Chapter 14-1 Principles of our Market Economy

Section Preview Explain how goods, services, resources and money flow through the economy Explain how goods, services, resources and money flow through the economy Summarize the laws of supply and demand Summarize the laws of supply and demand

Economic Elements Circular flow of economic activity (page 308) Circular flow of economic activity (page 308) Three players Three players Producers Producers Supply goods and services for consumers Receive land, labor, capital from individuals Consumers Consumers Receive goods and services by paying for them Receive goods and services by paying for them Workers Workers Are paid for their time, knowledge, skills with wages Are paid for their time, knowledge, skills with wages Exchanges are made by payments Exchanges are made by payments Rent – payment for the use of land Rent – payment for the use of land Interest – payment for the use of capital Interest – payment for the use of capital Wages – payment for the use of labor Wages – payment for the use of labor

Supply and Demand Markets set Markets set what is produced what is produced how much is produced how much is produced the price of goods and services the price of goods and services Law of Supply and Demand Law of Supply and Demand Determined by people Determined by people making choices making choices

Law of Demand Demand Demand Amounts of a product or service buyers are willing and able to buy at different prices Amounts of a product or service buyers are willing and able to buy at different prices Buyers balance cost with benefit they receive from it Buyers balance cost with benefit they receive from it The LOWER the price the more likely you will buy it The LOWER the price the more likely you will buy it More buyers want to buy more of it More buyers want to buy more of it More are able to buy it More are able to buy it The HIGHER the price the less likely you will buy it The HIGHER the price the less likely you will buy it Fewer buyers want to buy more of it Fewer buyers want to buy more of it Fewer are able to buy it Fewer are able to buy it

Law of Supply Supply Supply Amounts of a product or service producers are willing and able to offer at different prices Amounts of a product or service producers are willing and able to offer at different prices Producers balance cost with benefit they get from selling it, its price Producers balance cost with benefit they get from selling it, its price The LOWER the price, fewer producers are willing to supply it The LOWER the price, fewer producers are willing to supply it Quantities of goods and services are low Quantities of goods and services are low The HIGHER the price, more producers will supply it The HIGHER the price, more producers will supply it Quantities of goods and services are high Quantities of goods and services are high

Law of Supply and Demand Producers want to sell high Producers want to sell high Buyers want to buy low Buyers want to buy low Laws of supply & demand work together to set Laws of supply & demand work together to set Price Price Quantity available Quantity available Higher prices Higher prices More products supplied, fewer are demanded More products supplied, fewer are demanded Lower prices Lower prices Fewer products supplied, more are demanded Fewer products supplied, more are demanded Balance point (intersection) is the market price Balance point (intersection) is the market price Price at which buyers and sellers agree to trade Price at which buyers and sellers agree to trade

Law of Supply and Demand Only applies in free and open market Only applies in free and open market Influences on demand Influences on demand Price Price How high or low How high or low Elasticity Elasticity How important is it to have? How important is it to have? Can I do without it? Can I do without it?

Chapter 14-2 Role of Business in the American Economy

Section Preview What is the role of entrepreneurs? What is the role of entrepreneurs? Look at how businesses use labor, land and capital Look at how businesses use labor, land and capital Compare the 3 basic types of business ownership in the U.S. Compare the 3 basic types of business ownership in the U.S. Examine the rise of large corporations in the American economy Examine the rise of large corporations in the American economy

Role of Entrepreneur Business Business Any organization that combines the factors of Any organization that combines the factors of production to produce goods and services production to produce goods and services Entrepreneur Entrepreneur A person who starts a business A person who starts a business Why? Motivated by profit motive Why? Motivated by profit motive New idea, product, service New idea, product, service Raises money and capital Raises money and capital Entrepreneurs viewed as 4 th factor of production by some Entrepreneurs viewed as 4 th factor of production by some Take risks & provide new ideas, products, services Take risks & provide new ideas, products, services New efficiencies in production New efficiencies in production

Sole Proprietorship 1. Sole Proprietorship A business owned by a single person A business owned by a single person Most common type of business ownership (70%) Most common type of business ownership (70%) Most small businesses (restaurants, repair shops, etc.) Most small businesses (restaurants, repair shops, etc.) Advantages of Sole Proprietorship Advantages of Sole Proprietorship Owner is free to decide how to run the business Owner is free to decide how to run the business All profits belong to owner All profits belong to owner Disadvantages Disadvantages Owner has all the risks and responsibilities Owner has all the risks and responsibilities One owner can only raise a limited amount of capital One owner can only raise a limited amount of capital As business grows, it’s harder for one person to manage it As business grows, it’s harder for one person to manage it

Partnership 2. Partnership A business in which two or more people share ownership A business in which two or more people share ownership Most law firms, medical groups, accounting firms Most law firms, medical groups, accounting firms Advantages of Partnerships Advantages of Partnerships Risk is shared Risk is shared A lot of freedom A lot of freedom Disadvantages Disadvantages Partners may not agree on direction of business Partners may not agree on direction of business Business may fail if they don’t agree Business may fail if they don’t agree

