change over time because of changes in factor endowments, resource prices, and events that occur in other nations. 4. Explain why the United States no longer has a comparative advantage in the production of shoes.

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Content Standard 7

Students will understand that: Students will be able to use this knowledge to:
Markets exist when buyers and sellers interact. This interaction determines market prices and thereby allocates scarce goods and services. Identify markets in which they have participated as a buyer and a seller and describe how the interaction of all buyers and sellers influences prices. Also, predict how prices change when there is either a shortage or surplus of the product available.

In market economies there is no central planning agency that decides how many different kinds of sandwiches are provided for lunch every day at restaurants and stores, how many loaves of bread are baked, how many toys are produced before the holidays, or what the prices will be for the sandwiches, bread, and toys. Students should understand that, instead, most prices in market economies are established by interaction between buyers and sellers.

Understanding how market prices and output levels are determined helps people anticipate market opportunities and make better choices as consumers and producers. It will also help them realize that market allocations are impersonal.

Benchmarks

At the completion of Grade 4,students will know that Students will use this knowledge to:
1. A price is what people pay when they buy a good or service, and what they receive when they sell a good or service. 1. Identify prices they have paid for a hamburger, french fries, and a soda, and prices they have received for selling lemonade, feeding a neighbor’s pet while its owner is on vacation, or doing certain household chores.
2. A market exists whenever buyers and sellers exchange goods and services. 2. Give examples of markets in which buyers and sellers meet face-to-face, and other markets in which buyers and sellers never meet.
3. Specialization and division of labor usually increase the productivity of workers. 3. Identify people who are acting as consumers, and provide examples of situations in which the students were consumers of goods and services. Identify people who are acting as producers, and provide examples of situations in which the students produced goods and services.

At the completion of Grade 8, students will know the Grade 4 benchmarks for this standard and also that:

  1. Market prices are determined through the buying and selling decisions made by buyers and sellers.
  2. Relative price refers to the price of one good or service compared to the prices of other goods and services. Relative prices are the basic measures of the relative scarcity of products when prices are set by market forces (supply and demand).
  3. The market clearing or equilibrium price for a good or service is the one price at which quantity supplied equals quantity demanded.
  4. If a price is above the market clearing price, it will fall, causing sellers to produce less and buyers to purchase more; if it is below the market clearing price, it will rise, causing sellers to produce more and buyers to buy less.

At the completion of Grade 8, students will use this knowledge to:

  1. Play a market game in which buyers and sellers determine the market price for a standardized product–for example, wheat, apples, or baseballs.
  2. Explain in terms of relative scarcity why people are willing to pay higher prices for diamonds than for water, even though water is necessary for life and diamonds are not.
  3. Determine the market clearing price when given a supply schedule and a demand schedule for compact discs.
  4. Identify examples of products for which the price fell because sellers were unable to sell all they had produced; identify examples of other products for which the price rose because consumers wanted to buy more than producers were producing.
  5. An exchange rate is the price of one nation’s currency in terms of another nation’s currency. Like other prices, exchange rates are determined by the forces of supply and demand. Foreign exchange markets allocate international currencies.
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:
A shortage occurs when buyers want to purchase more than producers want to sell at the prevailing price. Explain why there is usually a shortage of batteries in areas where forecasters predict a hurricane and why apple bins in grocery stores are empty when disease has destroyed half of the Washington apple crop.
A surplus occurs when producers want to sell more than buyers want to purchase at the prevailing price. Explain why there is often a late-season surplus of tickets available for the home contests of a baseball team that loses most of its games.
Shortages of a product usually result in price increases in a market economy; surpluses usually result in price decreases. Explain what happens (and why) to the price of tickets to sporting events purchased from scalpers when many more people want to attend those events than the number of seats in the stadium or arena. Also, explain what will happen to the price of a rare misprinted stamp if the postal service prints another 100,000 stamps in the same way.
When the exchange rate between two currencies changes, the relative prices of the goods and services traded among countries using those currencies change; as a result, some groups gain and others lose. Use the following scenario to analyze the effects on trade of a change in exchange rates: In one year, the American dollar equaled 250 Japanese yen; in the following year, the American dollar equaled 150 yen; and in the third year, it equaled 200 yen. If a Nikon camera costs 75,000 yen and a Sony Walkman radio costs 25,000 yen: (1) What will be the price in dollars of these two products in each year for an American? (2) Will an American want to buy more or fewer Japanese products in year one, year two, or year three? Explain.

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Content Standard 8

Students will understand that: Students will be able to use this knowledge to:
Prices send signals and provide incentives to buyers and sellers. When supply or demand changes, market prices adjust, affecting incentives. Predict how prices change when the number of buyers or sellers in a market changes, and explain how the incentives facing individual buyers and sellers are affected.

