Overview of the U.S. Economy

Types of World Economies Traditional- based on certain customs and traditions Usually represented by hunting and gathering societies Command- government makes all economic decisions Decide what will be made, how much, and who will own these goods Pure Market- government plays no role at all in making economic decisions Goods and services exchanged without government involvement Mixed- can include elements of traditional, command, and market economies Can be closer to pure markets or closer to command economies

The Free-Enterprise System Individuals have the right to: Own property Make individual choices Compete with others in the economy Make economic decisions for their own benefit Two major groups of people in free-enterprise system: Consumers- people who decide to buy goods or services Producers- person or company who provides goods or services Consumers influence producers’ decisions

The Free-Enterprise System Producers use human resources (labor to produce goods or services) and natural resources to meet demands of consumers Federal government in the U.S. provides regulations, or guidelines, for businesses How to use these resources fairly and efficiently

The Circular Flow Model Consumers, producers, and the government interact with each other in a free-enterprise system The Circular-Flow Model demonstrates how these interactions/exchanges takes place

Prices & The Marketplace Consumers want low prices while producers prefer high prices Supply & Demand Demand is the amount of a good or service a customer is willing to buy at various prices for a set period of time If you want something and have the money to spend on it, you have contributed to the demand for that product/service Demand for a good/service is related to its price (law of demand) When price goes up, demand drops When price goes down, demand increases Supply is the quantity of goods/services that producers are willing to offer at various prices for a set period of time (supply can be affected by things like the weather) Supply of a good/service is related to its price (law of supply) Producers supply more when they can sell them at a higher price Producers supply less when they can only sell them at a lower price

The Supply & Demand Curve

Prices & The Market Place Competition Sometimes businesses make the same choice as to what to provide and for whom These businesses are in competition Competition is the economic rivalry among businesses selling similar products Encourages produces to improve or invent new products Benefits consumers because it can lower the price of goods/services Competition tends to increase supply- a lack of competition can mean a lack of supply

Prices & The Market Place Surpluses & Shortages When the Q (quantity) supplied is greater than the Q demanded, there is a surplus Surplus tells producers they are charging too much or something else is wrong with their product/service When the Q demanded is greater than the Q supplied, there is a shortage Shortage tells producers they are charging too little and need to raise their prices

How Your Choices Affect the Economy You are free to save or invest your money Many ways to invest: Stocks and sharing in a company’s profits Bonds that can be repaid to you with additional interest You can also invest in new businesses Venture capital helps entrepreneurs develops ideas into products and pay for the cost of running their business

How Your Choices Affect the Economy Business Investments Corporations use revenue from stocks and bonds to improve their businesses and increase their profits Hire new employees, purchase new equipment, etc. etc. Investment and Technology New technology is developed when companies invest money in technological research and development Can bring new products to the market, improve efficiency, help increase profits All investments involve a level of risk- successful investments not only benefit the investor, but the economy as a whole

? What are the two major groups of a people in a free-enterprise system? Briefly describe both. What is demand? Briefly describe the Law of Demand. Also, what is supply? Briefly describe the Law of Supply as well What are three positive effects of competition in the market place? What is a surplus and what does it say to the producer? What is a shortage and what does it say to the producer? How do entrepreneurs, small businesses, and corporations use revenue from investments?