Corporations 3. Corporation A business that is separate from the people who own it and legally acts as a single person. A business that is separate from the people who own it and legally acts as a single person. Owned by people who buy stock in the corporation Owned by people who buy stock in the corporation Shares of ownership in a corporation (stockholders) Shares of ownership in a corporation (stockholders) Money from stock provides for factors of production Money from stock provides for factors of production “Shares” provide a share of the profits “Shares” provide a share of the profits Advantages of Corporations Advantages of Corporations Can raise a large amount of money for growth Can raise a large amount of money for growth Less risk for owners Less risk for owners Stockholders - NOT responsible for the corporation’s debts Stockholders - NOT responsible for the corporation’s debts If fails, shareholders only lose value of their shares If fails, shareholders only lose value of their shares

Corporations Disadvantages of Corporations Disadvantages of Corporations More difficult to start and manage More difficult to start and manage Less freedom, limited by government regulations Less freedom, limited by government regulations Corporations provide more goods, services, jobs and profits that other 2 forms of businesses combined Corporations provide more goods, services, jobs and profits that other 2 forms of businesses combined Over 90% of sales in U.S. economy from corporations Over 90% of sales in U.S. economy from corporations Produce goods and services more efficiently Produce goods and services more efficiently Use latest technology Use latest technology Run research programs for new products and methods Run research programs for new products and methods

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Chapter 14-3 Labor in the American Economy

Section Preview Look at the growth of wage labor during the 19 th century Look at the growth of wage labor during the 19 th century Summarize the struggle between labor unions and employers Summarize the struggle between labor unions and employers Analyze the accomplishments of labor unions since 1930 Analyze the accomplishments of labor unions since 1930 Describe how the American labor force has changed throughout our history Describe how the American labor force has changed throughout our history

Labor A factor of production A factor of production Different than land and capital Different than land and capital More complex More complex Workers have built-in conflict with owners (#1) Workers have built-in conflict with owners (#1) Owners want low costs, high profits Owners want low costs, high profits Workers want to earn the highest possible wages Workers want to earn the highest possible wages What interests do they share? (#8) What interests do they share? (#8) Workers who are happier are more ______. Results of unions asking too much? High tariffs? Workers who are happier are more ______. Results of unions asking too much? High tariffs?

Growth of Labor Movement Until 19 th century most workers controlled their own working conditions Until 19 th century most workers controlled their own working conditions Farmers worked their own land Farmers worked their own land Skilled craftsmen worked with partners Skilled craftsmen worked with partners Most owned their own capital Most owned their own capital Industrial Revolution changed working conditions Industrial Revolution changed working conditions More efficient machinery More efficient machinery Less demand for farm workers Less demand for farm workers Less demand for craftsmen Less demand for craftsmen more goods were factory-made more goods were factory-made Many immigrants came, settled in industrial cities Many immigrants came, settled in industrial cities

Growth of Labor Movement Wage laborers now Wage laborers now Owned no capital Owned no capital Employers controlled them Employers controlled them Poor working conditions Poor working conditions Dangerous, monotonous, low pay Dangerous, monotonous, low pay hour days, 6 days per week hour days, 6 days per week Child labor now used Child labor now used Excess workers - no need to improve conditions Excess workers - no need to improve conditions

Growth of Labor Movement Workers saw power in organizing Workers saw power in organizing Sought same goals Sought same goals Formed labor unions (beginning in 1790s) Formed labor unions (beginning in 1790s) organizations of workers (#2) organizations of workers (#2) united to improve wages, working conditions united to improve wages, working conditions united to protect workers’ rights united to protect workers’ rights Began as trade unions Began as trade unions Members of one particular trade Members of one particular trade Carpenters, cigar-makers Carpenters, cigar-makers Skilled workers Skilled workers

Labor Unions Noble Order of the Knights of Labor Noble Order of the Knights of Labor skilled & unskilled workers skilled & unskilled workers Membership too broad, broke up Membership too broad, broke up American Federation of Labor (AFL) American Federation of Labor (AFL) Samuel Gompers united many small trade unions Samuel Gompers united many small trade unions All skilled workers All skilled workers Goal: earn collective bargaining rights (#2) Goal: earn collective bargaining rights (#2) Process by which representatives of a union and of a business discuss and reach agreement about wages and working conditions Process by which representatives of a union and of a business discuss and reach agreement about wages and working conditions

Workers’ Weapons - #5 Slowdown Slowdown Stayed on the job, but worked s-l-o-w-l-y Stayed on the job, but worked s-l-o-w-l-y Sit-down Strike Sit-down Strike Stopped working but refused to leave their posts Stopped working but refused to leave their posts Couldn’t be replaced by other workers Couldn’t be replaced by other workers Boycott Boycott Urge others to refuse to buy the employer’s products Urge others to refuse to buy the employer’s products Strike Strike Refuse to work unless employer meets demands Refuse to work unless employer meets demands