Understanding the role of prices as signals and incentives helps people anticipate market opportunities and make better choices as producers and consumers. It also helps citizens understand the consequences and weigh the costs and benefits of price controls, such as minimum-wage laws and rent controls, that set legal minimum or maximum prices and result in persistent surpluses or shortages.

Benchmarks

At the completion of Grade 4, students will know that: At the completion of Grade 4, students will use this knowledge to:
1. Higher prices for a good or service provide incentives for buyers to purchase less of that good or service and for producers to make or sell more of it. Lower prices for a good or service provide incentives for buyers to purchase more of that good or service and for producers to make or sell less of it. 1. Predict how consumers would react if the price of pencils rose to $10 each (and explain the prediction). Predict how they would react if the price fell to $.01 each (and explain the prediction). Explain how producers would react in each situation.
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. An increase in the price of a good or service encourages people to look for substitutes, causing the quantity demanded to decrease, and vice versa. This relationship between price and quantity demanded, known as the law of demand, exists as long as other factors influencing demand do not change. 1. Survey students in other classes at school regarding how many glasses of orange juice students would be willing and able to buy at various prices. Analyze the data to show the relationship between price and quantity demanded. Identify the substitutes students use when the price is higher.
2. An increase in the price of a good or service enables producers to cover higher per-unit costs and earn profits, causing the quantity supplied to increase, and vice versa. This relationship between price and quantity supplied is normally true as long as other factors influencing costs of production and supply do not change. 2. State the number of push-ups they would be willing and able to supply at various prices. State a generalization about the relationship between price, cost, and quantity supplied from the data.
3. Markets are interrelated; changes in the price of one good or service can lead to changes in prices of many other goods and services. 3. Explain how a decrease in the price of VCRs can cause a decrease in the price of popcorn at movie theaters.
4. Scarce goods and services are allocated in a market economy through the influence of prices on production and consumption decisions. 4. Use flowcharts to illustrate the decisions of producers and consumers when the price of peanuts rises and when the price of petroleum falls, and explain why producers and consumers behave in this way.
At the completion of Grade 12, students will know the Grade 4 and 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. Demand for a product changes when there is a change in consumers’ incomes or preferences, or in the prices of related goods or services, or in the number of consumers in a market. 1. Predict the change in demand for a particular brand of jeans when an extensive ad campaign for the brand targets teenagers, their allowances double, the price of corduroy pants skyrockets, or jeans become a popular item among adults.
2. Supply of a product changes when there are changes in the prices of the productive resources used to make the good or service, the technology used to make the good or service, the profit opportunities available to producers by selling other goods or services, or the number of sellers in a market. 2. Predict the changes in supply and market price for domestic cars when the cost of labor increases, more robotics are used to produce cars, the prices of domestic utility vehicles rise, or the number of imported cars increases.
3. Changes in supply or demand cause relative prices to change; in turn, buyers and sellers adjust their purchase and sales decisions. 3. Identify products that have become more or less expensive compared to other products as a result of changes in supply or demand, and explain how the price changes affected production and consumption decisions.
4. Government-enforced price ceilings set below the market clearing price and government-enforced price floors set above the market clearing price distort price signals and incentives to producers and consumers. The price ceilings cause persistent shortages, while the price floors cause persistent surpluses. 4. Describe what is likely to happen if the government imposes a binding price ceiling on gasoline and a binding price floor on milk.

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Content Standard 9

Students will understand that: Students will be able to use this knowledge to:
Competition among sellers lowers costs and prices, and encourages producers to produce more of what consumers are willing and able to buy. Competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them. Explain how changes in the level of competition in different markets can affect price and output levels.

Fast-food restaurants that set prices too high, or give slow, unfriendly service, risk losing customers to competing restaurants that offer lower prices, higher-quality products, and better service. In this way, competition benefits consumers. Understanding the benefits of competition and the costs of limiting competition helps students evaluate public policies that affect the level of competition in various markets. It also helps students understand their own roles as producers and consumers in a market economy–in terms of opportunities to compete with others and in terms of the limits that competition places on their incomes, career plans, and what they can buy and consume.

Competition improves productivity by forcing all suppliers to “be the best that they can be.” Productivity improvements, in turn, foster economic growth and a better quality of life for current and future generations. It is important for students to recognize that competition contributes in a positive way to economic growth and the quality of life.

