Lesson 10: The Role of
Profits in the Economy
Profits are an incentive
& Profits allocate resources
Objectives:
Students will be able to:
1)explain why profits are
an incentive
2) calculate profit and
loss
2) explain what a firm in
capitalism must do to earn profits
3) explain the relationship
between profits and the allocation of resources in capitalism
Activities:
1)Warm Up Activity
Students answer the following
questions:
a) why do people take the
risk to go into business?
b) As the owner of a bicycle
repair shop that made $80,000 in revenue last year, you had to pay $62,000 for
spare parts, rent for your store, electricity, wages, and business taxes. How
much was your profit or loss?
c)You own a donut shop.
Last year the expenses of running your shop, including the wages you paid, the
rent for your shop, your business taxes, the cost of the flour, eggs and sugar
to make your doughnuts, and the cost of keeping your equipment in good order
totaled $170,000.00. Your revenue from selling doughnuts was $152,000.00. How
much was your profit or loss?
2) Main Activity
Part I: You’ve Got Mail.
-Students are asked to
take notes while watching a short clip of the film.
-Students compare Meg Ryan’s Shop Around the Corner (small entrepreneurial
business) versus Tom Hank’s Fox Books (large commercial corporation/franchise)
-Discussion on the film clip
Questions asked: what are the profitable (positive) aspects of both businesses? What are the negative aspects of both businesses? How did Fox books grow or acquire the resources to provide the level of goods and services at discounted prices? Why did each entrepreneur take the risk to go into business? Which business is more profitable? Which business would you shop at? Which business will survive or thrive?
Part II: Profit
Students are asked to work in small groups to answer the questions below. After about ten minutes, we will go over the questions and answers in a large group.
a)what is a profit? [discussion of profit as a monetary amount (revenue-costs/expenses) and as an incentive for going into business]
b) what are some businesses that have grown? What is it about these businesses that have enabled them to acquire the resources necessary to expand? What is the relationship between their ability to earn a profit and their ability to grow? The same idea can be used for firms that have not grown. Do these firms share low profitability? Is their market saturated with many producers? [discussion of big business versus small businesses, what resources are necessary to expand, how profit (wealth) enables investment & growth & lowered prices for consumers for competition]
c)what must a firm do to earn profits? [discussion of low costs, low prices, quality of good or service, good entrepreneurship, etc] d) how much profit is “too much profit”? Few people would complain about a firm making a profit of five to ten percent of its investment. More people would be upset about a firm making a 50 percent return or more. If a firm makes large profits, its customers must be willing to pay its price. Does this fact justify large profits? If not, how do students feel profits should be limited? [discussion of profit from the view of the producer and consumer (high prices/high demand, designer goods, “being ripped off”, cheap labor (third world countries), the morals of making a profit at what expense]
d) Given that profit is a basic method of allocation because resources tend to be attracted to the most profitable firms, students are posed with the question: What are some examples of profitable firms (could revisit examples given earlier in class) and how were resources allocated? Many resources are allocated in the US according to rules set by the government rather than according to profit. For example, the government has paid farmers not to grow crops. States have allocated inexpensive hydroelectric power to some firms but not to others. Government rules have required firms to hire minorities, or set wage rates that firms must pay. Have students make a list of examples of such rules. Ask them to explain why each rule was established and whether each rule seems to be accomplishing its objectives.
3) Closing Activity
Reflection (on back of paper). Do you think that profit is the main reason why our economy works?
Evaluation:
1)Class participation, work
2) Homework: finish reflection essay.
-In a one or two paragraph essay, students will explain the economic reasoning and give examples of the following generalization: The fact that people are motivated by their economic self-interest is a major reason why market-oriented economies can continue to function.
BACK TO THREE WEEK LESSON PLANS