Employer’s Weapons - #6 Used Strikebreakers Used Strikebreakers Non-union replacement workers, “scabs” Non-union replacement workers, “scabs” Private security forces Private security forces Interfered with union activities, escorted scabs Interfered with union activities, escorted scabs Lockouts Lockouts Employers refused to let union members work Employers refused to let union members work Only scabs were allowed in Only scabs were allowed in Forced workers to sign yellow-dog contracts Forced workers to sign yellow-dog contracts When hired, promised not to join union When hired, promised not to join union Blacklists Blacklists Circulated list of union members among owners Circulated list of union members among owners

Gains Made by Labor Unions - #7 Working conditions had improved – 1920s Working conditions had improved – 1920s 8-10 hour work day 8-10 hour work day Higher pay Higher pay Department of Labor now a cabinet-level office Department of Labor now a cabinet-level office To protect workers’ rights To protect workers’ rights More gains – 1930s More gains – 1930s Rights of unions to exist now recognized Rights of unions to exist now recognized National Labor Relations Act (Wagner Act) – (#4) National Labor Relations Act (Wagner Act) – (#4) Required employers to bargain with unions Required employers to bargain with unions Outlawed some of the employers’ weapons Outlawed some of the employers’ weapons Taft-Hartley Act (1947) & Landrum-Griffin Act (1959) Taft-Hartley Act (1947) & Landrum-Griffin Act (1959) Limited powers of unions and union leaders Limited powers of unions and union leaders

Labor Unions Industrial Unions forming Industrial Unions forming Members - all workers in a particular industry Members - all workers in a particular industry Skilled and Unskilled Skilled and Unskilled Committee of Industrial Organizations (CIO) – 1935 Committee of Industrial Organizations (CIO) – 1935 Branched off from the AFL – now rivals Branched off from the AFL – now rivals AFL & CIO united in 1955 AFL & CIO united in 1955 Most powerful labor union in U.S. today Most powerful labor union in U.S. today Heavily favors Democratic party Heavily favors Democratic party 87% of union campaign donations in % of union campaign donations in % in % in 2000

Accomplishments of Labor Unions Higher wages for workers Higher wages for workers Earn 28% more median wage than non-union worker Earn 28% more median wage than non-union worker New programs began for working class New programs began for working class Social security Social security Minimum wage Minimum wage Unemployment insurance Unemployment insurance Job safety standards Job safety standards Ban on child labor Ban on child labor Retraining programs for the laid off workers Retraining programs for the laid off workers

The Future of the Labor Movement Union membership is declining Union membership is declining 1950 – 35% 1950 – 35% 1983 – 23% 1983 – 23% 2004 – 14% 2004 – 14%

Future of the Labor Movement Changing labor force (#9) Changing labor force (#9) From farming to manufacturing to service jobs From farming to manufacturing to service jobs More women More women

Chapter 14-2 Quiz 1. Name the 3 types of businesses in America. 2. Name of 2 advantages and 2 disadvantages of partnerships. 3. Name 2 advantages and 2 disadvantages of corporations. 4.Which type of business makes up 70% of all businesses in America today? 5. Which type of business supplies more jobs, profits and goods and services?

Chapter 14-2 Quiz 1. Name the 3 types of businesses in America. Sole proprietorships Sole proprietorships Partnerships Partnerships Corporations Corporations 2. Name of 2 advantages and 2 disadvantages of partnerships. A – some freedom to run it, shared risk D – partners may disagree, less freedom than sole ownership 3. Name 2 advantages and 2 disadvantages of corporations. A- raise more capital, less risk as owners D – more expensive to begin, more government oversight 4.Which type of business makes up 70% of all businesses in America today? Sole proprietorships Sole proprietorships 5. Which type of business supplies more jobs, profits and goods and services? Corporations

Chapter 14-3 Quiz 1. Define labor union. Organization of workers that seeks to improve wages and working conditions. Organization of workers that seeks to improve wages and working conditions. 2. Define collective bargaining. The process by which representatives of unions and management negotiate. The process by which representatives of unions and management negotiate. 3. Name three tactics available to labor unions in disputes with employers. Slowdowns, sit-ins, strikes, boycotts, demonstrations Slowdowns, sit-ins, strikes, boycotts, demonstrations 4. Name three tactics available to employers in disputes with labor unions. Strikebreakers, security forces, yellow-dog contracts, blacklists Strikebreakers, security forces, yellow-dog contracts, blacklists 5. Name three important gains that labor unions have made for workers since the 1930s. Minimum wage, minimum age, social security, unemployment insurance, workplace safety rules Minimum wage, minimum age, social security, unemployment insurance, workplace safety rules

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