Benchmarks

At the completion of Grade 4, students will know that: At the completion of Grade 4, students will use this knowledge to:
1. Competition takes place when there are many buyers and sellers of similar products. 1. Identify competitors in their community, using the yellow pages of the telephone book.
2. Competition among sellers results in lower costs and prices, higher product quality, and better customer service. 2. Explain how the opening of a second pizza shop in a small community affects prices, profits, service, and quality.
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. Sellers compete on the basis of price, product quality, customer service, product design and variety, and advertising. 1. Give examples of price and nonprice competition in the athletic shoe market.
2. Competition among buyers of a product results in higher product prices. 2. Play several rounds of a market game in which the number of buyers is changed dramatically in each round, and explain the impact of these changes on price.
3. The level of competition in a market is influenced by the number of buyers and sellers. 3. Estimate the number of producers and consumers of cereals, guided missiles, agricultural products, and electricity, and generalize about the relationship between the number of producers and consumers and the level of competition.
At the completion of Grade 12, students will know the Grade 4 and 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. The pursuit of self-interest in competitive markets generally leads to choices and behavior that also promote the national level of economic well-being. 1. Explain how people motivated by their own self-interest help market economies promote national well-being as long as there is active competition among buyers and sellers.
2. The level of competition in an industry is affected 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. 2. Explain why, in the last 10 years, there have been no U.S. companies emerging to manufacture locomotives, but many emerging to manufacture silk screen T-shirts and sports clothing. Also, predict what happened to prices of resold tickets to sporting events after Arizona required all ticket scalpers to operate only in a small roped-off area near the stadium or arena in the two hours before an event.
3. Collusion among buyers or sellers reduces the level of competition in a market. Collusion is more difficult in markets with large numbers of buyers and sellers. 3. Explain why collusion is more likely to work among international airlines than among U.S. wheat farmers.
4. The introduction of new products and production methods by entrepreneurs is an important form of competition, and is a source of technological progress and economic growth. 4. Create a timeline showing notable twentieth-century American entrepreneurs’ products and production methods and write a brief essay on their impact on economic growth, competition, technological progress, and job opportunities.

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Content Standard 10

Students will understand that: Students will be able to use this knowledge to:
Institutions evolve in market economies to help individuals and groups accomplish their goals. Banks, labor unions, corporations, legal systems, and not-for-profit organizations are examples of important institutions. A different kind of institution, clearly defined and well enforced property rights, is essential to a market economy. Describe the roles of various economic institutions.

Institutions play a number of roles in a market economy. Property rights help insure that people bear the costs and reap the benefits of their decisions. Property rights and contract enforcement encourage investment by assuring investors that they will reap the rewards of deferring consumption and assuming risk if their investments perform well. Limiting individual liability and allowing people to pool their investment resources through joint stock corporations also increases investment and future income.

Other institutions lower the costs buyers and sellers incur in their efforts to find each other in different kinds of markets. For example, banks match savers with borrowers; and investment banks match entrepreneurs who organize new firms with investors who provide the needed funds.

Many institutions work to promote the goals of certain interest groups. Labor unions, for example, increase the negotiating power of workers in their dealings with employers.

Understanding economic institutions and the purposes they serve will help students use institutions more effectively and help them evaluate proposed new institutions or changes in the existing legal and institutional

Benchmarks

At the completion of Grade 4, students will know that: At the completion of Grade 4, students will use this knowledge to:
1. Banks are institutions where people save money and earn interest, and where other people borrow money and pay interest. 1. Explain the relationship between saving money and earning interest and borrowing money and paying interest, after participating in an activity in which they play the roles of savers and borrowers.
2. Saving is the part of income not spent on taxes or consumption. 2. Plan a budget for an allowance. The budget will include spending for goods and services, charitable donations, sales taxes, and saving.
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. Banks and other financial institutions channel funds from savers to borrowers and investors. 1. Listen to a presentation on the role banks play in channeling funds from savers to borrowers and investors and draw a diagram showing the role that financial intermediaries play among savers, borrowers, and investors.
2. Through the process of collective bargaining with employers, labor unions represent some workers in negotiations involving wages, fringe benefits, and work rules. 2. Read about the establishment of the AFL-CIO; explain why it emerged and what procedures it used to gain benefits for its members.
3. Not-for-profit organizations are established primarily for religious, health, educational, civic, or social purposes, and they are exempt from certain taxes. 3. Identify a not-for-profit organization and explain the rationale for its tax exemption or explain why it should not be tax exempt.
At the completion of Grade 12, students will know the Grade 4 and 8 benchmarks for this standard and also that: At the completion of Grade 12, students will use this knowledge to:
1. Property rights, contract enforcement, standards for weights and measures, and liability rules affect incentives for people to produce and exchange goods and services. 1. Predict what might happen if there were no legal way to settle boundary disputes or if every state had its own system of weights and measures or currency; explain how liability for product defects affects the behavior of consumers and producers and how it affects the price of a good or service.
2. Incorporation allows firms to accumulate sufficient financial capital to make large-scale investments and achieve economies of scale. Incorporation also reduces the risk to investors by limiting stockholders’ liability to their share of ownership of the corporation. 2. Play the role of a business consultant hired to advise a partnership on the advantages it could enjoy by incorporating; write a letter outlining these benefits for their client.

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